<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CODA ENERGY, INC.
DIAMOND ENERGY OPERATING COMPANY
TAURUS ENERGY CORP.
ELECTRA RESOURCES, INC.
(Exact name of registrants as specified in their charters)
DELAWARE 1311 75-1842480
OKLAHOMA 1311 73-1366557
TEXAS 1311 75-2322473
TEXAS 1311 APPLIED FOR
(States or other (Primary Standard (I.R.S. Employer
jurisdictions of Industrial Classification Identification Nos.)
incorporation or Code Numbers)
organization)
---------------
JOE CALLAWAY
VICE PRESIDENT AND GENERAL COUNSEL
5735 PINELAND DRIVE CODA ENERGY, INC.
SUITE 300 5735 PINELAND DRIVE
DALLAS, TEXAS 75231 SUITE 300
(214) 692-1800 DALLAS, TEXAS 75231
(214) 692-1800
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area and telephone number,including area
code, of each registrant's principal code, of agent for service)
executive offices)
---------------
COPIES TO:
WILLIAM L. BOEING KIRK A. DAVENPORT
HAYNES AND BOONE, LLP LATHAM & WATKINS
901 MAIN STREET 885 THIRD AVENUE
SUITE 3100 SUITE 1000
DALLAS, TEXAS 75202 NEW YORK, NEW YORK 10022
(214) 651-5000 (212) 906-1200
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE (1) (1) FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/2% Series B Senior Subordinated
Notes due 2006........................ $110,000,000 100% $110,000,000 $37,932
- -------------------------------------------------------------------------------------------------------
Guarantees of 10 1/2% Series B Senior
Subordinated Notes due 2006.......... $110,000,000 (2) (2) (2)
=======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) No further fee is required pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
1.Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus......................... Outside Front Cover Page; Cross
Reference Sheet; Inside Front Cover
Page
2.Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Outside Back
Cover Page
3.Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information........................ Prospectus Summary; Risk Factors;
Selected Historical and Pro Forma
Financial Data
4.Terms of the Transaction............. The Exchange Offer; Certain Federal
Income Tax Considerations;
Description of Exchange Notes
5.Pro Forma Financial Information...... Prospectus Summary; Selected
Historical and Pro Forma Financial
Statements; Financial Statements
6.Material Contacts with the Company
Being Acquired..................... Not Applicable
7.Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... Not Applicable
8.Interests of Named Experts and
Counsel............................ Not Applicable
9.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Not Applicable
10.Information with Respect to S-3
Registrants........................ Not Applicable
11.Incorporation of Certain Information
by Reference....................... Not Applicable
12.Information with Respect to S-2 or
S-3 Registrants.................... Not Applicable
13.Incorporation of Certain Information
by Reference....................... Not Applicable
14.Information with Respect to
Registrants Other Than S-3 or S-2
Registrants........................ Prospectus Summary; The Exchange
Offer; The Merger; Capitalization;
Selected Historical and Pro Forma
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Description of
Exchange Notes; Description of Other
Indebtedness; Financial Statements
15.Information with Respect to S-3
Companies.......................... Not Applicable
16.Information with Respect to S-2 or
S-3 Companies...................... Not Applicable
17.Information with Respect to
Companies Other Than S-2 or S-3
Companies.......................... Not Applicable
18.Information if Proxies, Consents or
Authorizations are to be
Solicited.......................... Not Applicable
19.Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer.............................. Management; The Exchange Offer;
Certain Transactions
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 9, 1996
PROSPECTUS
, 1996
OFFER TO EXCHANGE
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
FOR ALL OUTSTANDING 10 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2006
OF
[LOGO OF CODAENERGY, INC APPEARS HERE]
----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON , 1996
UNLESS EXTENDED.
Coda Energy, Inc., a Delaware corporation ("Coda;" and together with its
subsidiaries, the "Company"), is hereby offering (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its 10 1/2% Series B Senior Subordinated Notes due
2006 (the "Exchange Notes"), which exchange has been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 10 1/2% Series
A Senior Subordinated Notes due 2006 (the "Private Notes"), of which
$110,000,000 in aggregate principal amount was issued on March 18, 1996 and is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Private Notes (which they replace) except
that (i) the Exchange Notes will bear a Series B designation, (ii) the Exchange
Notes will have been registered under the Securities Act, and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and (iii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of the Private Notes under the Registration Rights Agreement (as defined
herein), which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same indebtedness as the Private
Notes (which they replace) and will be entitled to the benefits of an indenture
dated as of March 18, 1996 governing the Private Notes and the Exchange Notes
(the "Indenture"). The Private Notes and the Exchange Notes are referred to
herein collectively as the "Notes." See "The Exchange Offer" and "Description
of Exchange Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at
the rate of 10 1/2% per annum and the interest thereon will be payable
semiannually in arrears on April 1 and October 1 of each year, commencing
October 1, 1996. The Exchange Notes will bear interest from and including the
date of issuance of the Private Notes (March 18, 1996). Holders whose Private
Notes are accepted for exchange will be deemed to have waived the right to
receive any interest accrued on the Private Notes.
The Exchange Notes will be general unsecured obligations of Coda and will be
subordinated in right of payment to all Senior Debt (as defined in the
Indenture) of Coda (which includes all indebtedness under the Credit Agreement
(as defined herein)) and will rank senior in right of payment to all future
subordinated indebtedness of Coda. As of March 31, 1996, Coda had $81.8 million
in Senior Debt. Coda currently has no indebtedness that is junior to the Notes.
See "Description of Exchange Notes--Subordination" and "Description of Other
Indebtedness."
Coda's payment obligations under the Exchange Notes will be jointly and
severally guaranteed on a senior subordinated basis (the "Subsidiary
Guarantees") by all of Coda's current and future Restricted Subsidiaries (as
defined in the Indenture; collectively, the "Guarantors"). The Subsidiary
Guarantees will be subordinated to the guarantees of Senior Debt issued by the
Guarantors under the Credit Agreement and to other guarantees of Senior Debt
issued in the future. See "Description of Exchange Notes--Subsidiary
Guarantees."
The Exchange Notes will be redeemable at the option of Coda, in whole or in
part, at any time on or after April 1, 2001, at the redemption prices set forth
herein, together with accrued and unpaid interest thereon to the date of
redemption. Notwithstanding the foregoing, before March 12, 1999, Coda may, on
any one or more occasions, redeem up to $27.5 million in aggregate principal
amount of Notes at a redemption price of 110.5% of the principal amount thereof
plus accrued and unpaid interest thereon to the redemption date, with the net
proceeds of an offering of common equity of Coda; provided that at least $82.5
million in aggregate principal amount of Notes must remain outstanding
immediately after the occurrence of such redemption; and provided, further,
that any such redemption shall occur within 75 days of the date of the closing
of such offering of common equity of Coda. See "Description of Exchange Notes."
Upon the occurrence of a Change of Control (as defined herein), each holder
of Exchange Notes may require Coda to repurchase all or a portion of such
holder's Exchange Notes at a repurchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon to the date
of repurchase. See "Description of Exchange Notes--Repurchase of the Option of
Holders--Change of Control."
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1996,
unless the Exchange Offer is extended by the Company in its sole discretion
(the "Expiration Date"). Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions."
SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DISCUSSION OF CERTAIN FACTORS
THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES AND THE SUBSIDIARY GUARANTEES THEREOF.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer
<PAGE>
in exchange for Private Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company to resell pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is
acquiring the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Company believes that none of the
registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Private
Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Notes does
develop, the market value of the Notes will depend on market conditions (such
as yields on alternative investments), general economic conditions, the
Company's financial condition and certain other factors. Such conditions might
cause the Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors--Absence of Public Market for the
Notes."
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where
such Private Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed to make
this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for a period of one
year after the effective date of the Registration Statement of which this
Prospectus forms a part. See "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer. See "The Exchange Offer--Resale of the Exchange
Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE>
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more permanent global certificates in
definitive, fully-registered form ("Global Note") that will be deposited with,
or on behalf of, the Depository Trust Company ("DTC" or the "Depositary") and
registered in its name or in the name of Cede & Co., as its nominee.
Beneficial interests in the Global Note representing the Exchange Notes will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. After the initial issuance
of such Global Note, Exchange Notes in certificated form will be issued in
exchange for the Global Note only in accordance with the terms and conditions
set forth in the Indenture. See "The Exchange Offer--Book-Entry Transfer" and
"Description of Exchange Notes--Book-Entry, Delivery and Form."
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information, financial statements and other data appearing elsewhere in this
Prospectus. The pro forma financial data presented give effect as of January 1,
1995, to (i) the Snyder Acquisition (as defined below), (ii) the Merger (as
defined below) and (iii) the offering of the Private Notes and the application
of the estimated net proceeds therefrom. Certain oil and gas terms used in this
Prospectus are defined in the "Glossary" included herein. Certain terms used in
connection with the Notes are defined under the caption "Description of
Exchange Notes--Certain Definitions."
THE COMPANY
The Company is an independent energy company that is principally engaged in
the acquisition and exploitation of producing oil and natural gas properties.
The Company also owns and operates natural gas processing and liquids
extraction facilities and natural gas gathering systems. The Company seeks to
acquire oil and natural gas properties whose predominant economic value is
attributable to proved producing reserves and to enhance that value through
control of operations, reduction of costs and property development. The
Company's producing properties are concentrated in the mid-continent region of
the United States. At December 31, 1995, the Company had proved reserves of
42.6 Mmbbls of oil and 37.1 Bcf of natural gas, aggregating 48.8 Mmboe. Company
operated properties accounted for approximately 94% of its 1995 production of
3.9 Mmboe.
As a result of the Company's successful acquisition and exploitation
activities, the Company has shown significant growth in reserves, production
and earnings before interest, income taxes, depletion, depreciation and
amortization ("EBITDA") over the last five years. From 1991 through 1995, the
Company achieved an average annual reserve replacement of 480% at an average
cost of $3.67 per Boe. To achieve these results, management estimates that the
Company evaluated, over the last five years, in excess of 1,400 acquisition
opportunities with an aggregate market value estimated by management to exceed
$15 billion. Over the same period, management estimates that the Company made
approximately 280 offers totaling more than $3 billion and successfully closed
in excess of 50 transactions having an aggregate purchase price of $172.2
million. This strategy enabled the Company to increase average net daily
production from 3,329 Boe in 1991 to 10,688 Boe in 1995, representing a
compound annual growth rate of 34%. Similarly, EBITDA increased at a 46%
compound annual growth rate from $8.2 million in 1991 to $37.3 million in 1995.
See "Business--General" and "--Acquisition and Exploitation of Principal
Properties."
4
<PAGE>
STRATEGY
The Company's strategy is to increase oil and natural gas reserves,
production and cash flow by selectively acquiring and exploiting oil and
natural gas properties, especially those properties with enhanced recovery and
other lower risk development potential. In order to implement its strategy, the
Company principally seeks to acquire oil and natural gas properties with the
following characteristics:
. Geographic Focus--The Company has focused its acquisition activities in
the mid-continent region of the United States. This region includes oil
and natural gas basins with geological and production characteristics
potentially responsive to the Company's exploitation and development
techniques. Management believes that it has considerable experience in,
and knowledge of, this region. The Company presently has four core
operating areas: west Texas, north Texas, west central Oklahoma and
southwestern Kansas. The geographic proximity of the Company's various
properties allows the Company to minimize the number of operations and
field production offices that it must maintain and the number of
supervisory personnel that it must employ.
. Proved Developed Reserves--The Company prefers to acquire properties
where the majority of the reserves are proved developed reserves
producing from relatively shallow horizons. Management believes these
properties generally present lower geologic and mechanical risks for
drilling, recompleting and operating activities. Substantially all of
the Company's wells are under 10,000 feet deep.
. Operated, High Working Interest Properties--The Company prefers to
operate the properties it acquires and to own the majority working
interest in those properties. This allows the Company greater control
over (i) timing and plans for future development, (ii) drilling,
completing and lifting costs and (iii) marketing of production. At
December 31, 1995, the Company operated 2,052 of the 2,190 gross
producing and active water injection wells in which it owned an
interest, and its weighted average working interest in its properties
was approximately 82%.
. Exploitation Potential--The Company seeks to increase production and
recoverable reserves through exploitation efforts on the properties it
acquires. Exploitation efforts include workovers and/or recompletions of
existing wells; the initiation of, or improvements to, secondary
recovery projects, particularly the use of waterflooding; and the
drilling of lower risk development and/or infill wells. The Company
believes that it has been able to enhance the value and to extend the
economic life of many of the properties that it has acquired by
utilizing techniques such as these.
. Cost Reduction Potential--The Company seeks to acquire properties where
significant economic value can be created by lowering operating costs.
The Company believes that it has been able to lower the lifting costs on
certain properties it has acquired in comparison to the costs incurred
by the major oil companies and larger independents that previously
operated the properties. These savings were achieved through reductions
in labor, electricity, materials and other costs.
. Price Improvement Potential--Whenever possible, the Company attempts to
negotiate more favorable marketing agreements than those in place under
prior owners. After the Company has begun its exploitation activities on
its properties, it may attempt to negotiate more favorable prices as the
volumes of oil increase. Certain of the Company's oil purchasers have
paid and are currently paying a premium over posted prices and have
eliminated certain quality and marketing deductions for a portion of the
Company's oil production due to the Company's control over a significant
volume of oil production in its core geographic areas.
5
<PAGE>
The Company believes that future acquisitions, like its past acquisitions,
will come from several categories of sellers including: (i) major oil
companies; (ii) companies that are consolidating operations to achieve cost
savings; (iii) companies and individuals owning interests in wells in which the
Company owns a substantial working interest; and (iv) companies with limited
capital resources.
The success of the Company's strategy depends upon a number of factors
outside of the Company's control, including the availability of attractive
acquisition opportunities. In recent years, major oil companies have been
divesting many of their higher cost domestic oil and natural gas properties. In
addition, the oil and natural gas industry continues to consolidate as smaller
independents exit the business. The Company believes these trends will
continue. By increasing production and lowering operating costs, the Company
believes that it can increase economic value and cash flow as well as extend
the productive lives of these properties. However, there can be no assurance
that the Company will be able to successfully implement its operating strategy.
See "Risk Factors--Acquisition Risks; Depletion of Reserves" and "Business--
Exploitation and Development Activities."
RECENT ACQUISITION OF CERTAIN PROPERTIES
On October 6, 1995, the Company acquired 63 producing oil and natural gas
properties and related assets (the "Snyder Acquisition") from Snyder Oil
Corporation ("Snyder"). The majority of these properties are located in the
Permian Basin in west Texas. The total purchase price of these properties was
$17.1 million in cash, of which $16.0 million was financed with borrowings
under the Company's then-existing credit agreement. Total proved reserves of
these properties were estimated as of October 1, 1995, to be 4.3 Mmbbls of oil
and 6.8 Bcf of natural gas. The Company believes that these properties present
exploitation opportunities, including opportunities to implement cost-cutting
strategies and initiate or improve secondary recovery operations and lower risk
development drilling activities. Additionally, the Snyder Acquisition
complements the Company's core operating areas within the mid-continent region
of the United States. See Pro Forma Condensed Financial Statements.
TAURUS
Through its Taurus Energy Corp. ("Taurus") subsidiary, the Company also owns
and operates three gas processing and liquid extraction facilities and
approximately 700 miles of gas gathering systems, primarily located in west
central Texas. Taurus was acquired by the Company in April 1994. The Company's
gas gathering and processing revenues, from Taurus and its predecessor, have
grown from $5.2 million in 1991 to $35.6 million in 1995, and EBITDA has
increased from $50,000 to $3.4 million over the same period. Taurus represented
approximately nine percent of the Company's consolidated 1995 EBITDA of
approximately $37.3 million. The Company intends to study alternatives for
maximizing the value of its investment in Taurus. These alternatives could
include a sale of Taurus, whether by merger, sale of all or substantially all
of the assets of Taurus or sale of all of the capital stock of Taurus.
6
<PAGE>
THE MERGER
On February 16, 1996, pursuant to an Agreement and Plan of Merger dated as of
October 30, 1995 (as amended, the "Merger Agreement"), by and among Coda, Joint
Energy Development Investments Limited Partnership ("JEDI"), which is an
affiliate of Enron Capital & Trade Resources Corp. ("ECT"), and Coda
Acquisition, Inc. ("CAI"), which was a subsidiary of JEDI, JEDI acquired Coda
through a merger (the "Merger") at a price of $7.75 per share in cash (for an
aggregate purchase price of approximately $176.2 million). Concurrently with
the execution of the Merger Agreement, JEDI and CAI entered into certain
agreements with members of the Company's management (the "Management Group").
Following consummation of the Merger, the Management Group owns approximately
5% of Coda's common stock on a fully-diluted basis. JEDI owns the remaining
95%. JEDI was formed as a limited partnership between California Public
Employees' Retirement System ("CalPERS") and an affiliate of ECT, with the ECT
affiliate designated as the general partner. The purpose of the partnership is
to invest in a diversified portfolio of energy related assets. See "The
Merger."
The sources and uses of funds related to financing the Merger were as
follows:
SOURCES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Credit Agreement.................................................. $ 95.0
JEDI Debt(1)...................................................... 100.0
Redeemable Preferred Stock issued to JEDI......................... 20.0
Common Stock issued to JEDI....................................... 90.0
------
Total......................................................... $305.0
======
</TABLE>
USES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Payments to Coda stockholders, warrantholders and
optionholders.................................................. $176.2
Repayment of former credit facility and other indebtedness...... 122.7
Merger costs and other expenses................................. 6.1
------
Total....................................................... $305.0
======
</TABLE>
--------
(1) Represents indebtedness incurred by CAI and assumed by Coda to fund
a portion of the consideration paid in the Merger. See "Use of
Proceeds."
----------------
The Company was incorporated in Delaware in 1981. The Company's executive
offices are located at 5735 Pineland Drive, Suite 300, Dallas, Texas 75231, and
its telephone number is (214) 692-1800.
7
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER.............. The Company is hereby offering to exchange
$1,000 principal amount of Exchange Notes for
each $1,000 principal amount of Private Notes
that are properly tendered and accepted. The
Private Notes were sold in transactions ex-
empt from registration under the Securities
Act on March 18, 1996. This Registration
Statement is intended to satisfy certain of
the Company's obligations under the Registra-
tion Rights Agreement and Purchase Agreement
(as defined below) entered into in connection
with the private placement. The Company will
issue Exchange Notes on or promptly after the
Expiration Date. As of the date hereof, there
is $110,000,000 aggregate principal amount of
Private Notes outstanding. See "The Exchange
Offer--Purpose of the Exchange Offer."
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and
otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases
such Exchange Notes directly from the Company
to resell pursuant to Rule 144A or any other
available exemption under the Securities Act
or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under
the Securities Act), without compliance with
the registration and prospectus delivery pro-
visions of the Securities Act; provided that
the holder is acquiring Exchange Notes in the
ordinary course of its business and is not
participating, and had no arrangement or un-
derstanding with any person to participate,
in the distribution of the Exchange Notes.
Each broker-dealer that receives Exchange
Notes for its own account in exchange for
Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading ac-
tivities, must acknowledge that it will de-
liver a prospectus in connection with any re-
sale of such Exchange Notes. See "The Ex-
change Offer--Resale of the Exchange Notes."
REGISTRATION RIGHTS AGREEMENT... The Private Notes were sold by the Company on
March 18, 1996 to Goldman, Sachs & Co., Chem-
ical Securities Inc., ECT Securities Corp.
and NationsBanc Capital Markets, Inc. (col-
lectively, the "Initial Purchasers") pursuant
to a Purchase Agreement, dated March 12,
1996, by and among the Company, the Guaran-
tors and the Initial Purchasers (the "Pur-
chase Agreement"). Pursuant to the Purchase
Agreement, the Company, the Guarantors and
8
<PAGE>
the Initial Purchasers entered into a Regis-
tration Rights Agreement, dated as of March
18, 1996 (the "Registration Rights Agree-
ment"), which grants the holders of the Pri-
vate Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such rights, which will terminate
upon the consummation of the Exchange Offer.
The holders of the Exchange Notes will not be
entitled to any exchange or registration
rights with respect to the Exchange Notes.
See "The Exchange Offer--Termination of Cer-
tain Rights."
EXPIRATION DATE................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1996, unless
the Exchange Offer is extended by the Company
in its sole discretion, in which case the
term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is
extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE PRIVATE
NOTES.......................... The Exchange Notes will bear interest from
and including the date of issuance of the
Private Notes (March 18, 1996). Holders whose
Private Notes are accepted for exchange will
be deemed to have waived the right to receive
any interest accrued on the Private Notes.
See "The Exchange Offer--Interest on the Ex-
change Notes."
CONDITIONS TO THE EXCHANGE
OFFER.......................... The Exchange Offer is subject to certain cus-
tomary conditions that may be waived by the
Company. The Exchange Offer is not condi-
tioned upon any minimum aggregate principal
amount of Private Notes being tendered for
exchange. See "The Exchange Offer--
Conditions."
PROCEDURES FOR TENDERING
PRIVATE NOTES.................. Each holder of Private Notes wishing to ac-
cept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a fac-
simile thereof, in accordance with the in-
structions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Private Notes and any other required
documentation to Texas Commerce Bank National
Association, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By
executing the Letter of Transmittal, the
holder will represent to and agree with the
Company that, among other things, (i) the Ex-
change Notes to be acquired by such holder of
Private Notes in connection with the Exchange
Offer are being acquired by such holder in
the ordinary course of its business, (ii) if
such holder is not a broker-dealer,
9
<PAGE>
such holder is not currently participating
in, does not intend to participate in, and
has no arrangement or understanding with any
person to participate in a distribution of
the Exchange Notes, (iii) if such holder is a
broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer
for the purposes of distributing the Exchange
Notes, such holder will comply with the reg-
istration and prospectus delivery require-
ments of the Securities Act in connection
with a secondary resale transaction of the
Exchange Notes acquired by such person and
cannot rely on the position of the staff of
the Commission set forth in no-action letters
(see "The Exchange Offer--Resale of Exchange
Notes"), (iv) such holder understands that a
secondary resale transaction described in
clause (iii) above and any resales of Ex-
change Notes obtained by such holder in ex-
change for Private Notes acquired by such
holder directly from the Company should be
covered by an effective registration state-
ment containing the selling securityholder
information required by Item 507 or Item 508,
as applicable, of Regulation S-K of the Com-
mission and (v) such holder is not an "affil-
iate," as defined in Rule 405 under the Secu-
rities Act, of the Company. If the holder is
a broker-dealer that will receive Exchange
Notes for its own account in exchange for
Private Notes that were acquired as a result
of market-making activities or other trading
activities, such holder will be required to
acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in con-
nection with any resale of such Exchange
Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not
be deemed to admit that it is an "underwrit-
er" within the meaning of the Securities Act.
See "The Exchange Offer--Procedures for
Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.............. Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nomi-
nee and who wishes to tender such Private
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such ben-
eficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering such owner's Private Notes, either
make appropriate arrangements to register
ownership of the Private Notes in such own-
er's name or obtain a properly completed bond
power from the registered holder. The trans-
fer of registered ownership may take consid-
erable time and may
10
<PAGE>
not be able to be completed prior to the Ex-
piration Date. See "The Exchange Offer--Pro-
cedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES..................... Holders of Private Notes who wish to tender
their Private Notes and whose Private Notes
are not immediately available or who cannot
deliver their Private Notes, the Letter of
Transmittal or any other documentation re-
quired by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date
must tender their Private Notes according to
the guaranteed delivery procedures set forth
under "The Exchange Offer--Guaranteed Deliv-
ery Procedures."
ACCEPTANCE OF THE PRIVATE NOTES
AND DELIVERY OF THE EXCHANGE
NOTES.......................... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Private
Notes that are properly tendered in the Ex-
change Offer prior to the Expiration Date.
The Exchange Notes issued pursuant to the Ex-
change Offer will be delivered on the earli-
est practicable date following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
WITHDRAWAL RIGHTS............... Tenders of Private Notes may be withdrawn at
any time prior to the Expiration Date. See
"The Exchange Offer--Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................. For a discussion of certain material federal
income tax considerations relating to the ex-
change of the Exchange Notes for the Private
Notes, see "Certain Federal Income Tax Con-
siderations."
EXCHANGE AGENT.................. Texas Commerce Bank National Association is
serving as the Exchange Agent in connection
with the Exchange Offer.
THE EXCHANGE NOTES
The Exchange Offer applies to $110,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the Exchange Notes will
bear the Series B designation, (ii) the Exchange Notes will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (iii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture. For further
information and for definitions of certain capitalized terms used below, see
"Description of Exchange Notes."
ISSUER.......................... Coda Energy, Inc.
11
<PAGE>
SECURITIES OFFERED.............. $110 million principal amount of 10 1/2% Se-
ries B Senior Subordinated Notes due 2006.
MATURITY DATE................... April 1, 2006.
INTEREST PAYMENT DATES.......... The Exchange Notes will bear interest at an
annual rate of 10 1/2% and will be payable in
cash semiannually in arrears on April 1 and
October 1 of each year, commencing October 1,
1996. See "The Exchange Offer--Interest on
the Exchange Notes."
RANKING......................... The Exchange Notes will be general, unsecured
obligations of Coda, will be subordinated in
right of payment to all Senior Debt of Coda,
and will be senior in right of payment to all
future subordinated debt of Coda. The claims
of the holders of the Exchange Notes will be
subordinated to Senior Debt, which, as of
March 31, 1996, was $81.8 million. On March
28, 1996, the Company called for redemption
of all its outstanding 12% Senior Subordi-
nated Debentures due 2000, which will result
in a reduction in Senior Debt of approxi-
mately $1.2 million on May 1, 1996. See "Cap-
italization," "Description of Exchange
Notes--Subordination" and "Description of
Other Indebtedness--12% Senior Subordinated
Debentures Due 2000."
GUARANTEES...................... Coda's payment obligations under the Exchange
Notes will be jointly and severally guaran-
teed on a senior subordinated basis by all of
Coda's current subsidiaries and future Re-
stricted Subsidiaries. The Subsidiary Guaran-
tees will be subordinated to the guarantees
of Senior Debt issued by the Guarantors under
the Credit Agreement and to other guarantees
of Senior Debt issued in the future. See "De-
scription of Exchange Notes--Subsidiary Guar-
antees" and "Description of Other
Indebtedness."
FORM AND DENOMINATION........... The Exchange Notes will be fully registered
as to principal and interest in minimum de-
nominations of $100,000 for institutional ac-
credited investors and $1,000 for qualified
institutional buyers and, in both cases, in
integral multiples of $1,000 in excess there-
of. The Exchange Notes will be represented by
one Global Note in fully registered form, de-
posited with a custodian for and registered
in the name of a nominee of the Depositary.
Beneficial interests in the Global Note rep-
resenting the Exchange Notes will be shown
on, and transfers thereof will be effected
only through, records maintained by the De-
positary and its participants. Except as de-
scribed herein, Exchange Notes in certifi-
cated form will not be issued in exchange for
the Global Note or interests therein. See
"Description of Exchange Notes--Book-Entry,
Delivery and Form."
12
<PAGE>
CERTAIN COVENANTS............... The Exchange Notes will be issued pursuant to
the Indenture, which contains certain cove-
nants that, among other things, limit the
ability of Coda and its Restricted Subsidiar-
ies to incur additional indebtedness and is-
sue Disqualified Stock, pay dividends, make
distributions, make investments, make certain
other Restricted Payments, enter into certain
transactions with affiliates, dispose of cer-
tain assets, incur liens securing pari passu
or subordinated indebtedness of Coda and en-
gage in mergers and consolidations. See "De-
scription of Exchange Notes--Certain Cove-
nants."
MANDATORY REDEMPTION............ None.
OPTIONAL REDEMPTION............. Except as described below, the Notes are not
redeemable at Coda's option prior to April 1,
2001. After April 1, 2001, the Notes will be
subject to redemption at the option of Coda,
in whole or in part, at the redemption prices
set forth herein, plus accrued and unpaid in-
terest thereon to the applicable redemption
date.
In addition, until March 12, 1999, up to
$27.5 million in aggregate principal amount
of Notes will be redeemable at the option of
Coda on any one or more occasions from the
net proceeds of an offering of common equity
of Coda, at a price of 110.5% of the aggre-
gate principal amount of the Notes, together
with accrued and unpaid interest thereon to
the date of the redemption; provided, howev-
er, that at least $82.5 million in aggregate
principal amount of Notes must remain out-
standing immediately after the occurrence of
such redemption; provided, further, that any
such redemption shall occur within 75 days of
the date of the closing of such offering of
common equity. See "Description of Exchange
Notes--Optional Redemption."
CHANGE OF CONTROL............... In the event of a Change of Control, holders
of the Notes will have the right to require
Coda to repurchase their Notes, in whole or
in part, at a price in cash equal to 101% of
the aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the
date of repurchase. The Indenture will re-
quire that, prior to such a repurchase but in
any event within 90 days of such Change of
Control, Coda must either repay all Senior
Debt or obtain any required consent to such
repurchase. See "Description of Exchange
Notes--Repurchase at the Option of Holders--
Change of Control."
RISK FACTORS
Prior to making an investment decision, holders of the Private Notes should
consider all of the information set forth in this Prospectus and should
evaluate the considerations set forth in "Risk Factors" beginning on page 17
hereof.
13
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain historical and pro forma operating and
financial data of the Company. See "Selected Historical and Pro Forma Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The historical data should be read in conjunction with
the Historical Financial Statements and the notes thereto included elsewhere in
this Prospectus. The Company acquired significant producing oil and natural gas
properties in all the periods presented which affect the comparability of the
historical financial and operating data for the periods presented. As a result
of the Merger, JEDI acquired Coda effective February 16, 1996. The Merger will
be accounted for using the purchase method of accounting. As such, JEDI's cost
of acquiring Coda will be allocated to the assets and liabilities acquired
based on estimated fair values. As a result, the Company's financial position
and operating results subsequent to the date of the Merger will reflect a new
basis of accounting and will not be comparable to prior periods. The pro forma
information should be read in conjunction with the Pro Forma Condensed
Financial Statements and notes thereto included elsewhere in this Prospectus.
Neither the historical results nor the pro forma results are necessarily
indicative of the Company's future operations or financial results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
HISTORICAL
----------------------------------------- PRO FORMA
1991 1992 1993 1994 1995 1995(1)
------- ------- ------- ------- ------- ---------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales......... $16,512 $18,631 $38,877 $50,683 $60,997 $ 66,156
Gas gathering and process-
ing(2)................... 5,246 4,709 732 20,081 35,634 35,634
Total revenues............ 22,782 23,637 40,050 71,586 97,838 102,997
Interest expense.......... 2,420 2,752 4,834 5,281 8,676 18,840
Total costs and expenses.. 21,865 24,778 36,398 65,676 88,881 109,604
Income (loss) before in-
come taxes............... 917 (1,141) 3,652 5,910 8,957 (6,607)
Net income (loss)......... (65) (734) 2,334 3,329 5,755 (4,197)
Ratio of earnings to fixed
charges(3)............... 1.4x -- 1.8x 2.1x 2.0x --
CASH FLOW DATA(4):
Net income (loss)......... $ (65) $ (734) $ 2,334 $ 3,329 $ 5,755 $ (4,197)
Depletion, depreciation
and amortization......... 4,823 4,813 10,808 16,419 19,715 27,770
Net cash provided by oper-
ating activities......... 6,127 2,241 16,443 22,987 24,301 17,052
OTHER DATA(5):
EBITDA.................... 8,160 6,424 19,294 27,610 37,348 40,003
EBITDA/interest expense... 3.4x 2.3x 4.0x 5.2x 4.3x 2.1x
Debt/EBITDA............... 3.8x 9.2x 3.2x 3.8x 3.3x 4.9x
CAPITAL EXPENDITURES:
Oil and gas property ac-
quisitions............... $21,650 $23,318 $42,223 $40,109 $25,363
Oil and gas development
and other................ 4,404 7,550 10,403 12,450 14,464
Gas plant and gathering
systems and other
property additions....... 687 1,365 646 7,380 8,500
</TABLE>
14
<PAGE>
SUMMARY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------
PRO
ACTUAL FORMA(1)
---------- -----------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $ 229,064 $ 304,369
Notes.................................................. -- 110,000
Other long-term debt, less current maturities.......... 123,907 86,938
Redeemable Preferred Stock............................. -- 20,000
Common stockholders' equity............................ 79,188 35,409
</TABLE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
HISTORICAL
---------------------------------- PRO FORMA
1991 1992 1993 1994 1995 1995(1)
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Production
Oil (Mbbls)................... 517 734 1,766 2,650 3,165 3,440
Gas (Mmcf).................... 4,188 3,255 4,703 4,982 4,416 4,895
Oil Equivalent (Mboe)......... 1,215 1,277 2,550 3,480 3,901 4,256
Average sales prices
Oil (per Bbl)................. $19.14 $19.03 $16.88 $15.86 $17.08 $17.01
Gas (per Mcf)................. 1.58 1.44 1.92 1.74 1.57 1.56
Production costs per Boe(6)..... 5.86 8.02 6.90 6.22 6.95 7.18
Depreciation, depletion and
amortization per Boe........... 3.89 3.64 4.15 4.27 4.33 5.83
General and administrative per
Boe............................ 2.06 1.98 1.02 0.90 0.74 0.46
Average finding cost per Boe.... 1.96 3.57 5.27 4.21 2.97
</TABLE>
SUMMARY RESERVE DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Proved reserves(7)
Oil (Mbbls).................... 12,389 18,941 30,084 39,207 42,590
Gas (Mmcf)..................... 28,601 27,830 36,196 39,808 37,130
Total proved reserves (Mboe)... 17,156 23,579 36,117 45,842 48,778
Proved developed reserves
(Mboe)........................ 12,496 18,222 21,326 25,633 31,126
Annual reserve replacement
ratio(8)........................ 5.7 5.6 6.9 6.0 2.3
Estimated reserve life (in
years)(9)....................... 12.9 11.6 9.9 10.3 11.7
Present value of estimated future
net revenues before income taxes
(in thousands)(10).............. $81,361 $121,494 $140,980 $217,540 $283,375
Standardized measure of
discounted future net cash flows
(in thousands)(11).............. 65,175 95,860 116,023 168,616 220,742
</TABLE>
15
<PAGE>
- --------
(1) Reflects the pro forma effect of the Snyder Acquisition, the Merger, the
sale of the Private Notes and the application of the proceeds thereof to
retire the JEDI Debt and pay down a portion of the outstanding borrowings
under the Credit Agreement. See the Company's Pro Forma Condensed Financial
Statements, included elsewhere in this Prospectus, for a discussion of the
preparation of these data. The pro forma combined results of operations
exclude a charge of approximately $58.2 million (net of related deferred
taxes of $32.7 million) representing the adjustment of the carrying value
of proved oil and gas properties pursuant to the full cost method of
accounting. Such adjustment will be included in the results of operations
of the Company in the period the Merger was consummated. Pro forma net cash
provided by operating activities was obtained by adjusting the historical
amount for the pro forma changes in oil and natural gas sales, oil and
natural gas production expenses, general and administrative expenses and
interest expense (except for the amortization of debt costs). The exchange
of the Exchange Notes for the Private Notes would have no effect on the pro
forma information. See also "Use of Proceeds" and "Capitalization."
(2) The Company ceased its third party natural gas marketing operations in
1992. The Company acquired Taurus in April 1994.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense. For the year ended December 31, 1992, earnings
were inadequate to cover fixed charges by approximately $1.1 million. Pro
forma earnings for the year ended December 31, 1995, would have been
inadequate to cover fixed charges by approximately $6.6 million.
(4) In addition to cash flows provided by operating activities, the Company
also has significant cash flows which are provided by or used in investing
and financing activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "--Effects of the Merger, the Sale of the Private Notes and the
Exchange Offer--Credit Agreement" and the Historical Financial Statements
of the Company.
(5) EBITDA is calculated as operating income before interest, income taxes,
depletion, depreciation and amortization. EBITDA is not a measure of cash
flow as determined by generally accepted accounting principles ("GAAP").
The Company has included information concerning EBITDA because EBITDA is a
measure used by certain investors in determining the Company's historical
ability to service its indebtedness. EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flows as
determined in accordance with GAAP as an indicator of the Company's
operating performance or liquidity. Pro forma debt/EBITDA is calculated
using pro forma debt as of December 31, 1995, and pro forma EBITDA for the
year ended December 31, 1995.
(6) Production costs in 1992 were relatively high because two of the Company's
waterflood operations and the costs associated therewith commenced in 1992
but the anticipated response of increased oil production did not commence
to any material degree until 1993.
(7) In 1994, the Company acquired Diamond Energy Operating Company and a
related company which have since merged ("Diamond") in a transaction
accounted for as a pooling of interests. Reserve data were prepared by the
Company's independent consulting engineers except that such estimates
related to the reserves of Diamond as of December 31, 1991, 1992 and 1993
were prepared by Diamond's in-house engineers.
(8) The annual reserve replacement ratio is calculated by dividing total
reserve additions (purchases of reserves, extensions and revisions) on a
Boe basis for the year by actual production on a Boe basis for such year
with the acquisition of Diamond treated as a purchase instead of a pooling.
(9) The estimated reserve life is calculated by dividing the proved reserves on
a Boe basis by the forecasted production on a Boe basis for the 12 months
following the date indicated (both as estimated by the Company's
independent consulting engineers as of December 31 of each year).
(10) Discounted at an annual rate of 10%. See "Glossary" included elsewhere in
this Prospectus for the definition of "present value of estimated future
net revenues."
(11) Represents after tax present value of estimated future net revenues.
16
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective investors should
consider fully, together with the other information contained in this
Prospectus, the following factors. This Prospectus contains forward looking
statements of the Company. The Company wishes to caution prospective investors
that the following important factors could affect the Company's actual results
in the future.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. To the extent that Private Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Private Notes could be adversely affected due to
the limited amount, or "float," of the Private Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
LEVERAGE
The Company incurred substantial indebtedness in connection with the Merger
and as a result, the Company is highly leveraged. As of December 31, 1995,
after giving pro forma effect to the Merger and the related financing
transactions, including the sale of the Private Notes, the Company would have
had total indebtedness of approximately $197.1 million and stockholders'
equity (including preferred stock) of approximately $55.4 million. Also, after
giving pro forma effect to such transactions, the Company's earnings would
have been insufficient to cover its fixed charges by approximately $6.6
million for 1995. Pro forma interest expense for 1995 would have been
approximately $18.8 million. The Company intends to incur additional
indebtedness in the future as it executes its acquisition and exploitation
strategy. See "--Ability to Obtain Capital to Finance Acquisitions,"
"Capitalization" and Pro Forma Condensed Financial Statements.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) depends on
its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control, as well as to the prevailing market prices for oil and
natural gas. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future bank credit will
be available in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or make necessary capital expenditures. In
addition, the Company anticipates that it is likely to find it necessary to
refinance a portion of the principal amount of the Notes at or prior to
17
<PAGE>
their maturity. However, there can be no assurance that the Company will be
able to obtain financing to complete a refinancing of the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The degree to which the Company is leveraged as a result of the sale of the
Private Notes could have important consequences to holders of the Notes,
including, but not limited to, the following: (i) a substantial portion of the
Company's cash flow from operations will be required to be dedicated to debt
service and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future could be limited; (iii)
certain of the Company's borrowings are at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates; and (iv) the Company will be subject to a variety of restrictive
covenants and the failure of the Company to comply with such covenants could
result in events of default which, if not cured or waived, could have a
material adverse effect on the Company and its ability to make payments of
principal of, and interest on, the Notes. See "Description of Exchange Notes"
and "Description of Other Indebtedness."
ACQUISITION RISKS; DEPLETION OF RESERVES
The Company's strategy is to increase oil and natural gas reserves and cash
flow by selectively acquiring and exploiting producing oil and natural gas
properties, primarily in the mid-continent region of the United States, rather
than engaging in exploratory drilling. The Company's business strategy assumes
that major integrated oil companies and independent oil companies will
continue to divest many of their domestic oil and natural gas properties.
There can be no assurance, however, that such divestitures will continue or
that the Company will be able to acquire such properties at acceptable prices
or develop additional reserves in the future. If such acquisition
opportunities should cease to exist, the Company may be required to alter its
business strategy.
Although the Company performs a review of the properties proposed to be
acquired, such reviews are subject to uncertainties. It is not feasible to
review in detail every individual property involved in each acquisition.
Ordinarily, the Company will focus its review efforts on the higher-valued
properties. However, even a detailed review of all properties and records may
not necessarily reveal existing or potential problems; nor will it permit the
Company to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections are not routinely performed
on every well, and many potential problems, for example, mechanical integrity
of equipment and environmental conditions that may require significant
remedial expenditures, are not necessarily detectable even when an inspection
is undertaken. See "Business--Strategy."
Producing oil and natural gas reservoirs are, in general, characterized by
declining production rates. The decline rate varies depending upon reservoir
characteristics and other factors. The Company's future oil and natural gas
reserves and production, and, therefore, cash flow and income, are highly
dependent upon the Company's level of success in exploiting its current
reserves and acquiring or finding additional reserves. Without reserve
additions in excess of production through acquisition or exploitation and
development activities, the Company's reserves and production will decline
over the long term. There can be no assurance that the Company will be able to
find and develop or acquire additional reserves to replace its current and
future production.
ABILITY TO OBTAIN CAPITAL TO FINANCE ACQUISITIONS
The Company's strategy of acquiring producing oil and natural gas properties
is dependent upon its ability to obtain financing for any such acquisitions.
The Company expects to utilize its Credit Agreement (the "Credit Agreement")
with NationsBank of Texas, N.A. ("NationsBank"), individually and as agent,
and certain other financial institutions as lenders, to borrow 60% to 100% of
the funds required on any given transaction. The Credit Agreement limits the
amounts the Company may borrow thereunder to amounts, determined by the
lenders in their sole discretion, based upon projected net
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revenues from the Company's oil and natural gas properties and gas gathering
and processing assets and restricts the amounts the Company may borrow under
other credit facilities. The lenders can adjust the borrowings permitted to be
outstanding under the Credit Agreement semiannually. The lenders require that
outstanding borrowings in excess of the borrowing limit be repaid ratably over
a period no longer than six months. No assurances can be given that the
Company will be able to make any such mandatory principal payments required by
the lenders.
Any future acquisition by the Company requiring bank financing in excess of
the amount then available under the Credit Agreement will depend upon the
lenders' evaluations of the properties proposed to be acquired. For a
description of the Credit Agreement and its principal terms and conditions,
see "Description of Other Indebtedness."
VOLATILITY OF OIL, NATURAL GAS AND NATURAL GAS LIQUIDS PRICES
The Company's financial results are significantly impacted by the price
received for the Company's oil, natural gas and natural gas liquids
production. Historically, the markets for oil, natural gas and natural gas
liquids have been volatile and are likely to continue to be volatile in the
future. Prices for oil, natural gas and natural gas liquids are subject to
wide fluctuation in response to market uncertainty, changes in supply and
demand and a variety of additional factors, all of which are beyond the
control of the Company. These factors include domestic and foreign political
conditions, the overall level of supply of and demand for oil, natural gas and
natural gas liquids, the price of imports of oil and natural gas, weather
conditions, the price and availability of alternative fuels and overall
economic conditions. The Company's future financial condition and results of
operations will be dependent, in part, upon the prices received for the
Company's oil and natural gas production, as well as the costs of acquiring,
finding, developing and producing reserves. If oil and natural gas prices fall
materially below their current levels, the availability of funds and the
Company's ability to repay outstanding amounts under its Credit Agreement and
the Notes could be materially adversely affected. See "--Ability to Obtain
Capital" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RELIANCE ON ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties in estimating quantities of proved reserves
and in projecting future rates of production and the timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth in this Prospectus are only estimates. 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 natural gas that cannot be exactly
measured, 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, estimates of the economically recoverable quantities of
oil and natural gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of
the future net cash flows expected therefrom prepared by different engineers
or by the same engineers at different times may vary substantially. There also
can be no assurance that the reserves set forth herein will ultimately be
produced or that the proved undeveloped reserves will be developed within the
periods anticipated. It is likely that variances from the estimates will be
material. In addition, the estimates of future net revenues from proved
reserves of the Company and the present value thereof are based upon certain
assumptions about future production levels, prices and costs that may not be
correct. The Company emphasizes with respect to the estimates prepared by
independent petroleum engineers that the discounted future net cash flows
should not be construed as representative of the fair market value of the
proved oil and natural gas properties belonging to the Company, since
discounted future net
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cash flows are based upon projected cash flows which do not provide for
changes in oil and natural gas prices or for escalation of expenses and
capital costs. The meaningfulness of such estimates is highly dependent upon
the accuracy of the assumptions upon which they were based. Actual results are
likely to differ materially from the results estimated. Prospective investors
in the Exchange Notes are cautioned not to place undue reliance on the reserve
data included in this Prospectus.
DRILLING AND OPERATIONAL RISKS
The Company's oil and natural gas business is also subject to all of the
operating risks associated with the drilling for and production and secondary
recovery of oil and natural gas, including, but not limited to, uncontrollable
flows of oil, natural gas, brine or well fluids (including fluids used in
waterflood activities) into the environment (including groundwater
contamination), fires, explosions, pollution and other risks, any of which
could result in substantial losses to the Company. The natural gas gathering
and processing business is also subject to certain of these risks, including
fires, explosions and environmental contamination. Although the Company
carries insurance at levels which it believes are consistent with industry
practices, it is not fully insured against all risks. Losses and liabilities
arising from uninsured and underinsured events could have a material adverse
effect on the financial condition and operations of the Company. See
"Business--Exploitation and Development Activities."
There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques, and drilling activities in
general. Waterflooding involves significant capital expenditures and
uncertainty as to the total amount of secondary reserves that can be
recovered. In waterflood operations, there is generally a delay between the
initiation of water injection into a formation containing hydrocarbons and any
increase in production that may result. The unit production costs per Boe of
waterflood projects are generally higher during the initial phases of such
projects due to the purchase of injection water and related costs, as well as
during the later stages of the life of the project. The degree of success, if
any, of any secondary recovery program depends on a large number of factors,
including the porosity of the formation, the technique used and the location
of injector wells. Drilling activities carry the risk that no commercial
production will be obtained. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
canceled as a result of many factors.
SUBORDINATION OF THE NOTES AND GUARANTEES
The Notes and Guarantees will be subordinated in right of payment to all
existing and future Senior Debt of the Company, which includes all
indebtedness under the Credit Agreement. As of December 31, 1995, after giving
pro forma effect to the Merger and the sale of the Private Notes and the
application of the net proceeds therefrom, the Company would have had Senior
Debt aggregating approximately $87.1 million and would have had up to $29.8
million available under the Credit Agreement which, if borrowed, would be
included as Senior Debt. As of March 31, 1996, the Company had $81.8 million
in Senior Debt and $35.0 million available for borrowing under the Credit
Agreement. In the event of a liquidation, dissolution, reorganization,
bankruptcy or any similar proceeding regarding the Company, the assets of the
Company will be available to pay obligations on the Notes only after Senior
Debt of the Company has been paid in full. Accordingly, there may not be
sufficient funds remaining to pay amounts due on all or any of the Notes. See
"Description of Exchange Notes--Subordination."
The Company's oil and natural gas properties will not serve as collateral
under the Credit Agreement unless certain events occur. The Company will
provide the lenders with first lien deeds of trust on substantially all of the
Company's oil and natural gas properties. The lenders have agreed, however,
that the mortgages will not be effective and the lenders will not file the
deeds of trust on the oil and natural gas assets unless (i) 80% of any
outstanding borrowings in excess of the borrowing limit is not repaid within a
90 day period, (ii) cash collateral securing a hedging transaction exceeds 20%
of the borrowing limit or (iii) an event of default or a material adverse
event, as defined in the Credit Agreement, occurs.
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In addition to being subordinated to all existing and future Senior Debt of
the Company, the Notes and Guarantees will not be secured by any of the
Company's assets.
GOVERNMENT LAWS AND REGULATIONS
The Company's operations are affected from time to time in varying degrees
by political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or
have been affected by price controls, taxes and other laws relating to the oil
and natural gas industry, by changes in such laws and by changes in
administrative regulations. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings,
whether additional laws and regulations will be adopted, or the effect such
changes may have on its business or financial condition. See "Business--
Regulation."
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to complex and constantly changing
environmental laws and regulations adopted by federal, state and local
governmental authorities. The Company believes that compliance with such laws
has had no material adverse effect upon the Company's operations to date, and
that the cost of such compliance has not been material. Nevertheless, the
discharge of oil, natural gas or other pollutants into the air, soil or water
may give rise to liabilities on the part of the Company to the government and
third parties and may require the Company to incur costs of remediation.
Additionally, since a significant portion of the Company's reserves are
dependent upon waterflood operations, any change in produced water disposal
requirements or injection well permitting could have a material adverse effect
on the financial conditions and operations of the Company. Moreover, from time
to time the Company has agreed to indemnify both sellers of producing
properties from whom the Company acquires reserves and purchasers of
properties from the Company against certain liabilities for environmental
claims associated with the properties being purchased or sold by the Company.
No assurance can be given that existing environmental laws or regulations, as
currently interpreted or reinterpreted in the future, or future laws or
regulations, will not materially adversely affect the Company's operations and
financial condition or that material indemnity claims will not arise against
the Company with respect to properties acquired or sold by the Company. See
"Business--Environmental Matters."
USE AND RISKS OF HEDGING TRANSACTIONS
The Company has in the past and may in the future enter into oil and natural
gas hedging transactions. While intended to reduce the effects of volatility
of the price of oil and natural gas, such transactions may limit potential
gains by the Company if oil and natural gas prices were to rise substantially
over the price established by the hedge. If the Company is required to
maintain cash collateral on hedging transactions which exceeds 20% of the
Company's borrowing limit under its Credit Agreement, the Company may be
required by the lenders to pledge substantially all of its oil and natural gas
properties as collateral under the Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations" and Note 7 of Notes to Consolidated Financial
Statements.
CONFLICTS OF INTEREST
Enron Corp. ("Enron") is the parent of ECT and accordingly may be deemed to
control indirectly both JEDI and the Company. Enron and certain of its
subsidiaries and other affiliates collectively participate in nearly all
phases of the oil and natural gas industry and are, therefore, competitors of
the Company. In addition, ECT and JEDI have provided, and may in the future
provide, and ECT Securities Corp. has assisted, and may in the future assist,
in arranging, financing to non-affiliated participants in the oil and natural
gas industry who are or may become competitors of the Company.
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ECT, the Company, JEDI and the Management Group have entered into a Business
Opportunity Agreement (the "Business Opportunity Agreement") that is intended
to make clear that Enron and its affiliates have no duty to make business
opportunities available to the Company in most circumstances. The Business
Opportunity Agreement also provides that ECT and its affiliates may pursue
certain business opportunities to the exclusion of the Company. Accordingly,
the Business Opportunity Agreement may limit the business opportunities
available to the Company. In addition, pursuant to the Business Opportunity
Agreement there may be circumstances in which the Company will be required to
offer business opportunities to certain affiliates of Enron. If an Enron
affiliate is offered such an opportunity and decides to pursue it, the Company
may be unable to pursue it.
In addition, the Company has in the past marketed a material portion of its
crude oil and natural gas production through certain Enron trading
subsidiaries and will likely continue to do so in the future. During 1994 and
1995, sales of oil and natural gas to EOTT Energy Operating Limited
Partnership (a subsidiary of Enron) accounted for 22% and 18%, respectively,
of the Company's consolidated revenues. The Indenture will not prohibit the
Company from conducting business with Enron and its subsidiaries and
affiliates, but will provide that certain requirements must be satisfied in
order for the Company to transact such business. See "Description of Exchange
Notes--Certain Covenants" and "Certain Transactions."
COMPETITION
The Company encounters substantial competition in acquiring properties,
marketing oil and natural gas and securing trained personnel. Many competitors
have financial resources, staffs and facilities which substantially exceed
those of the Company. See "Business--Markets and Competition."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its operations are dependent to a significant
extent upon its senior management. The loss of the services of a significant
number of these key personnel could have a material adverse effect upon the
Company. The Credit Agreement contains a covenant that requires the continued
employment of certain members of management and requires that certain officers
of the Company maintain specified levels of equity ownership in the Company.
See "Management."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase. The
Indenture will require that prior to such a repurchase, the Company must
either repay all outstanding Senior Debt or obtain any required consents to
such repurchase. Further, under the Credit Agreement, an event of default is
deemed to occur if (i) JEDI, Enron, CalPERS or any wholly owned subsidiary of
either Enron or CalPERS ceases to own greater than 50% of every class of
issued and outstanding capital stock of the Company (on either an undiluted or
fully diluted basis), (ii) JEDI, Enron, CalPERS or any wholly owned subsidiary
of either Enron or CalPERS ceases to own a majority of the outstanding capital
stock of the Company (on either an undiluted or fully diluted basis) having
ordinary voting rights for the election of directors or (iii) certain officers
cease to serve in their current positions. In such circumstances, the lenders
could require the repayment of the borrowings under the Credit Agreement.
Thus, if a Change of Control were to occur, the Company may not have the
financial resources to repay all of the Senior Debt, the Notes and the other
indebtedness that would become payable upon the occurrence of such Change of
Control. See "Description of Exchange Notes--Repurchase at the Option of
Holders--Change of Control."
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FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Notes and the Guarantees was incurred for proper purposes and in good faith,
and that, based on present forecasts, asset valuations and other financial
information, after the consummation of the sale of the Private Notes and the
Exchange Offer, the Company will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
See, however, "--Leverage." Notwithstanding management's belief, however, if a
court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a debtor-in-
possession) were to find that, at the time of the incurrence of such
indebtedness, the Company or any of the Guarantors were insolvent, were
rendered insolvent by reason of such incurrence, were engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (i)
void all or a portion of the Company's or the Guarantors' obligations to the
holders of the Notes, the effect of which would be that the holders of the
Notes may not be repaid in full and/or (ii) subordinate the Company's or the
Guarantors' obligations to the holders of the Notes to other existing and
future indebtedness of the Company to a greater extent than would otherwise be
the case, the effect of which would be to entitle such other creditors to be
paid in full before any payment could be made on the Notes or the Guarantees.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALES
As of the date of this Prospectus, the only registered holder of the Private
Notes is Cede & Co., as nominee of DTC. The Company believes that, as of the
date of this Prospectus, such holder is not an "affiliate" (as such term is
defined in Rule 405 under the Securities Act) of the Company. Prior to the
offering of the Private Notes, there had been no existing trading market for
the Notes, and there can be no assurance regarding the future development of a
market for the Notes, or the ability of holders of the Notes to sell their
Notes or the price at which such holders may be able to sell their Notes. If
such a market were to develop, the Notes could trade at prices that may be
higher or lower than the initial offering price of the Private Notes depending
on many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities. The Initial Purchasers (other
than ECT Securities Corp.) have advised the Company that they currently intend
to make a market in the Notes. The Purchasers are not obligated to do so,
however, and any market-making with respect to the Notes may be interrupted or
discontinued at any time without notice. In addition, such market making
activity may be limited during the Exchange Offer and the pendency of the
Shelf Registration Statement (as defined in the Registration Rights
Agreement), if any. There can be no assurance as to the liquidity of any
trading market for the Notes or that an active public market for the Notes
will develop. The Private Notes are eligible for trading in the Private
Offerings, Resales and Trading through Automatic Linkages (PORTAL) Market. The
Company does not intend to apply for listing or quotation of the Notes on any
securities exchange or stock market.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on March 18, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) a limited number of
institutional "accredited investors" ("Accredited Institutions"), as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. As a condition to
the sale of the Private Notes, the Company and the Initial Purchasers entered
into the Registration Rights Agreement on March 18, 1996. Pursuant to the
Registration Rights Agreement, the Company agreed that it would (i) file with
the Commission a Registration Statement under the Securities Act with respect
to the Exchange Notes within 30 days after the Closing Date and (ii) cause
such Registration Statement to become effective under the Securities Act
within 90 days after the Closing Date. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement. The
Registration Statement is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchanges Private Notes for Exchange
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement with any person to
participate, in a distribution of the Exchange Notes, will be allowed to
resell Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in the distribution of the
Exchange Notes or is a broker-dealer, such holder cannot rely on the position
of the staff of the Commission enumerated in certain no-action letters issued
to third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Private Notes where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities.
Pursuant to the Registration Rights Agreement, the Company has agreed to make
this Prospectus, as it may be amended or supplemented from time to time,
available to broker-dealers for use in connection with any resale for a period
of one year after the date the Registration Statement is declared effective.
See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in
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exchange for each $1,000 principal amount of outstanding Private Notes
surrendered pursuant to the Exchange Offer. Private Notes may be tendered only
in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the Exchange Notes will bear a Series B
designation, (ii) the Exchange Notes will have been registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (iii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $110,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on ,
1996, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10 1/2% per annum.
Interest on the Exchange Notes will be payable semiannually in arrears on each
April 1 and October 1, commencing October 1, 1996. Holders of Exchange Notes
will receive interest on October 1, 1996 from the date of initial issuance of
the Exchange Notes, plus an amount equal to the accrued interest on the
Private Notes from the date of initial delivery to the date of exchange
thereof for Exchange Notes. Holders of Private Notes that are accepted for
exchange will be deemed to have waived the right to receive any interest
accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the
holder must comply with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
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<PAGE>
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
the Company, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
27
<PAGE>
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Company should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will receive Exchange Notes for
such holder's own account in exchange for Private Notes that were acquired as
a result of market-making activities or other trading activities, such holder
will be required to acknowledge in the Letter of Transmittal that such holder
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, such
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
28
<PAGE>
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Private Notes) and (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Private Notes were tendered (including any required signature
guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Private Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Private Notes so withdrawn are validly retendered.
Properly withdrawn Private Notes may be retendered by following one of the
procedures described above under "The Exchange Offer--Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "--Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the
29
<PAGE>
Exchange Offer and accept all properly tendered Private Notes that have not
been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders of the Private
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Private Notes by broker-dealers for a period of
up to one year from the date the Registration Statement is declared effective
and (iv) to provide copies of the latest version of the Prospectus to broker-
dealers upon their request for a period of up to one year from the date the
Registration Statement is declared effective.
ADDITIONAL INTEREST
In the event of a Registration Default (as defined in the Registration
Rights Agreement), the Company is required to pay as liquidated damages,
Additional Interest (as defined in the Registration Rights Agreement) to each
holder of Transfer Restricted Securities (as defined below), during the first
90-day period immediately following the occurrence of such Registration
Default in an amount equal to $0.05 per week per $1,000 principal amount of
Private Notes constituting Transfer Restricted Securities held by such holder.
Such Additional Interest rate will increase by an additional $0.05 per week
for each subsequent 90-day period during which the Registration Default
continues. Transfer Restricted Securities shall mean each Private Note until
(i) the date on which such Private Note has been exchanged for an Exchange
Note in the Exchange Offer and is entitled to be resold to the public by the
holder thereof without complying with the prospectus delivery requirements of
the Securities Act, (ii) the date on which such Private Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement (as defined in the Registration Rights
Agreement) and (iii) the date on which such Private Note is distributed to the
public pursuant to Rule 144(k) under the Securities Act or by a broker-dealer
pursuant to the "Plan of Distribution" set forth in this Prospectus (including
delivery of this Prospectus). The amount of the Additional Interest will
increase by an additional $0.05 per week per $1,000 principal amount of
Private Notes constituting Transfer Restricted Securities for each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
Additional Interest of $0.50 per week per $1,000 principal amount of Private
Notes constituting Transfer Restricted Securities. Following the cure of all
Registration Defaults, the payment of Additional Interest will cease. The
filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the holders of Private Notes eligible to participate in the
Exchange Offer to receive damages that would have been payable if such actions
had not occurred.
EXCHANGE AGENT
Texas Commerce Bank National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this
30
<PAGE>
Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Registered or Certified Mail: By Overnight or Hand Delivery:
Texas Commerce Bank National Texas Commerce Bank National
Association Association
P.O. Box 660197 2200 Ross Avenue, 5th Floor
Dallas, Texas 75266-0197 Dallas, Texas 75201
Attn: Gary Jones Attn: Gary Jones
By Facsimile: Confirm by Telephone:
(214) 965-3577 (214) 965-3510
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$70,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
31
<PAGE>
THE MERGER
On October 31, 1995, the Company announced that it had entered into an
Agreement and Plan of Merger dated as of October 30, 1995, by and among Coda,
JEDI and CAI, whereby JEDI would acquire in the Merger all outstanding shares
of common stock, par value $0.02 per share, of Coda (the "Common Stock").
Concurrently with the execution of the Merger Agreement, JEDI and CAI entered
into certain agreements with the Management Group providing for a continuing
role of management in the Company after the Merger. The per share purchase
price for the Common Stock was $7.75 in cash (for an aggregate purchase price
of approximately $176.2 million). The Merger was completed on February 16,
1996.
JEDI was formed as a limited partnership between CalPERS and an affiliate of
ECT, with the ECT affiliate designated as the general partner. The purpose of
the partnership is to invest in a diversified portfolio of energy related
assets.
The Management Group entered into written agreements with JEDI and CAI
concerning their employment with and/or equity participation in the Company.
The Management Group holds an aggregate of approximately 1.5% of the Company's
common stock (approximately 5% on a fully diluted basis, including options
granted to such persons). See "Executive Compensation and Other Information."
The sources and uses of funds related to financing the Merger were as
follows:
SOURCES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Credit Agreement.................................................. $ 95.0
JEDI Debt(1)...................................................... 100.0
Redeemable Preferred Stock issued to JEDI......................... 20.0
Common Stock issued to JEDI....................................... 90.0
------
Total......................................................... $305.0
======
</TABLE>
USES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Payments to Coda stockholders, warrantholders and optionholders... $176.2
Repayment of former credit facility and other indebtedness........ 122.7
Merger costs and other expenses................................... 6.1
------
Total......................................................... $305.0
======
</TABLE>
--------
(1) Represents indebtedness incurred by CAI and assumed by Coda to
fund a portion of the consideration paid in the Merger. See "Use
of Proceeds."
32
<PAGE>
USE OF PROCEEDS
The net proceeds of the sale of the Private Notes were approximately $107.25
million and $100 million of such proceeds were used to repay all of the
principal amount of the indebtedness owed to JEDI (the "JEDI Debt") incurred
by CAI in connection with the Merger and assumed by the Company upon the
Company's merger with CAI. The JEDI Debt bore interest at the rate of U.S.
Treasury instruments with a maturity closest to the maturity date of the JEDI
Debt plus 6.25% per annum; however, during the first six months, the Company
could choose an interest rate option which provided for interest at the rate
of LIBOR plus 4.25% per annum. The JEDI Debt had a maturity date of February
16, 2003. See "The Merger" and "Certain Transactions."
The remaining net proceeds of approximately $7.25 million, together with
available corporate cash of $2.75 million, were used to repay indebtedness
outstanding under the Credit Agreement (which had an outstanding balance of
approximately $122.0 million at December 31, 1995 and approximately $80.0
million at March 31, 1996). The indebtedness under the Credit Agreement was
incurred primarily in connection with acquisitions of producing properties and
for other general corporate purposes. After application of such net proceeds
of the sale of the Private Notes, approximately $35.0 million is available as
of March 31, 1996 for reborrowing under the Credit Agreement to be used for
general corporate purposes, which may include acquiring producing oil and
natural gas properties or companies owning the same. The Company has no
current understandings or agreements in respect of any pending material
acquisition. See "Description of Other Indebtedness--Credit Agreement" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
33
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of December 31, 1995, on an historical basis and on a pro forma basis
giving effect to the Merger and the sale of the Notes and the application of
the net proceeds thereof to the repayment of the JEDI Debt and a portion of
indebtedness outstanding under the Credit Agreement, as if such transactions
had been consummated as of December 31, 1995. The following table should be
read in conjunction with the Company's Historical Financial Statements, the
unaudited Pro Forma Condensed Financial Statements, the related notes, and the
other information contained elsewhere in this Prospectus, including the
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." For further information regarding the
terms of the long-term debt reflected in the following table, see "Description
of Other Indebtedness" and Note 4 of the Notes to Historical Financial
Statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
HISTORICAL PRO FORMA
----------- ----------
(in thousands)
<S> <C> <C>
Current maturities of long-term debt(1)................ $ 453 $ 120
Long-term debt:
Former credit facility............................... 122,000 --
Credit Agreement(1).................................. -- 85,200
12% Senior Subordinated Debentures due 2000(1)....... 988 1,153
10 1/2% Senior Subordinated Notes due 2006........... -- 110,000
Other(1)............................................. 919 585
----------- ----------
Total long-term debt............................... 123,907 196,938
----------- ----------
15% Cumulative Redeemable Preferred Stock(2)........... -- 200
Additional paid-in capital........................... -- 19,800
----------- ----------
Total preferred stock.............................. -- 20,000
----------- ----------
Common stockholders' equity of management, subject to
put and call rights:
Common stock(3)...................................... -- --
Additional paid-in capital........................... -- 4,560
Less related notes receivable........................ -- (937)
----------- ----------
Total common stockholders' equity of management.... -- 3,623
----------- ----------
Other common stockholders' equity:
Common stock(3)...................................... 442 9
Additional paid-in capital........................... 68,671 89,991
Retained earnings (deficit)(4)....................... 10,075 (58,214)
----------- ----------
Total other common stockholders' equity............ 79,188 31,786
----------- ----------
Total capitalization................................... $ 203,548 $ 252,467
=========== ==========
Shares authorized
Preferred stock; par value $0.001 historical; par
value $0.01 pro forma............................... 7,500,000 40,000
Common stock; par value $0.02 historical; par value
$0.01 pro forma..................................... 40,000,000 1,000,000
</TABLE>
- --------
(1) Such indebtedness is senior in right of payment to the Notes.
(2) At December 31, 1995, there were no shares of preferred stock (par value
$0.001 per share) issued or outstanding on an historical basis and 20,000
shares (par value $0.01 per share) outstanding on a pro forma basis. The
15% Cumulative Redeemable Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), was issued to JEDI in connection with the Merger and
can be paid cash dividends or redeemed for cash only to the extent
permitted by the Indenture and the Credit Agreement. See "Description of
Exchange Notes--Certain Covenants--Restricted Payments" and "Description
of Capital Stock--Preferred Stock."
(3) At December 31, 1995, there were 22,088,903 shares (par value $0.02 per
share) of Common Stock issued and outstanding on an historical basis and
913,611 shares (par value $0.01 per share) issued and outstanding (13,611
shares held by the Management Group and 900,000 shares held by JEDI) on a
pro forma basis (excluding 2,416,632 shares and 31,989 shares reserved for
issuance on an historical and pro forma basis, respectively, upon exercise
of outstanding options and warrants to purchase Common Stock). On an
historical basis, the Common Stock held by management is included in other
common stockholders' equity. See "Certain Transactions--Stockholders
Agreement" and "Description of Capital Stock--Common Stock."
(4) The pro forma retained deficit results from a charge of approximately
$58.2 million (net of related deferred taxes of $32.7 million)
representing the adjustment of the carrying value of proved oil and gas
properties pursuant to the full cost method of accounting. Such adjustment
will be included in the results of operations of the Company in the period
the Merger was consummated.
34
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth for the period indicated selected historical
and pro forma financial data for the Company. The selected historical
financial data as of and for each of the years in the five-year period ended
December 31, 1995, have been derived from the historical financial statements
of the Company, which were audited by Ernst & Young LLP, independent auditors.
The Company acquired significant producing oil and natural gas properties in
all the periods presented which affect the comparability of the historical
financial and operating data for the periods presented. As a result of the
Merger, JEDI acquired Coda effective February 16, 1996. The Merger will be
accounted for using the purchase method of accounting. As such, JEDI's cost of
acquiring Coda will be allocated to the assets and liabilities acquired based
on estimated fair values. As a result, the Company's financial position and
operating results subsequent to the date of the Merger will reflect a new
basis of accounting and will not be comparable to prior periods. The pro forma
condensed financial data presented in the table below are derived from the Pro
Forma Condensed Financial Statements included elsewhere in this Prospectus.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Historical Financial Statements of the Company and the notes thereto, as well
as the Pro Forma Condensed Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
HISTORICAL
----------------------------------------- PRO FORMA
1991 1992 1993 1994 1995 1995(1)
------- ------- ------- ------- ------- ---------
(in thousands, except ratio)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales......... $16,512 $18,631 $38,877 $50,683 $60,997 $ 66,156
Gas gathering and
processing(2)............ 5,246 4,709 732 20,081 35,634 35,634
Total revenues............ 22,782 23,637 40,050 71,586 97,838 102,997
Interest expense.......... 2,420 2,752 4,834 5,281 8,676 18,840
Total costs and expenses.. 21,865 24,778 36,398 65,676 88,881 109,604
Income (loss) before
income taxes............. 917 (1,141) 3,652 5,910 8,957 (6,607)
Net income (loss)......... (65) (734) 2,334 3,329 5,755 (4,197)
Ratio of earnings to fixed
charges(3)............... 1.4x -- 1.8x 2.1x 2.0x --
CASH FLOW DATA(4):
Net income (loss)......... $ (65) $ (734) $ 2,334 $ 3,329 $ 5,755 $ (4,197)
Depletion, depreciation
and amortization......... 4,823 4,813 10,808 16,419 19,715 27,770
Net cash provided by
operating activities..... 6,127 2,241 16,443 22,987 24,301 17,052
OTHER DATA(5):
EBITDA.................... 8,160 6,424 19,294 27,610 37,348 40,003
EBITDA/interest expense... 3.4x 2.3x 4.0x 5.2x 4.3x 2.1x
Debt/EBITDA............... 3.8x 9.2x 3.2x 3.8x 3.3x 4.9x
CAPITAL EXPENDITURES:
Oil and gas property
acquisitions............. $21,650 $23,318 $42,223 $40,109 $25,363
Oil and gas development
and other................ 4,404 7,550 10,403 12,450 14,464
Gas plant and gathering
systems and other
property additions....... 687 1,365 646 7,380 8,500
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------
PRO
ACTUAL FORMA(1)
---------- -----------
(in thousands)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $ 229,064 $ 304,369
Notes.................................................. -- 110,000
Other long-term debt, less current maturities.......... 123,907 86,938
Redeemable Preferred Stock............................. -- 20,000
Common stockholders' equity of management.............. -- 3,623
Other stockholders' equity............................. 79,188 35,409
</TABLE>
- --------
(1) Reflects the pro forma effect of the Snyder Acquisition, the Merger, the
sale of the Private Notes and the application of the proceeds thereof to
retire the JEDI Debt and pay down a portion of the outstanding borrowings
under the Credit Agreement. See the Company's Pro Forma Condensed
Financial Statements, included elsewhere in this Prospectus, for a
discussion of the preparation of these data. The pro forma combined
results of operations exclude a charge of approximately $58.2 million (net
of related deferred taxes of $32.7 million) representing the adjustment of
the carrying value of proved oil and gas properties pursuant to the full
cost method of accounting. Such adjustment will be included in the results
of operations of the Company in the period the Merger was consummated. Pro
forma net cash provided by operating activities was obtained by adjusting
the historical amount for the pro forma changes in oil and natural gas
sales, oil and natural gas production expenses, general and administrative
expenses and interest expense (except for the amortization of debt costs).
The exchange of the Exchange Notes for the Private Notes would have no
effect on the pro forma information. See also "Use of Proceeds" and
"Capitalization."
(2) The Company ceased its third party natural gas marketing operations in
1992. The Company acquired Taurus in April 1994.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense. For the year ended December 31, 1992,
earnings were inadequate to cover fixed charges by approximately $1.1
million. Pro forma earnings for the year ended December 31, 1995, would
have been inadequate to cover fixed charges by approximately $6.6 million.
(4) In addition to cash flows provided by operating activities, the Company
also has significant cash flows which are provided by or used in investing
and financing activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "--Effects of the Merger, the Sale of the Private Notes and
the Exchange Offer--Credit Agreement" and the Historical Financial
Statements of the Company.
(5) EBITDA is calculated as operating income before interest, income taxes,
depletion, depreciation and amortization. EBITDA is not a measure of cash
flow as determined by GAAP. The Company has included information
concerning EBITDA because EBITDA is a measure used by certain investors in
determining the Company's historical ability to service its indebtedness.
EBITDA should not be considered as an alternative to, or more meaningful
than, net income or cash flows as determined in accordance with GAAP as an
indicator of the Company's operating performance or liquidity. Pro forma
debt/EBITDA is calculated using pro forma debt as of December 31, 1995,
and pro forma EBITDA for the year ended December 31, 1995.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is an independent energy company principally engaged in the
acquisition and exploitation of producing oil and natural gas properties. The
Company also owns and operates natural gas processing and liquids extraction
facilities and natural gas gathering systems. The Company seeks to acquire
properties whose predominant economic value is attributable to proved producing
reserves and to enhance that value through control of operations, reduction of
costs, and property development.
The Company's principal strategy is to increase oil and natural gas reserves,
production and cash flow by selectively acquiring and exploiting producing oil
and natural gas properties, especially those properties with enhanced recovery
and other lower risk development potential. The Company's exploitation efforts
include, where appropriate, the drilling of lower risk development wells, the
initiation of secondary recovery projects, the renegotiation of marketing
agreements and the reduction of drilling, completion and lifting costs. Cost
savings may be principally achieved through reductions in field staff and the
more effective utilization of field facilities and equipment by virtue of
geographic concentration. The success of the Company's strategy is dependent
upon a number of factors, some of which are beyond its control. See "Risk
Factors."
As a result of the Company's successful acquisition and exploitation
activities, the Company has shown significant growth in reserves, production
and EBITDA over the last five years. From January 1, 1991 to December 31, 1995,
the Company completed acquisitions with an aggregate purchase price of $172.2
million and estimated reserves at the date of acquisition of 47.1 Mmboe
(treating the acquisition of Diamond for this purpose as a purchase). The
Company's producing properties are concentrated onshore in the mid-continent
region of the United States. At December 31, 1995, the Company had proved
reserves of 42.6 Mmbbls of oil and 37.1 Bcf of natural gas, aggregating 48.8
Mmboe. The Company has two principal operating sources of cash: (i) net oil and
natural gas sales from its oil and natural gas properties and (ii) net margins
earned from gas gathering and processing operations.
The Company expects to continue its efforts to acquire additional oil and
natural gas properties. Future acquisitions, if any, would necessitate, in most
cases, borrowing additional funds under the Credit Agreement. The ability to
borrow such funds is dependent upon the Company's borrowing base under the
Credit Agreement.
On February 16, 1996, the Company completed the Merger. The Merger will be
accounted for using the purchase method of accounting. As such, JEDI's cost of
acquiring Coda will be allocated to the assets and liabilities acquired using
estimated fair values. As a result, the Company's financial position and
operating results subsequent to the date of the Merger will reflect a new basis
of accounting and will not be comparable to prior periods. The immediately
following sections, "--Results of Operations" and "--Liquidity and Capital
Resources," discuss the Company's historical financial position and operating
results. For a discussion of the expected impact of the Merger and the sale of
the Private Notes on the Company's financial position and results of operations
see "--Effects of the Merger, the Sale of the Private Notes and the Exchange
Offer."
37
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data regarding the
production and sales volumes, average sales prices, and costs associated with
the Company's oil and natural gas operations and gas gathering and processing
operations for the periods indicated on an historical basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
OIL AND NATURAL GAS OPERATING DATA:
Net production:
Oil (Mbbls)....................................... 1,766 2,650 3,165
Natural Gas (Mmcf)................................ 4,703 4,982 4,416
Average sales price:
Oil (per Bbl)..................................... $ 16.88 $ 15.86 $ 17.08
Natural Gas (per Mcf)............................. 1.92 1.74 1.57
Production cost per Boe............................. 6.90 6.22 6.95
GAS GATHERING AND PROCESSING OPERATING DATA:
Sales:
Total revenue (in thousands)...................... $ 732 $20,081 $35,634
Gas sales (MMBTU, in thousands)................... -- 6,725 13,356
Gas sales average price........................... -- $ 1.82 $ 1.58
Natural gas liquids sales (M gallons)............. 2,467 26,193 53,284
Natural gas liquids average price................. $0.2966 $0.2967 $0.2739
Costs and expenses (in thousands):
Gas purchases..................................... 146 15,121 26,547
Plant operating expenses.......................... 424 2,203 3,926
</TABLE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Oil and natural gas sales for the year ended December 31, 1995 increased 20%
to approximately $61.0 million from approximately $50.7 million in 1994
primarily due to a 19% increase in oil production and an increase of $1.22 per
barrel in the average sales price for oil. The increase in production was a
result of the acquisition of producing oil and natural gas properties during
the fourth quarters of 1994 and 1995, the Company's development drilling
program and favorable responses from certain of the Company's waterflood
units. This increase was partially offset by an 11% decrease in natural gas
production (due primarily to sales of properties) and a decrease in the
average sales price for natural gas of $0.17 per Mcf. During the year ended
December 31, 1995, 89% of oil and natural gas sales was attributable to oil
production. Oil and natural gas prices remain unpredictable. See "--Changes in
Prices and Hedging Activities."
As a result of the acquisition of Taurus on April 29, 1994, gas gathering
and processing revenues, expenses and gross profit increased significantly for
the year ended December 31, 1995, compared to 1994. The year ended December
31, 1994 only includes eight months of Taurus' operations. Contributing to the
increases in revenues and expenses was the acquisition in January 1995 of the
remaining ownership interest in one of Taurus' gas plants and associated
facilities for $6.5 million. The levels of revenues and expenses attributed to
Taurus' operations are largely dependent on natural gas and natural gas
liquids prices and plant throughput volumes and, therefore, may fluctuate
significantly.
Oil and natural gas production expenses (including production taxes) for the
year ended December 31, 1995 increased 25% to approximately $27.1 million from
approximately $21.6 million for 1994, reflecting the effects of the increased
production from the properties acquired in 1994 and from new wells drilled.
Oil and natural gas production expenses for the year ended December 31,
38
<PAGE>
1995 were $6.95 per Boe. Absent additional significant acquisitions, the
Company expects production expenses to be between $7.00 and $7.50 per Boe in
1996.
Depletion, depreciation and amortization expense for the year ended December
31, 1995 increased 20% to approximately $19.7 million from approximately $16.4
million for 1994, reflecting the increase in oil production from acquisitions
in 1994, property development and the acquisition of Taurus in April 1994. The
increase attributable to Taurus was approximately $1.2 million. Oil and
natural gas depletion, depreciation and amortization expense increased to
$4.33 per Boe for the year ended December 31, 1995 from $4.27 per Boe for
1994. The increase reflects the relatively higher purchase price of the
reserves related to the properties acquired during 1994.
General and administrative expenses for the year ended December 31, 1995
decreased to approximately $2.9 million from approximately $3.1 million for
1994. This decrease was primarily due to increased overhead charges billed to
working interest owners on the properties acquired during the fourth quarters
of 1994 and 1995, being partially offset by additional employees needed as a
result of acquisitions of oil and natural gas properties and the acquisition
of Taurus.
Interest expense for the year ended December 31, 1995 increased 64% to
approximately $8.7 million from approximately $5.3 million for 1994, primarily
due to increases in outstanding debt levels used to fund development drilling,
oil and natural gas property acquisitions and the acquisition of Taurus and
related assets, and higher market interest rates in 1995.
Business combination expenses of $1.8 million in 1994 were related to the
acquisition of Diamond pursuant to a merger. The merger with Diamond was
accounted for as a pooling of interests and accordingly the transaction costs
were expensed when incurred.
Net income for the year ended December 31, 1995 increased to approximately
$5.8 million from approximately $3.3 million for 1994, primarily due to (i) an
increase in oil production from the Company's waterflood units, the Company's
development drilling program and the oil and natural gas property acquisitions
during the fourth quarters of 1994 and 1995, (ii) an increase in the average
sales price of oil by $1.22 per barrel and (iii) the lack of business
combination expenses in 1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND 1994
Oil and natural gas sales for the year ended December 31, 1994 increased 30%
to approximately $50.7 million from approximately $38.9 million in 1993
primarily due to an increase in oil and natural gas production of 50% and 6%,
respectively, as a result of the acquisition of producing oil and natural gas
properties in the third quarter of 1993, the Company's development drilling
program and the favorable response of Diamond's waterflood units, partially
offset by a decrease in oil prices. During the year ended December 31, 1994,
83% of oil and natural gas sales was attributable to oil production.
On April 29, 1994, the Company acquired 100% of the issued and outstanding
common stock of Taurus, a privately held Texas corporation, in exchange for
1.5 million shares of the Company's Common Stock, valued at approximately $7.3
million, and approximately $3.3 million cash. The Company assumed existing
Taurus debt of approximately $9.8 million. Taurus owns and operates three gas
processing and liquids extraction facilities and approximately 700 miles of
gas gathering systems located primarily in west central Texas.
As a result of this acquisition, gas gathering and processing revenues,
expenses and gross profit increased significantly for the year ended December
31, 1994, which reflects eight months of activity for Taurus. In January 1995,
Taurus purchased for $6.5 million the remaining interest in one of the plants
that it operates. The level of revenues and expenses for Taurus is largely
dependent on natural gas and natural gas liquids prices and plant throughput
volumes and, therefore, may fluctuate significantly.
39
<PAGE>
Other income for the year ended December 31, 1994 increased to approximately
$822,000 from approximately $441,000 for 1993, due primarily to the receipt in
1994 of $107,000 of interest income attributable to the receipt in December
1993 of previously suspended oil and natural gas sales proceeds and to the
receipt of $117,000 related to the settlement of claims which arose in
connection with an unsuccessful acquisition effort in a prior year. Also
contributing to the increase was an increase in rental income from the
Company's office building.
Oil and natural gas production expenses (including production taxes) for the
year ended December 31, 1994 increased 23% to approximately $21.6 million from
approximately $17.6 million for 1993, reflecting the effects of increased
production from the properties acquired in the third quarter of 1993 and from
new wells drilled. Oil and natural gas production expenses per Boe decreased
in 1994 to $6.22 per Boe from $6.90 per Boe in 1993, reflecting the effect of
the relatively lower lifting cost related to the properties acquired in the
third quarter of 1993 and the effect of increased production response from the
Diamond waterflood units.
Depletion, depreciation and amortization expense for the year ended December
31, 1994 increased 52% to approximately $16.4 million from approximately $10.8
million for 1993, reflecting the increases in production from the acquisitions
in the third quarter of 1993 and the acquisition of Taurus in April 1994. The
increase attributable to Taurus was approximately $1.4 million. Oil and
natural gas depletion, depreciation and amortization expense increased from
$4.15 per Boe for the year ended December 31, 1993, to $4.27 per Boe for 1994.
The increase reflects the relatively higher purchase price of the reserves
related to the properties acquired during the third quarter of 1993.
General and administrative expenses for the year ended December 31, 1994
increased to approximately $3.1 million from approximately $2.6 million for
1993. This increase was primarily due to additional employees needed as a
result of the 1993 acquisitions and the acquisition of Taurus, partially
offset by increased overhead charges billed to working interest owners on the
properties acquired during 1993. The increase attributable to Taurus was
approximately $483,000.
Interest expense for the year ended December 31, 1994 increased 10% to
approximately $5.3 million from approximately $4.8 million for 1993, primarily
as a result of increases in outstanding debt levels used to fund development
drilling, property acquisitions and the acquisition of Taurus, partially
offset by lower market interest rates in the first half of 1994.
In connection with the merger with Diamond, the Company incurred
approximately $1.8 million of legal, accounting, printing and other costs
related to the combination of the previously separate entities. Included in
these expenses is the writeoff of approximately $316,000 of Diamond's deferred
financing costs. Under pooling of interests accounting, these costs were
expensed in September 1994. Furthermore, certain of these expenses are neither
deductible nor amortizable for income tax purposes, resulting in a higher than
expected effective tax rate.
Net income for the year ended December 31, 1994 increased to approximately
$3.3 million from approximately $2.3 million for 1993, primarily due to an
increase in oil and natural gas production from Diamond's waterflood units,
the Company's development drilling program and the acquisitions in the third
quarter of 1993, partially offset by a $1.02 per barrel decrease in average
oil prices and $1.8 million in business combination expenses.
CHANGES IN PRICES AND HEDGING ACTIVITIES
Annual average oil and natural gas prices have fluctuated significantly over
the past three years. The Company's weighted average oil price per Bbl during
1995 and at December 31, 1995 was $17.08 and $18.31, respectively. For the
year ended December 31, 1995, the Company averaged $1.32 per Bbl less
(including an oil hedging price increase of $0.09 per barrel) and $0.13 per
Mcf less for its oil and natural gas sales, respectively, than the average
NYMEX prices for the same period. The Company's weighted average price per Bbl
during 1994 and at December 31, 1994, was $15.86 and $16.24, respectively. For
the year ended December 31, 1994, the Company averaged $1.33 per Bbl and $0.20
per Mcf, respectively, less for its oil and natural gas sales than the average
NYMEX prices for the same period.
40
<PAGE>
Pursuant to the loan agreements with Diamond's former primary lender,
Diamond entered into an agreement with a refining and marketing company to
sell a fixed number of barrels attributable to its share of production of
liquid hydrocarbons from certain formerly secured properties at a price of
$15.25 per barrel. The effect of this contract was to lower the Company's 1995
oil revenue by approximately $1.0 million or $0.32 per barrel. The remaining
commitment under this agreement at December 31, 1995, was 47,000 barrels. The
Company fulfilled this commitment during the first quarter of 1996.
In an effort to reduce the effects of the volatility of the price of oil and
natural gas on the Company's operations, management has adopted a policy of
hedging oil and natural gas prices through the use of commodity futures,
options, and swap agreements whenever market prices are in excess of the
prices anticipated in the Company's operating budget and profit plan. While
the use of these 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 in connection with its hedging activities. The following table
sets forth the barrels and weighted average NYMEX prices hedged under various
swap agreements entered into as of December 31, 1995.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PERIODS COVERED BARRELS SOLD PRICE
--------------- ------------ --------
<S> <C> <C>
Year ending December 31, 1996....................... 740,000 $18.79
Year ending December 31, 1997....................... 375,000 $19.02
</TABLE>
The Company has also sold call options covering 25,000 Bbls of oil per month
at an option price of $18.30 per Bbl for the period October 1995 to August
1996, increasing to $20.00 per Bbl for the period from September 1996 to
August 1997. In the event of a significant increase in the future NYMEX oil
prices above the swap price for the periods covered by the swap, the Company
may be required to utilize cash to fund margin accounts.
During the years ended December 31, 1993 and 1994, the Company's oil and
natural gas sales were reduced by $289,000 and $5,000, respectively as a
result of hedging transactions. During the year ended December 31, 1995, the
Company's oil sales were increased by $298,000, representing an average price
increase of $0.09 per barrel of oil, as a result of hedging transactions. See
Note 7 of the Notes to the Company's Historical Financial Statements for a
further discussion of the Company's hedging activities.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash and cash equivalents aggregating
approximately $4.6 million and working capital of approximately $8.3 million.
Cash provided by operating activities for the year ended December 31, 1995
increased to approximately $24.3 million compared to $23.0 million for 1994,
due primarily to an increase in oil production and an oil price increase. Cash
flows used in investing activities decreased from $56.8 million for the year
ended December 31, 1994 to $43.0 million in 1995. This decrease was a result
of the sale of assets in 1995 for almost $5.7 million and a slight decrease in
the total spending on oil and natural gas properties in 1995, partially offset
by the acquisition by Taurus of an additional interest in one of its plants
for $6.5 million. Cash flows provided by financing activities decreased to
$16.9 million for the year ended December 31, 1995 from $36.2 million for
1994, primarily due to a decrease in net borrowings under the Company's then-
existing credit agreement. As a result of the Merger, the Company's financial
position and results of operations will reflect a new basis of accounting and
will not be comparable to prior periods. The following section discusses the
expected impact of the Merger, the sale of the Private Notes and the Exchange
Offer on the Company's financial position and results of operations.
41
<PAGE>
EFFECTS OF THE MERGER, THE SALE OF THE PRIVATE NOTES AND THE EXCHANGE OFFER
THE MERGER
On February 16, 1996, the Company completed the Merger. The Merger will be
accounted for using the purchase method of accounting. As such, JEDI's cost of
acquiring Coda will be allocated to the assets and liabilities acquired using
estimated fair values. As a result, the Company's financial position and
operating results subsequent to the date of the Merger will reflect a new
basis of accounting and will not be comparable to prior periods. Concurrently
with the execution of the Merger Agreement, JEDI and CAI entered into certain
agreements with the Management Group providing for a continuing role of
management in the Company after the Merger. The sources and uses of funds
related to financing the Merger were as follows:
SOURCES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Credit Agreement.................................................. $ 95.0
JEDI Debt(1)...................................................... 100.0
Redeemable Preferred Stock issued to JEDI......................... 20.0
Common Stock issued to JEDI....................................... 90.0
------
Total........................................................... $305.0
======
</TABLE>
USES OF FUNDS
(in millions)
<TABLE>
<S> <C>
Payments to Coda stockholders, warrantholders and
optionholders.................................................. $176.2
Repayment of former credit facility and other indebtedness...... 122.7
Merger costs and other expenses................................. 6.1
------
Total......................................................... $305.0
======
</TABLE>
--------
(1) Represents indebtedness incurred by CAI and assumed by Coda to
fund a portion of the consideration paid in the Merger. See "Use
of Proceeds."
The Company incurred substantial indebtedness in connection with the Merger
and is highly leveraged. As of December 31, 1995, after giving pro forma
effect to the Merger and the related financing transactions, including the
sale of the Private Notes and the Exchange Offer, the Company would have had
total indebtedness of approximately $197.1 million and stockholders' equity
(including Preferred Stock) of approximately $55.4 million. After giving pro
forma effect to such transactions and the Snyder Acquisition, the Company's
earnings would have been insufficient to cover its fixed charges by
approximately $6.6 million for 1995. Pro forma interest expense for 1995 would
have been approximately $18.8 million. Pro forma cash flow from operations
(assuming that the additional interest was paid in cash) would have been
approximately $17.1 million. Based upon the Company's current level of
operations and anticipated growth, management of the Company believes that
available cash, together with available borrowings under the Credit Agreement
and other sources of liquidity, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures and
scheduled payments of principal of, and interest on, its indebtedness,
including the Notes. There can be no assurance that such anticipated growth
will be realized, that the Company's business will generate sufficient cash
flow from operations or that future borrowings will be available in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or make necessary capital expenditures. In addition, the Company
anticipates that it is likely to find it necessary to refinance a portion of
the principal amount of the Notes at or prior to their maturity. However,
there can be no assurance that the Company will be able to obtain financing to
complete a refinancing of the Notes. See "Risk Factors--Leverage."
The Company has planned development and exploitation activities for all of
its major operating areas. The Company has budgeted capital spending of
approximately $18 million in 1996, but is not
42
<PAGE>
contractually committed to expend these funds. In addition, the Company is
continuing to evaluate oil and natural gas properties for future acquisitions.
Historically, the Company has used the public equity market (i) to raise cash
to fund acquisitions or repay indebtedness incurred for acquisitions and (ii)
as a medium of exchange for other companies' capital stock or assets in
connection with acquisitions. As a result of being 95% owned by JEDI (on a
fully diluted basis), the Company does not expect to utilize the public equity
market to finance acquisitions in the near term. Accordingly, any material
expenditures in connection with acquisitions would require borrowing under the
Credit Agreement or from other sources. There can be no assurance that such
funds will be available to the Company. Furthermore, the Company's ability to
borrow in the future is subject to restrictions imposed by the Credit
Agreement and the Indenture as more fully described below. See "Description of
Other Indebtedness" and "Description of Exchange Notes--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
CREDIT AGREEMENT
In connection with the Merger, the Company entered into the Credit Agreement
to replace a prior credit facility. The borrowing base under the Credit
Agreement currently is $115.0 million. As of March 31, 1996, approximately
$35.0 million was available for borrowing under the Credit Agreement. The
borrowing base is scheduled to be redetermined on July 1, 1996; however, the
Credit Agreement allows the lenders to redetermine the borrowing base upon the
occurrence of either of the following events: (i) the sale of all, or
substantially all, of the assets or common stock of Taurus or (ii) the
issuance of public subordinated debt in an amount greater than $100.0 million.
The lenders under the Credit Agreement have agreed to waive their right to
redetermine the borrowing base with respect to the issuance of the Notes. As a
result of the sale of the Private Notes, ECT Securities Corp., an affiliate of
ECT, refunded to the Company $2.0 million in fees paid by the Company to ECT
Securities Corp. for arranging the JEDI Debt. These additional funds, together
with other available cash of $550,000 and the remaining net proceeds of the
sale of the Private Notes were used to repay approximately $10.0 million of
the indebtedness outstanding under the Credit Agreement.
The Credit Agreement is unsecured. The Company has provided the bank lenders
with first lien deeds of trust on its oil and natural gas assets that will not
become effective, and that the lenders have agreed to not file, unless: (i)
80% of any outstanding borrowings in excess of the borrowing limit are not
repaid within a 90 day period, (ii) cash collateral securing a hedging
transaction exceeds 20% of the borrowing limit or (iii) an event of default or
a material adverse event, as defined in the Credit Agreement, occurs.
The Credit Agreement contains various restrictive covenants, including
limitations on the granting of liens, restrictions on the issuance of
additional debt, restrictions on investments, a requirement to maintain
positive working capital, and restrictions on dividends and stock repurchases.
The Credit Agreement also contains requirements that JEDI, Enron, CalPERS or
any wholly owned subsidiary of either Enron or CalPERS must continue to own a
majority of the outstanding equity of the Company and must have the ability to
elect the majority of the Board of Directors and that certain members of
management maintain specified levels of equity ownership in the Company and
continue their employment with the Company.
So long as no default (as defined in the Credit Agreement) is continuing,
the Company has the option of having all or any portion of the amount borrowed
under the Credit Agreement be the subject of one of the following interest
rates: (i) NationsBank's prime rate, (ii) the CD Rate plus 1 1/4% to 1 5/8%
based upon the ratio of outstanding debt to the available borrowing base and
(iii) LIBOR plus 1 1/4% to 1 5/8% based upon the ratio of outstanding debt to
the available borrowing base. The Company must also pay a commitment fee of
between 0.375% to 0.425% on the unused portion of the borrowing base facility.
JEDI DEBT
The principal amount of JEDI Debt outstanding after the Merger was $100.0
million. A portion of the net proceeds of the sale of the Private Notes was
used to repay the JEDI Debt. The Company also paid approximately $823,000 of
accrued interest thereon. See "Use of Proceeds."
43
<PAGE>
15% CUMULATIVE PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
40,000 shares of Preferred Stock. In conjunction with the Merger, the Company
issued 20,000 shares of Preferred Stock to JEDI for $20.0 million in cash.
Additional shares of Preferred Stock in excess of 20,000 shares may be issued
only for the purpose of paying dividends on the issued and outstanding
Preferred Stock. The holders of each share of Preferred Stock are entitled to
receive, when and as declared by the Board of Directors, cumulative
preferential dividends at the rate of $150.00 per share per annum, payable in
equal semi-annual installments. Dividend payments will be made in cash or
through the issuance of additional shares of Preferred Stock. The payment of
Preferred Stock dividends in cash is restricted by the Credit Agreement and
the Indenture.
The Company's Certificate of Incorporation requires that the Company redeem
all the issued and outstanding shares of Preferred Stock at a redemption price
of $1,000 per share, plus all accrued and unpaid dividends (including
undeclared dividends) to the date of redemption, if the Company has sufficient
funds legally available for such redemption and if such redemption would not
violate or conflict with any loan agreement, credit agreement, note agreement,
indenture or other agreement relating to indebtedness to which the Company is
a party, on or before the fifth business day after the earliest to occur of
the following: (i) the closing of the sale by the Company of Taurus and (ii) a
Trigger Event, as such term is defined in the Stockholders Agreement. The
Preferred Stock may be redeemed by the Company at its option, as a whole or in
part, to the extent the Company shall have funds legally available for such
redemption, at any time or from time to time at a redemption price of $1,000
per share, plus all accrued and unpaid dividends (including undeclared
dividends) to the date of redemption. Such redemption, whether required or
optional, is restricted by the Credit Agreement and the Indenture.
RESULTS OF OPERATIONS
As a result of the Merger, the Company has significantly more debt
outstanding at a higher weighted average interest rate than before the Merger.
On a pro forma basis reflecting the effects of the Snyder Acquisition, the
Merger and the sale of the Private Notes, as if such transactions had occurred
on January 1, 1995, pro forma depletion, depreciation and amortization
increased by $8.1 million, pro forma interest expense increased by $10.1
million and pro forma general and administrative expenses decreased by
$921,000, compared to the actual amounts reported for 1995. Pro forma EBITDA
would have increased to $40.0 million from $37.3 million on a historical
basis. Pro forma net loss for 1995 would have been $4.2 million compared to
historical net income of $5.8 million. The pro forma combined results of
operations exclude a charge of approximately $58.2 million (net of related
deferred taxes of $32.7 million) representing the adjustment of the carrying
value of proved oil and gas properties pursuant to the full cost method of
accounting. Such adjustment will be included in the results of operations of
the Company in the period the Merger was consummated.
Based on preliminary allocations of purchase price, the Company expects oil
and natural gas property depletion, depreciation and amortization to be
approximately $5.83 per Bbl in 1996. Absent significant changes in the
Company's operations or interest rates, general and administrative expenses
are expected to be approximately $3 million in 1996 and interest expense for
1996 should be approximately $17 million. Absent significant increases in
prices or increases in production through development or acquisition
activities, the Company will continue to incur net losses. In addition, the
Company will be incurring a 15% cumulative dividend on $20.0 million of
Preferred Stock (payable in cash or shares of Preferred Stock) issued to JEDI
in connection with the Merger. See Pro Forma Condensed Financial Statements
included elsewhere in this Prospectus.
The Company estimates that it has approximately $15.4 million in available
net operating loss carryforwards ("NOLs"). While the Merger will result in a
change in control pursuant to (S)382 of the Internal Revenue Code, the Company
does not expect such change to have any significant impact on its ability to
utilize its NOLs.
44
<PAGE>
BUSINESS
GENERAL
The Company is an independent energy company that is principally engaged in
the acquisition and exploitation of oil and natural gas properties. The
Company also owns and operates natural gas processing and liquids extraction
facilities and natural gas gathering systems. The Company seeks to acquire oil
and natural gas properties whose predominant economic value is attributable to
proved producing reserves and to enhance that value through control of
operations, reduction of costs and property development. The Company's
producing properties are concentrated in the mid-continent region of the
United States. At December 31, 1995, the Company had proved reserves of 42.6
Mmbbls of oil and 37.1 Bcf of natural gas, aggregating 48.8 Mmboe. Company
operated properties accounted for approximately 94% of its 1995 production of
3.9 Mmboe.
As a result of the Company's successful acquisition and exploitation
activities, the Company has shown significant growth in reserves, production
and EBITDA over the last five years. From 1991 through 1995, the Company
achieved an average annual reserve replacement of 480% at an average cost of
$3.67 per Boe (with the acquisition of Diamond treated as a purchase instead
of a pooling). To achieve these results, management estimates that the Company
evaluated, over the last five years, in excess of 1,400 acquisition
opportunities with an aggregate market value estimated by management to exceed
$15 billion. Over the same period (with the acquisition of Diamond treated as
a purchase instead of a pooling), management estimates that the Company made
approximately 280 offers totaling more than $3 billion and successfully closed
in excess of 50 transactions having an aggregate purchase price of $172.2
million. This strategy enabled the Company to increase average net daily
production from 3,329 Boe in 1991 to 10,688 Boe in 1995, representing a
compound annual growth rate of 34%. Similarly, EBITDA increased at a 46%
compound annual growth rate from $8.2 million in 1991 to $37.3 million in
1995.
STRATEGY
The Company's strategy is to increase oil and natural gas reserves,
production and cash flow by selectively acquiring and exploiting oil and
natural gas properties, especially those properties with enhanced recovery and
other lower risk development potential. In order to implement its strategy,
the Company principally seeks to acquire oil and natural gas properties with
the following characteristics:
. Geographic Focus--The Company has focused its acquisition activities in
the mid-continent region of the United States. This region includes oil
and natural gas basins with geological and production characteristics
potentially responsive to the Company's exploitation and development
techniques. Management believes that it has considerable experience in,
and knowledge of, this region. The Company presently has four core
operating areas: west Texas, north Texas, west central Oklahoma and
southwestern Kansas. The geographic proximity of the Company's various
properties allows the Company to minimize the number of operations and
field production offices that it must maintain and the number of
supervisory personnel that it must employ.
. Proved Developed Reserves--The Company prefers to acquire properties
where the majority of the reserves are proved developed reserves
producing from relatively shallow horizons. Management believes these
properties generally present lower geologic and mechanical risks for
drilling, recompleting and operating activities. Substantially all of
the Company's wells are under 10,000 feet deep.
. Operated, High Working Interest Properties--The Company prefers to
operate the properties it acquires and to own the majority working
interest in those properties. This allows the
45
<PAGE>
Company greater control over (i) timing and plans for future
development, (ii) drilling, completing and lifting costs and (iii)
marketing of production. At December 31, 1995, the Company operated
approximately 2,052 of the 2,190 gross producing and active water
injection wells in which it owned an interest, and its weighted average
working interest in its properties was approximately 82%.
. Exploitation Potential--The Company seeks to increase production and
recoverable reserves through exploitation efforts on the properties it
acquires. Exploitation efforts include workovers and/or recompletions of
existing wells; the initiation of, or improvements to, secondary
recovery projects, particularly the use of waterflooding; and the
drilling of lower risk development and/or infill wells. The Company
believes that it has been able to enhance the value and to extend the
economic life of many of the properties that it has acquired by
utilizing techniques such as these.
. Cost Reduction Potential--The Company seeks to acquire properties where
significant economic value can be created by lowering operating costs.
The Company believes that it has been able to lower the lifting costs on
certain properties it has acquired in comparison to the costs incurred
by the major oil companies and larger independents that previously
operated the properties. These savings were achieved through reductions
in labor, electricity, materials and other costs.
. Price Improvement Potential--Whenever possible, the Company attempts to
negotiate more favorable marketing agreements than those in place under
prior owners. After the Company has begun its exploitation activities on
its properties, it may attempt to negotiate more favorable prices as the
volumes of oil increase. Certain of the Company's oil purchasers have
paid and are currently paying a premium over posted prices and have
eliminated certain quality and marketing deductions for a portion of the
Company's oil production due to the Company's control over a significant
volume of oil production in its core geographic areas.
The Company believes that future acquisitions, like its past acquisitions,
will come from several categories of sellers including : (i) major oil
companies; (ii) companies that are consolidating operations to achieve cost
savings; (iii) companies and individuals owning interests in wells in which
the Company owns a substantial working interest; and (iv) companies with
limited capital resources.
The success of the Company's strategy depends upon a number of factors
outside of the Company's control, including the availability of attractive
acquisition opportunities. In recent years, major oil companies have been
divesting many of their higher cost domestic oil and natural gas properties.
In addition, the oil and natural gas industry continues to consolidate as
smaller independents exit the business. The Company believes these trends will
continue. By increasing production and lowering operating costs, the Company
believes that it can increase economic value and cash flow as well as extend
the productive lives of these properties. See "--Exploitation and Development
Activities" and "Risk Factors--Acquisition Risks; Depletion of Reserves."
ACQUISITION AND EXPLOITATION OF PRINCIPAL PROPERTIES
GENERAL
Management estimates that the Company evaluated, over the last five years,
in excess of 1,400 acquisition opportunities with an aggregate market value
estimated by management to exceed $15 billion. Over the same period (with the
acquisition of Diamond treated as a purchase instead of a pooling), management
estimates that the Company made approximately 280 offers totaling more than $3
billion and successfully closed in excess of 50 transactions having an
aggregate purchase price of $172.2 million. Management estimates that in 1995,
the Company evaluated more than $4.5 billion of acquisition opportunities,
offered to purchase more than $1.2 billion of such opportunities and closed
transactions worth $25.4 million. The Company generally
46
<PAGE>
prefers to focus on larger acquisitions. It is management's opinion that
operating larger properties will allow even greater cost savings due to
economies of scale, as well as higher prices for oil and natural gas due to
the concentration of production in a given geographic area.
The table below presents the results of the Company's acquisition activities
since January 1, 1991, showing the aggregate net purchase price and the
estimated proved oil and natural gas reserves purchased (with the acquisition
of Diamond treated as a purchase instead of a pooling). The reserve estimates
are shown as of the dates of acquisition, were generally derived from the
studies prepared by in-house engineers prior to the acquisition, and have not
been adjusted for subsequent revisions, if any.
<TABLE>
<CAPTION>
PROVED RESERVES WHEN ACQUIRED
AGGREGATE NET ---------------------------------
PURCHASE PRICE(1) OIL GAS COMBINED ACQUISITION
YEAR ENDED DECEMBER 31, (IN THOUSANDS) (MBBLS) (MMCF) MBOE COST (PER BOE)
- ----------------------- ----------------- ---------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
1991.................... $16,368 8,100 808 8,235 $1.99
1992.................... 20,546 5,448 2,466 5,859 3.51
1993.................... 36,872 5,521 8,881 7,001 5.27
1994.................... 73,100 15,900 9,123 17,421 4.20
1995.................... 25,363 7,324 7,298 8,540 2.97
</TABLE>
- --------
(1) Includes the value attributable to cash and non-cash consideration and
reflects credits against the gross purchase price for production from the
effective date of the acquisition through the actual closing date. Does
not include future development costs.
HISTORICAL ACQUISITIONS
Since 1991, the Company has been actively engaged in the acquisition of
producing oil and natural gas properties located primarily in north Texas, the
Permian Basin in west Texas, west central Oklahoma and southwestern Kansas.
These acquisitions have permitted the Company to develop concentrated
ownership positions in certain producing fields, building on the Company's
knowledge of the reservoir characteristics in these areas and enhancing the
Company's ability to operate these properties more efficiently than prior
owners.
1991 Acquisitions. During 1991, the Company consummated three major
purchases in north Texas and the Permian Basin in west Texas, which
established those areas as core operating areas for the Company. In March
1991, the Company paid approximately $2.9 million to acquire an existing
waterflood project located in the Wichita County Regular Field of the West
Burkburnett Area of north Texas. In May 1991, the Company paid approximately
$2.7 million to acquire 16 producing wells in the McElroy Field located in
Upton County in west Texas. The Company subsequently initiated a waterflood
project on this lease. In July 1991, the Company paid $10.5 million to acquire
an existing waterflood project and a natural gas processing plant and
gathering facility located in Wichita and Wilberger Counties in north Texas
(the "Electra Properties").
1992 Acquisitions. The December 1992 purchase of producing oil and natural
gas properties located in the Permian Basin in west Texas and in north Texas
furthered the Company's objective of acquiring proved reserves in concentrated
geographic locations in which the Company was familiar with the geology and
other reservoir characteristics. These properties already were operating on
waterflood recovery. In the first of these acquisitions, the Company paid an
aggregate of approximately $17.2 million to acquire interests in 13 producing
oil and natural gas properties located in the Permian Basin of west Texas and
Lea County, New Mexico. One of these properties, the Shafter Lake Unit, is a
12,720 acre San Andres formation waterflood project. In the second
acquisition, the Company paid approximately $4.1 million to acquire working
interests in an existing waterflood project plus ancillary assets located in
Wichita, Wilberger and Hardeman Counties in north Texas. These properties are
adjacent to the Company's Electra Properties, which were acquired in 1991.
47
<PAGE>
1993 Acquisitions. In 1993, the Company concluded two significant
acquisitions. The first acquisition created the Company's core operating area
in southwestern Kansas. These properties were acquired from Mobil Oil
Corporation for approximately $15.8 million. The second acquisition, MJM Oil &
Gas, Inc. ("MJM"), added properties in the Company's core operating areas of
north Texas, the Permian Basin of west Texas and west central Oklahoma.
1994 Acquisitions. The most significant acquisition of oil and natural gas
properties during 1994 was the Company's acquisition of Diamond, whose
properties are principally concentrated in west central Oklahoma.
Substantially all of Diamond's properties are waterflood recovery projects
which were initiated and developed by Diamond. This acquisition also brought
to the Company additional management with experience in waterflood recovery
projects. The Company also completed two acquisitions of properties located in
west Texas in December 1994, as well as several other smaller acquisitions.
The Company paid an aggregate of $73.1 million in connection with its
acquisitions during 1994 (including $21.4 million of the Company's Common
Stock issued in connection with the Diamond merger).
1995 Acquisitions. On October 6, 1995, the Company acquired 63 producing oil
and natural gas properties and related assets from Snyder. The majority of
these properties are located in the Permian Basin in west Texas. The total
purchase price of these properties was $17.1 million in cash, of which $16.0
million was financed with borrowings under the Company's then-existing credit
agreement. The Company believes that these properties present exploitation
opportunities, including opportunities to implement cost-cutting strategies
and initiate or improve secondary recovery operations and lower risk
development drilling activities. The Snyder Acquisition complements the
Company's core operating areas within the mid-continent region of the United
States. In addition to the Snyder Acquisition, the Company completed several
other smaller acquisitions during 1995. The aggregate purchase price of the
Company's acquisitions during 1995 was $25.4 million.
The Company does not have a specific acquisition budget since the timing and
size of acquisitions are difficult to forecast. The Company is constantly
reviewing acquisition possibilities and anticipates acquisitions in 1996 and
thereafter. The Company may expand its geographic core areas if it identifies
properties that complement its current activities and that it believes will
likely be responsive to the Company's exploitation strategy. At the present
time, the Company has no binding agreements with respect to any significant
acquisitions.
EXPLOITATION AND DEVELOPMENT ACTIVITIES
GENERAL
The Company concentrates on exploiting proved producing properties,
including those with development potential, through workovers, behind the pipe
recompletions, secondary recovery operations, the drilling of development
wells or infill wells and other exploitation techniques. The Company has
conducted or intends to conduct significant secondary recovery/infill drilling
programs on many of the properties it has acquired.
Secondary recovery projects have represented the Company's primary
development focus over the past four years. Generally, "secondary recovery"
refers to methods of oil extraction in which fluid or gas (usually water,
natural gas or CO/2/) is injected into a formation through input (injector)
wells, and oil is removed from surrounding wells. "Waterflooding" is one
proven method of secondary recovery in which water is injected into an oil
reservoir for the purpose of forcing the oil out of the reservoir rock and
into the bore of a producing well. Waterflood projects are engineered to suit
the type of reservoir, depth and condition of the field. The Company has
considerable experience with and actively employs waterflood techniques in
many of its fields in order to stimulate production.
48
<PAGE>
The Company also seeks to exploit its properties through cost reduction
measures, including the reduction of labor, electrical and materials costs. It
seeks to take advantage of volume discounts in the purchase of equipment and
supplies and more effectively utilize field facilities and equipment by virtue
of its geographical concentration. The Company attempts to negotiate more
favorable marketing agreements upon completion of an acquisition, particularly
for oil production. Certain oil purchasers have paid in the past and are
currently paying a premium over posted prices and have eliminated certain
quality and marketing deductions for a portion of the Company's oil production
due to the Company's control over a significant volume of oil production in
its core geographic areas.
The Company makes only limited investments in exploratory drilling.
EXPLOITATION RESULTS
The properties presented in this table represent the ten largest properties
in which the Company had an ownership position as of January 1, 1995, based
upon the present value of estimated future net revenues at December 31, 1995.
These ten properties represent 65% of the present value of estimated future
net revenues at December 31, 1995, as estimated by the Company's independent
engineers, and are among the Company's most successful projects to date. The
present value of estimated future net revenues at December 31, 1995 and the
financial data presented provide an indication of the results of the Company's
exploitation strategy to date; however, certain of the properties acquired by
the Company have not been as successful as those described below and there can
be no assurance that the results presented below will be indicative of the
Company's future exploitation activities.
<TABLE>
<CAPTION>
A B C (A+B+C) D E (D+E)
PRESENT VALUE
PROPERTY (INITIAL ORIGINAL COST OF OF ESTIMATED
ACQUISITION/ PURCHASE ADDITIONAL CAPITAL NET FUTURE NET
UNITIZATION DATE)(1) PRICE(2) PURCHASES(3) EXPENDITURES(4) TOTAL REVENUES(5) REVENUES(6) TOTAL
-------------------- -------- ------------ --------------- ------- ----------- ------------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Andrews Wolfcamp Field (Various)......... $ 7,690 $ 7,565 $ 606 $15,861 $ 6,968 $ 50,406 $ 57,374
Oakdale Red Fork Unit (4/1/91)........... 3,217 8,205 2,269 13,691 5,350 31,925 37,275
Shafter Lake San Andres Unit (10/1/92)... 7,613 836 3,771 12,220 4,210 28,949 33,159
Calumet Cottage Grove Unit (5/1/92)...... 6,855 7,134 2,830 16,819 11,764 23,132 34,896
Chadbourne Ranch (9/30/93)............... 8,252 222 6,002 14,476 8,424 11,662 20,086
McElroy (5/1/91)......................... 2,730 403 2,084 5,217 976 10,013 10,989
S.M.A. Unit "B" (3/1/91)................. 1,760 -- 6,149 7,909 4,832 9,385 14,217
Cutter South Unit (6/1/93)............... 1,343 332 642 2,317 536 6,984 7,520
B.A. Bywaters (7/1/91)................... 1,694 -- 4,154 5,848 2,821 5,931 8,752
L.K. Johnson (9/30/93)................... 2,501 100 1,071 3,672 1,235 4,833 6,068
------- ------- ------- ------- ------- -------- --------
Totals.................................. $43,655 $24,797 $29,578 $98,030 $47,116 $183,220 $230,336
======= ======= ======= ======= ======= ======== ========
</TABLE>
- --------
(1) Shows the effective date of acquisition by the Company or the date that
unitization was approved by the appropriate regulatory agency.
(2) Represents the amount of the original purchase price allocated to this
property.
(3) Represents the amount of the purchase price of additional interests
acquired in the property.
(4) Represents capital expenditures incurred in the Company's exploitation of
each of the indicated properties.
(5) Represents the sum of all revenues recorded by the Company on the property
since the date of acquisition less the total of all operating expenses
(excluding overhead charged by the Company) and severance and other taxes
on the property.
(6) Represents the present value of estimated future net revenues at December
31, 1995, discounted at an annual rate of 10%, as determined by the
Company's independent engineers. See "Glossary."
49
<PAGE>
Andrews Wolfcamp Field. On January 1, 1993, as part of a larger acquisition,
the Company took over operations of three leases in the Andrews Wolfcamp
Field. These leases produce primarily from the Wolfcamp and Pennsylvanian
formations at an average depth of 9,000 feet and are located in Andrews
County, Texas. The Company recognized the waterflood potential of this field
and thus began acquiring offset leases. In July 1994, the Company purchased a
100% working interest in three adjacent properties with five active wells. In
December 1994, the Company purchased 100% working interests in two additional
leases and a 93.8% working interest in a third lease. The Company purchased
several additional minor leases in 1995. The Company produced an average of
475 Bbls and 1,196 Mcf per day from 36 wells on these leases in December 1995.
The Company has begun the process of unitizing the field and under the
proposed plan of participation, the Company will have a 96.4% working interest
in the unit. The Company anticipates initiating waterflood activities in the
third quarter of 1996. Remaining proved reserves, net to the Company's
interest, were estimated by the Company's independent engineers to be 7,551
Mbbls and 2,107 Mmcf at December 31, 1995.
Oakdale Red Fork Unit. Recognizing that the Oakdale Red Fork Field located
in Woods County, Oklahoma was an excellent candidate for secondary recovery,
the Company began acquiring leases in 1991. At that time, cumulative
production from the field was a total of 4.9 Mmbbls of oil from the Red Fork
Formation at an average depth of 5,800 feet. In April 1991, even though a
prior attempt by another party to unitize the field had failed, the Company
was able to effect unitization and assume operational control of the unit. The
unit was producing 30 Bbls per day when the Company installed a waterflood
project in 1991. Average daily oil and natural gas production in December 1995
was 1,471 Bbls per day. The Company increased its ownership in the unit to an
89% working interest through acquisitions in December 1994 and February 1995.
Remaining proved reserves, net to the Company's interest, were estimated by
the Company's independent engineers to be 4,246 Mbbls and 659 Mmcf at December
31, 1995.
Shafter Lake San Andres Unit. On January 1, 1993, the Company became the
operator of the Shafter Lake San Andres Unit in Andrews County, Texas by
acquiring a 49% working interest in the unit from the prior operator. At that
time, this 12,720 acre unit was producing 743 Bbls per day from the
Grayburg/San Andres formation at an average depth of 4,500 feet. The Company
has since acquired an additional 14% working interest in this property through
eleven different acquisitions. In 1993, the Company expanded an east-west line
drive waterflood pattern by converting eight wells to water injection. The
Company continued expanding this pattern in 1994 and 1995 by drilling 21
additional producing wells and converting nine existing wells to water
injection. In December 1995, average daily production was 1,071 Bbls from 111
producing wells and 36 water injection wells. The Company has identified 58
additional drilling locations. Remaining proved reserves, net to the Company's
interest, were estimated by the Company's independent engineers to be 4,871
Mbbls and 1,407 Mmcf at December 31, 1995.
Calumet Cottage Grove Unit. The Company recognized the secondary recovery
potential of this field, located in Canadian County, Oklahoma, in 1991. The
Company made approximately 100 separate acquisitions of leases prior to
forming the unit. During the unitization of this 11,440 acre unit, the Company
solicited approvals from 801 working interest and royalty interest owners. The
acquisition and unitization process took over 18 months to complete before the
unit was finally formed in May 1992. Average daily oil production increased
from 229 Bbls to over 3,300 Bbls within 26 months of initiating water
injection and in December 1995 was 2,986 Bbls. Remaining proved reserves, net
to the Company's 43.8% working interest, were estimated by the Company's
independent engineers to be 2,511 Mbbls at December 31, 1995.
Chadbourne Ranch. The Company obtained 14 leases in the West Fort Chadbourne
Field located in Coke and Runnels Counties, Texas in September 1993 as part of
the acquisition of MJM. The Company has also leased 240 offsetting acres.
While there are multiple pay zones in this field,
50
<PAGE>
the production is primarily from the Odom formation at a depth of
approximately 5,500 feet. The Company has drilled 18 wells in this field. In
December 1995, the average daily production was 632 Bbls and 1,670 Mcf from 39
wells. The Company has produced, net to its interest, 559 Mbbls and 1,379 Mmcf
since acquisition. The Company has identified four additional drilling
locations. Remaining proved reserves, net to the Company's interest, were
estimated by the Company's independent engineers to be 1,089 Mbbls and 3,151
Mmcf at December 31, 1995.
McElroy. On July 1, 1991, the Company acquired a 100% working interest in
the Hardwicke University Section 48 lease in Upton County, Texas. The lease is
on the eastern flank of the McElroy Field and produces from the Grayburg/San
Andres formation from an average depth of 3,600 feet. Cumulative primary
production from this 160 acre lease is over 3.0 Mmbbls of primary oil. In
October 1992, the Company initiated a waterflood program by drilling six
injection wells and one producing well and converting one existing well to
injection. In September 1993, the Company acquired a 100% working interest in
four offsetting leases totaling 240 acres. Response from the waterflood has
not met the initial projections of the Company's engineers and as a result,
the expansion of waterflood operations on these leases will not occur until
performance on the existing waterflood improves. Average production in the
field in December 1995 was 112 Bbls and 143 Mcf per day. Remaining proved
reserves, net to the Company's interest, were estimated by the Company's
independent engineers to be 1,755 Mbbls and 754 Mmcf at December 31, 1995.
S.M.A. Unit "B". In March 1991, the Company acquired the S.M.A. Unit "B"
along with six smaller leases in the Wichita County Regular Field in Wichita
County, Texas. Initially, the Company acquired only an 89% working interest in
the S.M.A. Unit "B." Later in 1991, the Company purchased the remaining 11%
working interest. At the time of acquisition, there were 37 producing wells
and 24 water injection wells producing 165 Bbls per day from an average depth
of 1,750 feet. The Company has since implemented a five spot waterflood
pattern by drilling 60 producing wells and 46 water injection wells and
converting 15 wells to water injection. Average daily production in December
1995 was 475 Bbls from 94 producing wells and 77 water injection wells. The
Company has identified 14 additional drilling locations. Remaining proved
reserves, net to the Company's interest, were estimated by the Company's
independent engineers to be 1,597 Mbbls at December 31, 1995. The Company is
planning to install a pilot test of an enhanced recovery process on this
property in 1996.
Cutter South Mississippian Unit. In June 1993, the Company acquired nine
leases and assumed operations of 11 producing wells in the Cutter South Field
in Stevens County, Kansas. Average daily production was 80 Bbls when the
Company took over operation of these leases. Production is from the Chester
formation at an average depth of 6,000 feet, which lies below the Hugoton Gas
Field. While performing its evaluation prior to acquisition, the Company
recognized that these properties could be successfully exploited by secondary
recovery. The Company acquired three additional edge leases in this field in
1994 and 1995. On June 1, 1995, the Company was able to complete the
unitization of the field. The injection of water into the producing formation
began in November 1995. Ultimately, the Company plans to have 14 water
injection wells in the unit. The Company's working interest in the unit is
93.5% and average daily production was 82 Bbls in December 1995. Remaining
proved reserves, net to the Company's interest, were estimated by the
Company's independent engineers to be 793 Mbbls and 110 Mmcf at December 31,
1995.
B.A. Bywaters. The Company acquired a 100% working interest in the B.A.
Bywaters lease on July 1, 1991. This lease is in the Wichita County Special
Field in Wichita County, Texas and produces from multiple Pennsylvanian sands
ranging from 300 to 2,000 feet. There were 26 wells producing 85 Bbls per day
when the Company took over operations in July 1991. The Company has since
drilled 33 producing wells and 29 injector wells and converted seven wells to
water injection. Production from 55 wells in December 1995 averaged 372 Bbls
per day. The Company has identified four additional drilling locations.
Remaining proved reserves, net to the Company's interest, were estimated by
the Company's independent engineers to be 1,101 Mbbls and 104 Mmcf at December
31, 1995.
51
<PAGE>
L.K. Johnson. The Company acquired a 50% working interest in, and the
operations of, the L.K. Johnson lease in Foard County, Texas as part of the
MJM acquisition in September 1993. The Company has since acquired an
additional 1.5% working interest in the lease. In September 1993, production
from 18 wells averaged 163 Bbls per day from five productive horizons ranging
in depth from 2,400 to 4,000 feet. The Company has since drilled eight
additional producing wells. A pilot waterflood project began in February 1996
in the Cisco "K" field on this lease. Average daily production was 160 Bbls
and 309 Mcf in December 1995. The Company has identified 14 additional
drilling locations. Remaining proved reserves, net to the Company's interest,
were estimated by the Company's independent engineers to be 763 Mbbls and
1,104 Mmcf at December 31, 1995.
MARKETING
With the exception of the Taurus operations (see "--Gas Plants and Gathering
Systems Operations" below), the Company does not refine or process any of the
oil and natural gas it produces. The Company's oil and natural gas production
is sold to various purchasers typically in the areas where the oil or natural
gas is produced. The Company is currently able to sell, under contract or in
the spot market, all of the oil and most of the natural gas it is capable of
producing at current market prices. Substantially all of the Company's oil and
natural gas is sold under short term contracts or contracts providing for
periodic adjustments or in the spot market; therefore, its revenue streams are
highly sensitive to changes in current market prices. Certain of the Company's
oil purchasers have paid in the past and are currently paying a premium over
posted prices and have eliminated certain quality and marketing deductions for
a portion of the Company's oil production due to the Company's control over a
significant volume of oil production in its core geographic areas. The
Company's principal market for natural gas is pipeline companies as opposed to
end users.
In an effort to reduce the effects of the volatility of the price of crude
oil and natural gas on the Company's operations, management has adopted a
policy of hedging oil and gas prices whenever market prices are in excess of
the prices anticipated in the Company's operating budget and profit plan
through the use of commodity futures, options and swap agreements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Changes in Prices and Hedging Activities" and Note 7 of Notes to
the Company's Historical Financial Statements.
During the year ended December 31, 1994, sales of oil and natural gas to
Amoco Production Company and EOTT Energy Operating Limited Partnership, a
subsidiary of Enron ("EOTT"), accounted for 13% and 22%, respectively, of the
Company's consolidated revenues. During the year ended December 31, 1995,
sales of oil and natural gas to Amoco Production Company and EOTT accounted
for 10% and 18%, respectively, of the Company's consolidated revenues. EOTT is
a subsidiary of Enron and an affiliate of the Company, ECT and ECT Securities,
Inc. See "Certain Transactions." Management believes that in the event these
purchasers were to discontinue their purchases, the Company could quickly
locate other buyers and, therefore, the loss of these purchasers would not
have a material impact on the Company's financial condition or results of
operations. However, short term disruptions could occur while the Company
sought alternative buyers.
OIL AND NATURAL GAS RESERVES
The following tables summarize certain information regarding the Company's
estimated proved oil and natural gas reserves as of December 31, 1993, 1994
and 1995. Such estimated reserves, as set forth herein and in Note 10 of Notes
to Consolidated Financial Statements, are based upon reports prepared by Lee
Keeling and Associates, Inc., independent consulting petroleum engineers. A
summary of the December 31, 1995 report is included in this Prospectus as
Annex A. Reserve estimates as of December 31, 1993 for Diamond were prepared
by Diamond's in-house engineers. All such reserves are located in the United
States. All reserves are evaluated at contract temperature and pressure which
can affect the measurement of natural gas reserves. For further information,
see Note
52
<PAGE>
10 of Notes to Consolidated Financial Statements. Reserve estimates are
inherently imprecise and there can be no assurance that the reserves set forth
below will ultimately be produced at all or at the prices and costs assumed in
the estimates of future net revenues. See "Risk Factors--Reliance on Estimates
of Proved Reserves and Future Net Revenues" and "Experts."
The following table sets forth proved reserves considered to be economically
recoverable under normal operating methods and existing conditions, at prices
and operating costs prevailing at the dates indicated below.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994 1995
------------- ------------- -------------
(in thousands)
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves............ 16,230 30,573 20,151 32,890 25,877 31,496
Proved undeveloped reserves.......... 13,854 5,623 19,056 6,918 16,713 5,634
------ ------ ------ ------ ------ ------
Total proved reserves.............. 30,084 36,196 39,207 39,808 42,590 37,130
====== ====== ====== ====== ====== ======
</TABLE>
No major discovery or other favorable or adverse event is believed to have
caused a significant change in these estimates of the Company's proved
reserves since January 1, 1996.
Except for Form EIA 23, "Annual Survey of Domestic Oil and Gas Reserves,"
filed with the United States Department of Energy, no other estimates of total
proven net oil or gas reserves have been filed by the Company with, or
included in any report to, any United States authority or agency pertaining to
the Company's individual reserves since the beginning of the Company's last
fiscal year. Reserves reported in Form EIA 23 are comparable to the reserves
reported by the Company herein.
OPERATIONS DATA
Productive Wells. The following table sets forth the total gross and net
productive wells in which the Company owned an interest as of December 31,
1995. Substantially all of the Company's wells are under 10,000 feet deep.
<TABLE>
<CAPTION>
GROSS (1) NET (1)
---------- ----------
OIL(2) GAS OIL(2) GAS
------ --- ------ ---
<S> <C> <C> <C> <C>
Texas................................................ 1,802 16 1,561 8
Oklahoma............................................. 258 27 145 8
Kansas............................................... 76 5 67 4
Other................................................ 6 -- 1 --
----- --- ----- ---
Total.............................................. 2,142 48 1,774 20
===== === ===== ===
</TABLE>
--------
(1) The number of gross wells is the total number of wells in which a
fractional working interest is owned. The number of net wells is
the sum of the fractional working interests owned by the Company in
gross wells.
(2) The oil well category includes 615 gross and 524 net active water
injection and utility wells which are necessary for the operation
of the Company's waterflood projects.
Production Economics. The following table shows the approximate net
production attributable to the Company's oil and natural gas interests, the
average sales price and the average production and depletion, depreciation and
amortization expenses per Bbl of oil and Mcf of natural gas attributable to
the Company's oil and natural gas production for the periods indicated.
Production and sales information relating to properties acquired or disposed
of is reflected in this table only since or up to
53
<PAGE>
the closing date of their respective acquisition or sale and may affect the
comparability of the data between the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
OIL AND NATURAL GAS PRODUCTION
Oil (Mbbls)...................................... 1,766 2,650 3,165
Natural gas (Mmcf)............................... 4,703 4,982 4,416
AVERAGE SALES PRICES (1)
Oil (Bbl)........................................ $16.88 $15.86 $17.08
Natural gas (Mcf)................................ 1.92 1.74 1.57
PRODUCTION COST (2)
Per equivalent Bbl (3)........................... $6.90 $6.22 $6.95
Per dollar of sales.............................. 0.45 0.43 0.44
DEPLETION, DEPRECIATION AND AMORTIZATION
Per equivalent Bbl (3)........................... $4.15 $4.27 $4.33
Per dollar of sales.............................. 0.27 0.29 0.28
</TABLE>
--------
(1) Before deduction of production taxes and net of hedging results for
the three years ended December 31, 1995.
(2) Excludes depletion, depreciation and amortization. Production cost
includes lease operating expenses and production and ad valorem taxes,
if applicable.
(3) Natural gas production is converted to equivalent barrels of oil at
the rate of six Mcf of natural gas per barrel, representing the
estimated relative energy content of natural gas and oil.
The following table sets forth the results of the Company's annual drilling
activities (wells completed or abandoned) as of fiscal year end. At January
31, 1996, the Company was in the process of drilling one well.
<TABLE>
<CAPTION>
1993 1994 1995
--------------- --------------- ---------------
GROSS(1) NET(1) GROSS(1) NET(1) GROSS(1) NET(1)
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY:
Oil........................ -- -- -- -- -- --
Gas........................ -- -- 1 0.38 2 0.75
Dry........................ -- -- -- -- -- --
--- ----- --- ----- --- -----
Total.................... -- -- 1 0.38 2 0.75
=== ===== === ===== === =====
DEVELOPMENT:
Oil........................ 57 55.09 86 66.68 109 98.88
Gas........................ -- -- -- -- -- --
Dry........................ -- -- 1 0.50 -- --
--- ----- --- ----- --- -----
Total.................... 57 55.09 87 67.18 109 98.88
=== ===== === ===== === =====
TOTAL:
Oil........................ 57 55.09 86 66.68 109 98.88
Gas........................ -- -- 1 0.38 2 0.75
Dry........................ -- -- 1 0.50 -- --
--- ----- --- ----- --- -----
Total.................... 57 55.09 88 67.56 111 99.63
=== ===== === ===== === =====
</TABLE>
--------
(1) The number of gross wells is the total number of wells in which the
Company owns a fractional working interest. The number of net wells is
the sum of the fractional working interests owned by the Company in
gross wells.
For purposes of the table above, an "exploratory well" is a well drilled to
find and produce oil or natural gas in an unproved area, to find a reservoir
in a field previously found to be productive of oil or gas in another
reservoir or to extend a known reservoir. A "development well" is a well
drilled within
54
<PAGE>
the proven boundaries of an oil or natural gas reservoir with the intention of
completing the stratigraphic horizon known to be productive. A "dry well" is
an exploratory or development well found to be incapable of producing either
oil or gas in sufficient quantities to justify completion as an oil or natural
gas well.
DEVELOPED AND UNDEVELOPED ACREAGE
The following table sets forth the approximate gross acres and net acres of
productive properties in which the Company owned a leasehold interest as of
December 31, 1995. Gross acres refers to the total acres in which the Company
has a working interest, and net acres refers to the fractional working
interests owned by or attributable to the Company multiplied by the gross
acres in which the Company has a working interest. Developed acreage is that
acreage spaced or assignable to productive wells. Undeveloped acreage is
considered to be that acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether or not such acreage contains
proved reserves. At December 31, 1995, the Company had no significant amount
of undeveloped acreage.
<TABLE>
<CAPTION>
DEVELOPED
--------------
GROSS NET
------- ------
<S> <C> <C>
Texas....................................................... 93,615 51,998
Oklahoma.................................................... 49,585 24,559
Kansas...................................................... 16,199 13,856
Other....................................................... 5,341 1,817
------- ------
Total..................................................... 164,740 92,230
======= ======
</TABLE>
Essentially all of the Company's oil and gas interests are leasehold working
interests or overriding royalty interests under standard onshore oil and
natural gas leases, rather than mineral or fee interests.
GAS PLANTS AND GATHERING SYSTEM OPERATIONS
On April 29, 1994, the Company acquired by merger all of the issued and
outstanding common stock of Taurus, in exchange for 1.5 million shares of
Coda's Common Stock, valued at approximately $7.3 million, and approximately
$3.3 million in cash. The Company assumed existing Taurus indebtedness of
approximately $9.8 million. Taurus owns and operates three natural gas
processing facilities and approximately 700 miles of natural gas gathering
systems, primarily located in west central Texas. Taurus represented
approximately nine percent of the Company's consolidated 1995 EBITDA of
approximately $37.3 million.
In July 1994, Taurus acquired ownership of the Shackelford gas processing
plant and gathering system ("Shackelford"). Taurus had previously been
operating the Shackelford system and plant under operating leases. Shackelford
consists of approximately 210 miles of pipeline located in Shackelford,
Callahan, Stephens and Throckmorton Counties, Texas. The plant is a 30,000 Mcf
per day capacity refrigerated lean oil absorption plant located near Putnam,
Texas. The steel gathering lines range in size from 3 inches to 10 inches in
diameter. There are over 100 purchase, check and sales meters. The system
utilizes 14 compressors with over 3,000 total horsepower.
In January 1995, Taurus acquired the remaining 42% interest in the Hamlin
gas processing plant and gathering system ("Hamlin"). The Hamlin gathering
system consists of about 450 miles of low pressure gathering lines and twelve
compressor stations in Fisher, Cottle, Taylor, Stonewall, Jones, Haskell, King
and Knox Counties, Texas. The Hamlin plant utilizes a cryogenic process and
has a processing capacity of 20,000 Mcf per day. Gas supply to the system
consists almost entirely of high
55
<PAGE>
BTU casinghead gas. The Hamlin plant produces a demethanized stream which is
delivered into a products pipeline.
The following table shows certain financial data in respect of the Company's
gas gathering and processing operations, including Taurus, for the three years
ended December 31, 1995 .
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gas sales.......................................... $ -- $12,261 $21,038
Natural gas liquids sales.......................... 732 7,771 14,597
Operating margin................................... 162 2,724 5,161
EBITDA............................................. 7 2,073 3,354
Total assets....................................... 1,157 32,577 38,040
</TABLE>
The Merger Agreement originally required as a condition to JEDI's
consummation of the Merger that the Company sell Taurus on terms acceptable to
JEDI. However, negotiations with prospective purchasers for Taurus failed to
progress beyond preliminary stages and by December 1995, the Company's
management and JEDI had concluded a timely sale of Taurus upon terms
satisfactory to JEDI was not feasible or likely. Subsequently, the Merger
Agreement was amended to remove this condition. The Company intends to study
alternatives for maximizing the value of its investment in Taurus. These
alternatives could include a sale of Taurus, whether by merger, sale of all or
substantially all of the assets of Taurus or sale of all of the capital stock
of Taurus.
Sales and markets. Taurus' two largest plants and gathering systems,
Shackelford and Hamlin, account for the majority of Taurus' revenue.
Taurus sells its residue gas from Shackelford to a variety of large natural
gas purchasers under short-term contracts at market sensitive prices. Residue
gas from Shackelford can be delivered into either one of two major pipeline
systems. These connections provide significant marketing flexibility by giving
access to major marketing hubs in east Texas, west Texas and the Gulf Coast.
Major natural gas consuming markets in California, the Midwest, the Northeast
and along the Texas Gulf Coast can be accessed through these market hubs.
Generally, residue gas is sold under short-term contracts either at the
tailgate of the Shackelford Plant or out of the intrastate pipeline.
The Shackelford Plant produces a demethanized stream which is delivered into
a products pipeline. Ethane, normal butane and natural gasoline components of
the product stream are generally sold as they enter the pipeline. The
remaining components of the product stream are then sold under short term
agreements to various customers at a central marketing point in Mont Belvieu,
Texas. A transportation and fractionation fee is paid on all gallons not sold
to the pipeline owner.
Residue gas from Hamlin can be delivered into either the Palo Duro Pipeline
or the Lone Star Gas pipeline. These connections afford Taurus the opportunity
to offer residue gas from both Hamlin and Shackelford as a package which
increases the marketing flexibility and leverage of both plants. Since
assuming operation of Hamlin, Taurus has sold all residue gas under short term
contracts at market sensitive prices to a variety of large purchasers.
The Hamlin Plant produces a demethanized stream which is delivered into a
products pipeline. All of Hamlin's liquids production is being sold under
agreements that provide for market index prices less a transportation and
fractionation fee.
Purchases. Taurus purchases gas for Shackelford from approximately 250 wells
in Shackelford, Callahan, Stephens and Throckmorton Counties, Texas. The
majority of the production connected to the gathering system is low volume
casinghead gas. The system is operated at low pressure with lateral line
pressures ranging from 15 to 150 psi. The mainline pressure averages about 300
psi.
56
<PAGE>
Taurus utilizes two base forms of gas purchase agreements: percentage of
proceeds and fixed price. Percentage contracts provide that the seller is
allocated its proportionate share of residue gas sales and natural gas liquids
production. Fixed price contracts, which generally provide for acreage
dedications, are for primary terms of up to 20 years with annual renewals
thereafter. The purchase price to be paid is stated in the contract and is
subject to annual price redetermination if certain specific conditions are
met.
The natural gas connected to Shackelford is purchased under both percentage
and fixed price contracts. The majority of the natural gas connected to Hamlin
is being purchased utilizing percentage of proceeds contracts. There are about
200 natural gas purchase agreements covering over 450 wells connected to
Hamlin. Less than two percent of Taurus' purchases are from the Company's
wells.
MARKETS AND COMPETITION
The oil and natural gas industry is highly competitive. Competitors include
major oil companies, other independent oil and natural gas concerns, and
individual producers and operators, many of which have financial resources,
staffs and facilities substantially greater than those of the Company. In
addition, the Company encounters substantial competition in acquiring oil and
natural gas properties, marketing oil and natural gas and securing trained
personnel. When possible, the Company tries to avoid open competitive bidding
for acquisition opportunities. The principal means of competition with respect
to the sale of oil and natural gas production are product availability and
price. While it is not possible for the Company to state accurately its
position in the oil and natural gas industry, the Company believes that it
represents a minor competitive factor.
The market for oil, natural gas and natural gas liquids produced by the
Company depends on factors beyond its control, including domestic and foreign
political conditions, the overall level of supply of and demand for oil,
natural gas and natural gas liquids, the price of imports of oil and natural
gas, weather conditions, the price and availability of alternative fuels, the
proximity and capacity of natural gas pipelines and other transportation
facilities and overall economic conditions. The oil and natural gas industry
as a whole also competes with other industries in supplying the energy and
fuel requirements of industrial, commercial and individual consumers.
REGULATION
The Company's operations are affected in various degrees by political
developments, federal and state laws and regulations. In particular, oil and
natural gas production operations and economics are affected by price
controls, tax and other laws relating to the petroleum industry, by changes in
such laws and by changes in administrative regulations and the interpretation
and application of such rules and regulations.
Sales of oil and natural gas liquids by the Company are not regulated and
are made at market prices. The price the Company receives from the sale of
these products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, the Federal Energy Regulatory Commission
implemented regulations establishing an indexing system for transportation
rates for oil pipelines, which, generally, would index such rates to
inflation, subject to certain conditions and limitations. These regulations
could increase the cost of transporting oil and natural gas liquids by
pipeline, although the most recent adjustment generally decreased rates. These
regulations are subject to pending petitions for judicial review. The Company
is not able to predict with certainty what effect, if any, these regulations
will have on it, but, other factors being equal, the regulations may, over
time, tend to increase transportation costs or reduce wellhead prices for oil
and natural gas liquids.
57
<PAGE>
ENVIRONMENTAL MATTERS
Operations of the Company are subject to numerous and constantly changing
federal, state and local 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 certain
permits, restrict or prohibit the types, quantities and concentration of
substances that can be released into the environment in connection with
drilling and production, restrict or prohibit drilling activities that could
impact wetlands, endangered or threatened species or other protected natural
resources and impose substantial liabilities for pollution resulting from the
Company's operations. Such laws and regulations may substantially increase the
cost of exploring for, developing or producing oil and natural gas and may
prevent or delay the commencement or continuation of a given project. In the
opinion of the Company's management, the Company is in substantial compliance
with current applicable environmental laws and regulations, and the cost of
compliance with such laws and regulations has not been material and is not
expected to be material during the next fiscal year. However, changes in
existing environmental laws and regulations or in interpretations thereof
could have a significant impact on the operating costs of the Company, as well
as the oil and natural gas industry in general. For instance, legislation has
been proposed in Congress from time to time that would reclassify certain oil
and natural gas production wastes as "hazardous wastes," which
reclassification would make exploration and production wastes subject to much
more stringent handling, disposal and clean-up requirements. State initiatives
to further regulate the disposal of oil and natural gas wastes and naturally
occurring radioactive materials are also pending in certain states, including
Texas, and these various initiatives could have a similar impact on the
Company.
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 that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator
of the disposal site or site where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and 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. The Company is able to control directly the
operation of only those wells with respect to which it acts as operator.
Notwithstanding the Company's lack of control over wells operated by others,
the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, be attributed to the Company. The
Company has no material commitments for capital expenditures to comply with
existing environmental requirements.
EMPLOYEES
As of March 31, 1996, the Company's staff consisted of 156 full-time
employees, of whom 67 were administrative personnel, 60 were field and
service-related personnel, and 29 were personnel whose duties related to
Taurus. The Company also engages independent consulting petroleum engineers,
environmental professionals, geologists, landmen, accountants and attorneys on
a fee basis.
LEGAL PROCEEDINGS
The Company is a defendant or codefendant in minor lawsuits that have arisen
in the ordinary course of business. The Company does not expect any of these
to have a material adverse effect on the Company's consolidated financial
position.
58
<PAGE>
MANAGEMENT
The executive officers and directors of the Company following completion of
the Merger are listed below, together with a description of their experience
and certain other information. Each of the directors serve for a one year
term. Executive officers are appointed by the Board of Directors. The
Company's Bylaws provide that the Chairman of the Board and the Vice Chairman
of the Board (or the President if there is no Vice Chairman) shall be
directors of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE SINCE POSITION WITH COMPANY
---- --- ------------ -------------------------------
<S> <C> <C> <C>
Douglas H. Miller.............. 48 1989 Chairman of the Board and Chief
Executive Officer
Jarl P. Johnson................ 66 1994 President of Diamond, Vice
Chairman of the Board and
Chief Operating Officer
Grant W. Henderson............. 37 1993 President, Chief Financial
Officer and Director
J. William Freeman............. 55 1990 Vice President--Engineering
J.W. Spencer, III.............. 45 1991 Vice President--Operations
Randell A. Bodenhamer.......... 41 1995 Vice President--Land
Richard A. Causey.............. 36 1995 Director
James V. Derrick, Jr........... 51 1995 Director
Gene E. Humphrey............... 49 1995 Director
C. John Thompson............... 42 1995 Director
</TABLE>
Douglas H. Miller was elected Chairman of the Board and Chief Executive
Officer of the Company in October 1989 and has served as a director of Coda
since 1987. Beginning in 1983, Mr. Miller also served as president of a
securities broker/dealer which Mr. Miller sold in 1993.
Jarl P. Johnson has been active in the oil and natural gas industry since
1953. Mr. Johnson worked for Phillips Petroleum from 1953 to 1955, and for
Kewanee Oil Co. from 1955 to 1978 where he served as Manager of Engineering
for 14 years. He worked for Hamilton Brothers Oil Company from 1978 to 1980 as
Vice President of Engineering. From 1980 to 1986 he was Vice President of
Operations for Ensource Inc. Mr. Johnson formed his own company, PetroJarl,
Inc., in 1986 to own non-operated oil and gas interests. He became President
and a director of Diamond in October 1989. Mr. Johnson joined the Company as
Vice Chairman of the Company in 1994 in connection with the Company's
acquisition of Diamond and became Chief Operating Officer of the Company upon
consummation of the Merger.
Grant W. Henderson joined the Company in October 1993 as Executive Vice
President and Chief Financial Officer of the Company. He was elected a
director of Coda in 1995 and became President of the Company upon consummation
of the Merger. Mr. Henderson also will continue to serve as Chief Financial
Officer of the Company. Mr. Henderson was previously employed by NationsBank,
beginning 1981, last serving as a Senior Vice President in its Energy Banking
Group.
J. William Freeman is a registered Professional Engineer in the State of
Texas and joined the Company in 1990 as its senior reservoir and economics
engineer. Mr. Freeman has worked in the oil and natural gas industry for 27
years, principally in the area of acquisitions of oil and natural gas
properties. Prior to 1985 Mr. Freeman was employed by Gulf Oil Corporation.
From 1985 to November 1989 he worked as an independent oil and gas engineer.
59
<PAGE>
J.W. Spencer, III has been involved in production and reservoir engineering
since 1973. From 1985 until March 1991, when he joined the Company as Vice
President--Operations of the Company, he was manager of production operations
for Conquest Exploration Company. Prior to 1985, Mr. Spencer was employed as
an engineer by Gulf Oil Corporation.
Randell A. Bodenhamer joined the Company in 1994 as Executive Vice President
of Diamond in conjunction with the Company's acquisition of Diamond. Mr.
Bodenhamer was appointed Vice President--Land of the Company in August 1995.
Prior to joining Diamond as an employee, Mr. Bodenhamer was owner of R.A.
Bodenhamer & Associates, Inc., a Tulsa-based land service company. From 1986
through 1994, Mr. Bodenhamer worked primarily for Diamond acquiring and
unitizing waterflood projects on its behalf.
Richard A. Causey currently is a Vice President of ECT and is responsible
for the treasury activities of ECT. He has been associated with ECT since
1991.
James V. Derrick, Jr. is Senior Vice President and General Counsel of Enron.
He serves on the Management Committee of Enron and is a director of Enron
Global Power & Pipelines LLC, a New York Stock Exchange-listed entity that
owns interests in certain international pipeline and power projects. He has
been associated with Enron since 1991.
Gene E. Humphrey has been with ECT since its inception in 1990, most
recently serving as Managing Director. Previously, he was a Vice President in
Citibank's Petroleum Department where he specialized in financial and
investment banking services for the oil and natural gas industry.
C. John Thompson has been employed by ECT since its inception in 1990,
serving as Vice President of the Domestic Corporate Finance Group. Previously,
he was a Partner with James C. Cooper, Inc., an investment banking firm based
in Houston, Texas.
60
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the name and address of the only stockholder
of the Company who is known by the Company to beneficially own more than five
percent of the Company's outstanding common stock, the number of shares
beneficially owned by such stockholder, and the percentage of outstanding
common stock so owned, as of March 1, 1996. As of March 1, 1996, there were
913,611 shares of common stock outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------------- -------------------- ----------
<S> <C> <C> <C>
Common Joint Energy Development 900,000 98.5
Stock Investments Limited Partnership
1400 Smith Street
Houston, Texas 77002
</TABLE>
The table appearing below sets forth information as of March 1, 1996 with
respect to shares of common stock beneficially owned by each of the Company's
directors, the Company's Chief Executive Officer and the four other most highly
compensated executive officers for 1995, and all directors and executive
officers as a group, and the percent of the outstanding common stock so owned
by each.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS DIRECTORS AND NAMED EXECUTIVE OFFICERS OWNERSHIP (1) CLASS
-------------- -------------------------------------- ------------- ----------
<C> <S> <C> <C>
Common Stock Richard A. Causey..................... -- --
Common Stock James V. Derrick, Jr.................. -- --
Common Stock T. W. Eubank (2)...................... -- --
Common Stock Grant W. Henderson.................... 4,750(4) (8)
Common Stock Gene E. Humphrey...................... -- --
Common Stock Jarl P. Johnson....................... 3,800(5) (8)
Common Stock Tommie E. Lohman(3)................... -- --
Common Stock Douglas H. Miller..................... 23,750(6) 2.5
Common Stock C. John Thompson...................... -- --
Common Stock All directors and executive officers
as a group (12 persons).............. 39,425(7) 4.2
</TABLE>
- --------
(1) Unless otherwise indicated, all shares are owned directly by the named
person and such person has sole voting and investment power with respect to
such shares.
(2) Mr. Eubank retired from the Company in February 1996.
(3) Mr. Lohman retired from Taurus in April 1996.
(4) Includes options to purchase 2,375 shares exercisable within 60 days.
(5) Includes options to purchase 1,185 shares exercisable within 60 days.
(6) Includes options to purchase 23,750 shares exercisable within 60 days.
(7) Includes all options referenced in notes (3) through (5) above; 4,708
shares held directly by other executive officers of the Company and options
to purchase 2,417 shares exercisable within 60 days held by other executive
officers of the Company.
(8) Less than one percent.
61
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for the
Company's Chief Executive Officer and the four other most highly compensated
executive officers for 1995, as well as the total compensation paid to each
such individual during the Company's last three fiscal years. Such individuals
are sometimes referred to as the "named executive officers."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND COMPENSATION OPTIONS/SARS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(6) (#) COMPENSATION($)
------------------ ---- --------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Douglas H. Miller....... 1995 218,968 16,826 13,500(7) -- 7,340(12)
Chief Executive 1994 201,469 15,938 12,000(7) 28,865 7,131(13)
Officer; Chairman of 1993 181,563 24,811 12,000(7) 17,500 6,769(14)
the Board
T. W. Eubank(1)......... 1995 187,687 14,644 13,500(7) -- 9,650(15)
President; Chief 1994 172,688 13,604 12,000(7) 24,750 9,629(16)
Operating Officer 1993 155,625 21,498 12,000(7) 15,000 9,320(17)
Grant W.
Henderson(2)........... 1995 156,406 12,338 9,750(7)(8) 100,000(11) 5,335(18)
Executive Vice 1994 143,906 10,919 -- 20,620 4,958(19)
President; Chief 1993 30,501 3,996 -- 25,000 --
Financial Officer
Tommie E.
Lohman(3).............. 1995 152,474 8,275 13,500(7) -- 7,439(20)
President--Taurus 1994 100,781 7,475 6,500(7)(9) 107,500(11) 4,928(21)
Energy Corp. 1993 -- -- -- -- --
Jarl P. Johnson(4)...... 1995 175,000 9,165 13,500(7) -- 7,627(22)
Vice Chairman of the 1994 45,854 31,104(5) 1,500(7)(10) 108,750(11) 2,100(23)
Board; President-- 1993 -- -- -- -- --
Diamond Energy
Operating Company
</TABLE>
- --------
(1) Mr. Eubank retired from the Company in February 1996.
(2) Mr. Henderson's employment did not commence until October 15, 1993, when
he joined the Company as Executive Vice President and Chief Financial
Officer. Mr. Henderson's compensation is therefore reported from October
15, 1993 through December 31, 1995.
(3) Mr. Lohman's employment did not commence until April 29, 1994, when the
Company acquired Taurus. Mr. Lohman's compensation is therefore reported
from May 1, 1994 through December 31, 1995. Mr. Lohman retired from Taurus
in April 1996.
(4) Mr. Johnson's employment did not commence until September 30, 1994, when
the Company acquired Diamond. Mr. Johnson's compensation is therefore
reported from October 1, 1994 through December 31, 1995.
(5) Includes $27,936 paid to Mr. Johnson as compensation pursuant to the terms
of the acquisition of Diamond.
(6) For each of the named executive officers, the aggregate amount of
perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the officer's total annual salary and bonus.
(7) Reflects director's fees paid by the Company of $12,000 per year (in years
prior to 1995 as $6,000 in cash and $6,000 in Common Stock, calculated
quarterly at the average market price per quarter, and during 1995 as
$9,000 in cash and $3,000 in Common Stock, calculated quarterly at the
average market price per quarter, all of which Common Stock was paid in
the first two quarters of 1995). The cash portion of the director's fees
is paid in the quarter earned while the stock portion of the director's
fees is paid after the end of such quarter.
(8) Director's fees paid to Mr. Henderson were prorated to reflect his
becoming a director on March 15, 1995.
(9) Director's fees paid to Mr. Lohman were prorated to reflect his becoming a
director on April 29, 1994. Although Mr. Lohman accrued $8,000 in
director's fees, only $6,500 of those fees were paid in fiscal year 1994.
See Note (7).
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(10) Director's fees paid to Mr. Johnson were prorated to reflect his becoming
a director on September 30, 1994. Although Mr. Johnson accrued $3,000 in
director's fees, only $1,500 of those fees were paid in fiscal year 1994.
See Note (7).
(11) Includes a warrant for the purchase of up to 100,000 shares which is
awarded to each director of the Company on the date of his election or
selection and vests 25,000 shares per year beginning on the first
anniversary of the grant.
(12) Includes $6,930 attributable to the Company's matching contribution to
its 401(k) Plan, and $410 paid by the Company for term life insurance
premium.
(13) Includes $6,742 attributable to the Company's matching contribution to
its 401(k) Plan, and $389 paid by the Company for term life insurance
premium.
(14) Includes $6,381 attributable to the Company's matching contribution to
its 401(k) Plan, and $389 paid by the Company for term life insurance
premium.
(15) Includes $9,240 attributable to the Company's matching contribution to
its 401(k) Plan, and $410 paid by the Company for term life insurance
premium.
(16) Includes $9,240 attributable to the Company's matching contribution to
its 401(k) Plan, and $389 paid by the Company for term life insurance
premium.
(17) Includes $8,931 attributable to the Company's matching contribution to
its 401(k) Plan, and $389 paid by the Company for term life insurance
premium.
(18) Includes $4,925 attributable to the Company's matching contribution to
its 401(k) Plan, and $410 paid by the Company for term life insurance
premium.
(19) Includes $4,569 attributable to the Company's matching contribution to
its 401(k) Plan, and $389 paid by the Company for term life insurance
premium.
(20) Includes $7,029 attributable to the Company's matching contribution to
its 401(k) Plan, and $410 paid by the Company for term life insurance
premium.
(21) Includes $4,747 attributable to the Company's matching contribution to
its 401(k) Plan, and $181 paid by the Company for term life insurance
premium.
(22) Includes $7,217 attributable to the Company's matching contribution to
its 401(k) Plan, and $410 paid by the Company for term life insurance
premium.
(23) Consists of $2,100 paid by the Company for term life insurance premium.
The following table sets forth certain information concerning options/SARs
granted during 1995 to the named executive officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ ----------- ---------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Douglas H. Miller....... -- -- -- -- -- --
T.W. Eubank............. -- -- -- -- -- --
Grant W. Henderson...... 100,000 100 6.00 3/15/05 377,337 956,245
Tommie E. Lohman........ -- -- -- -- -- --
Jarl P. Johnson......... -- -- -- -- -- --
</TABLE>
- --------
(1) The amounts disclosed in these columns, which reflect appreciation at the
5% and 10% rates dictated by the Commission, are not intended to be a
forecast of Common Stock price and are not necessarily indicative of the
actual values which may be realized by the named executive officers.
The following table shows aggregated option/SAR exercises in the last fiscal
year and fiscal year end option/SAR values for each of the named executive
officers:
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END ($)
ACQUIRED ON VALUE AT FY-END (#) EXERCISABLE/
NAME EXERCISE(#) REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------ ------------------------- ----------------
<S> <C> <C> <C> <C>
Douglas H. Miller....... -- -- 558,660/18,955 2,422,723/35,994
T.W. Eubank............. -- -- 76,000/18,750 266,188/35,078
Grant W. Henderson...... -- -- 25,829/119,791 43,428/177,927
Tommie E. Lohman........ -- -- 27,500/80,000 68,594/201,250
Jarl P. Johnson......... -- -- 27,917/80,833 22,475/62,135
</TABLE>
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- --------
(1) Values are calculated by subtracting the exercise price per share from the
market value per share of the Company's Common Stock at fiscal year end,
multiplied by the number of shares of Common Stock underlying the "in-the-
money" options, and assumes a fair market value at fiscal year end of
$7.4375 per share (the closing price of the Company's Common Stock on
December 29, 1995).
DIRECTORS' COMPENSATION
Following completion of the Merger, members of the Company's Board of
Directors will not receive compensation for any services provided in their
capacities as directors, other than the reimbursement of reasonable expenses
incurred in attending meetings of the Board of Directors.
Prior to completion of the Merger, the directors were compensated pursuant
to the terms of the Compensation Plan for Directors adopted during 1990 (the
"Plan"), which applied equally to non-employee directors and directors who
were also employees of the Company. The Plan provided a quarterly director's
fee of $3,000, half in cash and half in Common Stock (at the average market
price for the quarter), plus the one time grant to each director of a warrant
to purchase up to 100,000 shares of Common Stock, at an exercise price equal
to the greater of $3.00 per share or the closing trade price on the date of
the grant. Pursuant to the Merger, each of the outstanding warrants
(irrespective of whether or not such warrant was currently exercisable) was
canceled in exchange for either (i) the cash payment of the "in-the-money"
position of the warrant or (ii) equity positions with the Company following
the Merger.
Pursuant to the Plan, the cash portion of the director's compensation was
paid monthly in the month earned. The stock portion of the director's
compensation was paid quarterly, at the beginning of the quarter immediately
following the quarter in which the compensation was earned. The Plan was
amended on September 27, 1995 to provide that, effective July 1, 1995, all of
the compensation was to be paid in cash. During 1995, each director, except
for Mr. Henderson, was paid $9,000 in cash and 703 shares of Common Stock
under the Plan. Mr. Henderson was paid $8,000 in cash and 261 shares of Common
Stock under the Plan. Additionally, Messrs. Earl Ellis, David Keener and
Worthy Warnack received $20,000, $15,000 and $15,000, respectively, for their
service on the Board of Directors' Special Committee which was formed in April
1995.
EMPLOYMENT AGREEMENTS
Messrs. Douglas H. Miller, Jarl P. Johnson, Grant W. Henderson, Randell A.
Bodenhamer, J. William Freeman and J.W. Spencer, III, have entered into
employment agreements (the "Employment Agreements") with the Company which
became effective on February 16, 1996. The Employment Agreements are for a
period of five years from February 16, 1996 (three years in the case of
Messrs. Johnson and Spencer) and provide for the payment of base salaries,
together with other benefits generally available to employees of the Company,
and positions with the Company as set forth below:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY ANNUAL BASE SALARY
---- ------------------------- ------------------
<C> <S> <C>
Randell A. Bodenhamer.. Vice President--Land $145,000
J. William Freeman..... Vice President--Engineering $170,000
Grant W. Henderson..... President and Chief Financial Officer $225,000
Jarl P. Johnson........ Vice Chairman of the Board and Chief $250,000
Operating Officer
Douglas H. Miller...... Chairman of the Board and Chief Executive $350,000
Officer
J.W. Spencer, III...... Vice President--Operations $170,000
</TABLE>
Each of these persons would receive his salary for the remaining term of his
Employment Agreement if the Company were to terminate his Employment Agreement
other than for cause. The
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<PAGE>
Employment Agreements provide that the employees agree not to compete with the
Company for a period of six months after their voluntary termination or
termination for cause; in the case of Mr. Miller, the covenant not to compete
is for a period of two years, except that the noncompetition period is one
year in the event of incapacity, involuntary termination other than for cause
or his resignation due to a breach by the Company of Mr. Miller's Employment
Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors had a Compensation Committee consisting of Walter
Hailey and Frank Horlock. This committee did not meet in 1995.
CERTAIN TRANSACTIONS
CERTAIN INDEBTEDNESS
In connection with the acquisition of Taurus, Mr. Lohman made a loan to the
Company for the sum of $1.0 million in exchange for a subordinated promissory
note from the Company having a term of three years, payable in three equal
annual installments of principal plus accrued interest calculated at the rate
of 7% per annum. Such amount represented the highest outstanding balance owed
by the Company to Mr. Lohman in 1995. On December 31, 1995, the principal
balance remaining on the promissory note was $666,667. On February 16, 1996,
the Company repaid Mr. Lohman the aggregate amount of principal and interest
owed by the Company to Mr. Lohman.
Douglas H. Miller, Chairman of the Board and Chief Executive Officer of the
Company, was indebted to the Company in an aggregate amount of $83,589 as of
June 30, 1995. Such amount represented the highest outstanding balance owed by
Mr. Miller to the Company in 1995. The indebtedness consisted of three
promissory notes, dated as of May 31, 1992, October 1, 1994, and May 31, 1995,
in the original principal amounts of $19,022, $19,250 and $69,526,
respectively. The October 1, 1994 note bore interest at 3.75%, and the
remaining two notes bore interest at the prime rate charged by NationsBank
plus one percent. Except for the promissory note in the aggregate amount of
$14,490, the proceeds from which were used to purchase Common Stock under the
Company's 1994 Employee Stock Purchase Plan, all indebtedness represented Mr.
Miller's miscellaneous personal expenses. On February 20, 1996, Mr. Miller
repaid the Company an aggregate amount of $90,105 representing all
indebtedness owed by Mr. Miller to the Company.
In May 1995, Jarl P. Johnson, Vice Chairman of the Board and President of
Diamond, repaid Diamond the sum of $236,194, representing full payment of
indebtedness evidenced by a promissory note, payable on demand, bearing
interest at the rate of 10% per annum. Such amount represented the highest
outstanding balance owed by Mr. Johnson to the Company in 1995. The
indebtedness was secured by a pledge of certain shares of Common Stock owned
by Mr. Johnson. The indebtedness arose in June 1990, prior to the Company's
acquisition of Diamond, when Mr. Johnson and certain other Diamond
shareholders obtained certain properties of Diamond Energy Operating Company
in exchange for notes. The properties were then contributed to Diamond A Inc.
in exchange for shares of Diamond A Inc., which shares were in turn pledged to
secure the notes.
SUBSCRIPTION AGREEMENT
CAI entered into a Subscription Agreement dated as of October 30, 1995, as
amended by Amendment No. 1 to Subscription Agreement dated as of January 10,
1996, with members of the Management Group (as amended, the "Subscription
Agreement") which provided for the acquisition by such persons of CAI common
stock and the grant to them of nonqualified stock options to purchase shares
of post-Merger common stock (the "Replacement Options") of Coda. Under the
Subscription Agreement, each member of the Management Group who acquired CAI
common stock paid $100 per share for shares thereof, which is the same price
per share paid by JEDI for the remaining shares of
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<PAGE>
CAI common stock. Under the Subscription Agreement, the Management Group
acquired CAI common stock immediately prior to the effective time of the
Merger in exchange for varying combinations of (i) proceeds from limited
recourse promissory notes payable to CAI in the aggregate principal amount of
$937,300 (the "Promissory Notes"), (ii) Common Stock, which was valued for
this purpose at $7.75 per share, and (iii) cash. The CAI common stock so
acquired was not registered under the Securities Act or any state securities
laws and does not have the benefit of any registration rights, but is subject
to the Stockholders Agreement described below. See "--Stockholders Agreement."
By virtue of the Merger, each share of CAI common stock was converted into one
share of Coda common stock.
The Subscription Agreement provided that the Specified Options (representing
certain options to purchase Common Stock held by certain members of the
Management Group) and Specified Warrants (representing certain warrants to
purchase Common Stock held by certain members of the Management Group) would
not be exercised prior to the effective time of the Merger and would, as of
the effective time, be canceled without exercise and without payment of
consideration. Concurrently, the Management Group entered into Nonstatutory
Stock Option Agreements governing the Replacement Options that provided for
the right for a period of 10 years from and after the effective time of the
Merger to purchase shares of post-Merger Coda common stock for $0.01 per
share. However, the Replacement Options that may only be exercised while the
holder remains an employee of the Company and for a limited period of time
thereafter. The number of shares of Coda common stock underlying the
Replacement Options each member of the Management Group received is based on
the amount of cash the holder would have received if his Specified Options or
Specified Warrants had been converted into cash in the Merger on the same
basis as other outstanding options and warrants to purchase Common Stock were
converted, divided by the $100 per share purchase price paid by JEDI and the
other Management Group members for their shares of CAI common stock. Thus, if
the Replacement Options are exercised, the holders will have effectively paid
the same purchase price per share as JEDI and the Management Group paid for
their shares of common stock of Coda.
The Promissory Notes will be due on February 16, 2001, bear interest at the
mid-term applicable federal rate (annual compounding) for the month February
1996 (5.61%), are secured by the Company common stock purchased with the
proceeds thereof and certain rights of the maker under the Stockholders
Agreement described below, and provide that in no event will an individual
maker's liability thereunder for any deficiency on his respective Promissory
Note (after the sale and disposition of all collateral securing same) exceed
35% of the original principal balance of the Promissory Note.
STOCKHOLDERS AGREEMENT
CAI, JEDI and the Management Group entered into a Stockholders Agreement
dated as of October 30, 1995, as amended by Amendment No. 1 to Stockholders
Agreement dated as of January 10, 1996 (as amended, the "Stockholders
Agreement"), which provides generally that all parties, including JEDI and the
Management Group, (i) have rights of first refusal to acquire additional
shares of common stock of Coda that may be issued by Coda and (ii) are
restricted from transferring their Coda common stock. Coda has a right to
match any third party offer to purchase shares of Coda common stock from any
stockholder, and, in the event that Coda does not purchase those shares, the
other stockholders may have a right to include a pro rata portion of their
Coda common stock in the transaction. The Stockholders Agreement provides
that, if the employment of a member of the Management Group terminates for any
reason (including death or disability) other than his voluntary termination
(except upon retirement at age 65 or older or the expiration of the term of
any employment agreement he has with Coda) or his termination by Coda for
cause, then Coda shall have a right to purchase such member's shares of Coda
common stock at a purchase price to be determined from time to time by Coda
pursuant to a formula that values the shares on the basis of a comparison of
the discretionary cash flow and EBITDA (as defined therein) of the Company and
a group of peer companies. The Stockholders Agreement also provides that, if
the employment of a member of the Management Group terminates for any reason
other than voluntary termination or termination of such
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<PAGE>
member for cause, then such member shall have the right to require Coda to
purchase such member's shares of Coda common stock based on the previously
described formula. The purchase price under the formula will vary depending on
the financial performance of the Company and the group of peer companies. The
Stockholders Agreement provides that each member of the Management Group shall
have the right (the "Special Management Rights") to receive from JEDI, upon
the occurrence of certain events (generally an initial public offering, a
business combination with another person or the liquidation of Coda) (each, a
"Trigger Event"), an amount, which is payable in cash or additional shares of
Coda common stock depending upon the cause of the Trigger Event, designed to
result in the Management Group receiving in connection with the Trigger Event
one-third of the proceeds, attributable to the shares of Coda common stock
purchased by JEDI, above the amount of proceeds necessary for JEDI to achieve
an internal annual rate of return on that investment of 15%. The individual
member's interest in such Special Management Rights is proportional to such
member's ownership of the fully diluted common stock of Coda. The Stockholders
Agreement also provides that if the employment of a member of the Management
Group terminates, his Special Management Rights shall terminate and, if the
termination is other than a voluntary termination or a termination for cause,
he may be entitled to receive an amount based on the discretionary cash flow
and EBITDA formula discussed above. The Stockholders Agreement further
provides that, after the effective time of the Merger, Coda will establish an
employee benefit plan for the benefit of its employees who are not members of
the Management Group and will contribute to the plan 1,900 shares of Coda
common stock. Furthermore, pursuant to the Stockholders Agreement, 4% of the
Special Management Rights will be allocated thereto.
The Stockholders Agreement will terminate and no party thereto will have any
further obligations or rights thereunder upon the earliest to occur of (i) the
termination of the Merger Agreement in accordance with its terms, (ii) October
30, 2005, (iii) the date on which an initial public offering of Coda common
stock or any business transaction involving Coda whereby Coda common stock
becomes a publicly traded security is consummated, (iv) the date of the
dissolution, liquidation or winding-up of Coda and (v) the date of the
delivery to Coda of a written termination notice executed by certain parties
to the Stockholders Agreement.
ENRON
Enron is the parent of ECT and accordingly may be deemed to control
indirectly both JEDI and the Company. Enron and certain of its subsidiaries
and other affiliates collectively participate in nearly all phases of the oil
and natural gas industry and are, therefore, competitors of the Company. In
addition, ECT and JEDI have provided, and may in the future provide, and ECT
Securities Corp. has assisted, and may in the future assist, in arranging,
financing to non-affiliated participants in the oil and natural gas industry
who are or may become competitors of the Company. Because of these various
conflicting interests, ECT, the Company, JEDI and the Management Group have
entered into the Business Opportunity Agreement which is intended to make it
clear that Enron and its affiliates have no duty to make business
opportunities available to the Company in most circumstances. The Business
Opportunity Agreement also provides that ECT and its affiliates may pursue
certain business opportunities to the exclusion of the Company. The Business
Opportunity Agreement may limit the business opportunities available to the
Company. In addition, pursuant to the Business Opportunity Agreement there may
be circumstances in which the Company will offer business opportunities to
certain affiliates of Enron. If an Enron affiliate is offered such an
opportunity and decides to pursue it, the Company may be unable to pursue it.
See "Offer and Resale" for a discussion of ECT Securities, Inc.'s involvement
in the Offering.
During the fiscal year ended December 31, 1995, EOTT made payments to the
Company aggregating approximately $17.7 million for oil purchases. See
"Business--Marketing." Furthermore, during the fiscal year ended December 31,
1995, Enron Industrial Natural Gas Company, an indirect subsidiary of Enron
and an affiliate of JEDI, made payments aggregating approximately $1.8 million
for purchases of natural gas from Taurus.
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<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company, the initial Guarantors and Texas Commerce Bank National
Association, as trustee (the "Trustee"). The Exchange Notes will evidence the
same indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture. The form and terms
of the Exchange Notes are the same as the form and terms of the Private Notes
except that (i) the Exchange Notes will bear the Series B designation, (ii)
the Exchange Notes will have been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and (iii) holders of the Exchange Notes will not be entitled to
certain rights of holders of the Private Notes under the Registration Rights
Agreement, which rights will terminate upon consummation of the Exchange
Offer. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the Trust Indenture Act for
a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "--Certain Definitions."
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. See "Risk Factors--
Subordination." The Notes will be guaranteed on a senior subordinated basis by
all of the Company's current Subsidiaries and future Restricted Subsidiaries.
The obligation of the Restricted Subsidiaries under such guarantees will be
general unsecured obligations of such Restricted Subsidiaries and will be
subordinated in right of payment to all obligations of such Restricted
Subsidiaries in respect of Senior Debt. See "--Subsidiary Guarantees" and
"Risk Factors--Subordination."
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
For purposes of this section, the term "Company" means Coda Energy, Inc. and
the term "Taurus" has the meaning given under the caption "--Certain
Definitions."
SUBORDINATION
The payment of principal of, premium, if any, and interest and Liquidated
Damages, if any, on the Notes and any other payment obligations of the Company
in respect of the Notes (including any obligation to repurchase the Notes)
will be subordinated in certain circumstances in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, or
in an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Debt will be entitled
to receive payment in full of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such proceeding at the
rate specified in the applicable Senior Debt) before the Holders of Notes will
be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be
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<PAGE>
made to the holders of Senior Debt (except that Holders of Notes may receive
securities that are subordinated at least to the same extent as the Notes to
Senior Debt and any securities issued in exchange for Senior Debt (provided
that receipt of such securities will not cause the Notes to be treated in any
case or proceeding or similar event described in this paragraph in the same
class of claims as Senior Debt or any class of claims pari passu with Senior
Debt for any payment or distribution) and payments made from the trust
described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits, or with the giving of notice or passage of time or both (unless
cured or waived) will permit, holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company or the
holders of any Designated Senior Debt. Payments on the Notes shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated. No new period of
payment blockage may be commenced unless and until (i) 360 days have elapsed
since the date of commencement of the payment blockage period resulting from
the immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Notes that have come due
have been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency of the Company, Holders of Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. On a pro
forma basis, after giving effect to the Merger and the sale of the Private
Notes and the application of the proceeds therefrom, the principal amount of
Senior Debt outstanding at December 31, 1995 would have been approximately
$86.9 million, which includes $85.3 million of borrowings under the Credit
Agreement. See "Description of Other Debt." The Indenture will limit, subject
to certain financial tests, the amount of additional Indebtedness, including
Senior Debt, that the Company and its Restricted Subsidiaries can incur. See
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally and unconditionally guaranteed (the "Subsidiary Guarantees") by the
Guarantors. The Subsidiary Guarantee of each Guarantor will be subordinated
(to the same extent and in the same manner as the Notes are subordinated to
the Senior Debt) to the prior payment in full of all Senior Debt of such
Guarantor, which, on a pro forma basis, after giving effect to the Merger and
the sale of the Private Notes and the application of proceeds therefrom, would
have been approximately $86.9 million as of December 31, 1995. The obligations
of each Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyances."
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The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee in respect of the Notes, the Indenture and such Guarantor's Subsidiary
Guarantee; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) such transaction does not
violate any of the covenants described under the heading "--Certain
Covenants."
The Indenture will provide that in the event of a sale or other disposition
of all or substantially all of the assets of any Guarantor to a third party or
an Unrestricted Subsidiary in a transaction that does not violate any of the
covenants in the Indenture, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of such a
merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale
or other disposition of all of the assets of such Guarantor) will be released
from and relieved of any obligations under its Subsidiary Guarantee; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the covenant described under the caption "--Repurchase at the
Option of Holders--Asset Sales."
Any Guarantor that is designated an Unrestricted Subsidiary in accordance
with the terms of the Indenture shall be released from and relieved of its
obligations under its Subsidiary Guarantee and any Unrestricted Subsidiary
that ceases to be an Unrestricted Subsidiary will be required to execute a
Subsidiary Guarantee in accordance with the terms of the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $110.0 million
and will mature on April 1, 2006. Interest on the Notes will accrue at the
rate of 10 1/2% per annum and will be payable semiannually in arrears on April
1 and October 1, commencing on October 1, 1996, to Holders of record on the
immediately preceding March 15 and September 15. Interest on the Notes will
accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from the date of original issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Private Notes from
the date of initial delivery to the date of exchange thereof for the Exchange
Notes. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or,
at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders of the Notes at their
respective addresses set forth in the register of Holders of Notes; provided
that all payments with respect to Notes having an aggregate principal amount
of $5.0 million or more the Holders of which have given wire transfer
instructions to the Company at least ten business days prior to the applicable
payment date will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Until
otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000 in excess thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to April 1,
2001, except as provided below. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices
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(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on April
1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... 105.25%
2002........................................................... 102.625%
2003 and thereafter............................................ 100%
</TABLE>
Notwithstanding the foregoing, before March 12, 1999, the Company may, on
any one or more occasions, redeem up to $27.5 million in aggregate principal
amount of Notes at a redemption price of 110.5% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net proceeds of an offering of common
equity of the Company; provided that at least $82.5 million in aggregate
principal amount of Notes must remain outstanding immediately after the
occurrence of such redemption; and provided, further, that any such redemption
shall occur within 75 days of the date of the closing of such offering of
common equity of the Company.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. If any Note is to be redeemed in part only, the notice
of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest ceases to accrue on Notes or portions of them called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer,
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(ii) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control
Payment for such Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Indenture will provide that, prior to complying
with the provisions of this covenant, but in any event within 90 days
following a Change of Control, the Company will either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required
by this covenant. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash or Cash Equivalents; provided that the amount of (x)
any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet), of the Company or any Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any Liquid Securities received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash within 180 days of closing such Asset Sale,
shall be deemed to be cash for purposes of this provision (to the extent of
the cash received).
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Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt, (b) to acquire a controlling interest in another Oil and Gas Business,
to make a Permitted Business Investment, to make capital expenditures in
respect of the Company's or its Restricted Subsidiaries' Oil and Gas Business,
or to purchase long-term assets that are used or useful in the Oil and Gas
Business or (c) in the case of any Net Proceeds derived from an Asset Sale in
respect of Taurus, to redeem JEDI Preferred Stock. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
Senior Debt that is revolving debt or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will (after the expiration of the periods specified in this
paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer to all Holders of Notes and, to the
extent required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the maximum principal amount
of Notes and any such Pari Passu Indebtedness to which the Asset Sale Offer
applies that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture or the
agreements governing the Pari Passu Indebtedness, as applicable. To the extent
that the aggregate amount of Notes tendered or Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes surrendered by Holders thereof and
Pari Passu Indebtedness surrendered by holders or lenders thereof,
collectively, exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes and Pari Passu Indebtedness to be purchased on a pro rata basis,
based on the aggregate principal amount (or accreted value, as applicable)
thereof surrendered in such Asset Sale Offer. Upon completion of such Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Credit Agreement may prohibit the Company from purchasing any Notes and
also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control or Asset Sale Offer occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to
the purchase of or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company may remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
Notes.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent or other Affiliate of the Company that is not a
Subsidiary of the Company; (iii) make any
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principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Notes, except at
final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2), (3), (5), (6) and (7) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the Indenture to the end
of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the date of the
Indenture of Equity Interests of the Company (other than the JEDI Preferred
Stock) or of debt securities of the Company that have been converted into
or exchanged for such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the net
proceeds of such sale, liquidation or repayment and (B) the initial amount
of such Restricted Investment, plus (iv) 50% of any dividends received by
the Company or a Wholly Owned Restricted Subsidiary after the date of the
Indenture from an Unrestricted Subsidiary of the Company.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the
defeasance, redemption or repurchase of subordinated Indebtedness with the net
cash proceeds from an incurrence of Permitted Refinancing Debt or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any of the
Company's (or any of its Subsidiaries') employees pursuant to any management
equity subscription agreement or stock option agreement in effect as of the
date of the Indenture; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$1.5 million in any twelve-month period (plus the aggregate
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cash proceeds received by the Company during such twelve-month period from any
issuance of Equity Interests by the Company to any Principal and to employees
of the Company and its Subsidiaries); and provided further that no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (5) the redemption of the JEDI Preferred Stock, at a redemption
price equal to the liquidation preference thereof plus accrued dividends
thereon to the date of redemption, in each case calculated in accordance with
the provisions thereof as the same are in effect on the date of the Indenture,
with the net proceeds from the sale of the Equity Interests in or all or
substantially all of the assets of Taurus in accordance with the covenant
described under the caption "--Repurchase at the Option of Holders--Asset
Sales"; (6) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options; (7) the repayment of all amounts due in respect of the
JEDI Debt; and (8) other Restricted Payments in an aggregate amount not to
exceed $5.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision)
on the date of the Restricted Payment of the asset(s) proposed to be
transferred by the Company or the applicable Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than five days
after the date of making any Restricted Payment, the Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default;
provided that in no event shall the properties currently operated by Diamond
be transferred to or held by an Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time
of such designation and will reduce the amount available for Restricted
Payments under clause (c) of the first paragraph of this covenant and/or the
applicable provisions of the second paragraph of this covenant, as
appropriate. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the greatest of (x) the net book value of
such Investments at the time of such designation, (y) the fair market value of
such Investments at the time of such designation and (z) the original fair
market value of such Investments at the time they were made. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be continuing
at the time such additional Indebtedness is incurred or such Disqualified
Stock is issued or would occur as a consequence of the incurrence of the
additional Indebtedness or the issuance of the Disqualified Stock.
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Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company of Indebtedness
pursuant to Credit Facilities, so long as the aggregate principal amount of
all Indebtedness outstanding under all Credit Facilities does not, at any one
time, exceed the Borrowing Base, provided that if the Company incurs any
Indebtedness pursuant to this clause (b) that would cause the total principal
amount of Indebtedness under this clause (b) to exceed an amount equal to
$150.0 million (less the aggregate amount of all Net Proceeds of Asset Sales
including, without limitation, an Asset Sale involving Taurus, applied to
reduce Senior Debt pursuant to clause (a) of the second paragraph of the
covenant described under the caption "--Repurchase at the Option of Holders--
Asset Sales"), the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred would have been at least 2.0 to 1, determined on a pro forma basis
as set forth in the definition of Fixed Charge Coverage Ratio; (c) the
guarantee by the Guarantors of any Indebtedness that is permitted by the
Indenture to be incurred by the Company; (d) Existing Indebtedness; (e)
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Restricted Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly subordinate
to the payment in full of all Obligations with respect to the Notes and
(ii)(A) any subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary,
as the case may be; (f) Indebtedness in connection with one or more standby
letters of credit, Guarantees, performance bonds or other reimbursement
obligations, in each case, issued in the ordinary course of business and not
in connection with the borrowing of money or the obtaining of advances or
credit (other than advances or credit on open account, includible in current
liabilities, for goods and services in the ordinary course of business and on
terms and conditions which are customary in the Oil and Gas Business, and
other than the extension of credit represented by such letter of credit,
Guarantee or performance bond itself), not to exceed in the aggregate at any
given time 5% of Total Assets; (g) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness in connection with the acquisition of
assets or a new Subsidiary; provided that such Indebtedness was incurred by
the prior owner of such assets or such Subsidiary prior to such acquisition by
the Company or one of its Restricted Subsidiaries and was not incurred in
connection with, or in contemplation of, such acquisition by the Company or
one of its Restricted Subsidiaries; and provided further that (i) the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred would
have been at least 2.5 to 1, determined on a pro forma basis as set forth in
the definition of Fixed Charge Coverage Ratio and (ii) no Default or Event of
Default shall have occurred and be continuing at the time such additional
Indebtedness is incurred or would occur as a consequence of the incurrence of
such additional Indebtedness; (h) Indebtedness under Interest Rate Hedging
Agreements entered into for the purpose of limiting interest rate risks,
provided that the obligations under such agreements are related to payment
obligations on Indebtedness otherwise permitted by the terms of this covenant
and that the aggregate notional principal amount of such agreements does not
exceed the principal amount of the Indebtedness to which such agreements
relate; (i) Indebtedness under Oil and Gas Hedging Contracts, provided that
such contracts were entered into in the ordinary course of business for the
purpose of limiting risks that arise in the ordinary course of business of the
Company and its Subsidiaries; (j) the incurrence by the Company of
Indebtedness not otherwise permitted to be incurred pursuant to this
paragraph, provided that the aggregate principal amount (or accreted value, as
applicable) of all Indebtedness incurred pursuant to this clause (j), together
with all Permitted Refinancing Debt incurred pursuant to clause (k) of this
paragraph in respect of Indebtedness previously incurred pursuant to this
clause (j), does not exceed $15.0 million at any one time
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outstanding; (k) Permitted Refinancing Debt incurred in exchange for, or the
net proceeds of which are used to refinance, extend, renew, replace, defease
or refund, Indebtedness that was permitted by the Indenture to be incurred
(including Indebtedness previously incurred pursuant to this clause (k)); (l)
accounts payable or other obligations of the Company or any Subsidiary to
trade creditors created or assumed by the Company or such Subsidiary in the
ordinary course of business in connection with the obtaining of goods or
services; (m) Indebtedness consisting of obligations in respect of purchase
price adjustments, guarantees or indemnities in connection with the
acquisition or disposition of assets; (n) the incurrence by the Company's
Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any
such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company; and (o) production
imbalances that do not, at any one time outstanding, exceed two percent of the
Total Assets of the Company.
No Senior Subordinated Debt
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to any Senior Debt and senior in
any respect in right of payment to the Notes and (ii) no Guarantor will
directly or indirectly incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Guarantees issued in respect of Senior Debt and senior in any
respect in right of payment to the Subsidiary Guarantees, provided, however,
that the foregoing limitations will not apply to distinctions between
categories of Indebtedness that exist by reason of any Liens arising or
created in respect of some but not all such Indebtedness.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien securing Indebtedness of any kind (other
than Permitted Liens) upon any of its property or assets, now owned or
hereafter acquired.
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Additional
Indebtedness and Issuance of Disqualified Stock" and (b) incurred a Lien to
secure such Indebtedness pursuant to the covenant described above under the
caption "--Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by a resolution the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee, which determination shall be conclusive
evidence of compliance with this provision) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the net proceeds of such transaction in compliance with, the covenant
described above under the caption "--Repurchase at the Option of Holders--
Asset Sales."
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(x) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital
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Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (y) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties
or assets to the Company or any of its Restricted Subsidiaries, except for
such encumbrances or restrictions existing under or by reason of (a) the
Credit Agreement as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit Facility,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements, refinancings or other Credit
Facilities are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Credit Agreement as in effect
on the date of the Indenture, (b) the Indenture and the Notes, (c) applicable
law, (d) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except, in the case of Indebtedness, to the
extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person
and its Subsidiaries, or the property or assets of the Person and its
Subsidiaries, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (e)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (iii) above on the
property so acquired, or (g) Permitted Refinancing Debt, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Debt are no more restrictive than those contained in the agreements governing
the Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person and the Company may not permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions would, in the
aggregate, result in a sale, assignment, transfer, lease, conveyance, or other
disposition of all or substantially all of the properties or assets of the
Company to another Person unless (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately before and after giving effect
to such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Subsidiary of
the Company, the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Total Assets immediately after the transaction equal to or
greater than the Total Assets of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the test set forth in the first paragraph
of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
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Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any of its Affiliates (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the members of the Board of Directors who are disinterested with
respect to such Affiliate Transaction, which resolution shall be conclusive
evidence of compliance with this provision, and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal, engineering or investment banking
firm of national standing; provided that the following shall not be deemed
Affiliate Transactions: (1) any sale of hydrocarbons or other mineral products
or the entering into or performance of Oil and Gas Hedging Contracts, gas
gathering, transportation or processing contracts or oil or natural gas
marketing or exchange contracts, in each case, in the ordinary course of
business, so long as the terms of any such transaction are approved by a
majority of the members of the Board of Directors who are disinterested with
respect to such transaction as being the most favorable of at least (x) two
bids, quotes or proposals, at least one of which is from a Person that is not
an Affiliate of the Company (in the event that the Company determines in good
faith that it is able to obtain only two bids, quotes or proposals with
respect to such transaction) or (y) three bids, quotes or proposals, at least
two of which are from Persons that are not Affiliates of the Company (in all
other circumstances), (2) the repayment of all amounts due in respect of the
JEDI Debt, (3) the sale to an Affiliate of the Company of Equity Interests in
the Company that do not constitute Disqualified Stock, (4) transactions
contemplated by any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and consistent with the past practice of
the Company or such Restricted Subsidiary, including those described in this
Prospectus under the caption "Executive Compensation and Other Information--
Employment Agreements," (5) transactions between or among the Company and/or
its Restricted Subsidiaries, (6) Restricted Payments and Permitted Investments
that are permitted by the provisions of the Indenture described above under
the caption "--Restricted Payments," (7) the transactions described in this
Prospectus under the caption "Certain Transactions" and (8) the payment of
dividends on, or the redemption of, the JEDI Preferred Stock, in either case,
to the extent otherwise permitted by the Indenture.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture,
then such newly acquired or created Subsidiary will be required to execute a
Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the
terms of the Indenture, provided that the foregoing requirement shall not
apply to any newly acquired or created Subsidiary that has been properly
designated as an Unrestricted Subsidiary in accordance with the Indenture for
so long as it continues to constitute an Unrestricted Subsidiary.
Business Activities
The Company and the Guarantors will not, and will not permit any Restricted
Subsidiary to, engage in any material respect in any business other than the
Oil and Gas Business.
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Reports
Pursuant to Section 15(d) of the Exchange Act, upon effectiveness of the
Registration Statement, the Company and the Guarantors will be required to
file with the Commission reports on Form 10-K, Form 10-Q and Form 8-K for the
remainder of 1996, at a minimum. In addition, the Company and the Guarantors
have covenanted to file with the Commission, to the extent such filings are
accepted by the Commission and whether or not the Company has a class of
securities registered under the Exchange Act, the annual reports, quarterly
reports and other documents that the Company and the Guarantors would be
required to file if the Company were subject to Section 13 or 15 of the
Exchange Act, in each case on or before the dates on which such reports and
other documents would have been required to have been filed with the
Commission if the Company had been subject to Section 13 or 15 of the Exchange
Act beginning with the Company's fiscal quarter ended March 31, 1996. The
Company will also be required (a) to file with the Trustee (with exhibits),
and provide to each Holder of Notes (without exhibits), without cost to such
Holder, copies of such reports and documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, to supply at the Company's cost copies of such reports and
documents (including any exhibits thereto) to any Holder of Notes promptly
upon written request. In addition, the Company and the Guarantors have agreed
that, for so long as any Notes remain outstanding, they will furnish to the
Holders and to prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company for 30 days after
notice from the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding to comply with the provisions described
under the captions "--Repurchase at the Option of Holders--Change of Control,"
"--Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--
Restricted Payments," "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" or "--Certain Covenants--Merger, Consolidation,
or Sale of Assets"; (iv) failure by the Company for 60 days after notice from
the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes then outstanding to comply with any of its other agreements in the
Indenture or the Notes; (v) except as permitted by the Indenture, any
Subsidiary Guarantee of a Significant Subsidiary shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or any Guarantor that is a Significant Subsidiary, or
any Person acting on behalf of any such Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; (vi) default under any mortgage,
indenture or instrument under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such Indebtedness
or Guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million or more;
(vii) failure by the Company or any of its Restricted Subsidiaries to pay
final, non-appealable judgments aggregating in excess of $5.0 million, which
judgments remain unpaid or
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undischarged for a period of 60 days; and (viii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted
Subsidiary that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
April 1, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to April 1, 2001, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest, premium or Liquidated Damages, if any, on, or the
principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within
five business days of becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of
Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes, by accepting a
Note, waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties
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and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company or the Guarantors must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
interest and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company or the Guarantors must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, the Company or the Guarantors shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company or the Guarantors has received
from, or there has been published by, the Internal Revenue Service a ruling or
(B) since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company or the Guarantors shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound;
(vi) the Company or the Guarantors must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company or the Guarantors must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company or the Guarantors, as applicable, with the intent of preferring the
Holders of Notes over the other creditors of the Company or the Guarantors, as
applicable, with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or the Guarantors, as applicable, or others; and
(viii) the Company must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law
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or permitted by the Indenture. The Company is not required to transfer or
exchange any Note selected for redemption. Also, the Company is not required
to transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest or Liquidated Damages on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest or Liquidated Damages, if any, on the Notes
(except a rescission of acceleration of the Notes by the Holders of at least a
majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, or interest or Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions. Without the consent of at least 66 2/3% in aggregate
principal amount of the Notes then outstanding (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
no waiver or amendment to the Indenture may make any change in the provisions
described above under the captions "--Repurchase at the Option of Holders--
Change of Control" and "--Repurchase at the Option of Holders--Assets Sales"
that adversely affect the rights of any Holder of Notes. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 66 2/3% in
aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received
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in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign. The Trustee is a lender
to the Company under the Credit Agreement and is an affiliate of Chemical
Securities Inc. See "Description of Other Indebtedness--Credit Agreement" and
"Offer and Resale."
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The Notes to be issued as set forth herein will initially be issued in the
form of one or more permanent global certificates in definitive, fully-
registered form ("Global Note"). Each Global Note will be deposited on the
date of the closing of the exchange of the Private Notes for the Exchange
Notes offered hereby (the "Closing Date") with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of the Depositary (such nominee being referred to herein as the
"Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Notes.
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Payments in respect of the principal of, premium, if any, on any Notes
registered in the name of the Global Note Holder on the applicable record date
will be payable by the Trustee to or at the direction of the Global Note
Holder in its capacity as the registered Holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes. The Company
believes, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Note Holder
of its Global Note, Notes in such form will be issued to each person that the
Global Note Holder and the Depositary identify as being the beneficial owner
of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Global Note Holder. With respect to Certificated Securities, the
Company will make all payments of principal, premium, if any, and interest, by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof that hold at least $5.0 million in aggregate principal amount
of the Notes or, if no such account is specified or if a Holder holds less
than $5.0 million in aggregate principal amount of the Notes, by mailing a
check to each such Holder's registered address. The Notes represented by the
Global Note are expected to be eligible to trade in the Depositary's Same-Day
Funds Settlement System, and any permitted secondary market trading activity
in such Notes will, therefore, be required by the Depositary to be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such
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specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness
secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition (but
excluding the creation of a Lien) of any assets including, without limitation,
by way of a sale and leaseback (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation, or Sale of Assets" and
not by the provisions described above under "--Repurchase at the Option of
Holders--Asset Sales"), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries (including the sale by a Restricted Subsidiary of Equity
Interests in an Unrestricted Subsidiary), in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $2.0 million or (b) for net
proceeds in excess of $2.0 million. Notwithstanding the foregoing, the
following shall not be deemed to be Asset Sales: (i) a transfer of assets by
the Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (iii) a Restricted Payment or Permitted Investment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments," (iv) the sale or transfer (whether or not in
the ordinary course of business) of oil and gas properties or direct or
indirect interests in real property, provided that at the time of such sale or
transfer such properties do not have associated with them any proved reserves,
(v) the abandonment, farm-out, lease or sublease of developed or undeveloped
oil and gas properties in the ordinary course of business, (vi) the trade or
exchange by the Company or any Subsidiary of the Company of any oil and gas
property owned or held by the Company or such Subsidiary for any oil and gas
property owned or held by another Person or (vii) the sale or transfer of
hydrocarbons or other mineral products or surplus or obsolete equipment in the
ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based
calculation, provided that in no event shall the Borrowing Base exceed $250.0
million.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having a rating of at least P1 from
Moody's Investors Service, Inc. and a rating of at least A1 from Standard &
Poor's Corporation.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than a Person controlled by the
Principals, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any purchase, sale, acquisition, disposition,
merger or consolidation) the result of which is that (x) the Principals cease
to "beneficially own" (as such term is described in Rule 13d-3 and Rule 13d-5
under the Exchange Act), in the aggregate, at least 33% of the aggregate
voting power of all classes of Capital Stock of the Company having the right
to elect directors under ordinary circumstances or (y) any "person" (as
defined above) becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act) of more of the aggregate voting
power of all classes of Capital Stock of the Company having the right to elect
directors under ordinary circumstances than is owned at that time by the
Principals in the aggregate or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (together with any related provision for taxes), to the extent
such losses were deducted in computing such Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision for
taxes was included in computing such Consolidated Net Income, plus
(iii) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, depletion and
amortization expenses (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) for such Person and its Restricted Subsidiaries for such
period to the extent that such
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depreciation, depletion and amortization expenses were deducted in computing
such Consolidated Net Income, plus (v) other non-cash charges (excluding any
such non-cash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such other non-cash charges
were deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and amortization and other non-cash charges and
expenses of, a Restricted Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in same proportion) that the Net Income of such Restricted Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded and (v) the Net Income of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Subsidiaries.
"Consolidated Net Working Capital" of any Person as of any date of
determination means the difference (shown on the balance sheet of such Person
and its consolidated Subsidiaries determined on a consolidated basis in
accordance with GAAP as of the end of the most recent fiscal quarter of such
Person for which internal financial statements are available) between (i) all
current assets of such Person and its consolidated Subsidiaries and (ii) all
current liabilities of such Person and its consolidated Subsidiaries except
the current portion of long-term Indebtedness.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of February
14, 1996, by and among the Company and NationsBank of Texas, N.A., as agent
and as a lender, and certain other institutions, as lenders, providing for up
to $250.0 million of Indebtedness, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, restated, modified, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.
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"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes
are first issued and authenticated under the Indenture shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (b)
of the definition of Permitted Indebtedness.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Credit Agreement and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the Notes mature, provided that
the JEDI Preferred Stock shall not constitute Disqualified Stock.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $3.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facilities and the JEDI Debt) in existence on
the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements) and (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or any of its Restricted Subsidiaries or secured by
a Lien on assets of such Person or any of its Restricted Subsidiaries (whether
or not such Guarantee or Lien is called upon) and (iv) the product of (a) all
cash dividend payments (and non-cash dividend payments in the case of a Person
that is a Restricted Subsidiary) on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the date on which
the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, Guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
(including, without limitation, any acquisition to occur on the Calculation
Date) shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income, (ii) the net proceeds of
Indebtedness incurred or Disqualified Stock issued by the Company pursuant to
the first paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" during
the four-quarter reference period or subsequent to such reference period and
on or prior to the Calculation Date shall be deemed to have been received by
the Company on the first day of the four-quarter reference period and applied
to its intended use on such date, (iii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, and (iv) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Diamond Energy Operating Company, Taurus
Energy Corp. and Electra Resources, Inc. and (ii) any other subsidiary of the
Company that executes a Subsidiary Guarantee in accordance with the provisions
of the Indenture, and, in each case, their respective successors and assigns.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, (vii) in
respect of obligations to pay rent or other amounts with respect to a sale and
leaseback transaction to which such
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Person is a party, and (viii) in respect of any Production Payment, (b) all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person), (c) obligations of such
Person in respect of production imbalances and (d) to the extent not otherwise
included in the foregoing, the Guarantee by such Person of any indebtedness of
any other Person, provided that the indebtedness described in clauses (a)(i),
(ii), (iv) and (v) shall be included in this definition of Indebtedness only
if, and to the extent that, the indebtedness described in such clauses would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; provided that the following shall not
constitute Investments: (i) an acquisition of assets, Equity Interests or
other securities by the Company for consideration consisting of common equity
securities of the Company, (ii) Interest Rate Hedging Agreements entered into
in accordance with the limitations set forth in clause (h) of the second
paragraph of the covenant described under the caption "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock" and (iii) Oil
and Gas Hedging Agreements entered into in accordance with the limitations set
forth in clause (i) of the second paragraph of the covenant described under
the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock." If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"JEDI Preferred Stock" means all outstanding shares of the Company's 15%
Cumulative Preferred Stock held by JEDI as in effect on the date of the
Indenture, including any shares of the Company's 15% Cumulative Preferred
Stock issued thereafter as payment of accrued dividends thereon in accordance
with the terms thereof as in effect on the date of the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company and (ii) that are publicly traded on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market;
provided, that securities meeting the requirements of clauses (i) and
(ii) above shall be treated as Liquid Securities from the date of receipt
thereof until and only until the earlier of (x) the date on which such
securities are sold or exchanged for cash or cash equivalents and (y) 180 days
following the date of the closing of the Asset Sale in connection with which
such Liquid
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Securities were received. In the event such securities are not sold or
exchanged for cash or cash equivalents within such 180-day period, for
purposes of determining whether the transaction pursuant to which the Company
or a Restricted Subsidiary received the securities was in compliance with the
covenant described under the caption "--Repurchase at the Option of Holders--
Asset Sales," such securities shall be deemed not to have been Liquid
Securities at any time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
Liquid Securities or any other any non-cash consideration received in any
Asset Sale, but excluding cash amounts placed in escrow, until such amounts
are released to the Company), net of the direct costs relating to such Asset
Sale (including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness (other than
Indebtedness under any Credit Facility) secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP and any reserve established for future liabilities.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
selling and transporting of any production from such interests or properties,
(iii) any business relating to exploration for or development, production,
treatment, processing, storage, transportation or marketing of oil, gas and
other minerals and products produced in association therewith and (iv) any
activity that is ancillary to or necessary or appropriate for the activities
described in clauses (i) through (iii) of this definition.
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"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed
to provide protection against oil and gas price fluctuations.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the Notes.
"Permitted Business Investments" means investments made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as a means of actively exploiting, exploring for, acquiring,
developing, processing, gathering, marketing or transporting oil and gas
through agreements, transactions, interests or arrangements which permit one
to share risks or costs, comply with regulatory requirements regarding local
ownership or satisfy other objectives customarily achieved through the conduct
of Oil and Gas Business jointly with third parties, including, without
limitation, (i) ownership interests in oil and gas properties, processing
facilities, gathering systems or ancillary real property interests and (ii)
Investments in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling
agreements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements (whether general or limited), subscription
agreements, stock purchase agreements and other similar agreements with third
parties.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof
having maturities of not more than one year from the date of acquisition; (c)
any Investment by the Company or any Subsidiary of the Company in a Person, if
as a result of such Investment and any related transactions that, at the time
of such Investment are contractually mandated to occur (i) such Person becomes
a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as
a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (e) other
Investments in any Person having an aggregate fair market value (measured on
the date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made
pursuant to this clause (e) that are at the time outstanding, not to exceed
the greater of $5.0 million or two percent of Total Assets of the Company; (f)
Permitted Business Investments; (g) any Investment acquired by the Company in
exchange for Equity Interests in the Company (other than Disqualified Stock);
(h) Investments in Unrestricted Subsidiaries with net cash proceeds
contributed to the common equity capital of the Company since the date of the
Indenture, provided that the amount of any such net cash proceeds that are
utilized for any such Investment shall be excluded from clause (c)(ii) of the
first paragraph of the covenant described under the caption "--Certain
Covenants--Restricted Payments" and (i) shares of Capital Stock received in
connection with any good faith settlement of a bankruptcy proceeding involving
a trade creditor.
"Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or
Senior Debt that is outstanding on the date of issuance of the Notes or that
is permitted by the terms of the Indenture to be incurred; (ii) Liens securing
Attributable Debt with respect to sale and leaseback transactions permitted by
the terms of the Indenture; (iii) Liens in favor of the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens
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on property or assets of a Subsidiary existing at the time it became a
Subsidiary, provided that such Liens were in existence prior to the
contemplation of the acquisition and do not extend to any assets other than
the acquired property; (v) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance or other kinds of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business (including lessee or operator obligations under
statutes, governmental regulations or instruments related to the ownership,
exploration and production of oil, gas and minerals on state or federal lands
or waters); (vi) Liens existing on the date of the Indenture; (vii) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (viii) statutory liens of landlords,
mechanics, suppliers, vendors, warehousemen, carriers or other like Liens
arising in the ordinary course of business; (ix) judgment Liens not giving
rise to an Event of Default so long as any appropriate legal proceeding that
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (x) Liens on, or related to, properties or
assets to secure all or part or the costs incurred in the ordinary course of
the Oil and Gas Business for the exploration, drilling, development, or
operation thereof; (xi) Liens in pipeline or pipeline facilities that arise
under operation of law; (xii) Liens arising under operating agreements, joint
venture agreements, partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements that are
customary in the Oil and Gas Business; (xiii) Liens reserved in oil and gas
mineral leases for bonus or rental payments and for compliance with the terms
of such leases; (xiv) Liens not otherwise permitted by clauses (i) through
(xiii) and that are incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding; and (xv) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Facility) of the
Company or any of its Restricted Subsidiaries; provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date on or later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principal(s)" means (a) Enron Corp., (b) the California Public Employees
Retirement System, or (c) JEDI or another entity or entities, as long as JEDI
or such other entity or entities is controlled by
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(i) Enron Corp., (ii) the California Public Employees' Retirement System,
(iii) any direct or indirect wholly owned subsidiary of either such entity or
(iv) any combination of any of the foregoing entities.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of the
Company under or in respect of any Credit Facility and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not
include (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the Indenture (other than
Indebtedness under any Credit Facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted
to incur such Indebtedness under the Indenture).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Taurus" means the Company's gas gathering and processing business and the
properties and other assets related thereto, whether or not held by Taurus
Energy Corp.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Diamond or
any successor to Diamond) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, and any Subsidiary of
an Unrestricted Subsidiary; but only to the extent that such Subsidiary: (a)
has no Indebtedness other than Non-Recourse Debt; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of
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its Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries, provided, however, that the death or resignation of any such
director or executive officer shall not cause a Subsidiary that would otherwise
be an Unrestricted Subsidiary to be deemed to be a Restricted Subsidiary unless
ten days has elapsed in which the Company has failed to appoint or elect a
successor to replace such director or executive officer who satisfies the
criteria set forth in this clause (e). Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under
the caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed
to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company
of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Disqualified Stock," and (ii) no Default or Event
of Default would be in existence following such designation.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT AGREEMENT
On February 14, 1996, the Company entered into the Credit Agreement with
NationsBank, as lender and as agent, and additional lenders named therein. The
Credit Agreement is guaranteed by all of the Company's subsidiaries and
provides for a revolving credit facility in the amount of $250.0 million. The
current borrowing base is $115.0 million and is subject to redetermination:
(i) semi-annually, (ii) upon the sale of Taurus and (iii) upon issuance of
public subordinated debt in an amount greater than $100.0 million. The lenders
under the Credit Agreement have agreed to waive their right to redetermine the
borrowing base with respect to the issuance of the Notes. At March 31, 1996,
$80.0 million was outstanding under the Credit Agreement and $35.0 million was
available for borrowing thereunder. See "Use of Proceeds."
The Credit Agreement is unsecured. The Company has provided the lenders with
first lien deeds of trust on its oil and natural gas assets which will not
become effective, and the lenders have agreed not to file, unless (i) 80% of
any outstanding borrowings in excess of the borrowing limit is not repaid
within a 90 day period, (ii) cash collateral securing a hedge transaction
exceeds 20% of the borrowing limit or (iii) an event of default or a material
adverse event, as defined in the Credit Agreement, occurs.
So long as no default (as defined in the Credit Agreement) is continuing,
the Company has the option of having all or any portion of the amount borrowed
under the Credit Agreement be the subject of one of the following interest
rates: (i) NationsBank's prime rate, (ii) the CD Rate plus 1 1/4% to 1 5/8%
based upon the ratio of outstanding debt to the available borrowing base and
(iii) LIBOR plus 1 1/4% to 1 5/8% based upon the ratio of outstanding debt to
the available borrowing base. The Company must also pay a commitment fee of
between 0.375% to 0.425% on the unused portion of the credit facility. The
Credit Agreement contains various restrictive covenants, including limitations
on the granting of liens, restrictions on the issuance of additional debt,
restrictions on investments, a requirement to maintain positive working
capital, and restrictions on dividends and stock repurchases. The Credit
Agreement also contains requirements that JEDI, Enron, CalPERS or any wholly
owned subsidiary of either Enron or CalPERS must continue to own a majority of
the outstanding equity of the Company and must have the ability to elect the
majority of the Board of Directors and that certain members of management
maintain specified levels of equity ownership in the Company and continue
their employment with the Company. The Credit Agreement matures on February
16, 2001.
12% SENIOR SUBORDINATED DEBENTURES DUE 2000
On June 13, 1985, the Company issued its 12% Senior Subordinated Debentures
due 2000 (the "Debentures") under an indenture dated as of June 1, 1985,
between the Company and Texas American Bank/Dallas, as trustee. The Debentures
bear interest at 12% per annum, payable semi-annually. The Debentures will be
due on June 1, 2000 and are unsecured obligations of the Company. The
Debentures rank senior in right of payment to the Notes. At December 31, 1995,
approximately $1.2 million in aggregate principal amount of the Debentures was
outstanding.
On March 28, 1996, the Company gave notice of redemption, prior to maturity,
to each of the record holders of the outstanding Debentures. The outstanding
Debentures will be redeemed on May 1, 1996 at a redemption price of 100.0% of
the principal amount of the Debentures plus accrued and unpaid interest
thereon to May 1, 1996. On May 1, 1996, the Company will deposit with the
trustee of the Debentures funds sufficient to so redeem the Debentures, and
thereafter interest on the Debentures will cease to accrue.
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DESCRIPTION OF CAPITAL STOCK OF CODA
COMMON STOCK
The authorized common stock of Coda aggregates 1,000,000 shares, par value
$0.01 per share. As of February 19, 1996, 913,611 shares of common stock were
outstanding. The holders of shares of common stock possess full voting power
for the election of directors and for all other purposes, each holder of
common stock being entitled to one vote for each share of common stock held of
record by such holder. The shares of common stock do not have cumulative
voting rights. Holders of a majority of the shares of common stock represented
at a meeting may currently approve most actions submitted to the stockholders
except for certain corporate actions (e.g., mergers, sale of assets and
charter amendments), which require the approval of holders of a majority of
the total outstanding shares of common stock. Coda has never paid dividends on
its common stock.
Subject to the rights of holders of any outstanding shares of Preferred
Stock, dividends may be paid on the common stock as and when declared by
Coda's Board of Directors out of any funds of Coda legally available for the
payment thereof. Holders of common stock have no subscription, redemption,
sinking fund, conversion or preemptive rights, except for certain put and call
rights described in "Certain Transactions." The outstanding shares of common
stock are fully paid and nonassessable. After payment is made in full to the
holders of any outstanding shares of Preferred Stock in the event of any
liquidation, dissolution or winding up of the affairs of Coda, the remaining
assets and funds of Coda will be distributed to the holders of common stock
according to their respective shares. The common stock is held by 16 holders
of record. There is no established trading market for the common stock.
PREFERRED STOCK
Under Coda's Restated Certificate of Incorporation, the Board of Directors
is authorized to issue up to 40,000 shares of preferred stock, par value $0.01
per share. All 40,000 shares of preferred stock are designated as "15%
Cumulative Preferred Stock." The holders of each share of Preferred Stock are
entitled to receive, when and as declared by the Board of Directors,
cumulative preferential dividends, at the rate of $150.00 per share per annum.
There are currently 20,000 shares of Preferred Stock issued and outstanding.
Shares of Preferred Stock in excess of such 20,000 shares shall be issuable
only for the purpose of paying dividends on the Preferred Stock.
As long as any shares of Preferred Stock are outstanding, no dividends
whatsoever, whether paid in cash, stock or otherwise (except for dividends
paid in shares of common stock, either in the form of a stock split or stock
dividend), may be paid or declared, nor may any distribution be made, on any
common stock to the holders of such stock, unless certain conditions are met.
Coda's Restated Certificate of Incorporation requires that Coda redeem all
the issued and outstanding shares of Preferred Stock at a redemption price of
$1,000 per share, plus all accrued and unpaid dividends (including undeclared
dividends) to the date of redemption, if Coda has sufficient funds legally
available for such redemption and if such redemption would not violate or
conflict with any loan agreement, credit agreement, note agreement, indenture
or other agreement relating to indebtedness to which Coda is a party, on or
before the fifth business day after the earliest to occur of the following:
(i) the closing of the sale by Coda of Taurus and (ii) a Trigger Event, as
such term is defined in the Stockholders Agreement. The Preferred Stock may be
redeemed by Coda at its option, as a whole or in part, to the extent Coda
shall have funds legally available for such redemption, at any time or from
time to time at a redemption price of $1,000 per share, plus all accrued and
unpaid dividends (including undeclared dividends) to the date of redemption.
Such redemption, whether required or optional, is restricted by the Credit
Agreement and the Indenture.
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Upon the complete liquidation, dissolution, or winding up of Coda, whether
voluntarily or involuntarily, the holders of Preferred Stock shall be
entitled, after payment or provision for payment of the debts and other
liabilities of Coda but before any distribution is made to the holders of any
common stock, to be paid $1,000 per share plus all accrued and unpaid
dividends (including undeclared dividends), and shall not be entitled to any
further payment.
Except as otherwise provided herein or required by law, the holders of
shares of Preferred Stock shall not be entitled to vote on any matters to be
voted on by the stockholders of Coda; provided, however, that so long as any
shares of the Preferred Stock are outstanding, Coda shall not, without the
written consent or the affirmative vote of holders of at least a majority of
the total number of shares of Preferred Stock then outstanding and voting as a
class, (i) amend its Certificate of Incorporation or Bylaws or (ii) authorize
the merger (whether or not Coda is a surviving corporation in such merger) of
Coda, in each case, if such amendment or merger would alter, change or abolish
the powers, preference or rights of the Preferred Stock so as to affect the
holders of the Preferred Stock adversely.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Haynes and Boone, L.L.P., counsel to the Company, the
following discussion describes the material federal income tax consequences
expected to result to holders whose Private Notes are exchanged for Exchange
Notes in the Exchange Offer. Such opinion is based upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), applicable
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought with respect to the Exchange Offer. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders. Certain holders (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States) may be subject to special rules not discussed below. EACH
HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a "non-
event" for federal income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the Private Notes. As a
result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Company has agreed that for
a period of up to one year after the effective date of the Registration
Statement, it will make this Prospectus, as amended or supplemented, available
to any broker-dealer that requests such document in the Letter of Transmittal
for use in connection with any such resale.
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The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters related to the Exchange Notes offered hereby are being
passed upon for the Company by Mr. Joe Callaway, Vice President and General
Counsel of the Company, and by Haynes and Boone, L.L.P., Dallas, Texas. Mr.
Callaway currently holds 475 shares, and options to purchase 475 shares, of
Coda common stock.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1995, and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The estimates as of December 31, 1991, 1992, 1993, 1994 and 1995 relating to
the Company's proved oil and natural gas reserves, future net revenues of oil
and natural gas reserves and present value of future net revenues of oil and
natural gas reserves included herein are based upon estimates of such reserves
prepared by Lee Keeling and Associates, Inc. in reliance upon its reports and
upon the authority of this firm as experts in petroleum engineering, except
that such estimates related to the reserves of Diamond as of December 31,
1991, 1992 and 1993 were prepared by Diamond's in-house engineers.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in
the Registration Statement. For further information with respect to the
Company and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. As a result of the
Exchange Offer, the Company will become subject to the informational
requirements of the Exchange Act. The Registration Statement (and the exhibits
and schedules thereto), as well as the periodic reports and other information
filed by the Company with the Commission, may be inspected and copied at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 6061-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
New York, New York and Chicago, Illinois at the prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
Pursuant to the Indenture, the Company has agreed that, to the extent such
filings are accepted by the Commission and whether or not it has a class of
securities registered under the Exchange Act, it will file the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15 of the Exchange Act, in each case
on or before the dates on which such reports and other documents would have
been required to have been filed with the Commission if the Company had been
subject to Section 13 or 15 of the Exchange Act. The Company will also be
required (i) to file with the Trustee (with exhibits), and provide to each
holder of Notes (without exhibits), without cost to such holder, copies of
such reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company
were so required and (ii) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at its cost copies of such reports and documents
(including any exhibits thereto) to any holder of Notes promptly upon written
request.
The principal address of the Company is 5735 Pineland Drive, Suite 300,
Dallas, Texas 75231, and the Company's telephone number is (214) 692-1800.
101
<PAGE>
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
"AVERAGE NYMEX PRICE." The average of the NYMEX closing prices for the near
month.
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 of natural gas.
"BEHIND THE PIPE." Hydrocarbons in a potentially producing horizon penetrated
by a well bore the production of which has been postponed pending the
production of hydrocarbons from another formation penetrated by the well bore.
These hydrocarbons are classified as proved but non-producing reserves.
BOE. Barrels of oil equivalent (converting six Mcf of natural gas to one Bbl
of oil).
"DEVELOPMENT WELL." A well drilled within the proven boundaries of an oil or
natural gas reservoir with the intention of completing the stratigraphic
horizon known to be productive.
"GROSS WELLS." The total number of wells in which a working interest is
owned.
"INFILL WELL." A well drilled between known producing wells to better exploit
the reservoir.
MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
MMBTU. One million British thermal units.
MCF. One thousand cubic feet of natural gas.
M GALLONS. One thousand U.S. gallons liquid volume, used herein in reference
to natural gas liquids.
MMBBLS. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million barrels of oil equivalent.
MMCF. One million cubic feet of natural gas.
"NET WELLS." The sum of the fractional working interests owned in gross
wells.
NYMEX. New York Mercantile Exchange.
"PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES." The present value of
estimated future net revenues is an estimate of future net revenues from a
property at its acquisition date, at December 31, 1995, or as otherwise
indicated, after deducting production and ad valorem taxes, future capital
costs and operating expenses, but before deducting federal income taxes. The
future net revenues have been discounted at an annual rate of 10% to determine
their "present value." The present value is shown to indicate the effect of
time on the value of the revenue stream and should not be construed as being
the fair market value of the properties. Estimates have been made using
constant oil and natural gas prices and operating costs at the acquisition
date, at December 31, 1995, or as otherwise indicated.
102
<PAGE>
"PRODUCING WELL," "PRODUCTION WELL" OR "PRODUCTIVE WELL." A well that is
producing oil or natural gas or that is capable of production.
"PROVED DEVELOPED RESERVES." Proved developed reserves are those quantities
of crude oil, natural gas and natural gas liquids that, upon analysis of
geological and engineering data, are expected with reasonable certainty to be
recoverable in the future from known oil and natural gas reservoirs under
existing economic and operating conditions. This classification includes: (a)
proved developed producing reserves, which are those expected to be recovered
from currently producing zones under continuation of present operating
methods; and (b) proved developed non-producing reserves, which consist of (i)
reserves from wells that have been completed and tested but are not yet
producing due to lack of market or minor completion problems that are expected
to be corrected, and (ii) reserves currently behind the pipe in existing wells
which are expected to be productive due to both the well log characteristics
and analogous production in the immediate vicinity of the well.
"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." Proved reserves that may be expected to be
recovered from existing wells that will require a relatively major expenditure
to develop or from undrilled acreage adjacent to productive units that are
reasonably certain of production when drilled.
"ROYALTY INTEREST." An interest in an oil and natural gas property entitling
the owner to a share of oil and natural gas production free of costs of
production.
"WORKING INTEREST." The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and to 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.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Financial Statements:
Pro Forma Condensed Statement of Operations for the year ended December
31, 1995............................................................... F-3
Pro Forma Condensed Balance Sheet as of December 31, 1995............... F-4
Notes to Pro Forma Condensed Financial Statements....................... F-5
Historical Financial Statements:
Report of Ernst and Young LLP, Independent Auditors..................... F-8
Consolidated Balance Sheets as of December 31, 1994 and 1995............ F-9
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995.................................................... F-10
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995.................................................... F-11
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993 1994 and 1995........................................ F-12
Notes to Consolidated Financial Statements.............................. F-13
</TABLE>
F-1
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed statements of operations of
Coda Energy, Inc. (the "Company") for the year ended December 31, 1995 have
been prepared as if the acquisition of the Snyder Properties and the Merger
(each as more fully described in the notes to pro forma condensed financial
statements) had occurred on January 1, 1995. The accompanying unaudited pro
forma condensed balance sheet of the Company as of December 31, 1995 has been
prepared as if the Merger, the sale of the Private Notes and the Exchange
Offer had occurred on that date. Because the Exchange Notes are being issued
under the same financial terms and conditions, the Exchange Offer has no
impact on the pro forma data.
The historical financial information of the Company was obtained from the
audited consolidated financial statements for the year ended December 31, 1995
contained elsewhere in this document. The historical financial information of
the Snyder Properties was obtained from internal reports prepared by the
seller and is unaudited. The unaudited pro forma condensed financial
statements do not purport to represent the financial position or results of
operations which would have occurred had such transactions been consummated on
the dates indicated or the Company's financial position or results of
operation for any future date or period. These unaudited pro forma condensed
financial statements should be read in conjunction with the historical
financial statements of the Company.
F-2
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
SNYDER FOR THE FOR THE MERGER,
PROPERTIES ACQUISITION OF THE SALE OF THE
COMPANY NINE MONTHS THE SNYDER PRIVATE NOTES AND
HISTORICAL HISTORICAL PROPERTIES THE EXCHANGE OFFER PRO FORMA
---------- ----------- -------------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales..... $60,997 $5,159 $ 66,156
Gas marketing,
gathering, and
processing........... 35,634 35,634
Other income.......... 1,207 921 $ (921)/(1)/ 1,207
------- ------ ------- --------
97,838 6,080 (921) 102,997
------- ------ ------- --------
Costs and expenses:
Oil and gas
production........... 27,119 3,425 30,544
Gas gathering and
processing........... 30,473 30,473
Depletion,
depreciation, and
amortization......... 19,715 1,295 /(2)/ $ 6,760 /(5)/ 27,770
General and
administrative....... 2,898 (921)/(1)/ 1,977
(2,545)/(6)/
Interest.............. 8,676 899 /(3)/ 11,550 /(7)/ 18,840
260 /(8)/
------- ------ ------- --------- --------
88,881 3,425 1,273 16,025 109,604
------- ------ ------- --------- --------
Income (loss) before
income taxes........... 8,957 2,655 (2,194) (16,025) (6,607)
Income tax expense
(benefit).............. 3,202 157 /(4)/ (5,769)/(9)/ (2,410)
------- ------ ------- --------- --------
Net income (loss)....... 5,755 2,655 (2,351) (10,256) (4,197)
Preferred stock
dividends.............. -- 3,000 /(10)/ 3,000
------- ------ ------- --------- --------
Net income (loss)
applicable to common
stockholders........... $ 5,755 $2,655 $(2,351) $ (13,256) $ (7,197)
======= ====== ======= ========= ========
</TABLE>
F-3
<PAGE>
CODA ENERGY, INC.
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR THE
---------------------------------
SALE OF THE
PRIVATE NOTES
COMPANY AND THE
HISTORICAL MERGER EXCHANGE OFFER PRO FORMA
---------- --------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
$ 210,000 /(11)/ $ 107,250 /(19)/
26 /(12)/ 2,000 /(20)/ $ 4,858
Cash.................. $ 4,604 (122,667)/(13)/ 550 /(21)/
95,000 /(14)/ (109,800)/(22)/
(176,213)/(15)/
(5,892)/(16)/
Accounts receivable,
net.................. 13,061 13,061
Other current assets.. 2,206 2,206
-------- --------- --------- --------
19,871 254 -- 20,125
Amounts due from
stockholders........... 81 81
Unproved properties..... -- 1,000 /(17)/ 1,000
Oil and gas properties,
net.................... 170,608 161,605 /(17)/ 241,254
(90,959)/(18)/
Gas plants and gathering
systems, net........... 33,986 33,986
Other properties, net... 2,142 2,000 /(17)/ 4,142
2,000 /(16)/ 2,750 /(19)/
Other assets............ 2,376 (608)/(16)/ (2,000)/(20)/ 3,781
(187)/(17)/ (550)/(21)/
-------- --------- --------- --------
$229,064 $ 75,105 $ 200 $304,369
======== ========= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of
long-term debt....... $ 453 $ (333)/(13)/ $ 120
Accounts payable and
accrued expenses..... 11,116 11,116
-------- --------- --------
11,569 (333) 11,236
(122,334)/(13)/
Long-term debt, less
current maturities..... 123,907 95,000 /(14)/ $(9,800)/(22)/ 86,938
165 /(17)/
JEDI debt............... -- 100,000 /(11)/ (100,000)/(22)/ --
Notes................... -- 110,000 /(19)/ 110,000
Deferred income taxes... 14,400 59,131 (/1//7/) 40,786
(32,745)(/1//8/)
Redeemable preferred
stock.................. -- 20,000 /(11)/ 20,000
Common stockholders' eq-
uity of management,
subject to put and call
rights:
Additional paid-in
capital.............. -- 4,560 /(12)/ 4,560
Notes receivable...... -- (937)/(12)/ (937)
-------- --------- --------
-- 3,623 3,623
-------- --------- --------
Other common
stockholders' equity:
9 /(11)/
Common stock.......... 442 (1)/(12)/ 9
(441)/(15)/
89,991 /(11)/
(397)/(12)/
Additional paid-in
capital.............. 68,671 (175,772)/(15)/ 89,991
(4,500)/(16)/
111,998 /(17)/
(3,199)/(12)/
Retained earnings
(deficit)............ 10,075 (6,876)/(17)/ (58,214)
(58,214)/(18)/
-------- --------- --------
79,188 (47,402) 31,786
-------- --------- --------- --------
$229,064 $ 75,105 $ 200 $304,369
======== ========= ========= ========
</TABLE>
F-4
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--PRO FORMA ADJUSTMENTS FOR THE ACQUISITION OF THE SNYDER PROPERTIES
In October 1995, the Company acquired interests in 63 producing oil and gas
properties located in west Texas from Snyder Oil Company (the "Snyder
Properties"). The aggregate purchase price was $17.1 million in cash, of which
$16.0 million was financed by borrowings under the Company's then-existing
credit agreement. The acquisition was accounted for by the purchase method of
accounting. Prior to the acquisition, the Snyder Properties were included in
the consolidated financial statements of the seller and were not accounted for
as a separate entity.
The accompanying unaudited pro forma condensed statement of operations has
been prepared as if the acquisition of the Snyder Properties occurred on
January 1, 1995 and reflects the following adjustments:
(1) To reclassify fees from overhead charges billed to working interest
owners, which are classified as a reduction of general and administrative
expenses in the Company's consolidated statements of operations.
(2) To adjust depletion, depreciation and amortization to reflect the
effect of the acquisition of the Snyder Properties. Depletion, depreciation
and amortization of oil and gas properties is computed using the unit-of-
production method.
(3) To adjust interest expense for the estimated amounts the Company
would have incurred on the incremental borrowings pursuant to the Company's
credit facility used to acquire the Snyder Properties. The interest rate
used was based on the interest rate options provided for in the Company's
credit facility in effect at the time.
(4) To adjust the provision for income taxes for the change in financial
taxable income resulting from inclusion of the historical results of the
Snyder Properties and adjustments (2) and (3).
NOTE B--PRO FORMA ADJUSTMENTS FOR THE MERGER, THE SALE OF THE PRIVATE NOTES
AND THE EXCHANGE OFFER
On February 16, 1996, pursuant to an Agreement and Plan of Merger dated as
of October 30, 1995 (as subsequently amended, the "Merger Agreement") by and
among Coda Energy, Inc. ("Coda"), Joint Energy Development Investments Limited
Partnership ("JEDI"), an affiliate of Enron Capital & Trade Resources Corp.,
and Coda Acquisition, Inc. ("Purchaser"), a subsidiary of JEDI, JEDI acquired
Coda through a merger (the "Merger") at a price of $7.75 per share in cash.
The sources and uses of funds related to the Merger are as follows (in
millions):
<TABLE>
<S> <C>
Sources of funds:
Credit agreement...................................................... $ 95.0
JEDI debt............................................................. 100.0
Redeemable preferred stock issued to JEDI............................. 20.0
Common stock issued to JEDI........................................... 90.0
------
$305.0
======
Uses of funds:
Payments to Coda stockholders, warrantholders and optionholders....... $176.2
Repayment of former credit facility and other indebtedness............ 122.7
Merger costs and other expenses....................................... 6.1
------
$305.0
======
</TABLE>
F-5
<PAGE>
Concurrently with the execution of the Merger Agreement, JEDI and Purchaser
entered into certain agreements with members of management of the Company
concerning their employment with and/or equity participation in the Company
after the Merger.
The Merger will be accounted for using the purchase method of accounting. As
such, JEDI's cost of acquiring Coda will be allocated to the assets and
liabilities acquired based on estimated fair values. As a result, the
Company's financial position and operating results subsequent to the date of
the Merger will reflect a new basis of accounting and will not be comparable
to prior periods.
Following the Merger, the Company issued $110 million principal amount of
Senior Subordinated Notes due 2006 and used $100 million of the proceeds
therefrom to repay all of the subordinated debt owed to JEDI. The remaining
net proceeds together with the reimbursements described below were used to
repay approximately $9.8 million in debt outstanding under the Credit
Agreement. ECT Securities Corp. refunded to the Company $2.0 million in fees
paid in connection with the issuance of the JEDI debt. Further, the Purchasers
of the Private Notes reimbursed the Company for costs and expenses in the
amount of $550,000.
The Company is offering to exchange the Exchange Notes for the Private
Notes. The Private Notes were sold in transactions exempt from registration
under the Securities Act on March 18, 1996. The Exchange Offer is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement and Purchase Agreement. Because the Exchange Notes are being issued
under the same financial terms and conditions as the Private Notes, the
Exchange Offer has no impact on the pro forma data.
The accompanying unaudited pro forma condensed statement of operations has
been prepared as if the Merger, the sale of the Private Notes and the Exchange
Offer had occurred on January 1, 1995 and reflects the following adjustments:
(5) To adjust depletion, depreciation, and amortization to reflect JEDI's
purchase price allocated to property and equipment.
(6) To adjust interest expense to give effect to the net reduction of
approximately $36.8 million under the Company's credit facility and
repayment of the note payable to an officer of the Company, partially
offset by an increase in the interest rate on borrowings under the new
credit facility of .25%.
(7) To record interest on the Notes at an interest rate of 10 1/2%.
(8) To record amortization of the cost of the Notes over the term such
debt is expected to be outstanding (10 years).
(9) To adjust the provision for income taxes for the change in financial
taxable income resulting from adjustments (5), (6), (7) and (8).
(10) To record the cumulative dividend requirements of the redeemable
preferred stock issued to JEDI.
The accompanying unaudited pro forma condensed balance sheet has been
prepared as if the Merger had occurred on December 31, 1995, and reflects the
following adjustments:
(11) To record cash received from JEDI in exchange for subordinated debt
($100.0 million), 15% cumulative redeemable preferred stock ($20.0 million)
and common stock ($90.0 million).
(12) To record common stock and stock options issued to management
investors in exchange for cash ($26,000), Coda common stock ($398,000),
notes receivable ($937,000) and in-the-money Coda common stock options
($3.2 million).
(13) To record repayment of debt outstanding under the existing credit
agreement and the note payable to an officer of the Company.
F-6
<PAGE>
(14) To record borrowings under the Company's new credit agreement.
(15) To record the purchase of the outstanding Coda common stock and the
in-the-money outstanding options and warrants for cash based on a price of
$7.75 per share of Coda common stock.
(16) To record the payment of the estimated transaction costs.
(17) To adjust assets and liabilities based on purchase accounting to
estimated fair values based on JEDI's purchase price. JEDI's purchase price
has been allocated to the consolidated assets and liabilities of the
Company based on preliminary estimates of fair values. Accordingly, the
information presented herein may differ from the actual purchase price
allocation. No goodwill has been recorded in this transaction.
(18) To adjust the carrying value of proved oil and gas properties
pursuant to the full cost method of accounting. Under the full cost method
of accounting, the carrying value of oil and gas properties (net of related
deferred taxes) is generally not permitted to exceed the sum of the present
value (10% discount rate) of estimated future net cash flows from proved
reserves, based on current prices and costs, plus the lower of cost or
estimated fair value of unproved properties (the "cost center ceiling").
Based upon the preliminary allocation of JEDI's purchase price and
estimated proved reserves and product prices in effect at the date of the
Merger, the purchase price allocated to oil and gas properties (net of
related deferred taxes) would be in excess of the cost center ceiling by
approximately $58.2 million. The resulting writedown will be included in
the results of operations in the period the Merger was consummated. The
actual amount of such writedown will increase or decrease as a result of
finalization of the purchase price allocation and changes in estimated
proved reserves at the date of the Merger.
The accompanying unaudited pro forma condensed balance sheet has been
prepared as if the sale of the Private Notes and the Exchange Offer occurred
on December 31, 1995, and reflects the following adjustments:
(19) To record the issuance of $110.0 million principal amount of Notes
and receipt of the estimated proceeds therefrom of $107.3 million.
(20) To record the receipt of the fee refund from ECT Securities Corp.
(21) To record the receipt of the cost and expense reimbursement from the
Purchasers.
(22) To record the repayment of the JEDI debt and partial repayment of
debt outstanding under the Credit Agreement.
F-7
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Coda Energy, Inc.
We have audited the accompanying consolidated balance sheets of Coda Energy,
Inc., and subsidiaries (the "Company") as of December 31, 1994 and 1995, and
the related consolidated statements of operations, cash flows, and
stockholders' equity 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 consolidated
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 Coda Energy, Inc., and subsidiaries at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 17, 1996
F-8
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 6,474 $ 4,604
Accounts receivable--revenue............................... 7,551 10,598
Accounts receivable--joint interest and other.............. 1,766 2,463
Other current assets....................................... 1,276 2,206
-------- --------
17,067 19,871
Amounts due from stockholders................................ 1,375 81
Oil and gas properties (full cost accounting method)......... 190,967 226,650
Less accumulated depletion, depreciation, and amortiza-
tion...................................................... 39,154 56,042
-------- --------
Oil and gas properties, net.............................. 151,813 170,608
Gas plants and gathering systems, at cost.................... 29,835 38,068
Less accumulated depreciation.............................. 1,492 4,082
-------- --------
Gas plants and gathering systems, net.................... 28,343 33,986
Other properties, net........................................ 2,150 2,142
Other assets................................................. 2,354 2,376
-------- --------
$203,102 $229,064
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt....................... $ 424 $ 453
Accounts payable--trade.................................... 5,954 7,252
Accounts payable--revenue and other........................ 3,599 3,394
Accrued interest........................................... 1,375 342
Income taxes payable....................................... 733 128
-------- --------
12,085 11,569
Long-term debt, less current maturities...................... 105,063 123,907
Deferred income taxes........................................ 11,213 14,400
Commitments and contingencies
Stockholders' equity:
Preferred stock, 7,500 shares authorized; none issued...... -- --
Common stock, $.02 par value; 40,000 shares authorized;
22,228 and 22,089 shares issued at December 31, 1994 and
1995, respectively........................................ 445 442
Additional paid-in capital................................. 69,976 68,671
Retained earnings subsequent to June 30, 1989.............. 4,320 10,075
-------- --------
Total stockholders' equity............................... 74,741 79,188
-------- --------
$203,102 $229,064
======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas sales................................. $ 38,877 $ 50,683 $ 60,997
Gas gathering and processing...................... 732 20,081 35,634
Other income...................................... 441 822 1,207
-------- -------- --------
40,050 71,586 97,838
Costs and expenses:
Oil and gas production............................ 17,590 21,646 27,119
Gas gathering and processing...................... 570 17,357 30,473
Depletion, depreciation, and amortization......... 10,808 16,419 19,715
General and administrative........................ 2,596 3,144 2,898
Business combination.............................. -- 1,829 --
Interest.......................................... 4,834 5,281 8,676
-------- -------- --------
36,398 65,676 88,881
-------- -------- --------
Income before income taxes.......................... 3,652 5,910 8,957
Income tax expense.................................. 1,318 2,581 3,202
-------- -------- --------
Net income.......................................... $ 2,334 $ 3,329 $ 5,755
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,334 $ 3,329 $ 5,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation, and amortization........ 10,808 16,419 19,715
Deferred income tax expense...................... 1,038 1,567 3,187
Amortization of deferred financing costs......... -- 554 101
Amortization of prepaid gas purchases............ -- -- 440
Other............................................ 183 123 55
Effect of changes in:
Accounts receivable............................. (1,545) 589 (3,849)
Other current assets............................ (221) 60 (558)
Accounts payable and other current liabilities.. 3,846 346 (545)
------- ------- -------
Net cash provided by operating activities..... 16,443 22,987 24,301
Cash flows from investing activities:
Additions to oil and gas properties................ (34,375) (49,732) (41,079)
Additions to gas plant and gathering systems and
other property.................................... (646) (4,130) (8,500)
Business combinations.............................. (5,074) (3,250) --
Investment in common equity securities............. -- -- (573)
Payments received on amounts due from
stockholders...................................... -- -- 1,294
Proceeds from sale of assets....................... 441 2,515 5,722
Prepaid long-term gas purchases.................... -- (1,759) --
Other, net......................................... (137) (423) 106
------- ------- -------
Net cash used in investing activities......... (39,791) (56,779) (43,030)
Cash flows from financing activities:
Proceeds from common stock offering, net........... 36,128 -- --
Repayment of long-term debt........................ (53,286) (41,542) (11,551)
Proceeds from bank borrowings...................... 43,217 76,350 30,400
Proceeds from exercise of stock options and
warrants.......................................... 972 2,370 772
Repurchases of common stock........................ (68) (812) (2,125)
Other, net......................................... (804) (140) (637)
------- ------- -------
Net cash provided by financing activities..... 26,159 36,226 16,859
------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 2,811 2,434 (1,870)
Cash and cash equivalents at beginning of year...... 1,229 4,040 6,474
------- ------- -------
Cash and cash equivalents at end of year............ $ 4,040 $ 6,474 $ 4,604
======= ======= =======
Supplemental cash flow information:
Interest paid...................................... $ 4,364 $ 3,788 $ 9,584
======= ======= =======
Income taxes paid.................................. $ 156 $ 300 $ 618
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------- ----------------
ADDITIONAL RETAINED
PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
------ ------ ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31,
1992.................... 12,850 $257 $20,891 $(1,218) 524 $ 981
Common stock issued for
cash, net............... 6,789 136 35,992 -- -- --
Shares issued as director
compensation............ 8 -- 41 -- -- --
Shares issued upon
exercise of stock
options and warrants.... 339 7 965 -- -- --
Cancellation of treasury
stock................... (524) (11) (970) -- (524) (981)
Repurchase and
cancellation of common
stock................... (7) -- (68) -- -- --
Dividends on Diamond
Energy Operating Company
common stock............ -- -- -- (125) -- --
Net income............... -- -- -- 2,334 -- --
------ ---- ------- ------- ------ -------
Balances December 31,
1993.................... 19,455 389 56,851 991 -- --
Shares issued as director
compensation............ 7 -- 44 -- -- --
Shares issued upon
exercise of stock
options and warrants.... 788 16 2,355 -- -- --
Common stock issued to
purchase Taurus Energy
Corp.................... 1,500 30 7,265 -- -- --
Repurchase and
cancellation of common
stock................... (157) (3) (809) -- -- --
Common stock issued to
acquire reversionary
interests in oil and gas
properties.............. 635 13 4,270 -- -- --
Net income............... -- -- -- 3,329 -- --
------ ---- ------- ------- ------ -------
Balances December 31,
1994.................... 22,228 445 69,976 4,320 -- --
Shares issued as director
compensation............ 7 -- 45 -- -- --
Shares issued upon
exercise of stock
options and warrants.... 225 5 767 -- -- --
Repurchase and
cancellation of common
stock................... (371) (8) (2,117)
Net income............... -- -- -- 5,755 -- --
------ ---- ------- ------- ------ -------
Balances December 31,
1995.................... 22,089 $442 $68,671 $10,075 -- $ --
====== ==== ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION--
The consolidated financial statements include the accounts of Coda Energy,
Inc. ("Coda"), its majority owned subsidiaries, and its pro rata share of the
assets, liabilities, and operations of oil and gas limited partnerships and
joint ventures (the "Company"). See Note 2. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to amounts reported in prior years to conform
with the current presentation.
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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include commercial
paper or deposits with major financial institutions with maturities of three
months or less when purchased.
ACCOUNTS RECEIVABLE--Substantially all of the Company's accounts receivable
arise from sales of oil, natural gas, or natural gas liquids or from
participants in oil and gas wells for which the Company serves as the
operator. Generally, operators of oil and gas properties have the right to
offset future revenues against unpaid charges related to operated wells. Oil
and gas sales are generally unsecured. Most of the Company's receivables are
from a broad and diverse group of oil and gas companies and, accordingly, do
not represent a significant credit risk. Credit losses are provided for in the
financial statements and have been within management's expectations. The
allowance for doubtful accounts receivable aggregated $185,000 and $158,000 at
December 31, 1994 and 1995, respectively.
OIL AND GAS PROPERTIES--Oil and gas properties are recorded at cost using
the full cost method of accounting, as prescribed by the Securities and
Exchange Commission (the "SEC"). Under the full cost method, all costs
associated with the acquisition, exploration, or development of oil and gas
properties are capitalized as part of the full cost pool. Sales, dispositions,
and other oil and gas property retirements are accounted for as adjustments to
the full cost pool, with no recognition of gain or loss unless such
disposition would significantly alter the amortization rate. Under rules of
the 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.
Depletion, depreciation, and amortization of evaluated oil and gas
properties are provided using the unit-of-production method based on total
proved reserves, as determined by independent petroleum reservoir engineers.
GAS PLANTS AND GATHERING SYSTEMS--Gas plants and gathering systems are
recorded at cost and depreciated on a straight-line basis over their estimated
useful lives of 15 years.
OVERHEAD REIMBURSEMENT FEES--Fees from overhead charges billed to working
interest owners, including the Company, of $2,999,000, $3,372,000, and
$5,571,000 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.
F-13
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
OIL AND GAS FINANCIAL INSTRUMENTS--The Company enters into swap agreements
to reduce the effects of the volatility of the price of crude oil and natural
gas on the Company's operations. These agreements involve the receipt of fixed
price amounts in exchange for variable payments based on NYMEX prices and
specific volumes. The differential to be paid or received is accrued in the
month of the related production and recognized as a component of oil and gas
revenues.
The Company also sells call options on crude oil. The strike price of these
agreements exceeds current market prices at the time they are entered into.
Option premiums received, which have not been material, are deferred. If the
applicable market price exceeds the strike price and option premium, the
differential is accrued and recognized as a reduction of oil revenues in the
month of the related production. Any remaining deferred option premiums are
recognized at the end of the option period.
The fair values of the swap agreements and sold call options are not
included in the financial statements.
INCOME TAXES--The Company has adopted the Financial Accounting Standards
Board's Statement No. 109, "Accounting for Income Taxes" ("FAS 109"), which
requires the use of the liability method in accounting for income taxes.
QUASI-REORGANIZATION--In 1989, the Company, with the approval of the Board
of Directors, implemented a quasi-reorganization and adjusted its assets and
liabilities to fair value at June 30, 1989; eliminated accumulated depletion,
depreciation, and amortization existing on all properties at June 30, 1989,
against the respective asset accounts; and transferred the accumulated deficit
at June 30, 1989, of $39,663,000 and the cost of canceled treasury stock of
$1,809,000 to additional paid-in capital.
NEW ACCOUNTING PRONOUNCEMENTS--In the first quarter of 1996, the Company
will adopt the Financial Accounting Standards Board ("FASB") Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FAS 121"). Adoption of this statement will not
have a material effect on the Company's financial statements.
In October 1995, the 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 ("APB 25"). FAS 123 encourages, but
does not require, adoption of a fair value 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 APB 25 and
will adopt the disclosure provisions of FAS 123 in the first quarter of 1996.
Accordingly, adoption of FAS 123 will not effect the Company's financial
statements.
2. MERGER WITH DIAMOND
On September 30, 1994, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement"), the Company acquired all of the issued and outstanding
stock of Diamond Energy Operating Company and Diamond A Inc. ("DEOC" and
"Diamond A," respectively, and collectively, "Diamond"), and two newly formed,
wholly owned subsidiaries of the Company merged into DEOC and Diamond A. The
Company issued an aggregate of 3,647,715 shares of the Company's common stock
to the Diamond stockholders. Contemporaneously with the merger, Diamond
acquired the
F-14
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
overriding royalty and reversionary interests owned by Diamond's primary
lender in certain of Diamond's oil and gas properties for $9.0 million cash.
Coda provided the funds necessary to complete such acquisition and repay $18.5
million of existing Diamond indebtedness. If the price of oil received from
the Diamond properties averages more than $17.65 per barrel for the 48-month
period ending September 30, 1998, Diamond's former lender will be paid an
additional $1.0 million. In addition, other reversionary interests in oil and
gas properties in which Diamond owns an interest were purchased from certain
employees and former employees of, and consultants to, DEOC and from a
financial advisor to Diamond for 634,519 shares of the Company's common stock
and approximately $39,000 in cash.
The merger with Diamond has been accounted for as a pooling of interests.
Accordingly, the merger of the equity interests has been given retroactive
effect in these financial statements for periods prior to the merger to
represent the combined financial statements of the previously separate
entities. The acquisitions of the reversionary interests were accounted for as
purchases effective September 30, 1994.
Separate and combined results of Coda and Diamond for periods prior to the
merger are as follows (in thousands):
<TABLE>
<CAPTION>
CODA DIAMOND COMBINED
------- ------- --------
<S> <C> <C> <C>
Year ended December 31, 1993:
Revenues............................................ $27,226 $12,824 $40,050
Net income.......................................... 840 1,494 2,334
Nine months ended September 30, 1994 (unaudited):
Revenues............................................ 37,048 13,314 50,362
Net income.......................................... 194 1,831 2,025
</TABLE>
In connection with the merger, the Company incurred approximately $1.8
million of legal, accounting, printing, and other costs related to the
combination of the previously separate entities. Under pooling of interests
accounting, these costs were expensed in September 1994.
Amounts due from stockholders shown in the accompanying balance sheets are
primarily related to the sale by DEOC of its oil and gas properties to its
stockholders in July 1990 in exchange for a note receivable. The note bears
interest at 10% and is due on demand. Interest is added to the principal
balance as accrued. The note is secured by certain of the shares of Coda
common stock which the former Diamond stockholders received in the merger.
3. ACQUISITIONS
The Company is continually acquiring oil and gas properties. The significant
transactions that have occurred since January 1, 1993, are discussed below.
In July 1993, the Company acquired interests in 71 producing oil and gas
properties effective June 1, 1993, located primarily in the Morrow and Chester
formations in southwest Kansas (the "Kansas Properties"), from affiliates of
Mobil Oil Corp. The total purchase price for the Kansas Properties was
$15,800,000, all of which was funded pursuant to the Company's credit
agreement.
In September 1993, the Company purchased all of the issued and outstanding
shares of MJM Oil & Gas, Inc. ("MJM"). The total purchase price was
$5,650,000, all of which was funded from the net
F-15
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
proceeds of a public offering of common stock (Note 5). The acquisition was
accounted for as a purchase. As a result of the acquisition of MJM, the
Company acquired 147 producing oil and gas properties, located primarily in
north and west Texas and western Oklahoma, at a cost of approximately $19.9
million, including the assumption of approximately $11.7 million of MJM
indebtedness.
On April 29, 1994, Coda acquired 100% of the issued and outstanding common
stock of Taurus Energy Corporation ("Taurus"), a privately held Texas
corporation, in exchange for 1,500,000 shares of the Company's common stock,
valued at approximately $7.3 million, and $3.25 million cash. The Company
assumed existing Taurus indebtedness of approximately $9.75 million. The cash
portion of the purchase price was funded, and the assumed debt was refinanced,
under the Company's existing credit agreement. Taurus operates three natural
gas processing facilities and owns interests in approximately 700 miles of
natural gas gathering systems located primarily in west central Texas.
Contemporaneously with the consummation of the acquisition of Taurus, the
president and former principal stockholder of Taurus loaned the Company $1.0
million in exchange for a subordinated promissory note from the Company having
a term of three years, payable in three equal annual installments of principal
plus accrued interest calculated at the rate of 7% per annum.
In July 1994, Taurus acquired ownership of the Shackelford gas gathering
system and processing plant. Taurus had previously been operating the system
and plant under operating leases. Taurus paid $3.8 million for the system and
plant, which was funded under the Company's existing credit agreement. In
related transactions, Taurus entered into an agreement to sell 10,000 MMBTU
per day to the former owner of Shackelford for a period of 48 months.
Simultaneously, Taurus entered into a gas purchase agreement with an unrelated
third party for similar quantities over the same term. Pricing under both the
gas sales agreement and the gas purchase agreement is structured to allow
Taurus to earn a margin on all volumes sold during the term of the agreements.
In January 1995, Taurus acquired the remaining ownership interest in one of
Taurus' gas plants and related facilities for $6.5 million which was financed
under the Company's credit facility.
In December 1994, in two separate transactions, the Company acquired
interests in 31 producing oil and gas properties in west Texas from two major
oil companies. The acquisition prices were $13.3 million and $10.0 million,
respectively, all of which was financed under the Company's credit facility.
The acquisitions were accounted for as a purchase. The properties acquired for
$13.3 million are referred to herein as the Major Oil Company Properties.
In October 1995, Coda acquired from Snyder Oil Company interests in 63
producing oil and gas properties located in west Texas (the "Snyder
Properties"). The aggregate purchase price was $17.1 million in cash, of which
$16.0 million was financed by borrowings under the Company's existing credit
facility. The acquisition was accounted for by the purchase method of
accounting.
The following pro forma data present the consolidated results of operations
of the Company for the years ended December 31, 1994 and 1995, as if the
acquisitions of Taurus, the Major Oil Company Properties, and the Snyder
Properties had occurred on January 1, 1994. The pro forma results of
operations are presented for comparative purposes only and are not necessarily
indicative of the results that would have been obtained had such acquisitions
been consummated as presented. The following data reflect pro forma
adjustments for depletion, depreciation, and amortization related to the
acquired oil and gas properties, gas plants, and gathering systems;
anticipated changes in general and
F-16
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
administrative expenses; adjustments to interest expense on borrowed funds;
and resulting adjustments to income tax expense.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
------------ -------------
<S> <C> <C>
Revenues........................................ $89,970 $102,997
============ =============
Net income...................................... $ 3,664 $ 6,121
============ =============
</TABLE>
4. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
<S> <C> <C>
NationsBank credit agreements............................ $102,700 $122,000
Note payable to NationsBank.............................. 723 606
Senior subordinated debentures........................... 964 988
Other.................................................... 1,100 766
-------- --------
105,487 124,360
Less current maturities.................................. 424 453
-------- --------
Long-term debt........................................... $105,063 $123,907
======== ========
</TABLE>
NATIONSBANK CREDIT AGREEMENTS--Until the merger with JEDI on February 16,
1996 (Note 9), the Company had a credit agreement (the "Credit Agreement")
with NationsBank of Texas, N.A. ("NationsBank") and three additional
participant banks. The Credit Agreement as last amended through August 1995
had a notional amount of $250.0 million, subject to borrowing base
limitations, based on the value of the Company's oil and gas properties and
its gas gathering and processing assets, as determined by the lenders from
time to time. Under the Credit Agreement, the Company was required to pay a
facility fee equal to one-quarter of one percent on any accepted increase in
the borrowing base in excess of the previously determined borrowing base and a
commitment fee of three-eighths of one percent on the unused portion of the
borrowing base. The maturity date of the Credit Agreement was May 31, 1999.
The Credit Agreement provided that the interest rate on borrowings will
range from NationsBank's prime rate to LIBOR plus between 1% and 1 3/8% based
on the ratio of outstanding debt to the available borrowing base. The weighted
average interest rate on borrowings outstanding under the Credit Agreement was
7.72% and 7.29% at December 31, 1994 and 1995, respectively.
There were no scheduled principal payments due on the Credit Agreement until
maturity. At December 31, 1995, the borrowing base was $125.0 million and
approximately $3.0 million was available for borrowing. A borrowing base
deficiency is created in the event that the outstanding loan balances exceed
the borrowing base, as determined by the lenders in their sole discretion.
Upon such event, the borrowing base deficiency must be repaid by mandatory
reductions of the loan balances over a period of not more than six months. The
Company did not anticipate a borrowing base
F-17
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
deficiency, and, accordingly, the current portion of long-term debt at
December 31, 1995, does not include any amount related to the Credit
Agreement.
Borrowings under the Credit Agreement were unsecured. The Credit Agreement
contained various restrictive covenants, including limitations on the granting
of liens, restrictions on the issuance of additional debt, requirements to
maintain net worth of at least $46.5 million and to maintain positive working
capital, as defined, and prohibited the payment of dividends on Coda's capital
stock.
NOTE PAYABLE TO NATIONSBANK--In December 1992, the Company purchased a
building in Dallas, Texas, containing approximately 65,000 square feet of
office space to serve as its corporate headquarters. The Company currently
occupies approximately two-thirds of the office space and has made the balance
available for lease. The purchase price was $950,000, of which $850,000 was
financed by NationsBank pursuant to a promissory note requiring monthly
principal and interest payments, with the remaining unpaid balance due
December 31, 1995. The promissory note bears interest at prime plus 1%. The
remainder of the purchase price was financed by the seller and is evidenced by
a second lien promissory note requiring quarterly interest payments. In
February 1995, NationsBank agreed to amend the note payable to reduce the
interest rate to NationsBank's prime rate and to extend the maturity date to
January 2, 1998.
SENIOR SUBORDINATED DEBENTURES--The Company's 12% Senior Subordinated
Debentures (the "Debentures") are presented net of unamortized issuance
discount of $189,000 and $165,000 at December 31, 1994 and 1995, respectively.
The effective interest rate on the Debentures is 16.61%. The remaining
outstanding Debentures are due in 2000.
Scheduled maturities of long-term debt as of December 31, 1995, are as
follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 453
1997.............................................................. 453
1998.............................................................. 366
1999.............................................................. 122,100
2000.............................................................. 988
--------
$124,360
========
</TABLE>
The carrying value of the Company's long-term debt approximates fair value.
5. COMMON STOCK
COMMON STOCK--On September 30, 1994, the Company's stockholders approved an
amendment to the Company's Certificate of Incorporation increasing the number
of authorized shares of common stock from 30 million shares to 40 million
shares.
In September 1993, the Company sold 6,788,750 shares of common stock
pursuant to a public offering. The net proceeds of approximately $36.1 million
to the Company were used to purchase the capital stock of MJM (Note 3), to
repay certain MJM indebtedness (approximately $900,000), and to repay amounts
under the Company's Credit Agreement.
In December 1993, the Board of Directors authorized the repurchase of up to
3,000,000 shares of the Company's common stock, from time to time and
whenever, in the opinion of the Company's
F-18
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
management, market conditions make such repurchase a prudent use of Company
funds. In January 1994, the Company received written approval for such
repurchases from NationsBank provided that the amount paid does not exceed
$5,000,000 in the aggregate. No shares had been repurchased as of December 31,
1993. During the year ended December 31, 1994 and 1995, the Company
repurchased and canceled 136,500 and 371,000 shares of common stock,
respectively, in open market transactions at a cost of approximately $648,000
and $2.1 million, respectively.
STOCK OPTIONS AND WARRANTS--The Company has three stock option plans
providing for the granting of stock options to officers and key employees.
Compensation expense is not recognized at the time options are granted because
the option price per share represents the market value of the share at the
date of grant.
The 1986 Non-Qualified Stock Option Plan provides that options may be
granted, from time to time, to key employees and directors to purchase a
maximum of 180,000 shares of common stock. The 1989 Incentive Stock Option
Plan provides that options may be granted, from time to time, to key employees
to purchase a maximum of 750,000 shares of common stock. The 1993 Incentive
Stock Option Plan permits the granting of options to purchase up to 1,500,000
shares of common stock.
Option transactions are summarized below:
<TABLE>
<CAPTION>
NUMBER
OF SHARES OPTION PRICE RANGE
--------- ------------------
<S> <C> <C>
Outstanding at December 31, 1992................ 726,750 $2.25 --$3.50
Granted....................................... 343,584 5.13 -- 6.00
Exercised..................................... (163,750) 2.25 -- 3.00
Forfeited..................................... (7,500) 3.50
---------
Outstanding at December 31, 1993................ 899,084 2.25 -- 6.00
Granted....................................... 525,785 5.00 -- 6.50
Exercised..................................... (108,629) 2.25 -- 5.75
Forfeited..................................... (56,708) 3.50 -- 5.75
---------
Outstanding at December 31, 1994................ 1,259,532 2.25 -- 6.50
Granted....................................... --
Exercised..................................... (100,213) 2.25 -- 5.75
Forfeited..................................... (42,687) 3.50 -- 5.75
---------
Outstanding at December 31, 1995 (755,756 exer-
cisable)....................................... 1,116,632 2.25 -- 6.50
=========
Reserved for future options..................... 837,876
=========
</TABLE>
The following table summarizes warrants outstanding at December 31, 1995:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF NUMBER OF PRICE
SHARES UNDER WARRANTS EXPIRATION DATE SHARES EXERCISABLE PER SHARE
- --------------------- --------------- ------------------ ---------
<S> <C> <C> <C>
500,000 October 1999 500,000 $3.00
450,000 December 2000 450,000 3.13
50,000 April 2002 25,000 3.00
100,000 April 2004 25,000 4.88
100,000 September 2004 25,000 6.75
100,000 March 2005 -- 6.00
--------- ---------
1,300,000 1,025,000
========= =========
</TABLE>
F-19
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
The warrants that expire in October 1999 are held by an officer of the
Company. The remaining warrants are held by the Company's directors.
As a result of the merger described in Note 9, all outstanding options and
warrants are fully vested and the holders thereof are entitled to receive the
difference between $7.75 per share and the exercise price for each share
represented by the options and warrants. Certain members of the management of
the Company have exchanged their right to receive this payment for an equity
participation in the Company.
6. INCOME TAXES
At December 31, 1995, Coda has net operating loss carryforwards ("NOLs") for
income tax purposes that expire beginning in 1998. Utilization of the NOLs is
severely restricted because of a change in ownership, as defined by the Tax
Reform Act of 1986, of Coda, which occurred in March 1990. Coda estimates that
approximately $15.4 million of the NOLs is available to offset future taxable
income without limitation, while the remainder will become available in the
future at the rate of approximately $921,000 per year through 2004. Coda also
has available statutory depletion carryforwards of approximately $1,000,000.
For financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax assets related to carryforwards prior to Coda's quasi-
reorganization. The Company anticipates that the merger described in Note 9
will not have a material effect on its ability to utilize the remaining NOLs.
F-20
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Book basis of oil and gas properties in excess of tax ba-
sis....................................................... $ 8,980 $11,441
Book basis of gas plants and gathering systems in excess of
tax basis................................................. 5,355 6,447
Revenues not recognized for tax purposes................... 360 --
Other...................................................... 40 1,074
------- -------
Total deferred tax liabilities........................... 14,735 18,962
Deferred tax assets:
Net operating loss carryforwards........................... 6,887 8,468
Credit carryforwards....................................... 569 --
Other...................................................... 108 136
Valuation allowance for deferred tax assets................ (4,042) (4,042)
------- -------
Net deferred tax assets.................................. 3,522 4,562
------- -------
Net deferred tax liabilities................................. $11,213 $14,400
======= =======
</TABLE>
Significant components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current............................................ $ 280 $ 733 $ 15
Deferred........................................... 1,104 1,848 3,187
Adjustments to the valuation allowance............. (66) -- --
------- ------- -------
$1,318 $2,581 $3,202
======= ======= =======
</TABLE>
The following is a reconciliation, stated as a percentage of pretax income
taxable at the corporate level, of the U.S. statutory federal income tax rate
to the Company's effective tax rate:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................... 34% 34% 34%
State taxes................................................... 4 5 2
Non-deductible business combination expenses.................. -- 5 --
Adjustments to the valuation allowance........................ (2) -- --
--- --- ---
36% 44% 36%
=== === ===
</TABLE>
7. OPERATIONS
NATURE OF OPERATIONS
The Company is an independent energy company principally engaged in the
acquisition and exploitation of producing oil and natural gas properties. The
Company seeks to acquire properties
F-21
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
whose predominant economic value is attributable to proved producing reserves
and to enhance that value through control of operations, reduction of costs,
and property development. The Company's producing properties are concentrated
in the mid-continent region of the United States. Through a subsidiary,
Taurus, the Company also operates natural gas processing and liquid extraction
facilities and natural gas gathering systems.
OIL AND GAS PRODUCING ACTIVITIES
The results of operations from the Company's oil and gas producing
activities are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Oil and gas sales.............................. $ 38,877 $ 50,683 $ 60,997
Production costs............................... (17,590) (21,646) (27,119)
Depletion, depreciation, and amortization...... (10,573) (14,853) (16,889)
Income tax expense............................. (3,643) (4,823) (5,776)
-------- -------- --------
$ 7,071 $ 9,361 $ 11,213
======== ======== ========
</TABLE>
Costs incurred in oil and gas producing activities are as follows (in
thousands, except per equivalent barrel amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Property acquisition costs...................... $ 42,223 $ 40,109 $ 25,363
Development costs............................... 10,403 12,450 14,464
Exploration costs............................... 46 206 511
Production costs................................ 17,590 21,646 27,119
Depletion, depreciation, and amortization rate
per equivalent barrel.......................... 4.15 4.27 4.33
</TABLE>
All of the Company's oil and gas revenues are from proved developed
properties located in the United States.
The Company has capitalized internal costs of $658,000, $712,000, and
$748,000 for 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 the percentage of their time devoted to such activities.
During the year ended December 31, 1993, sales of oil and gas to two
purchasers accounted for 21% and 22% of consolidated gross revenues. During
the year ended December 31, 1994, sales of oil and gas to two purchasers
accounted for 13% and 22% of consolidated gross revenues. During the year
ended December 31, 1995, sales of oil and gas to two purchasers accounted for
10% and 18% of consolidated gross revenues. Management believes that the loss
of these purchasers would not have a material impact on the Company's
consolidated financial condition or results of operations.
F-22
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
During the fourth quarter of 1993, the Company received a payment of oil and
gas revenues relating to a recalculation of interests owned in certain of the
Company's properties for the period from 1985 through 1993. Oil and gas sales
increased by $343,000 as a result.
OIL AND GAS HEDGING ACTIVITIES AND COMMITMENTS
In an effort to reduce the effects of the volatility of the price of crude
oil and natural 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 futures, options, and swap agreements. The Company does
not hold or issue financial instruments for trading purposes. Hedging
transactions require the approval of the Board of Directors.
While the use of these 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 marked 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 had entered into various swap agreements
to fix selling prices for crude oil at a weighted average NYMEX price of
$18.79 and $19.02 per barrel for 740,000 and 375,000 barrels during 1996 and
1997, respectively. While these contracts have no carrying value, their fair
value (the estimated amount that would have been received upon termination of
the swaps at December 31, 1995) was approximately $900,000.
The Company has also sold call options covering 25,000 Bbls of oil per month
at an option price of $18.30 per Bbl for the period October 1995 to August
1996, and at an option price of $20.00 per barrel for the period September
1996 to August 1997. While these call options have no carrying value, their
fair value (the estimated amount that would have been paid by the Company upon
termination of the call options at December 31, 1995) was approximately
$230,000.
During the years ended December 31, 1993, 1994, and 1995, oil and gas sales
were reduced by $289,000 and $5,000, and increased by $298,000, respectively,
as a result of hedging transactions.
Pursuant to the loan agreements with Diamond's former lender, Diamond
entered into an agreement with a refining and marketing company to sell a
fixed number of barrels attributable to its share of production of liquid
hydrocarbons from certain secured properties at a price of $15.25 per Bbl.
Under the purchase and sale agreement, the remaining commitment was
approximately 47,000 Bbls at December 31, 1995. The Company expects to fulfill
this commitment during the first quarter of 1996.
8. COMMITMENTS AND CONTINGENCIES
The Company does not believe that future costs related to site restoration,
dismantlement, and abandonment costs, net of estimated salvage values, will
have a significant effect on its results of
F-23
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
operations or financial position because the salvage value of equipment and
related facilities should approximate or exceed any future expenditures for
restoration, dismantlement, or abandonment. The Company has not incurred any
net expenditures for costs of this nature during the last three years.
The Company is a defendant or co-defendant in minor lawsuits that have
arisen in the ordinary course of business. In the lawsuits, management
believes, based in part on advice from legal counsel, that the Company has
meritorious defense against the claims asserted. Management believes that the
ultimate resolution of the lawsuits and claims will not have a material
adverse effect on the Company's results of operations or financial position.
9. AGREEMENT AND PLAN OF MERGER
On February 16, 1996, pursuant to an Agreement and Plan of Merger dated as
of October 30, 1995 (as amended, the "Merger Agreement") by and among Coda,
Joint Energy Development Investments Limited Partnership ("JEDI"), an
affiliate of Enron Capital & Trade Resources Corp., and Coda Acquisition, Inc.
("Purchaser"), a subsidiary of JEDI, JEDI acquired Coda through a merger (the
"Merger") at a price of $7.75 per share in cash. Concurrently with the
execution of the Merger Agreement, JEDI and Purchaser entered into certain
agreements with certain members of the Company's management concerning their
employment with and/or equity participation in the Company after the Merger.
The sources and uses of funds related to the Merger were as follows (in
millions):
<TABLE>
<S> <C>
Sources of funds:
Credit agreement................................................... $ 95.0
JEDI Debt.......................................................... 100.0
Redeemable preferred stock issued to JEDI.......................... 20.0
Common stock issued to JEDI........................................ 90.0
------
$305.0
======
Uses of funds:
Payments to Coda stockholders, warrantholders and optionholders.... $176.2
Repayment of former credit facility and other indebtedness......... 122.7
Merger costs and other expenses.................................... 6.1
------
$305.0
======
</TABLE>
The Merger will be accounted for using the purchase method of accounting. As
such, JEDI's cost of acquiring Coda will be allocated to the assets and
liabilities acquired based on estimated fair values. As a result, the
Company's financial position and operating results subsequent to February 16,
1996 will reflect a new basis of accounting and will not be comparable to
prior periods.
10. SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)
The Company retains independent engineering firms to provide annual year-end
estimates of the Company's future net recoverable oil, gas, and natural gas
liquids reserves. Estimated proved net
F-24
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
recoverable reserves as shown below include only those quantities that can be
expected to be commercially recoverable at prices and costs in effect at the
balance sheet dates under existing regulatory practices and with conventional
equipment and operating methods. Proved developed reserves represent only
those reserves expected to be recovered through existing wells. Proved
undeveloped reserves include those reserves expected to be recovered from new
wells on undrilled acreage or from existing wells on which a relatively major
expenditure is required for recompletion.
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 were based.
ESTIMATED QUANTITIES OF PROVED RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF)
--------- ---------
<S> <C> <C>
December 31, 1992........................................... 18,941 27,830
Purchase of reserves in place............................... 5,872 13,274
Extensions.................................................. 7,165 2,259
Revisions of previous estimates............................. (113) (2,289)
Production.................................................. (1,766) (4,703)
Sales of reserves in place.................................. (15) (175)
------ -------
December 31, 1993........................................... 30,084 36,196
Purchase of reserves in place............................... 11,038 5,482
Extensions.................................................. 271 912
Revisions of previous estimates............................. 749 4,107
Production.................................................. (2,650) (4,982)
Sales of reserves in place.................................. (285) (1,907)
------ -------
December 31, 1994........................................... 39,207 39,808
Purchase of reserves in place............................... 7,324 7,298
Extensions.................................................. 783 3,173
Revisions of previous estimates............................. (1,011) 1,459
Production.................................................. (3,165) (4,416)
Sales of reserves in place.................................. (548) (10,192)
------ -------
December 31, 1995........................................... 42,590 37,130
====== =======
</TABLE>
F-25
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
ESTIMATED QUANTITIES OF PROVED DEVELOPED RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
OIL (BBL) GAS (MCF)
--------- ---------
<S> <C> <C>
December 31, 1992........................................... 14,413 22,852
December 31, 1993........................................... 16,230 30,573
December 31, 1994........................................... 20,151 32,890
December 31, 1995........................................... 25,877 31,496
</TABLE>
The following is a summary of a standardized measure of discounted net cash
flows related to the Company's proved oil, gas, and natural gas liquids
reserves. The information presented is based on a valuation of proved reserves
using discounted cash flows based on year-end prices, costs, and economic
conditions and a 10% discount rate. The additions to proved reserves from new
discoveries and extensions could vary significantly from year to year;
additionally, the impact of changes to reflect current prices and costs of
reserves proved in prior years could also be significant. Accordingly, the
information presented below should not be viewed as an estimate of the fair
value of the Company's oil and gas properties, nor should it be considered
indicative of any trends.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
<S> <C> <C>
Future cash inflows........................................... $696,910 $860,180
Future production and development costs....................... 335,656 366,421
-------- --------
Future net cash flows before income taxes..................... 361,254 493,759
Discount of future net cash flows at 10% per annum............ 143,714 210,384
-------- --------
Discounted future net cash flows before income taxes.......... 217,540 283,375
Future income taxes, net of discount at 10% per annum......... 48,924 62,633
-------- --------
Discounted future net cash flows after income taxes........... $168,616 $220,742
======== ========
</TABLE>
During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a
destabilizing effect on crude oil's posted prices in the United States,
including the posted prices paid by purchasers of the Company's crude oil. The
weighted average prices of oil and gas at December 31, 1994 and 1995, used in
the above table, were $16.24 and $18.31 per Bbl, respectively, and $1.45 and
$2.19 per Mcf, respectively.
F-26
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
The following are the principal sources of change in the standardized
measure of discounted future net cash flows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Sales and transfers of oil and gas produced, net
of production costs ........................... $(21,287) $(29,037) $(33,878)
Net changes in prices and production costs...... (62,305) 18,674 37,290
Extensions and discoveries, net of future
development and production costs............... 29,260 3,673 15,932
Development costs during the period............. 10,403 12,656 14,464
Revisions of previous quantity estimates........ (1,098) 3,579 (19,084)
Sales of reserves in place...................... (365) (1,755) (6,323)
Purchases of reserves in place.................. 52,732 54,672 35,680
Accretion of discount before income taxes....... 12,150 14,098 21,754
Net change in income taxes...................... 673 (23,967) (13,709)
-------- -------- --------
Net change...................................... $ 20,163 $ 52,593 $ 52,126
======== ======== ========
</TABLE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1995 is as follows (in
thousands, except for per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1994:
Total revenues..................... $11,611 $17,143 $21,608 $21,224
Income before income taxes......... 958 2,003 912 2,037
Net income......................... 553 1,217 255 1,304
Net income per common and common
equivalent share.................. 0.03 0.06 0.01 0.06
1995:
Total revenues..................... 23,039 25,014 23,292 26,493
Income before income taxes......... 2,101 2,776 1,242 2,838
Net income......................... 1,305 1,814 798 1,838
Net income per common and common
equivalent share.................. 0.06 0.08 0.03 0.08
</TABLE>
Total revenues, income before income taxes and net income for the three
months ended March 31 and June 30, 1994 do not include the operations of
Taurus prior to its acquisition in April 1994. Income before income taxes for
the three months ended September 30, 1994, includes a charge of $1.8 million
for business combination expenses related to the merger with Diamond.
F-27
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPEC-
TUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURI-
TIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUM-
STANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 17
The Exchange Offer....................................................... 24
The Merger............................................................... 32
Use of Proceeds.......................................................... 33
Capitalization........................................................... 34
Selected Historical and Pro Forma Financial Data......................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 45
Management............................................................... 59
Security Ownership of Certain Beneficial Owners and Management........... 61
Executive Compensation and Other Information............................. 62
Certain Transactions..................................................... 65
Description of Exchange Notes............................................ 68
Description of Other Indebtedness........................................ 97
Description of Capital Stock of Coda..................................... 98
Certain Federal Income Tax Considerations................................ 99
Plan of Distribution..................................................... 99
Legal Matters............................................................ 100
Experts.................................................................. 100
Available Information.................................................... 101
Glossary................................................................. 102
Index to Financial Statements............................................ F-1
Summary Reserve Report................................................... A-1
</TABLE>
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$110,000,000
[LOGO OF CODA ENERGY, INC. APPEARS HERE]
OFFER TO EXCHANGE ITS 10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR
ANY AND ALL OF ITS OUTSTANDING 10 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE
2006
-----------
PROSPECTUS
-----------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation of Coda provides for the
indemnification by Coda of each director, officer, employee and agent of Coda
to the fullest extent permitted by the Delaware General Corporation Law, as
the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that such person is or
was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Delaware law further provides that nothing in the
above-described provisions shall be deemed exclusive of any other rights to
indemnification or advancement of expenses to which any person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
The Restated Certificate of Incorporation of Coda further provides that a
director of Coda shall not be personally liable to Coda or its stockholders
for monetary damages for any breach of fiduciary duty as a director except for
the liability of a director for (i) breach of the duty of loyalty, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) unlawful payment of dividends, and (iv)
transactions from which the director derived an improper personal benefit.
Coda has entered into Indemnification Agreements with each of its officers
and certain of its directors pursuant to which such officers and directors may
be indemnified against losses arising from certain claims, including claims
under the Securities Act, which may be made by reason or their being officers
or directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Coda pursuant
to the foregoing provisions, Coda has been
II-1
<PAGE>
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
Coda has purchased directors and officers liability insurance which would
indemnify the directors and officers of Coda against damages arising out of
certain kinds of claims which might be made against them based on their
negligent acts or omissions while acting in their capacity as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 --Agreement and Plan of Merger, by and among Coda, Joint Energy
Development Investments Limited Partnership and Coda Acquisition,
Inc. dated as of October 30, 1995 filed as Exhibit 2.1 to Coda's
Current Report on Form 8-K dated October 30, 1995, and
incorporated by reference herein.
2.2 --Agreement of Coda to provide schedules to the Agreement and Plan
of Merger (Exhibit 2.1) omitted pursuant to Item 6.01(b)(2) of
Regulation S-K filed as Exhibit 2.2 to Coda's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995, and
incorporated by reference herein.
2.3 --Amendment to Agreement and Plan of Merger dated as of December
22, 1995 filed as Exhibit 2.1 to Coda's Current Report on Form 8-
K dated December 22, 1995, and incorporated by reference herein.
2.4 --Second Amendment to Agreement and Plan of Merger dated as of
January 10, 1996 filed as Exhibit 2.1 to Coda's Current Report on
Form 8-K dated January 10, 1996, and incorporated by reference
herein.
2.5 --Agreement of Coda to provide schedules and exhibits to Second
Amendment to Agreement and Plan of Merger (Exhibit 2.4) and to
provide schedules to Amendment No. 1 to Subscription Agreement
(Exhibit 10.17) and Amendment No. 1 to Stockholders Agreement
(Exhibit 10.18) filed as Exhibit 99.4 to Coda's Current Report on
Form 8-K dated January 10, 1996, and incorporated by reference
herein.
3.1 --Restated Certificate of Incorporation of Coda.
3.2 --Amended and Restated Bylaws of Coda.
3.3 --Certificate of Incorporation of Diamond Energy Operating
Company, as amended.
3.4 --Bylaws of Diamond Energy Operating Company, as amended.
3.5 --Articles of Incorporation of Taurus Energy Corp., as amended.
3.6 --Bylaws of Taurus Energy Corp., as amended.
3.7 --Articles of Incorporation of Electra Resources, Inc.
3.8 --Bylaws of Electra Resources, Inc.
4.1 --Indenture, dated as of March 18, 1996, among Coda, the
Guarantors and Texas Commerce Bank National Association, as
trustee, relating to $110,000,000 aggregate principal amount of
10 1/2% Series A and Series B Senior Subordinated Notes due 2006.
4.2 --Registration Rights Agreement, dated as of March 18, 1996, among
Coda, the Guarantors and the Initial Purchasers.
4.3 --Purchase Agreement, dated as of March 12, 1996, among Coda, the
Guarantors and the Initial Purchasers.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
4.4 --Indenture between Coda and Texas American Bank/Dallas, as
Trustee, dated June 1, 1985, as amended, governing Coda's
12% Senior Subordinated Debentures due 2000 filed as
Exhibit 4.3 to Coda's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (the "1994 10-K"), and
incorporated by reference herein.
4.5 --Credit Agreement, dated February 14, 1996, among the
Company, NationsBank of Texas, N.A., individually and as
agent, and additional lenders named therein.
4.6 --Promissory Note dated February 14, 1996, in the original
principal amount of $87,500,000.00, executed by Coda,
payable to NationsBank of Texas, N.A.
4.7 --Promissory Note dated February 14, 1996, in the original
principal amount of $37,500,000.00, executed by Coda,
payable to Bank One, Texas, N.A.
4.8 --Promissory Note dated February 14, 1996, in the original
principal amount of $75,000,000.00, executed by Coda,
payable to Texas Commerce Bank National Association.
4.9 --Promissory Note dated February 14, 1996, in the original
principal amount of $50,000,000.00, executed by Coda,
payable to the First National Bank of Boston.
4.10 --Specimen Certificate of Series A 10 1/2% Senior
Subordinated Notes due 2006 (the "Private Notes") (included
in Exhibit 4.1 hereto).
4.11 --Specimen Certificate of Series B 10 1/2% Senior
Subordinated Notes due 2006 (the "Exchange Notes")
(included in Exhibit 4.1 hereto).
5.1 --Opinion of Haynes and Boone regarding the validity of the
Exchange Notes.
8.1 --Opinion of Haynes and Boone as to certain tax matters.
10.1 --Form of Indemnification Agreement entered into between
Coda and each of its directors and officers filed as
Exhibit 10.1 to the 1994 10-K, and incorporated by
reference herein.
10.2 --List of directors and officers that have entered into
Indemnification Agreements with Coda filed as Exhibit 10.1
to Coda's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995, and incorporated by
reference herein.
10.3 --Agreement and Plan of Merger, entered into as of April 29,
1994 among Coda, Alliance Natural Gas, Inc., Taurus Energy
Corp., and the shareholders of Taurus Energy Corp. more
particularly identified therein, filed as Exhibit 2.1 to
Coda's Current Report on Form 8-K dated April 29, 1994, as
amended by Form 8-K/A No. 1, dated June 14, 1994 and Form
8-K/A No. 2, dated August 17, 1994, and incorporated by
reference herein.
10.4 --Agreement and Plan of Merger, dated June 11, 1994, among
Coda, DEO Acquisition Corp., DA Acquisition Corp. and
Diamond, filed as Exhibit 2.1 to Coda's Registration
Statement on Form S-4, dated July 13, 1994 (No. 33-81532)
(the "1994 Form S-4"),
and incorporated by reference herein.
10.5 --Agreement of Coda to provide schedules to Agreement and
Plan of Merger (Exhibit 10.6) omitted pursuant to Item
6.01(b)(2) of Regulation S-K, and filed as Exhibit 2.4 to
the 1994 Form S-4, and incorporated by reference herein.
10.6 --Form of First Amendment to the Agreement and Plan of
Merger dated as of June 11, 1994 by and among Coda, DEO
Acquisition Corp., DA Acquisition Corp. and Diamond, filed
as Exhibit 2.5 to the 1994 Form S-4 and incorporated by
reference herein.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 --Stockholders Agreement dated October 30, 1995 filed as Exhibit
99.2 to Coda's Current Report on Form 8-K dated October 30, 1995,
and incorporated by reference herein.
10.8 --Subscription Agreement among Coda Acquisition, Inc. and The
Management Investors dated October 30, 1995 filed as Exhibit 99.3
to Coda's Current Report on Form 8-K dated October 30, 1995, and
incorporated by reference herein.
10.9 --Agreement of Coda to provide schedules to Stockholders Agreement
(Exhibit 10.7) and to Subscription Agreement (Exhibit 10.8) filed
as Exhibit 99.11 to Coda's Current Report on Form 8-K dated
October 30, 1995, and incorporated by reference herein.
10.10 --Business Opportunity Agreement dated as of October 30, 1995
filed as Exhibit 99.4 to Coda's Current Report on Form 8-K dated
October 30, 1995, and incorporated by reference herein.
10.11 --Executive Employment Agreement between Coda Acquisition, Inc.
and Randell A. Bodenhamer filed as Exhibit 99.5 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.12 --Executive Employment Agreement between Coda Acquisition, Inc.
and J. William Freeman filed as Exhibit 99.6 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.13 --Executive Employment Agreement between Coda Acquisition, Inc.
and Grant W. Henderson filed as Exhibit 99.7 to Coda's Current
Report on Form 8-K dated October 30, 1995 and incorporated by
reference herein.
10.14 --Executive Employment Agreement between Coda Acquisition, Inc.
and Jarl P. Johnson filed as Exhibit 99.8 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.15 --Executive Employment Agreement between Coda Acquisition, Inc.
and Douglas H. Miller filed as Exhibit 99.9 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.16 --Executive Employment Agreement between Coda Acquisition, Inc.
and J.W. Spencer, III filed as Exhibit 99.10 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.17 --Amendment No. 1 to Subscription Agreement dated as of January
10, 1996 filed as Exhibit 99.2 to Coda's Current Report on Form
8-K dated January 10, 1996, and incorporated by reference herein.
10.18 --Amendment No. 1 to Stockholders Agreement dated as of January
10, 1996 filed as Exhibit 99.3 to Coda's Current Report on Form
8-K dated January 10, 1996, and incorporated by reference herein.
10.19 --Credit Agreement, dated February 14, 1996, among the Company,
NationsBank of Texas, N.A., individually and as agent, and
additional lenders named therein filed as Exhibit 4.5 above.
10.20 --Promissory Note dated February 14, 1996, in the original
principal amount of $87,500,000.00, executed by Coda, payable to
NationsBank of Texas, N.A. filed as Exhibit 4.6 above.
10.21 --Promissory Note dated February 14, 1996, in the original
principal amount of $37,500,000.00, executed by Coda, payable to
Bank One, Texas, N.A. filed as Exhibit 4.7 above.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.22 --Promissory Note dated February 14, 1996, in the original
principal amount of $75,000,000.00, executed by Coda, payable to
Texas Commerce Bank National Association filed as Exhibit 4.8
above.
10.23 --Promissory Note dated February 14, 1996, in the original
principal amount of $50,000,000.00, executed by Coda, payable to
the First National Bank of Boston filed as Exhibit 4.9 above.
10.24 --Form of Nonstatutory Stock Option Agreement attached and filed
as Exhibit A to Exhibit 99.3 to Coda's Current Report on Form 8-K
dated October 30, 1995, and incorporated by reference herein.
10.25 --Form of Limited Recourse Promissory Note attached and filed as
Exhibit B to Exhibit 99.3 to Coda's Current Report on Form 8-K
dated October 30, 1995, and incorporated by reference herein.
10.26 --Form of Security Agreement attached and filed as Exhibit C to
Exhibit 99.3 to Coda's Current Report on Form 8-K dated October
30, 1995, and incorporated by reference herein.
10.27 --List of Management Investors who are parties to Nonstatutory
Stock Option Agreement (Exhibit 10.24), Limited Recourse
Promissory Note (Exhibit 10.25) or Security Agreement (Exhibit
10.26).
10.28 --Non-competition Agreement between Coda and Tommie E. Lohman
dated April 29, 1994.
12.1 --Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1 --Subsidiaries of Registrants.
23.1 --Consent of Haynes and Boone, L.L.P. (included in their opinions
filed as Exhibits 5.1 and 8.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of Lee Keeling & Associates, Inc.
24.1 --Power of Attorney of each Registrant (included on signature
pages to this Registration Statement on Form S-4).
25.1 --Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of 1939 of Texas Commerce Bank National
Association.
27.1 --Financial Data Schedule
99.1 --Form of Letter of Transmittal and related documents to be used
in conjunction with the Exchange Offer.
</TABLE>
(b) Financial Statement Schedules: None.
II-5
<PAGE>
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Act shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For purposes of determining any liability under the Act, each such post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement; (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement; (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS
ON APRIL 8, 1996.
CODA ENERGY, INC.
By: /s/ Grant W. Henderson
-----------------------------------
Name: Grant W. Henderson
Title: President, Chief Financial
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Coda Energy, Inc., a Delaware corporation (the "Company"), for
himself and not for one another, does hereby constitute and appoint Douglas H.
Miller, Grant W. Henderson and Joe Callaway, each of them, a true and lawful
attorney in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments, including post-effective amendments, to this
registration statement with respect to the proposed issuance, sale and
delivery by the Company of 10 1/2% Series B Senior Subordinated Notes due
2006, and to cause the same to be filed with the Securities and Exchange
Commission, granting unto said attorneys and each of them full power and
authority to do and perform any act and thing necessary and proper to be done
in the premises, as fully to all intents and purposes as the undersigned could
do if personally present, and each of them shall lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Douglas H. Miller Chairman of the April 8, 1996
- ------------------------------------- Board and Chief
DOUGLAS H. MILLER Executive Officer
(Principal
Executive Officer)
/s/ Jarl P. Johnson Vice Chairman of the April 8, 1996
- ------------------------------------- Board and Chief
JARL P. JOHNSON Operating Officer
/s/ Grant W. Henderson President, Chief April 8, 1996
- ------------------------------------- Financial Officer
GRANT W. HENDERSON and Director
(Principal
Financial and
Accounting Officer)
/s/ Richard A. Causey Director April 8, 1996
- -------------------------------------
RICHARD A. CAUSEY
/s/ James V. Derrick, Jr. Director April 8, 1996
- -------------------------------------
JAMES V. DERRICK, JR.
/s/ Gene E. Humphrey Director April 8, 1996
- -------------------------------------
GENE E. HUMPHREY
/s/ C. John Thompson Director April 8, 1996
- -------------------------------------
C. JOHN THOMPSON
II-7
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS
ON APRIL 8, 1996.
DIAMOND ENERGY OPERATING COMPANY
By: /s/ Jarl P. Johnson
-----------------------------------
Name: Jarl P. Johnson
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Diamond Energy Operating Company, an Oklahoma corporation
("Diamond"), for himself and not for one another, does hereby constitute and
appoint Douglas H. Miller, Grant W. Henderson and Joe Callaway, each of them, a
true and lawful attorney in his name, place and stead, in any and all
capacities, to sign his name to any and all amendments, including post-
effective amendments, to this registration statement with respect to the
proposed issuance, sale and delivery by Diamond of an unconditional guarantee
of Coda Energy, Inc.'s 10 1/2% Series B Senior Subordinated Notes due 2006, and
to cause the same to be filed with the Securities and Exchange Commission,
granting unto said attorneys and each of them full power and authority to do
and perform any act and thing necessary and proper to be done in the premises,
as fully to all intents and purposes as the undersigned could do if personally
present, and each of them shall lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND AS OF
THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Jarl P. Johnson President and April 8, 1996
- ------------------------------------- Director (Principal
JARL P. JOHNSON Executive Officer)
/s/ Grant W. Henderson Vice President, April 8, 1996
- ------------------------------------- Treasurer and
GRANT W. HENDERSON Director(Principal
Financial and
Accounting Officer)
/s/ Douglas H. Miller Director April 8, 1996
- -------------------------------------
DOUGLAS H. MILLER
/s/ Joe Callaway Director April 8, 1996
- -------------------------------------
JOE CALLAWAY
/s/ Randell A. Bodenhamer Director April 8, 1996
- -------------------------------------
RANDELL A. BODENHAMER
II-8
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS
ON APRIL 8, 1996.
TAURUS ENERGY CORP.
By: /s/ Douglas H. Miller
-----------------------------------
Name: Douglas H. Miller
Title: Chairman and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Taurus Energy Corp., a Texas corporation ("Taurus"), for himself
and not for one another, does hereby constitute and appoint Douglas H. Miller,
Grant W. Henderson and Joe Callaway, each of them, a true and lawful attorney
in his name, place and stead, in any and all capacities, to sign his name to
any and all amendments, including post-effective amendments, to this
registration statement with respect to the proposed issuance, sale and
delivery by Taurus of an unconditional guarantee of Coda Energy, Inc.'s 10
1/2% Series B Senior Subordinated Notes due 2006, and to cause the same to be
filed with the Securities and Exchange Commission, granting unto said
attorneys and each of them full power and authority to do and perform any act
and thing necessary and proper to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present, and
each of them shall lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Douglas H. Miller Chairman of the April 8, 1996
- ------------------------------------- Board; Chief
DOUGLAS H. MILLER Executive Officer
(Principal
Executive Officer)
/s/ Grant W. Henderson Vice President, April 8, 1996
- ------------------------------------- Treasurer and
GRANT W. HENDERSON Director(Principal
Financial and
Accounting Officer)
/s/ Joe Callaway Director April 8, 1996
- -------------------------------------
JOE CALLAWAY
/s/ Jarl P. Johnson Director April 8, 1996
- -------------------------------------
JARL P. JOHNSON
II-9
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS
ON APRIL 8, 1996.
ELECTRA RESOURCES, INC.
/s/ Grant W. Henderson
By:
-----------------------------------
Name: Grant W. Henderson
Title: President
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Electra Resources, Inc., a Texas corporation ("Electra"), for
himself and not for one another, does hereby constitute and appoint Douglas H.
Miller, Grant W. Henderson and Joe Callaway, each of them, a true and lawful
attorney in his name, place and stead, in any and all capacities, to sign his
name to any and all amendments, including post-effective amendments, to this
registration statement with respect to the proposed issuance, sale and
delivery by Electra of an unconditional guarantee of Coda Energy, Inc.'s 10
1/2% Series B Senior Subordinated Notes due 2006, and to cause the same to be
filed with the Securities and Exchange Commission, granting unto said
attorneys and each of them full power and authority to do and perform any act
and thing necessary and proper to be done in the premises, as fully to all
intents and purposes as the undersigned could do if personally present, and
each of them shall lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND AS OF THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Grant W. Henderson President and April 8, 1996
- ------------------------------------- Director (Principal
GRANT W. HENDERSON Executive,
Financial and
Accounting Officer)
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2.1 --Agreement and Plan of Merger, by and among Coda, Joint Energy
Development Investments Limited Partnership and Coda
Acquisition, Inc. dated as of October 30, 1995 filed as
Exhibit 2.1 to Coda's Current Report on Form 8-K dated October
30, 1995, and incorporated by reference herein.
2.2 --Agreement of Coda to provide schedules to the Agreement and
Plan of Merger (Exhibit 2.1) omitted pursuant to Item
6.01(b)(2) of Regulation S-K filed as Exhibit 2.2 to Coda's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995, and incorporated by reference herein.
2.3 --Amendment to Agreement and Plan of Merger dated as of
December 22, 1995 filed as Exhibit 2.1 to Coda's Current
Report on Form 8-K dated December 22, 1995, and incorporated
by reference herein.
2.4 --Second Amendment to Agreement and Plan of Merger dated as of
January 10, 1996 filed as Exhibit 2.1 to Coda's Current Report
on Form 8-K dated January 10, 1996, and incorporated by
reference herein.
2.5 --Agreement of Coda to provide schedules and exhibits to Second
Amendment to Agreement and Plan of Merger (Exhibit 2.4) and to
provide schedules to Amendment No. 1 to Subscription Agreement
(Exhibit 10.17) and Amendment No. 1 to Stockholders Agreement
(Exhibit 10.18) filed as Exhibit 99.4 to Coda's Current Report
on Form 8-K dated January 10, 1996, and incorporated by
reference herein.
3.1 --Restated Certificate of Incorporation of Coda.
3.2 --Amended and Restated Bylaws of Coda.
3.3 --Certificate of Incorporation of Diamond Energy Operating
Company, as amended.
3.4 --Bylaws of Diamond Energy Operating Company, as amended.
3.5 --Articles of Incorporation of Taurus Energy Corp., as amended.
3.6 --Bylaws of Taurus Energy Corp., as amended.
3.7 --Articles of Incorporation of Electra Resources, Inc.
3.8 --Bylaws of Electra Resources, Inc.
4.1 --Indenture, dated as of March 18, 1996, among Coda, the
Guarantors and Texas Commerce Bank National Association, as
trustee, relating to $110,000,000 aggregate principal amount
of 10 1/2% Series A and Series B Senior Subordinated Notes due
4.2 --Registration Rights Agreement, dated as of March 18, 1996,
among Coda, the Guarantors and the Initial Purchasers.
4.3 --Purchase Agreement, dated as of March 12, 1996, among Coda,
the Guarantors and the Initial Purchasers.
4.4 --Indenture between Coda and Texas American Bank/Dallas, as
Trustee, dated June 1, 1985, as amended, governing Coda's 12%
Senior Subordinated Debentures due 2000 filed as Exhibit 4.3
to Coda's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (the "1994 10-K"), and incorporated by
reference herein.
4.5 --Credit Agreement, dated February 14, 1996, among the Company,
NationsBank of Texas, N.A., individually and as agent, and
additional lenders named therein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
4.6 --Promissory Note dated February 14, 1996, in the original
principal amount of $87,500,000.00, executed by Coda, payable
to NationsBank of Texas, N.A.
4.7 --Promissory Note dated February 14, 1996, in the original
principal amount of $37,500,000.00, executed by Coda, payable
to Bank One, Texas, N.A.
4.8 --Promissory Note dated February 14, 1996, in the original
principal amount of $75,000,000.00, executed by Coda, payable
to Texas Commerce Bank National Association.
4.9 --Promissory Note dated February 14, 1996, in the original
principal amount of $50,000,000.00, executed by Coda, payable
to the First National Bank of Boston.
4.10 --Specimen Certificate of Series A 10 1/2% Senior Subordinated
Notes due 2006 (the "Private Notes") (included in Exhibit 4.1
hereto).
4.11 --Specimen Certificate of Series B 10 1/2% Senior Subordinated
Notes due 2006 (the "Exchange Notes") (included in Exhibit 4.1
hereto).
5.1 --Opinion of Haynes and Boone regarding the validity of the
Exchange Notes.
8.1 --Opinion of Haynes and Boone as to certain tax matters.
10.1 --Form of Indemnification Agreement entered into between Coda
and each of its directors and officers filed as Exhibit 10.1
to the 1994 10-K, and incorporated by reference herein.
10.2 --List of directors and officers that have entered into
Indemnification Agreements with Coda filed as Exhibit 10.1 to
Coda's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995, and incorporated by reference
herein.
10.3 --Agreement and Plan of Merger, entered into as of April 29,
1994 among Coda, Alliance Natural Gas, Inc., Taurus Energy
Corp., and the shareholders of Taurus Energy Corp. more
particularly identified therein, filed as Exhibit 2.1 to
Coda's Current Report on Form 8-K dated April 29, 1994, as
amended by Form 8-K/A No. 1, dated June 14, 1994 and Form 8-
K/A No. 2, dated August 17, 1994, and incorporated by
reference herein.
10.4 --Agreement and Plan of Merger, dated June 11, 1994, among
Coda, DEO Acquisition Corp., DA Acquisition Corp. and Diamond,
filed as Exhibit 2.1 to Coda's Registration Statement on Form
S-4, dated July 13, 1994 (No. 33-81532) (the "1994 Form S-4"),
and incorporated by reference herein.
10.5 --Agreement of Coda to provide schedules to Agreement and Plan
of Merger (Exhibit 10.6) omitted pursuant to Item 6.01(b)(2)
of Regulation S-K, and filed as Exhibit 2.4 to the 1994 Form
S-4, and incorporated by reference herein.
10.6 --Form of First Amendment to the Agreement and Plan of Merger
dated as of June 11, 1994 by and among Coda, DEO Acquisition
Corp., DA Acquisition Corp. and Diamond, filed as Exhibit 2.5
to the 1994 Form S-4 and incorporated by reference herein.
10.7 --Stockholders Agreement dated October 30, 1995 filed as
Exhibit 99.2 to Coda's Current Report on Form 8-K dated
October 30, 1995, and incorporated by reference herein.
10.8 --Subscription Agreement among Coda Acquisition, Inc. and The
Management Investors dated October 30, 1995 filed as Exhibit
99.3 to Coda's Current Report on Form 8-K dated October 30,
1995, and incorporated by reference herein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.9 --Agreement of Coda to provide schedules to Stockholders
Agreement (Exhibit 10.7) and to Subscription Agreement
(Exhibit 10.8) filed as Exhibit 99.11 to Coda's Current Report
on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.10 --Business Opportunity Agreement dated as of October 30, 1995
filed as Exhibit 99.4 to Coda's Current Report on Form 8-K
dated October 30, 1995, and incorporated by reference herein.
10.11 --Executive Employment Agreement between Coda Acquisition, Inc.
and Randell A. Bodenhamer filed as Exhibit 99.5 to Coda's
Current Report on Form 8-K dated October 30, 1995, and
incorporated by reference herein.
10.12 --Executive Employment Agreement between Coda Acquisition, Inc.
and J. William Freeman filed as Exhibit 99.6 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.13 --Executive Employment Agreement between Coda Acquisition, Inc.
and Grant W. Henderson filed as Exhibit 99.7 to Coda's Current
Report on Form 8-K dated October 30, 1995 and incorporated by
reference herein.
10.14 --Executive Employment Agreement between Coda Acquisition, Inc.
and Jarl P. Johnson filed as Exhibit 99.8 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.15 --Executive Employment Agreement between Coda Acquisition, Inc.
and Douglas H. Miller filed as Exhibit 99.9 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.16 --Executive Employment Agreement between Coda Acquisition, Inc.
and J.W. Spencer, III filed as Exhibit 99.10 to Coda's Current
Report on Form 8-K dated October 30, 1995, and incorporated by
reference herein.
10.17 --Amendment No. 1 to Subscription Agreement dated as of January
10, 1996 filed as Exhibit 99.2 to Coda's Current Report on
Form 8-K dated January 10, 1996, and incorporated by reference
herein.
10.18 --Amendment No. 1 to Stockholders Agreement dated as of January
10, 1996 filed as Exhibit 99.3 to Coda's Current Report on
Form 8-K dated January 10, 1996, and incorporated by reference
herein.
10.19 --Credit Agreement, dated February 14, 1996, among the Company,
NationsBank of Texas, N.A., individually and as agent, and
additional lenders named therein filed as Exhibit 4.5 above.
10.20 --Promissory Note dated February 14, 1996, in the original
principal amount of $87,500,000.00, executed by Coda, payable
to NationsBank of Texas, N.A. filed as Exhibit 4.6 above.
10.21 --Promissory Note dated February 14, 1996, in the original
principal amount of $37,500,000.00, executed by Coda, payable
to Bank One, Texas, N.A. filed as Exhibit 4.7 above.
10.22 --Promissory Note dated February 14, 1996, in the original
principal amount of $75,000,000.00, executed by Coda, payable
to Texas Commerce Bank National Association filed as Exhibit
4.8 above.
10.23 --Promissory Note dated February 14, 1996, in the original
principal amount of $50,000,000.00, executed by Coda, payable
to the First National Bank of Boston filed as Exhibit 4.9
above.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.24 --Form of Nonstatutory Stock Option Agreement attached and
filed as Exhibit A to Exhibit 99.3 to Coda's Current Report on
Form 8-K dated October 30, 1995, and incorporated by reference
herein.
10.25 --Form of Limited Recourse Promissory Note attached and filed
as Exhibit B to Exhibit 99.3 to Coda's Current Report on Form
8-K dated October 30, 1995, and incorporated by reference
herein.
10.26 --Form of Security Agreement attached and filed as Exhibit C to
Exhibit 99.3 to Coda's Current Report on Form 8-K dated
October 30, 1995, and incorporated by reference herein.
10.27 --List of Management Investors who are parties to Nonstatutory
Stock Option Agreement (Exhibit 10.24), Limited Recourse
Promissory Note (Exhibit 10.25) or Security Agreement (Exhibit
10.26).
10.28 --Non-competition Agreement between Coda and Tommie E. Lohman
dated April 29, 1994.
12.1 --Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.1 --Subsidiaries of Registrants.
23.1 --Consent of Haynes and Boone, L.L.P. (included in their
opinions filed as Exhibits 5.1 and 8.1).
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of Lee Keeling & Associates, Inc.
24.1 --Power of Attorney of each Registrant (included on signature
pages to this Registration Statement on Form S-4).
25.1 --Statement of Eligibility and Qualification (Form T-1) under
the Trust Indenture Act of 1939 of Texas Commerce Bank
National Association.
27.1 --Financial Data Schedule
99.1 --Form of Letter of Transmittal and related documents to be
used in conjunction with the Exchange Offer.
</TABLE>
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CODA ENERGY, INC.
* * * * *
The undersigned, Grant W. Henderson and Joe Callaway, certify that they are
the President and Secretary, respectively, of Coda Energy, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), and do hereby further certify as follows:
(1) The name of the Corporation is Coda Energy, Inc.
(2) The name under which the Corporation was originally incorporated was
"Dallas Sunbelt Energy, Inc." and the original Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on November 23, 1981.
(3) This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware.
(4) This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented, and there is
no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation.
(5) The text of the Restated Certificate of Incorporation of the
Corporation is restated to read in its entirety as follows:
ARTICLE I.
The name of the corporation is CODA ENERGY, INC.
ARTICLE II.
The registered office of this corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name and address of its registered agent is The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware.
ARTICLE III.
The nature of the business or purpose of this corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Laws of Delaware.
ARTICLE IV.
1. The total number of shares of stock which this corporation shall have
authority to issue is 1,040,000 shares, consisting of:
(a) 40,000 shares of preferred stock, all of which are to be of the
par value of $0.01 each and all to be designated the Preferred Stock of the
corporation; and
<PAGE>
(b) 1,000,000 shares of common stock, all of which are to be of the
par value of $0.01 each and all to be designated the Common Stock of the
corporation.
2. The voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications or
restrictions of the Preferred Stock and the Common Stock are as follows:
(A) Preferred Stock
---------------
(1) Designation. The Preferred Stock is hereby designated "15% Cumulative
-----------
Preferred Stock" (hereinafter sometimes referred to in this Article IV as "15%
Cumulative Preferred Stock"), and the number of shares which shall constitute
such class of stock is 40,000 shares.
(2) Dividends. (a) The holders of each share of 15% Cumulative Preferred
---------
Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available therefor, cumulative preferential
dividends, at the rate of $150.00 per share per annum. Dividends on shares of
the 15% Cumulative Preferred Stock shall accrue, whether or not earned, from the
date of issuance of such shares of the 15% Cumulative Preferred Stock and, other
than dividends on account of arrears for past dividend periods, shall be payable
in equal installments semi-annually on the last day of June and December in each
year (or, if any such day shall be a Saturday, Sunday, or bank holiday in the
State of Texas, then on the next succeeding business day). The six- month
periods from January 1 to June 30 and July 1 to December 31, inclusive, are
herein called "semi-annual periods".
Any dividend payments on shares of the 15% Cumulative Preferred Stock with
respect to a semi-annual period shall be made in cash, except that if the
corporation shall fail to pay the entire dividend for any semi-annual period in
cash, the corporation may pay the amount of the dividend not made in cash by the
issuance of additional shares of 15% Cumulative Preferred Stock. Any accrued or
unpaid dividends payable upon the redemption of a share of 15% Cumulative
Preferred Stock or upon the liquidation, dissolution or winding up of the
corporation shall be payable in cash only. The calculation of the number of
shares of 15% Cumulative Preferred Stock to be issued by the corporation as a
dividend pursuant to this paragraph (2) shall be based on a value per share of
the 15% Cumulative Preferred Stock equal to $1,000.00 per share. All shares of
15% Cumulative Preferred Stock issued as a dividend shall bear a date of
original issuance which is the same as the date on which such dividend was
payable. No fractional interest in shares of 15% Cumulative Preferred Stock
shall be issued as a dividend payment. Each holder of 15% Cumulative Preferred
Stock who would otherwise have been entitled to a fractional share of 15%
Cumulative Preferred Stock as a dividend payment on the aggregate number of
shares of 15% Cumulative Preferred Stock for which such holder is entitled to
receive dividends will receive, in lieu of such fractional share, a cash amount,
rounded to the nearest full cent, determined by multiplying such fraction of a
share by $1,000.00. All shares of 15% Cumulative Preferred Stock issued as a
dividend will be duly authorized, fully paid and nonassessable.
If the corporation shall fail to pay a semi-annual dividend either in cash
or by the issuance of additional shares of 15% Cumulative Preferred Stock, then
additional dividends shall be deemed to accrue on the amount of dividend so
unpaid, compounding semi-annually, at the rate of 15% per annum, which
additional dividends shall be payable by the corporation, at its option, either
in cash or by the issuance of additional shares of 15% Cumulative Preferred
Stock.
(b) Dividends on shares of 15% Cumulative Preferred Stock shall be
cumulative and shall accrue on a daily basis from the date of issuance of such
shares of 15% Cumulative Preferred Stock regardless of whether or not the
corporation shall have funds legally available for the payment of such
<PAGE>
dividends. Dividends on the 15% Cumulative Preferred Stock payable for any
period less than or greater than a full semi-annual period shall be paid on the
basis of a year of 365 or 366 days, as applicable. Dividends will be payable to
holders of record as they appear on the stock books of the corporation on such
record dates as may be declared by the Board of Directors of the corporation,
not more than 60 days nor less than 10 days preceding the payment dates thereof,
as may be fixed by the Board of Directors of the corporation or a duly
authorized committee thereof. Dividends on account of arrears for any past
dividend periods may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on a date not more than 60
days nor less than 10 days preceding the payment date thereof as may be fixed by
the Board of Directors of the corporation or a duly authorized committee
thereof. Holders of 15% Cumulative Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends. Except as provided in the last paragraph of the preceding
paragraph (2)(a), no interest or sum of money in lieu of interest shall be
payable in respect of any accumulated unpaid dividends.
(c) As long as any shares of 15% Cumulative Preferred Stock are
outstanding, no dividends whatsoever, whether paid in cash, stock, or otherwise
(except for dividends paid in shares of Common Stock, either in the form of a
stock split or stock dividend), shall be paid or declared, or any distribution
(except as aforesaid and except for distributions payable upon the complete
liquidation, dissolution or winding up of the corporation after payment or
provision for payment of the debts and other liabilities of the corporation and
payment or setting aside for payment of the preferential amount due to the
holders of 15% Cumulative Preferred Stock) shall be made, on any Common Stock to
the holders of such stock (any such dividend or distribution being herein called
a "Restricted Payment") unless (i) the remaining net assets of the corporation,
after giving effect to such Restricted Payment, shall at least equal the
aggregate preferential amount to which the 15% Cumulative Preferred Stock is
entitled pursuant to the provisions of this Article IV, in the event of the
voluntary liquidation, dissolution, or winding up of the corporation, and (ii)
all dividends on the 15% Cumulative Preferred Stock for all past semi-annual
periods shall have been paid or declared and a sum sufficient for the payment
thereof set apart.
(d) Shares of 15% Cumulative Preferred Stock in excess of 20,000 shares
shall be issuable only for the purpose of paying dividends on the 15% Cumulative
Preferred Stock as permitted by paragraphs (2)(a) and (2)(b) hereof.
(3) Redemption. (a) The 15% Cumulative Preferred Stock shall be redeemed
----------
as a whole by the corporation at a redemption price of $1,000 per share, plus
all accrued and unpaid dividends (including undeclared dividends) to the date
of redemption, if the corporation shall have sufficient funds legally available
for such redemption and if such redemption would not violate or conflict with
any loan agreement, credit agreement, note agreement, indenture, or other
agreement relating to indebtedness (an "Approved Loan Agreement") to which the
corporation is a party on or before the fifth business day (the "Redemption
Date") after the earliest to occur of the following:
(i) the closing of the sale by the corporation of Taurus Energy
Corp. ("Taurus") whether by merger, sale of all or substantially all of the
assets of Taurus, sale of all or substantially all of the capital stock of
Taurus, or otherwise; and
(ii) a Trigger Event (as such term is defined in that certain
Stockholders Agreement dated October 30, 1995, as amended, among Coda
Acquisition, Inc. and the other parties thereto).
provided that if the corporation either does not have sufficient funds legally
available for such redemption or such redemption would violate or conflict with
the provisions of an Approved Loan Agreement, the corporation shall have no
obligation to redeem the 15% Cumulative Preferred Stock on the Redemption
<PAGE>
Date. Instead, the corporation shall redeem on the Redemption Date the number
of shares of 15% Cumulative Preferred Stock, if any, which the corporation can
redeem out of the funds legally available for such purpose and without violating
or conflicting with the provisions of any Approved Loan Agreement, and it shall
redeem the remainder of the shares of 15% Cumulative Preferred Stock as soon as
the corporation shall have legally available funds which are sufficient to
effect such redemption without violating or conflicting with the provisions of
any Approved Loan Agreement.
(b) The 15% Cumulative Preferred Stock may be redeemed by the corporation
at its option, as a whole or in part, to the extent the corporation shall have
funds legally available for such redemption, at any time or from time to time at
a redemption price of $1,000.00 per share, plus all accrued and unpaid dividends
(including undeclared dividends) to the date of redemption.
(c) In case of the redemption of only part of the 15% Cumulative Preferred
Stock, the shares to be redeemed may be selected ratably or in such other
equitable manner as may be prescribed by resolution of the Board of Directors of
the corporation.
(4) Liquidation Preference. (a) Upon the complete liquidation,
----------------------
dissolution, or winding up of the corporation, whether voluntarily or
involuntarily, the 15% Cumulative Preferred Stock shall be entitled, after
payment or provision for payment of the debts and other liabilities of the
corporation but before any distribution is made to the holders of any Common
Stock, to be paid $1,000.00 per share plus all accrued and unpaid dividends
(including undeclared dividends), and shall not be entitled to any further
payment.
(b) In case the net assets of the corporation are insufficient to pay all
outstanding shares of 15% Cumulative Preferred Stock the liquidation preferences
to which they are respectively entitled, then the entire net assets of the
corporation shall be distributed ratably to all outstanding shares of 15%
Cumulative Preferred Stock according to the amount due each such share.
(5) Voting. (a) Except as otherwise provided herein or required by law,
------
the holders of shares of 15% Cumulative Preferred Stock shall not be entitled to
vote on any matters to be voted on by the stockholders of the corporation.
(b) Notwithstanding the preceding paragraph, so long as any shares of the
15% Cumulative Preferred Stock are outstanding, the corporation shall not,
without the written consent or the affirmative vote of holders of at least a
majority of the total number of shares of 15% Cumulative Preferred Stock then
outstanding and voting as a class, (i) amend its Certificate of Incorporation or
By-laws or (ii) authorize the merger (whether or not the corporation is a
surviving corporation in such merger) of the corporation, in each case, if such
amendment or merger would alter, change or abolish the powers, preferences or
rights of the 15% Cumulative Preferred Stock so as to affect the holders of the
15% Cumulative Preferred Stock adversely.
(B) Common Stock
------------
(1) Dividends. Subject to the provisions of Section 2(A) of this Article
---------
IV, the Board of Directors of the corporation may, in its discretion, out of
funds legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, declare and pay dividends
on the Common Stock of the corporation.
(2) Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of the corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the corporation and
payment or setting aside for payment of the preferential amount due to the
holders
<PAGE>
of the 15% Cumulative Preferred Stock in accordance with Section 2(A) of this
Article IV, the holders of the Common Stock of the corporation shall be entitled
to receive ratably any or all assets remaining to be paid or distributed.
(3) Voting Rights. Subject to the special voting rights of the holders of
-------------
15% Cumulative Preferred Stock described in Section 2(A) hereof, the holders of
the Common Stock of the corporation shall be entitled at all meetings of
stockholders to one vote for each share of such stock held by them.
(C) Liquidation Notices
-------------------
Written notice of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the corporation, stating a payment date and the
place where the distributable amounts shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to the holders of record of the 15% Cumulative Preferred Stock and the Common
Stock at their respective addresses as the same shall appear on the books of the
corporation.
For the purposes of Section 2(A)(4) and Section 2(B)(2) of this Article IV,
the merger of the corporation into or with any other corporation, or the merger
of any other corporation into it, or the sale, lease, or conveyance of all or
substantially all the assets, property, or business of the corporation, which
does not in fact result in a liquidation of the corporation, shall not be deemed
to be a liquidation, dissolution, or winding up of the corporation.
(D) Redemption Notices
------------------
Notice of any redemption which is to be made pursuant to Section 2(A)(3) of
this Article IV shall be mailed, postage prepaid, (i) in the case of a
redemption under Section 2(A)(3)(a) of this Article IV, on the date of the event
resulting in the redemption or (ii) in the case of a redemption under Section
2(A)(3)(b) of this Article IV, at least 10 days but not more than 60 days prior
to the proposed redemption, in each case to the holders of record of the 15%
Cumulative Preferred Stock to be redeemed at their respective addresses as they
appear on the books of the corporation.
Notice of the redemption shall state:
(1) the redemption date,
(2) the redemption price,
(3) if less than all outstanding shares of 15% Cumulative Preferred
Stock are to be redeemed, the identification of the shares to be redeemed,
(4) that on the redemption date the redemption price will become due
and payable upon each share of 15% Cumulative Preferred Stock to be
redeemed, and
(5) the place or places where such shares to be redeemed are to be
surrendered for payment of the redemption price.
If the notice required by the preceding paragraphs of this Section 2(D) is
given, the number of shares of 15% Cumulative Preferred Stock specified in the
notice shall, subject to the limitations set forth in this Article IV, become
due and payable on the redemption date so designated at the redemption price
upon presentation and surrender of the certificates representing such shares.
<PAGE>
(E) Retirement of Shares; Outstanding
---------------------------------
All shares of 15% Cumulative Preferred Stock redeemed or acquired shall be
canceled and not subject to reissuance. When used in this Article IV with
reference to the 15% Cumulative Preferred Stock, the term "outstanding" means
shares of such class of stock which have been issued but have not been so
canceled.
ARTICLE V.
The minimum amount of capital with which this corporation shall commence
business is one thousand dollars ($1,000).
ARTICLE VI.
The corporation shall have perpetual existence.
ARTICLE VII.
The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever, and shall be exempt from
corporate liability.
ARTICLE VIII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) To make, alter, amend and rescind the Bylaws of this corporation.
(b) To set apart out of any of the available funds of this corporation
such reserves for proper purposes as the Board of Directors may deem expedient,
and to abolish any such reserves.
(c) To determine the use and distribution of any surplus and net profits.
(d) To authorize and cause to be executed and delivered, without limit as
to amount, mortgages and instruments of pledge of, and other instruments
creating liens upon, the real and personal property of this corporation.
(e) By resolution or resolutions, passed by a majority of the whole Board,
to designate one or more committees, each committee to consist of two or more of
the directors of this corporation, which, to the extent provided in said
resolution or resolutions or in the Bylaws of this corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of this corporation, and may have power to authorize the
seal of this corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
Bylaws of this corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
ARTICLE IX.
The stockholders and Board of Directors shall have power, if the Bylaws so
provide, to hold their meetings and to keep the books of this corporation
(except such as are required by the laws of Delaware
<PAGE>
to be kept in Delaware) and documents and papers of this corporation outside the
State of Delaware and have one or more offices within or without the State of
Delaware at such places as may be designated from time to time by the Board of
Directors.
ARTICLE X.
1. The number of directors of this corporation shall be specified in the
Bylaws and such number may be increased or decreased from time to time in such
manner as may be prescribed in the Bylaws. The directors need not be
stockholders.
2. In case of an increase in the number of directors, the additional
directors may be elected by the Board of Directors to hold office until the next
annual meeting of the stockholders and until their successors are elected and
qualified. In case of vacancies in the Board of Directors, a majority of the
remaining directors may elect directors to fill such vacancies.
3. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of laws, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the date of filing of this Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the Delaware General
Corporation Law as so amended. Any repeal or modification of this paragraph 3
by stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification.
4. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph 5 hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred
in this Section shall be a contract right and shall include the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final
<PAGE>
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
5. If a claim under paragraph 4 of the Article X is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
6. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
7. The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
8. This Certificate of Incorporation is filed pursuant to the merger of
Coda Acquisition, Inc. with and into Coda Energy, Inc. ("Old Coda"), effective
as of the time of filing of a certificate of merger relating to such merger (the
"Effective Time"). For a period of six years from the Effective Time, the
corporation shall, to the fullest extent permitted by law, abide by the
limitation on liability set forth in Article 10 of the Certificate of
Incorporation of Old Coda in effect immediately prior to the Effective Time and
provide for the indemnification and advancement of expenses set forth in Article
9.1 of the Bylaws of Old Coda in effect immediately prior to the Effective Time
with respect to individuals who at any time from and after October 30, 1995, to
and including the Effective Time were directors, officers, employees,
fiduciaries or agents of Old Coda or any of its subsidiaries in respect of
actions or omissions occurring at or prior to the Effective Time.
<PAGE>
ARTICLE XII.
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
* * * * *
IN WITNESS WHEREOF, Coda Energy, Inc. has caused its corporate seal to be
hereunto affixed and this Restated Certificate of Incorporation to be signed by
Grant W. Henderson, its President, and attested by Joe Callaway, its Secretary,
on April 2, 1996.
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
___________________________________________
Name: Grant W. Henderson
Title: President
[SEAL]
ATTEST:
/s/ JOE CALLAWAY
_______________________________
Joe Callaway, Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CODA ENERGY, INC.
A Delaware Corporation
Date of Amendment and Restatement
February 16, 1996
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article I. Offices
-------
Section 1. Registered Office................................. 1
Section 2. Other Offices..................................... 1
Article II. Stockholders
------------
Section 1. Place of Meetings................................. 1
Section 2. Quorum; Adjournment of Meetings................... 1
Section 3. Annual Meetings................................... 2
Section 4. Special Meetings.................................. 2
Section 5. Record Date....................................... 2
Section 6. Notice of Meetings................................ 3
Section 7. Stockholder List.................................. 3
Section 8. Proxies........................................... 4
Section 9. Voting; Election; Inspectors...................... 4
Section 10. Conduct of Meetings............................... 5
Section 11. Treasury Stock.................................... 5
Section 12. Action Without Meeting............................ 5
Article III. Board of Directors
------------------
Section 1. Power; Number; Term of Office..................... 6
Section 2. Quorum; Voting.................................... 6
Section 3. Place of Meetings; Order of Business.............. 7
Section 4. First Meeting..................................... 7
Section 5. Regular Meetings.................................. 7
Section 6. Special Meetings.................................. 7
Section 7. Removal........................................... 7
Section 8. Vacancies; Increases in the Number of Directors... 7
Section 9. Compensation...................................... 8
Section 10. Action Without a Meeting; Telephone Conference
Meeting......................................... 8
Section 11. Approval or Ratification of Acts or Contracts
by Stockholders................................. 8
Section 12. Actions Requiring Approval........................ 9
Article IV. Committees
----------
Section 1. Designation; Powers............................... 10
Section 2. Procedure; Meetings; Quorum....................... 10
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 3. Substitution and Removal of Members;
Vacancies....................................... 10
Article V. Officers
--------
Section 1. Number, Titles and Term of Office................. 11
Section 2. Powers and Duties of the Chairman of the Board.... 11
Section 3. Powers and Duties of the Vice Chairman of
the Board....................................... 11
Section 4. Powers and Duties of the President................ 12
Section 5. Powers and Duties of the Chief Operating Officer.. 12
Section 6. Vice Presidents................................... 12
Section 7. General Counsel................................... 12
Section 8. Secretary......................................... 12
Section 9. Deputy Corporate Secretary and Assistant
Secretaries..................................... 13
Section 10. Treasurer......................................... 13
Section 11. Assistant Treasurers.............................. 13
Section 12. Action with Respect to Securities of Other
Corporations..................................... 13
Section 13. Delegation....................................... 14
Article VI. Capital Stock
-------------
Section 1. Certificates of Stock............................. 14
Section 2. Transfer of Shares................................ 14
Section 3. Ownership of Shares............................... 14
Section 4. Regulations Regarding Certificates................ 15
Section 5. Lost or Destroyed Certificates.................... 15
Article VII. Miscellaneous Provisions
------------------------
Section 1. Fiscal Year....................................... 15
Section 2. Corporate Seal.................................... 15
Section 3. Notice and Waiver of Notice....................... 15
Section 4. Facsimile Signatures.............................. 16
Section 5. Reliance upon Books, Reports and Records.......... 16
Section 6. Application of Bylaws............................. 16
Section 7. Indemnification................................... 16
Article VIII. Amendments............................................ 17
----------
</TABLE>
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
CODA ENERGY, INC.
Article I
Offices
-------
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
required by the state of incorporation of the Corporation to be maintained in
the state of incorporation of the Corporation shall be the registered office
named in the charter documents of the Corporation, or such other office as may
be designated from time to time by the Board of Directors in the manner provided
by law.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places both within and without the state of incorporation of the
Corporation as the Board of Directors may from time to time determine or the
business of the Corporation may require.
Article II
Stockholders
------------
Section 1. Place of Meetings. All meetings of the stockholders shall be
--------- -----------------
held at the principal office of the Corporation, or at such other place within
or without the state of incorporation of the Corporation as shall be specified
or fixed in the notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
---------- --------------------------------
by law or provided in the charter documents of the Corporation or these Bylaws,
(i) the holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at any meeting of stockholders for the transaction of business, (ii) in
all matters other than election of directors, the affirmative vote of the
holders of a majority of such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
the shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of
<PAGE>
enough stockholders to leave less than a quorum, subject to the provisions of
clauses (ii) and (iii) above.
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Notwithstanding the other provisions of the charter documents of the
Corporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of stockholders, whether
or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the
time and place of the holding of the adjourned meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for
--------- ---------------
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of incorporation of the
Corporation), on such date, and at such time as the Board of Directors shall fix
and set forth in the notice of the meeting, which date shall be within thirteen
(13) months subsequent to the last annual meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the charter
--------- ----------------
documents of the Corporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, by
the Vice Chairman of the Board, by the President, by a majority of the Board of
Directors, or by a majority of the executive committee (if any), at such time
and at such place as may be stated in the notice of the meeting. Business
transacted at a special meeting shall be confined to the purpose(s) stated in
the notice of such meeting.
Section 5. Record Date. For the purpose of determining stockholders
--------- -----------
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of stockholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such
2
<PAGE>
meeting of stockholders, nor more than sixty (60) days prior to any other action
to which such record date relates.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, if in accordance with Article
VII, Section 3 of these Bylaws notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. The record date for
determining stockholders for any other purpose (other than the consenting to
corporate action in writing without a meeting) shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of incorporation of the Corporation or at its principal place of
business. If the Board of Directors does not fix the record date, and prior
action by the Board of Directors is necessary, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
Section 6. Notice of Meetings. Written notice of the place, date and
--------- ------------------
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Chairman of the Board, the Vice Chairman of the Board, the President, the
Secretary or the other person(s) calling the meeting to each stockholder
entitled to vote thereat not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Such notice may be delivered either personally
or by mail. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 7. Stockholder List. A complete list of stockholders entitled
--------- ----------------
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
3
<PAGE>
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
--------- -------
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed in accordance with the Delaware General Corporation Law, in which
event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
Section 9. Voting; Election; Inspectors. Unless otherwise required by
--------- ------------------------------
law or provided in the charter documents of the Corporation, each stockholder
shall on each matter submitted to a vote at a meeting of stockholders have one
vote for each share of the stock entitled to vote which is registered in his
name on the record date for the meeting. For the purposes hereof, each election
to fill a directorship shall constitute a separate matter. Shares registered in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws (or comparable body) of such corporation
may determine. Shares registered in the name of a deceased person may be voted
by the executor or administrator of such person's estate, either in person or by
proxy.
All voting, except as required by the charter documents of the Corporation
or where otherwise required by law, may be by a voice vote; provided, however,
upon request of the
4
<PAGE>
chairman of the meeting or upon demand therefor by stockholders holding a
majority of the issued and outstanding stock present in person or by proxy at
any meeting a stock vote shall be taken. Every stock vote shall be taken by
written ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. All elections of directors shall be by written
ballots, unless otherwise provided in the charter documents of the Corporation.
At any meeting at which a vote is taken by written ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the charter documents of the Corporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders shall
---------- -------------------
be presided over by the Chairman of the Board, or, if the Chairman of the Board
is not present, by the Vice Chairman of the Board, or, if the Vice Chairman of
the Board is not present, by the President, or, if neither the Chairman of the
Board, the Vice Chairman of the Board nor the President is present, by a
chairman elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or, if the Secretary is not present,
the Deputy Corporate Secretary or an Assistant Secretary shall so act; if
neither the Secretary nor the Deputy Corporate Secretary nor an Assistant
Secretary is present, then a secretary shall be appointed by the chairman of the
meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
Section 11. Treasury Stock. The Corporation shall not vote, directly or
---------- --------------
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Section 12. Action Without Meeting. Unless otherwise provided in the
---------- ----------------------
charter documents of the Corporation, any action permitted or required by law,
the charter documents of the Corporation or these Bylaws to be taken at a
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
5
<PAGE>
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in the state of incorporation, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by less
than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Article III
Board of Directors
------------------
Section 1. Power; Number; Term of Office. The business and affairs of
--------- -------------------------------
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the charter
documents of the Corporation, the Board of Directors may exercise all the powers
of the Corporation.
The number of directors which shall constitute the whole Board of Directors
shall be determined from time to time by the Board of Directors (provided that
no decrease in the number of directors which would have the effect of shortening
the term of an incumbent director may be made by the Board of Directors). If
the Board of Directors makes no such determination, the number of directors
shall be seven. Each director shall hold office for the term for which such
director is elected, and until such director's successor shall have been elected
and qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the charter documents of the Corporation,
directors need not be stockholders nor residents of the state of incorporation
of the Corporation.
Section 2. Quorum; Voting. Unless otherwise provided in the charter
--------- ---------------
documents of the Corporation, a majority of the total number of directors shall
constitute a quorum for the transaction of business of the Board of Directors
and the vote of a majority of the
6
<PAGE>
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may hold
--------- ------------------------------------
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provided by law, in such place or places, within or without
the state of incorporation of the Corporation, as the Board of Directors may
from time to time determine. At all meetings of the Board of Directors business
shall be transacted in such order as shall from time to time be determined by
the Chairman of the Board, or in the Chairman of the Board's absence by the Vice
Chairman of the Board or in the Vice Chairman of the Board's absence by the
President (should the President be a director) or by the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
--------- -------------
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
shall be held at such times and places as shall be designated from time to time
by the Chairman of the Board or, in the absence of the Chairman of the Board, by
the Vice Chairman of the Board, or in the Vice Chairman of the Board's absence,
by the President (should the President be a director). Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by the Chairman of the Board, the Vice Chairman of the Board, or
the President (should the President be a director) and shall be called by the
Secretary, on the written request of any two directors, in each case on at least
twenty-four (24) hours' personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article VII,
Section 3 hereof, need not state the purpose or purposes of such meeting, except
as may otherwise be required by law or provided for in the charter documents of
the Corporation or these Bylaws. Meetings may be held at any time without
notice if all the directors are present or if those not present waive notice of
the meeting in writing.
Section 7. Removal. Any director or the entire Board of Directors may
--------- -------
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
Section 8. Vacancies; Increases in the Number of Directors. Unless
--------- ------------------------------------------------
otherwise provided in the charter documents of the Corporation, vacancies
existing on the Board of Directors for any reason and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director; and
7
<PAGE>
any director so chosen shall hold office until the next annual election and
until such director's successor shall have been elected and qualified, or until
such director's earlier death, resignation or removal.
Section 9. Compensation. No compensation shall be paid to directors and
--------- ------------
members of standing committees, if any, for their services in such capacities,
provided, however, that they shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
---------- -------------------------------------------------------
Unless otherwise restricted by the charter documents of the Corporation, any
action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous vote at a meeting,
and may be stated as such in any document or instrument filed with the Secretary
of State of the state of incorporation of the Corporation.
Unless otherwise restricted by the charter documents of the Corporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone connection or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
---------- ------------------------------------------------
Stockholders. The Board of Directors in its discretion may submit any act or
- ------------
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
8
<PAGE>
Section 12. Actions Requiring Approval. Notwithstanding anything to the
----------- --------------------------
contrary herein, the Corporation shall not take (or permit to be taken in its
capacity as a shareholder or partner or permit any subsidiary of the Corporation
to take) any of the following actions unless approved by a majority of the
directors present at a meeting at which a quorum is in attendance;
(i) approving any capital or operating budget for any fiscal year;
(ii) making, or committing to make, any payment in excess of (A)
$5,000,000 per transaction or contract (or series of related transactions or
contracts), whether as or in connection with a capital expenditure, asset
purchase, investment, rental, settlement, equity contribution, loan, guaranty or
otherwise other than specific expenditures previously approved by the directors
in a capital or operating budget or (B) 10% of any dollar amount otherwise
approved in any capital or operating budget;
(iii) borrowing any amount in excess of $5,000,000 per transaction or
contract (or series of related transactions or contracts);
(iv) disposing of or otherwise transferring any capital asset (or related
capital assets) whose fair market value or book value exceeds $2,000,000;
(v) entering into any contract or transaction (or series of contracts or
transactions) pursuant to which the Corporation or any subsidiary is to receive
more than $1,000,000 other than marketing contracts for crude oil or natural gas
entered into in the ordinary course of the business of the Corporation;
(vi) entering into any standstill agreement other than in accordance with
policies adopted by the Board of Directors;
(vii) the indemnification of any officer or any other employee except as
specifically provided in the Corporation's Certificate of Incorporation or
Bylaws;
(viii) executing or otherwise entering into any employment agreement with
any officer or employee, appointing or removing (with or without cause) any
officer or hiring or firing (with or without cause) any officer or other
similarly compensated person;
(ix) setting or amending the compensation level of any officer or other
similarly compensated person;
(x) making an investment in any non-affiliated person or entity
otherwise than in accordance with policies adopted by the Board of Directors;
and
(xi) commencing or settling any claim or lawsuit except as permitted in
accordance with policies adopted by the Board of Directors.
9
<PAGE>
Article IV
Committees
----------
Section 1. Designation; Powers. The Board of Directors may, by
--------- -------------------
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, with
each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors in reference to amending the charter documents of the Corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the
seal of the Corporation to be affixed to all papers which may require it. In
addition to the above, such committee or committees shall have such other powers
and limitations of authority as may be determined from time to time by the Board
of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
--------- ---------------------------
pursuant to this Article IV shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be possible. At every meeting of any
such committee, the presence of a majority of all the members thereof shall
constitute a quorum, except as provided in Section 3 of this Article IV, and the
affirmative vote of a majority of the members present shall be necessary for the
adoption by it of any resolution.
Section 3. Substitution and Removal of Members; Vacancies. The Board
--------- ----------------------------------------------
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
10
<PAGE>
Article V
Officers
--------
Section 1. Number, Titles and Term of Office. The officers of the
--------- ---------------------------------
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice President
or Senior Vice President), a Treasurer, a Secretary, and such other officers as
the Board of Directors may from time to time elect or appoint (including, but
not limited to, a Vice Chairman of the Board, a General Counsel, a Deputy
Corporate Secretary, one or more Assistant Secretaries and one or more Assistant
Treasurers). Each officer shall hold office until such officer's successor shall
be duly elected and shall qualify or until such officer's death or until such
officer shall resign or shall have been removed. Any number of offices may be
held by the same person, unless the charter documents of the Corporation provide
otherwise. The Chairman of the Board and the Vice Chairman of the Board shall be
directors of the Corporation. If there is no Vice Chairman of the Board, then
the President shall also be a director. Except as set forth above, no officer
need be a director.
Section 2. Powers and Duties of the Chairman of the Board. The Chairman
--------- ----------------------------------------------
of the Board shall be the chief executive officer of the Corporation. Subject to
the control of the Board of Directors and the Executive Committee (if any), the
Chairman of the Board shall have general executive charge, management and
control of the properties, business and operations of the Corporation with all
such powers as may be reasonably incident to such responsibilities; may agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation and may sign all certificates for
shares of capital stock of the Corporation; and shall have such other powers and
duties as designated in accordance with these Bylaws and as from time to time
may be assigned to the Chairman of the Board by the Board of Directors. The
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board of Directors.
Section 3. Powers and Duties of the Vice Chairman of the Board. The
--------- ---------------------------------------------------
Board of Directors may assign areas of responsibility to the Vice Chairman of
the Board, and, in such event, and subject to the overall direction of the
Chairman of the Board and the Board of Directors, the Vice Chairman of the Board
shall be responsible for supervising the management of the affairs of the
Corporation and its subsidiaries within the area or areas assigned and shall
monitor and review on behalf of the Board of Directors all functions within such
corresponding area or areas of the Corporation and each such subsidiary of the
Corporation. In the absence of the Chairman of the Board, or in the event of the
Chairman of the Board's inability or refusal to act, the Vice Chairman of the
Board shall perform the duties of the Chairman of the Board, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
Chairman of the Board. Further, the Vice Chairman of the Board shall have such
other powers and duties as designated in accordance with these Bylaws and as
from time to time may be assigned to the Vice Chairman of the Board by the Board
of Directors or the Chairman of the Board.
11
<PAGE>
Section 4. Powers and Duties of the President. Unless the Board of
--------- ----------------------------------
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, the President shall, in the absence of the Vice Chairman
of the Board, or in the event of the Vice Chairman of the Board's inability or
refusal to act, or if there be no Vice Chairman of the Board (should the
President be a director) preside at all meetings of the stockholders and of the
Board of Directors, perform the other duties of the Vice Chairman of the Board,
and when so acting will have all the powers and be subject to all the
restrictions upon the Vice Chairman of the Board; and the President shall have
such other powers and duties as designated in accordance with these Bylaws and
as from time to time may be assigned to the President by the Board of Directors,
the Chairman of the Board or the Vice Chairman of the Board. In the event that
the President is not a director, the President shall be an advisory director
and, as such, shall have the right to receive all notices of meetings of the
Board of Directors and information to the same extent and manner provided to
directors by law and the Corporation's Certificate of Incorporation and Bylaws
and shall be entitled to attend and participate (but not vote) in all meetings
of the Board of Directors (but shall not be counted in determining the presence
of a quorum at any of such meetings).
Section 5. Powers and Duties of the Chief Operating Officer. Unless the
--------- ------------------------------------------------
Board of Directors otherwise determines, the Chief Operating Officer shall have
the authority to agree upon and execute all leases, contracts, evidences of
indebtedness and other obligations in the name of the Corporation; and the Chief
Operating Officer shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
Chief Operating Officer by the Board of Directors, the Chairman of the Board or
the Vice Chairman of the Board.
Section 6. Vice Presidents. Each Vice President shall at all times
--------- ---------------
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the Vice Chairman of the Board or the President of the Corporation. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
Section 7. General Counsel. The General Counsel shall act as legal
--------- ---------------
advisor to the Corporation. The General Counsel may have one or more staff
attorneys and assistants, and may retain other attorneys to conduct the legal
affairs and litigation of the Corporation under the General Counsel's
supervision.
Section 8. Secretary. The Secretary shall keep the minutes of all
--------- ---------
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving
and serving of all notices; may in the name of the Corporation affix the seal
of the Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers
12
<PAGE>
all certificates for shares of capital stock of the Corporation; shall have
charge of the certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection of any director upon application
at the office of the Corporation during business hours; shall have such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
the Vice Chairman of the Board or the President; and shall in general perform
all acts incident to the office of Secretary, subject to the control of the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President.
Section 9. Deputy Corporate Secretary and Assistant Secretaries. The
--------- ----------------------------------------------------
Deputy Corporate Secretary and each Assistant Secretary shall have the usual
powers and duties pertaining to such offices, together with such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Deputy Corporate Secretary or an Assistant Secretary by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or the Secretary. The Deputy Corporate Secretary shall exercise
the powers of the Secretary during that officer's absence or inability or
refusal to act.
Section 10. Treasurer. The Treasurer shall have responsibility for the
---------- ---------
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chairman of the Board, the Vice Chairman of the Board or the President. The
Treasurer shall perform all acts incident to the position of Treasurer, subject
to the control of the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board and the President; and the Treasurer shall, if required by
the Board of Directors, give such bond for the faithful discharge of the
Treasurer's duties in such form as the Board of Directors may require.
Section 11. Assistant Treasurers. Each Assistant Treasurer shall have
---------- --------------------
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the President or the Treasurer. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 12. Action with Respect to Securities of Other Corporations.
---------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the Chairman of the Board,
the Vice Chairman of the Board or the President, together with the Secretary,
the Deputy Corporate Secretary or any Assistant Secretary shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of security holders of or with respect to any action of security
holders of any other corporation in which this Corporation may hold securities
and otherwise to exercise any and all rights and powers which this Corporation
may possess by reason of its ownership of securities in such other corporation.
13
<PAGE>
Section 13. Delegation. For any reason that the Board of Directors may
---------- ----------
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
Article VI
Capital Stock
-------------
Section 1. Certificates of Stock. The certificates for shares of the
--------- ---------------------
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the charter documents of the Corporation, as shall be
approved by the Board of Directors. Every holder of stock represented by
certificates shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairman of the Board, Vice Chairman of the Board,
President or a Vice President and the Secretary, Deputy Corporate Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered
and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
--------- ------------------
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys-in-fact or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
--------- -------------------
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to
14
<PAGE>
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the state of incorporation of the Corporation.
Section 4. Regulations Regarding Certificates. The Board of Directors
--------- ----------------------------------
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
--------- ------------------------------
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate therefore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
Article VII
Miscellaneous Provisions
------------------------
Section 1. Fiscal Year. The fiscal year of the Corporation shall begin
--------- -----------
on the first day of January of each year.
Section 2. Corporate Seal. The corporate seal shall be circular in form
--------- --------------
and shall have inscribed thereon the name of the Corporation and the state of
its incorporation, which seal shall be in the charge of the Secretary and shall
be affixed to certificates of stock, debentures, bonds, and other documents, in
accordance with the direction of the Board of Directors or a committee thereof,
and as may be required by law; however, the Secretary may, if the Secretary
deems it expedient, have a facsimile of the corporate seal inscribed on any such
certificates of stock, debentures, bonds, contract or other documents.
Duplicates of the seal may be kept for use by the Deputy Corporate Secretary or
any Assistant Secretary.
Section 3. Notice and Waiver of Notice. Whenever any notice is required
--------- ---------------------------
to be given by law, the charter documents of the Corporation or under the
provisions of these Bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission (including by telecopy
or facsimile transmission) or (ii) by deposit of the same in a post office box
or by delivery to an overnight courier service company in a sealed prepaid
wrapper addressed to the person entitled thereto at such person's post office
address, as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
15
<PAGE>
Whenever notice is required to be given by law, the charter documents of
the Corporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the charter documents of the Corporation or these Bylaws.
Section 4. Facsimile Signatures. In addition to the provisions for the
--------- --------------------
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 5. Reliance upon Books, Reports and Records. A member of the
--------- ----------------------------------------
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
Section 6. Application of Bylaws. In the event that any provisions of
--------- ---------------------
these Bylaws is or may be in conflict with any law of the United States, of the
state of incorporation of the Corporation or of any other governmental body or
power having jurisdiction over this Corporation, or over the subject matter to
which such provision of these Bylaws applies, or may apply, such provision of
these Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law, and shall in all other respects be in full
force and effect.
Section 7. Indemnification. In the event that the Corporation merges
---------- ---------------
with Coda Energy, Inc. ("Coda"), a Delaware corporation, then for a period of
six years from the effective time of such merger (the "Effective Time"), the
surviving corporation of such merger shall, to the fullest extent permitted by
law, provide the indemnification and advancement of expenses set forth in
Section 9.1 of the Bylaws of Coda in effect immediately prior the Effective Time
with respect to individuals who at any time from and after the date of the
agreement relating to such merger and to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of Coda or any of its
subsidiaries in respect of actions or omissions occurring at or prior to the
Effective Time.
16
<PAGE>
Article VIII
Amendments
----------
The Board of Directors shall have the power to adopt, amend and repeal from
time to time Bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such Bylaws as adopted
or amended by the Board of Directors.
17
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
DIAMOND A INC.
FIRST: The name of the corporation is: DIAMOND A INC.
SECOND: The address of the corporation's registered office in the State of
Oklahoma is: 8908 South Yale, Suite 340, Tulsa, Oklahoma 74137.
The name of the corporation's registered agent at such address is:
Jarl P. Johnson.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the general corporation
law of the State of Oklahoma.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is 25,000 shares, each of the shares having a par value
of $1.00, thereby resulting in the corporation having total authorized capital
stock in the amount of $25,000.00, all of which shall be Common Stock.
The Board of Directors of the corporation shall have full authority, to the
extent permitted by law, to increase, decrease or otherwise adjust the capital
stock of the corporation, to designate the classes or series thereof and to
determine whether all or any part of such stock shall have voting powers, full
or limited, or no voting powers, and to determine such designations, and such
powers, preferences, relative, participating or optional, or other special
rights and the qualifications, limitations or restrictions thereof as the Board
shall from time to time determine in duly adopted resolutions.
At any time and from time to time when authorized by resolution of the
Board of Directors and without any action by its shareholders, the corporation
whether out of the unissued shares thereof authorized by the Certificate of
Incorporation of the corporation as originally filed or by an amendment thereof
or out of shares of its capital stock acquired by it after the issue thereof,
and whether or not the shares thereof so issued or sold shall confer upon the
holders thereof the right to exchange or convert such shares for or into other
shares of capital stock of the corporation of any class or classes or any series
thereof. When similarly authorized, but without any action by its shareholders,
the corporation within such period of time, or without limit as to time, to such
aggregate number of shares, and at such price per share, as the Board of
Directors may determine. Such rights, warrants or options may be issued or
granted separately or in connection with the issue of any bonds, debentures
notes obligations or other evidences of indebtedness or shares of the capital
stock of any class or series of the corporation and for such consideration and
on such terms and conditions as the Board of Directors in its sole discretion
may determine. In each case, the consideration to be received by the
corporation for any such shares so issued
<PAGE>
or sold shall be such as shall be fixed from time to time by resolution of the
Board of Directors.
FIFTH: The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
James W. Smith Broadway Tower
Suite 1010
Enid, OK 73701
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To adopt, amend or repeal the Bylaws of the corporation.
(b) To authorize and cause to be executed or granted mortgages, security
interests and liens upon the real and personal property of the corporation.
(c) To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
(d) By a majority of the whole Board of Directors, to designate one or more
committees, each committee to consist of one (1) or more of the directors
of the corporation. The Board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee,
to the extent provided in the resolution or in the Bylaws of the
corporation, shall have and may exercise the affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers
which may require it; provided, however, the Bylaws may provide that in the
absence or disqualification of any member of such committee or committees,
the members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
the place of any such absent or disqualified member.
(e) When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting power given at a
shareholders' meeting duly called upon such notice as is required by law,
or when authorized by the written consent of the holders of a majority of
the voting stock issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the corporation, including
its goodwill and its corporate franchises, upon
- 2 -
<PAGE>
such terms and conditions and for such consideration, which may consist in
whole or in part of money or property including shares of stock in, and/or
other securities of , any other corporation or corporations, as its Board
of Directors shall deem expedient and for the best interests of the
corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the State of Oklahoma, on the application in a summary way
of this corporation or of any creditor or shareholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 1106 of Title 18 of the Oklahoma Statutes or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 1100 of Title 18 of the
Oklahoma Statutes order a meeting of the creditors or class of creditors, and/or
of the shareholders or class of shareholders of this corporation, as the case
may be, to be summoned in such manner as the court directs. If a majority in
number representing three-fourths (3/4ths) in value of the creditors or class of
creditors, and/or of the shareholders or class of shareholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the compromise or arrangement and the reorganization shall, if
sanctioned by the court to which the application has been made, be binding on
all the creditors or class of creditors and/or on all the shareholders or class
of shareholders of this corporation, as the case may be, and also on this
corporation.
EIGHTH: Meetings of shareholders may be held within or without the State
of Oklahoma as the Bylaws may provide. The books of the corporation may be kept
(subject to applicable law) inside or outside the State of Oklahoma at such
place or places as may be designated from time to time by the Board of Directors
or in the Bylaws of the corporation. Elections of directors need not be by
written ballot unless the bylaws of the corporation shall so provide.
NINTH: To the extent permitted by law, no contract or transaction between
the corporation and one or more of its directors or officers, or between the
corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the directors or officers are present at or
participate in the meeting of the board of committee thereof which authorizes
the contract or transaction, or solely because the directors or officers or
their votes are counted for such purpose.
TENTH: The Board of Directors is expressly authorized to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that such person is or was a
director, officer,
- 3 -
<PAGE>
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement to
the extent and in the manner permitted by the laws of the State of Oklahoma.
ELEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Oklahoma, the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the corporation.
TWELFTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred upon the
shareholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the Oklahoma General Corporation Act, makes
this Certificate, hereby declaring and certifying that this is the act and deed
of the undersigned and that the facts herein stated are true, as of this 9th day
of July, 1990.
/s/ JAMES W. SMITH
------------------
JAMES W. SMITH
STATE OF OKLAHOMA )
) SS:
COUNTY OF GARFIELD )
Before me, a Notary Public, in and for the said County and State, on this
9th day of July, 1990, personally appeared JAMES W. SMITH, to me known to be the
identical person who executed the foregoing instrument, and acknowledged to me
that he executed the same as his free and voluntary act and deed for the uses
and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day
and year last above written.
/s/ MARILYN E. HOWARD
---------------------
Notary Public
My Commission Expires:
April 5, 1993
-------------
- 4 -
<PAGE>
CERTIFICATE OF MERGER
TO THE SECRETARY OF STATE
OF THE STATE OF OKLAHOMA:
Diamond A Inc., an Oklahoma corporation, hereby certifies:
1. The name and state of incorporation of each of the constituent
corporations are:
Name of Corporation State of Incorporation
------------------- ----------------------
DA Acquisition Corp. Oklahoma
Diamond A Inc. Oklahoma
2. That certain Agreement and Plan of Merger by and among the constituent
corporations and certain other parties dated as of June 11, 1994, as amended by
that certain First Amendment to the Agreement and Plan of Merger dated as of
July 12, 1994 (as so amended, referred to herein as the "Agreement of Merger"),
is an agreement of merger as contemplated by Section 1081 of the Oklahoma
General Corporation Act and it has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with the
provisions of Section 1081 of the Oklahoma General Corporation Act.
3. The name of the surviving corporation is: Diamond A Inc.
4. The certificate of incorporation of the surviving corporation shall
be its certificate of incorporation.
5. The executed Agreement of Merger is on file at the principal place
of business of Diamond A Inc. at the following address:
8908 South Yale, Suite 340
Tulsa, Oklahoma 74137
6. A copy of the Agreement of Merger will be furnished by Diamond A Inc.,
on request and without cost, to any shareholder of any constituent corporation.
IN WITNESS WHEREOF, Diamond A Inc. has caused this Certificate of Merger
to be executed by its President and attested by its Secretary this 30th day of
September, 1994.
DIAMOND A INC.
ATTEST:
/s/ MARK GRAVLEE By:/s/ JARL P. JOHNSON
- ---------------- -------------------
Mark Gravlee Jarl P. Johnson
Secretary President
[SEAL]
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement"), dated as of the 29th day of
December, 1994, is by and between DIAMOND A INC., an Oklahoma corporation
("Diamond A"), and DIAMOND ENERGY OPERATING COMPANY, an Oklahoma corporation
("Diamond Energy").
WHEREAS, the Boards of Directors and the sole shareholder of Diamond A and
Diamond Energy have approved the merger of Diamond Energy with and into Diamond
A (the "Merger") in accordance with the Oklahoma General Corporation Act (the
"Act") and the provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
1. Constituent Corporation and Surviving Corporation. Diamond A and
-------------------------------------------------
Diamond Energy shall be the constituent corporations to the Merger (the
"Constituent Corporations"). At the Effective Time (as hereinafter defined) and
pursuant to the provisions of Section 1081 of the Act, Diamond Energy shall be
merged with and into Diamond A. Diamond A shall be the surviving corporation of
the Merger (the "Surviving Corporation"). At the Effective Time, the separate
existence and corporate organization of Diamond Energy, except insofar as it may
be continued by statute, shall cease and Diamond A shall continue as the
Surviving Corporation which shall succeed, without other transfer or further act
or deed whatsoever, to all the rights, properties and assets of the Constituent
Corporations and shall be subject to and liable for all the debts, liabilities
and duties of each of the Constituent Corporations. The identity, existence,
purposes, rights, immunities, properties, liabilities and obligations of Diamond
A shall be unaffected and unimpaired by the Merger except as expressly provided
herein.
2. Effective Time. The Merger shall become effective immediately upon the
--------------
filing of this Agreement with the Secretary of State of the State of Oklahoma
(the "Effective Time").
3. Certificate of Incorporation: Bylaws. At the Effective Time, Article
-------------------------------------
FIRST of the Certificate of Incorporation of Diamond A shall be amended as
follows:
FIRST: The name of the corporation is: DIAMOND ENERGY OPERATING COMPANY.
The Certificate of Incorporation of Diamond A, as so amended, shall be the
Certificate of Incorporation of the Surviving Corporation. The Bylaws of
Diamond A shall be amended to reflect the foregoing name change, and the Bylaws
of Diamond A, as so amended, shall be the Bylaws of the Surviving Corporation.
<PAGE>
4. Conversion of Shares. Each share of common stock, par value $1.00 per
--------------------
share, of Diamond Energy which shall be outstanding immediately prior to the
Effective Time shall, at the Effective Time, be converted into one share of
common stock, par value $1.00 per share, of the Surviving Corporation. After
the Effective Time, each outstanding certificate which theretofore represented
shares of the common stock of Diamond Energy shall thereafter represent, and,
upon surrender thereof, be exchanged by the Surviving Corporation for a
certificate representing, the number of shares of the common stock of the
Surviving Corporation into which the shares of the common stock of Diamond
Energy have been converted.
5. Directors and Officers. The directors and officers of the Surviving
----------------------
Corporation from and after the Effective Time shall be the directors and
officers of Diamond A. Such directors and officers shall hold their positions as
such in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
6. Stated Capital. The amount of the stated capital of the Surviving
--------------
Corporation shall be the aggregate par value of the shares of the common stock
of Diamond A issued and outstanding after the Effective Time.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above stated.
ATTEST: DIAMOND A INC.
/s/ PATRICIA ASHER By:/s/ JARL P. JOHNSON
- ------------------ -------------------
Patricia Asher, Secretary Jarl P. Johnson, President
[SEAL]
ATTEST: DIAMOND ENERGY OPERATING COMPANY
/s/ PATRICIA ASHER By:/s/ JARL P. JOHNSON
- ------------------ -------------------
Patricia Asher, Secretary Jarl P. Johnson, President
[SEAL]
- 2 -
<PAGE>
CERTIFICATE OF SECRETARY
OF
DIAMOND A INC.
I, Patricia Asher, the Secretary of Diamond A Inc., an Oklahoma corporation
(the "Corporation"), hereby certify that the Agreement of Merger to which this
Certificate is attached was duly approved and adopted on December 29, 1994, by
the written consent of the sole holder of the outstanding capital stock of the
Corporation in accordance with Section 1073 of the Oklahoma General Corporation
Act, which written consent has been properly delivered to the principal place of
business of the Corporation in accordance with said Section 1073.
WITNESS my hand and the seal of the Corporation this 29th day of December,
1994.
/s/ PATRICIA ASHER
------------------
[SEAL] Patricia Asher, Secretary
<PAGE>
CERTIFICATE OF SECRETARY
OF
DIAMOND ENERGY OPERATING COMPANY
I, Patricia Asher, the Secretary of Diamond Energy Operating Company, an
Oklahoma corporation (the "Corporation"), hereby certify that the Agreement of
Merger to which this Certificate is attached was duly approved and adopted on
December 29, 1994, by the written consent of the sole holder of the outstanding
capital stock of the Corporation in accordance with Section 1073 of the Oklahoma
General Corporation Act, which written consent has been properly delivered to
the principal place of business of the Corporation in accordance with said
Section 1073.
WITNESS my hand and the seal of the Corporation this 29th day of December,
1994.
/s/ PATRICIA ASHER
-------------------------------
[SEAL] Patricia Asher, Secretary
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
DIAMOND A INC.
Article I
---------
OFFICES
-------
Section 1. In addition to its registered office, the corporation may also
have offices at such other places both within and without the State of Oklahoma
as the Board of Directors may from time to time determine or the business of the
corporation may require.
Article II
----------
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Meetings of shareholders for any purpose may be held at such
time and place, within or without the State of Oklahoma, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of shareholders will be as set by the Board of
Directors, at which they shall elect by a plurality vote by written ballot a
board of directors, and transact such other business as may be properly be
brought before the meeting.
Section 3. Written notice of the annual meeting, stating the place, date
and hour of such meeting, shall be given to each shareholder entitled to vote
thereat not less than ten (10) days nor more than sixty (60) days before the
date of the meeting unless otherwise required by law.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each shareholder. Such list shall be open
to the examination of any shareholder, for any purpose germane to the meting,
during ordinary business hours, for a period of at least ten (10) days prior to
the election, either at a place within the city where the meeting is to be held
and which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held, and the list shall be
produced and kept at the time and place of the meeting during the whole time
thereof, and subject to the inspection of any shareholder who may be present.
<PAGE>
Section 5. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by law or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of a shareholder owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of shareholders, stating
the place, date, hour and the purpose or purposes thereof, shall be given to
each shareholder entitled to vote thereat, not less than ten (10) days before
the date fixed for the meeting unless otherwise required by law.
Section 7. Business transacted at any special meeting of the shareholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the shares of stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented; provided, however,
that if the date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date and hour
of the adjourned meeting shall be given in conformity herewith. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted at the meeting as originally notified.
Section 9. When a quorum is present at any meeting, the affirmative vote
of the holders of a majority of the shares of stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of law or
of the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Each shareholder at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholders, but no proxy shall be voted or
acted upon after three (3) years from its date unless the proxy provides for a
longer period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
shareholders entitled to vote, no share of stock shall be voted on at any
election for directors which has been transferred on the books of the
corporation within twenty (20) days preceding such election of directors.
2
<PAGE>
Section 11. Any action required to or which may be taken at any annual or
special meeting of the shareholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action by the
shareholders without a meeting by less than unanimous written consent shall be
given to those shareholders who have not consented in writing.
Article III
-----------
DIRECTORS
---------
Section 1. The number of directors which shall constitute the whole Board
shall not be less than one (1) nor more than seven (7). Thereafter, within the
limits above specified, the number of directors shall be determined by
resolution or the Board of Directors or by the shareholders at the annual or a
special meeting of the shareholders. Except for the election held by the
Incorporator and except as provided in Section 2 and in Section 14 of this
Article II, the directors shall be elected at the annual meeting of
shareholders. Each director elected shall hold office until such director's
successor is elected and qualified, or until such director's earlier resignation
or removal. Directors need not be shareholders.
Section 2. Except as provided in Section 14 of this Article II, vacancies
and newly created directorships resulting from any increase in the authorized
numbers of directors by the directors may be filled by a majority of the
directors then in office, though less than a quorum and any director so chosen
shall hold office until the next annual election and until such director's
successor is duly elected and shall qualify, unless such director resigns or is
removed.
Section 3. The business of the corporation shall be managed by its Board
of Directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by law or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the shareholders.
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Oklahoma.
Section 5. Regular meetings of the Board of Directors may be held at such
time and at such place as shall from time to time be determined by the Board.
Five (5) days' notice of all regular meetings shall be given, and such notice
shall state the place, date, hour and the business to be transacted and the
purpose of such meeting.
Section 6. Special meetings of the Board may be called by the President on
three (3) days' notice to each director either personally or by mail or by
telegram. Special meetings shall be called by the President or Secretary in like
manner and on
3
<PAGE>
like notice on the written request of two (2) directors unless the corporation
has at that time less than three (3) directors, in which latter event the
request of only one (1) director shall be required. Notice of any special
meeting shall state the place, date, hour and the business to be transacted at
and the purpose of such meeting.
Section 7. At all meetings of the Board, a majority of the directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by law or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 8. The Board of Directors may, by resolution, passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one (1) or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 9. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board or of such committee as the case may be, and such written consent
is filed with the minutes of proceedings of the Board of Committee.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board or of such committee as the case may be, and such written consent
is filed with the minutes of proceedings of the Board of Committee.
Section 12. The directors may be paid their expenses, if any, for
attendance at such meeting of Board of Directors and may be paid a fixed sum for
attendance at such meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
4
<PAGE>
Section 13. The Board of Directors at any time may, by affirmative vote of
a majority of the members of the Board then in office, remove any officer
elected or appointed by the Board of Directors for cause or without cause.
Section 14. Any director may be removed, for cause or without cause, by a
majority vote of shareholders entitled to vote for the election of such
directors at any annual or special meeting of the shareholders. Upon such
removal of a director, the shareholders (and not the remaining directors) shall
elect a director to replace such removed director at the same shareholders'
meeting at which such removal took place or at a subsequent shareholders'
meeting.
Article IV
----------
NOTICES
-------
Section 1. Notices to directors and shareholders shall be in writing and
delivered personally or mailed to the directors or shareholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be deposited in the United
States mail, postage prepaid. Notice to directors may also be given by
telegram. Notice by telegram shall be deemed to be given when delivered to the
sending telegraph office.
Section 2. Whenever any notice is required to be given under the
provisions of law or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof, in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein shall be deemed
equivalent to notice.
Article V
---------
OFFICERS
--------
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall, at a minimum, consist of a President and a Secretary. The
Board of Directors may also choose additional officers, including a Chairman or
Vice-Chairman of the Board of Directors, one or more Vice-Presidents who may be
classified by their specific function, a Secretary, a Treasurer and one or more
Assistant Secretaries and Assistant Treasurers. Two or more offices may be held
by the same person except the offices of President and Secretary.
Section 2. The Board of Directors at its first meeting and after each
annual meeting of shareholders shall choose a President and a Secretary, and may
choose such other officers and agents as it shall deem necessary.
Section 3. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
5
<PAGE>
Section 4. The officers of the corporation shall hold office until the
successors are chosen and qualify, until their earlier resignation or removal.
Any vacancy occurring in any office of the corporation shall be filled by the
Board of Directors.
Section 5. The Chairman, or, in the absence of the Chairman, a Vice-
Chairman of the Board of Directors, if chosen, shall preside at all meetings of
the Board of Directors, and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 6. The President shall be the chief executive officer of the
corporation, shall preside at all meetings of the shareholders and, unless a
Chairman or Vice-Chairman of the Board has been chosen, at all meetings of the
Board of Directors, and shall have general and active management of the business
of the corporation and shall see that all orders and resolutions of the Board of
Directors, are carried into effect.
Section 7. The President shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 8. The Vice-President, or if there shall be more than one, the
Vice-Presidents in the order determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the proceedings of
the meetings of the corporation and the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and regular and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President under whose supervision the Secretary shall be.
Additionally, the Secretary shall have custody of the corporate seal of the
corporation and the Secretary or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it, and when so affixed, it may be
attested by the Secretary's signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any officer to
affix the seal of the corporation and to attest the affixing by the Secretary's
signature.
Section 10. The Assistant Secretary, or if there by more than one, the
Assistant Secretaries in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of
6
<PAGE>
the Secretary and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
Section 11. The Treasurer, if one is chosen or, if not, the Secretary,
shall have the custody of the corporate funds and securities and shall keep in
full and accurate accounts of receipts and disbursements in books belonging to
the corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors.
Section 12. The Treasurer, if one is chosen or, if not, the Secretary,
shall disburse the funds of the corporation as may be ordered by the Board of
Directors' taking proper vouchers for such disbursements and shall render to the
President and the Board of Directors, at its regular meetings, or when the Board
of Directors so requires, an account of all transactions performed by the
Treasurer (or Secretary, as the case may be) and of the financial condition of
the corporation.
Section 13. If required by the Board of Directors, the Treasurer, if one
is chosen or, if not, the Secretary, shall give the corporation a bond (which
shall be renewed every six (6) years) in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of the office of a treasurer and for the restoration
to the corporation, in case of the Treasurer's (or Secretary's, as the case may
be) death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the possession or under
the control of the Treasurer (or Secretary, as the case may be) belonging to the
corporation.
Section 14. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors,
shall, in the absence of disability of the Treasurer, perform the duties and
exercise the powers as the Board of Directors may from time to time prescribe.
7
<PAGE>
ARTICLE VI
----------
CERTIFICATES OF STOCK, TRANSFERS OF STOCK
-----------------------------------------
CLOSING OF TRANSFER BOOKS AND
-----------------------------
REGISTERED SHAREHOLDERS
-----------------------
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, or the President or Vice-
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the corporation, certifying the number of shares owned
by the shareholder in the corporation.
Section 2. Any or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if the
person who signed the certificate was such officer, transfer agent or registrar
at the date of issue.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or such
owner's legal representative, advertise the same in such manner as the
corporation shall require and/or to give the corporation a bond in such sum as
the corporation may direct as indemnify against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Subject to transfer restrictions permitted by Section 1055 of
Title 18 of the Oklahoma Statutes and to stop transfer orders directed in good
faith by the corporation to any transfer agent to prevent possible violations of
federal or state securities laws, rules or regulation, upon surrender to the
corporation or to the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 5. The Board of Directors may fix a record date, which shall not
be more than sixty (60) nor less than ten (10) days before the date of any
meeting of shareholders, nor more than sixty (60) days prior to the time for the
other action hereinafter described, as of which there shall be determined the
shareholders who are entitled to notice of or to vote at any meeting of
shareholders or any adjournment
8
<PAGE>
thereof; to express consent to corporate action in writing without a meeting; to
receive payment of any dividend or other distribution or allotment of any
rights; or to exercise any rights with respect to any change, conversion or
exchange of stock or with respect to any other lawful action.
Section 6. The corporation shall be entitled to treat the person in whose
name any share of stock is registered on the books of the corporation as the
owner thereof for all purposes and shall not be bound to recognize any equitable
or other claim or other interest in such shares in the part of any other person,
whether or not the corporation shall have express or other notice thereof.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the corporation's
capital stock.
Section 2. There may be set apart out of any of the funds of the
corporation available for dividends such amounts as the Board of Directors deems
proper as a reserve or reserves for working capital, depreciation, losses in
value, or for any other proper corporate purpose, and the Board of Directors may
increase, decrease or abolish any such reserve in the manner in which it is
created.
Section 3. The Board of Directors shall present at each annual meeting and
at any special meeting of the shareholder when called for by vote of the
shareholders, a full and clear statement of the business and condition of the
corporation.
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or person as
the Board of Directors may from time to time designate.
Section 5. The fiscal year of the corporation shall be fixed by the Board
of Directors.
Section 6. The Board of Directors may provide a suitable seal, containing
the name of the corporation, which seal shall be in the charge of Secretary. If
and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by the Assistant
Secretary or Assistant Treasurer. The seal may be used by causing it, or a
facsimile thereof, to be impressed or affixed or in any other manner reproduced.
Section 7. The books of account and other records of the corporation may
be kept (subject to any provisions or Oklahoma law) at the principal place of
business and chief executive office of the corporation.
9
<PAGE>
Section 8. Any compensation or payments received by any stockholder in
this corporation for travel, rent, excess compensation, or bonuses which are
disallowed by the Internal Revenue Service as a tax deduction to the corporation
shall, upon notice of disallowance to the corporation, be repaid by the
stockholder to the corporation.
ARTICLE VIII
------------
INDEMNIFICATION OF OFFICERS, DIRECTORS
--------------------------------------
EMPLOYEES AND AGENTS
--------------------
To the extent and in the manner permitted by the laws of the State of
Oklahoma and specifically as is permitted under Section 1031 of Title 18 of the
Oklahoma Statutes, the corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement.
ARTICLE IX
----------
AMENDMENTS
----------
The Bylaws may be amended or repealed, or new bylaws may be adopted by the
shareholders or by the Board of Directors at any regular meeting of the
shareholders or by the Board of Directors, or at any special meeting of the
shareholders or of the Board of Directors if notice of such amendment, repeal,
or adoption of new bylaws be contained in the notice of such special meeting.
Dated: July 11, 1990
--------------------------
/s/ JARL P. JOHNSON
-----------------------------------------
President
ATTEST:
/s/ MARK GRAVLEE
- --------------------------------
Secretary
10
<PAGE>
EXHIBIT 3.5
----------------------------------------
----------------------------------------
ARTICLES OF INCORPORATION
OF
CH4 MARKETING, INC.
----------------------------------------
----------------------------------------
ARTICLE ONE
The name of the Corporation is CH4 MARKETING, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the transaction of
any and all lawful business for which a corporation may be incorporated under
the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have authority
to issue is One Thousand (1,000). The shares shall have a par value of One
Dollar.
ARTICLE FIVE
The Corporation will not commence business until it has received
consideration equal to or exceeding the value of
----------------------------------------
----------------------------------------
ARTICLES OF INCORPORATION
CH4 MARKETING, INC., PAGE 1
<PAGE>
$1,000.00, consisting of money, labor done, or property actually received, for
the issuance of its shares.
ARTICLE SIX
The street address of its initial Registered Office, and the name of its
initial Registered Agent at this address is as follows:
Douglas H. Miller
9400 North Central Expressway, Suite 500
Dallas, Texas 75231
ARTICLE SEVEN
The number of initial Directors is three (3). The names and addresses of
the initial Directors are:
Douglas H. Miller
9400 North Central Expressway, Suite 500
Dallas, Texas 75231
P. W. Eubank
9400 North Central Expressway, Suite 500
Dallas, Texas 75231
Keith Cooper
9400 North Central Expressway, Suite 500
Dallas, Texas 75231
ARTICLE EIGHT
The name and address of the Incorporator is
Marilyn S. Hershman
408 W. 17th Street, Suite 101
Austin, Texas 78701-1207
(512) 474-2002
----------------------------------------
----------------------------------------
ARTICLES OF INCORPORATION
CH4 MARKETING, INC., PAGE 2
<PAGE>
----------------------------------------
----------------------------------------
IN WITNESS WHEREOF: I have hereunto set my hand this 10th day of April,
1990.
/s/ MARILYN S. HERSHMAN
--------------------------------------------
Marilyn S. Hershman, Incorporator
----------------------------------------
----------------------------------------
ARTICLES OF INCORPORATION
CH4 MARKETING, INC., PAGE 3
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.01 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the Corporation is CH/4/ Marketing, Inc.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on the 1st day of February, 1991.
The amendment alters Articles One of the original Articles of Incorporation
and the full text of each provision added is as follow:
"Article One
"The name of the Corporation is Alliance Natural Gas, Inc."
ARTICLE THREE
The number of shares of the corporation outstanding at the time of such
adoption was 1,000.
The number of share entitled to vote thereon was 1,000.
ARTICLE FOUR
The holders of all the shares outstanding and entitled to vote on said
amendment have signed a consent in writing adopting said amendment.
DATED this 1st day of February, 1991.
/s/ T. W. EUBANK
---------------------------------------
T.W. Eubank, President
<PAGE>
ARTICLES OF MERGER
OF
TAURUS ENERGY CORP. WITH AND INTO
ALLIANCE NATURAL GAS, INC.
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act, as amended (the "TBCA"), the undersigned domestic corporations,
TAURUS ENERGY, CORP., a Texas corporation ("Taurus"), and ALLIANCE NATURAL GAS,
INC., a Texas corporation ("Alliance"), adopt the following Articles of Merger
for the purpose of merging, in accordance with the provisions of Article 5.01 of
the TBCA, and Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended.
1. Plan of Merger. A Merger Agreement (the "Merger Agreement") was
--------------
adopted in the manner prescribed by Article 5.04 of the TBCA, and provides for
the merger (the "Merger") of Taurus with and into Alliance, resulting in
Alliance as the surviving corporation (the "Surviving Corporation") under the
name "Taurus Energy Corp.", upon the following terms:
(a) Certificate of Incorporation; Bylaws.
(i) The Articles of Incorporation of Alliance as in effect immediately
prior to the effective time of the Merger (the "Effective Time") shall be the
Articles of Incorporation of the Surviving Corporation, except that Article I of
Alliance's Articles of Incorporation, immediately upon the Effective Time, shall
be amended to read in its entirety as follows:
"The name of the Corporation is Taurus Energy Corp. (hereinafter
referred to as the "Corporation")."
(ii) The Bylaws of Alliance as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
(b) Conversion of Securities.
(i) As of the Effective Time, by virtue of the Merger and without any
action on the part of any of the shareholders of Taurus (the "Shareholders"),
the holders of shares of common stock, par value $1.00 per share, of Taurus (the
"Taurus Stock") then issued and outstanding, shall be entitled to receive for
their shares of Taurus Stock held an aggregate of (i) 1.5 million shares of
fully paid and nonassessable common stock, par value $ .02 per share, of Coda
Energy, Inc. (the "Coda Stock"), upon surrender by such holders of the
certificate formerly representing such shares of Taurus Stock, and (ii) $3.25
million in cash, subject to adjustment in certain instances (the "Cash
Consideration"). Each shareholder shall be entitled to receive his pro rata
share of the Merger Consideration, based upon his respective ownership,
<PAGE>
as of the Effective Time, of the issued and outstanding Taurus Stock. The
Cash Consideration and the Coda Stock are sometimes referred to together as
the "Merger Consideration."
(ii) By virtue of the Merger and without any action on the part of
the holders thereof, all shares of Taurus Stock shall no longer be
outstanding and shall be canceled and shall cease to exist and each holder
of certificates representing shares of Taurus Stock shall thereafter cease
to have any rights with respect to such shares, except the right to receive
his pro rata share of the Merger Consideration upon the surrender of the
certificate(s) representing such shares, or the rights, if any, of a
dissenting shareholder under applicable state corporate law.
(iii) Each share, if any, of Taurus Stock held in the treasury of
Taurus immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Taurus, be canceled and
retired and cease to exist, and no consideration shall be paid with respect
to such Taurus Stock.
2. Identification of Parties. The name of each of the undersigned
-------------------------
corporations, the type of such corporation and the laws under which such
corporation was organized are:
Name of Corporation Type of Entity State of Incorporation
------------------- -------------- ----------------------
Taurus Energy Corp. Business Corporation Texas
Alliance Natural Gas, Inc. Business Corporation Texas
3. Number of Outstanding Shares and Designation by Class. As to each of
the undersigned corporations, the approval of whose shareholders is required,
the number of outstanding shares and the designation and number of outstanding
shares of each class entitled to vote as a class or series on such Merger
Agreement are as follows:
Number of Shares
Entitled to
Number of Designation of Vote as a
Shares Class Class or
Name of Corporation Outstanding or Series Series
- ------------------- ----------- -------------- -----------------
Taurus Energy Corp. 150,000 Common Stock, par 150,000
value $1.00
per share
Alliance Natural Gas,
Inc. 1,000 Common Stock, par 1,000
value $1.00
per share
- 2 -
<PAGE>
4. Voting. As to each of the undersigned corporations, the approval of
------
whose shareholders if required, the total number of shares voted for and against
the Merger Agreement, respectively, and, as to each class entitled to vote
thereon as a class, the number of shares of such class voted for and against the
Merger Agreement, respectively, are as follows:
<TABLE>
<CAPTION>
Number of Shares Number of Shares Entitled
---------------- to Vote as a Class or Series
Total Total ---------------------------------
Voted Voted Class or Voted Voted
Name of Corporation For Against Series For Against
------------------- ------- ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Taurus Energy Corp. 150,000 -0- Common 150,000 -0-
Alliance Natural Gas, Inc. 1,000 -0- Common 1,000 -0-
</TABLE>
IN WITNESS WHEREOF, the undersigned parties have duly executed these
Articles of Merger as of April 29, 1994.
TAURUS ENERGY CORP.
By: /s/ T. E. LOHMAN
-----------------------------------
T.E. Lohman
President
ALLIANCE NATURAL GAS, INC.
By: /s/ GARY R. SCOGGINS
-----------------------------------
Name: Gary R. Scoggins
------------------------------
Title: President
-----------------------------
- 3 -
<PAGE>
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A CORPORATION
1. The name of the corporation is TAURUS ENERGY CORP. .
-----------------------------
The corporation's charter number is 1149663-0 .
------------------------
2. The address of the registered office as PRESENTLY shown in the records of
the Texas secretary of state is: (Please provide street address, city,
state and zip code. The address must be in Texas).
9400 N. Central Expressway, Suite 500
- --------------------------------------------------------------------------------
Dallas, Texas 75231 .
- -------------------------------------------------------------------------------
3. A. X The address of the NEW registered office is: (Please provide
----- street address, city, state and zip code. The address must be in
Texas.)
5735 Pineland Drive, Suite 202
Dallas, Texas 75231
OR B. The registered office address will not change.
-----
4. The name of the registered agent as PRESENTLY shown in the records of the
Texas secretary of state is DOUGLAS H. MILLER .
---------------------------------------------
5. A. X The name of the NEW registered agent is Tommie E. Lohman .
----- -----------------------
OR B. The registered agent will not change.
-----
6. Following the changes shown above, the address of the registered office and
the address of the office of the registered agent will continue to be
identical, as required by law.
7. The changes shown above were authorized by:
(Profit corporations may select A or B)
(Non-Profit corporations may select A, B, or C)
A. The board of directors; OR
-----
B. X An officer of the corporation so authorized by the board of
----- directors; OR
C. The members of the corporation in whom management of the
----- corporation is vested pursuant to article 2.14C of the Texas Non-
Profit Corporation Act.
/s/ Grant W. Henderson
----------------------------------------
An Authorized Officer
Grant W. Henderson - Vice President
Please submit this form in duplicate with the appropriate filing fee.
------------
<PAGE>
EXHIBIT 3.6
================================================================================
BYLAWS OF
CH\4\ MARKETING, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE ONE
CORPORATE CHARTER AND BYLAWS............................... 4
1.01 CORPORATE CHARTER PROVISIONS....................................... 4
1.02 REGISTERED AGENT OR OFFICE - REQUIREMENT
OF FILING CHANGES WITH SECRETARY OF STATE.......................... 4
1.03 INITIAL BUSINESS OFFICE............................................ 4
1.04 AMENDMENT OF BYLAWS................................................ 4
ARTICLE TWO
DIRECTORS AND DIRECTORS' MEETINGS.......................... 5
2.01 ACTION BY CONSENT OF BOARD WITHOUT MEETING......................... 5
2.02 PLACE OF MEETINGS.................................................. 5
2.03 REGULAR MEETINGS................................................... 5
2.04 CALL OF SPECIAL MEETING............................................ 5
2.05 QUORUM............................................................. 6
2.06 ADJOURNMENT - NOTICE OF ADJOURNED MEETINGS......................... 6
2.07 CONDUCT OF MEETINGS................................................ 6
2.08 POWERS OF THE BOARD OF DIRECTORS................................... 6
2.09 BOARD COMMITTEES AUTHORITY TO APPOINT............................. 6
2.10 TRANSACTIONS WITH INTERESTED DIRECTORS............................. 6
2.11 NUMBER OF DIRECTORS................................................ 7
2.12 TERM OF OFFICE..................................................... 7
2.13 REMOVAL OF DIRECTORS............................................... 7
2.14 VACANCIES.......................................................... 7
2.14(a) DECLARATION OF VACANCY.................................... 8
2.14(b) FILLING VACANCIES BY DIRECTORS............................ 8
2.14(c) FILLING VACANCIES BY SHAREHOLDERS......................... 8
2.15 COMPENSATION....................................................... 8
2.16 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 8
2.17 INSURING DIRECTORS, OFFICERS, AND EMPLOYEES........................ 9
ARTICLE THREE
SHAREHOLDERS' MEETINGS..................................... 9
3.01 ACTION WITHOUT MEETING............................................. 9
3.02 TELEPHONE MEETINGS................................................. 9
3.03 PLACE OF MEETINGS.................................................. 9
3.04 NOTICE OF MEETINGS................................................. 9
3.05 VOTING LIST........................................................ 10
3.06 VOTES PER SHARE.................................................... 10
3.07 CUMULATIVE VOTING.................................................. 10
- i -
<PAGE>
3.08 PROXIES............................................................ 11
3.09 QUORUM............................................................. 11
3.09(a) QUORUM OF SHAREHOLDERS.................................... 11
3.09(b) ADJOURNMENT FOR LACK OR LOSS OF QUORUM.................... 11
3.10 VOTING BY VOICE OR BALLOT.......................................... 11
3.11 CONDUCT OF MEETINGS................................................ 11
3.12 FAILURE TO HOLD ANNUAL MEETING..................................... 11
3.13 SPECIAL MEETINGS................................................... 12
ARTICLE FOUR
OFFICERS................................................... 12
4.01 TITLE AND APPOINTMENT.............................................. 12
4.01(a) CHAIRMAN OF THE CORPORATION............................... 12
4.01(b) PRESIDENT................................................. 12
4.01(c) VICE PRESIDENT............................................ 13
4.01(d) SECRETARY................................................. 13
4.01(e) TREASURER................................................. 14
4.01(f) ASSISTANT SECRETARY OR ASSISTANT TREASURER................ 14
4.02 REMOVAL AND RESIGNATION............................................ 14
4.03 VACANCIES.......................................................... 15
4.04 COMPENSATION....................................................... 15
ARTICLE FIVE
AUTHORITY TO EXECUTE INSTRUMENTS........................... 15
5.01 NO AUTHORITY ABSENT SPECIFIC AUTHORIZATION......................... 15
5.02 EXECUTION OF CERTAIN INSTRUMENTS................................... 15
ARTICLE SIX
ISSUANCE AND TRANSFER OF SHARES............................ 15
6.01 CLASSES AND SERIES OF SHARES....................................... 15
6.02 CERTIFICATES FOR FULLY PAID SHARES................................. 16
6.03 CONSIDERATION FOR SHARES........................................... 16
6.04 REPLACEMENT OF CERTIFICATES........................................ 16
6.05 SIGNING CERTIFICATES - FACSIMILE SIGNATURES........................ 16
6.06 TRANSFER AGENTS AND REGISTRARS..................................... 17
6.07 CONDITIONS OF TRANSFER............................................. 17
6.08 REASONABLE DOUBTS AS TO RIGHT TO TRANSFER.......................... 17
ARTICLE SEVEN
CORPORATE RECORDS AND FISCAL YEAR.......................... 17
7.01 MINUTES OF CORPORATE MEETINGS...................................... 17
- ii -
<PAGE>
7.02 SHARE REGISTER..................................................... 18
7.03 BOOKS OF ACCOUNT................................................... 18
7.04 FISCAL YEAR........................................................ 18
8.0 ADOPTION OF INITIAL BYLAWS......................................... 22
- iii -
<PAGE>
ARTICLE ONE
CORPORATE CHARTER AND BYLAWS
1.01 CORPORATE CHARTER PROVISIONS
The Corporation's Charter authorizes 1,000 shares to be issued. The
officers and transfer agents issuing shares of the Corporation shall ensure that
the total number of shares outstanding at any given time does not exceed this
number. Such officers and agents shall advise the Board at least annually of the
authorized shares remaining available to be issued. No shares shall be issued
for less than the par value stated in the Articles of Incorporation. Each
Charter provision shall be observed until amended by Restated Articles or
Articles of Amendment duly filed with the Secretary of State.
1.02 REGISTERED AGENT OR OFFICE - REQUIREMENT OF FILING CHANGES WITH
SECRETARY OF STATE
The address of the Registered Office provided in the initial Articles of
Incorporation, as duly filed with the Secretary of State for the State of Texas
is: 9400 North Central Expressway, Suite 500, Dallas, Texas 75231.
The name of the Registered Agent of the Corporation at such address, as
set forth in its initial Articles of Incorporation, is:
The Registered Agent or Office may be changed by filing appropriate
documents with the Secretary of State, and not otherwise. Such filing shall be
made promptly with each change. Arrangements for each change in Registered Agent
or Office shall ensure that the Corporation is not exposed to the possibility of
a default judgment. Each successive Registered Agent shall be of reliable
character and well informed of the necessity of immediately furnishing the
papers of any lawsuit against the Corporation to its attorneys.
1.03 INITIAL BUSINESS OFFICE
The address of the initial principal business office of the Corporation
shall be: 9400 North Central Expressway, Suite 510, Dallas, Texas 75231.
The Corporation may have additional business offices within the State of
Texas, and where it may be duly qualified to do business outside of Texas, as
the Board of Directors may from time to time designate or the business of the
Corporation may require.
1.04 AMENDMENT OF BYLAWS
The Board of Directors may alter, amend, or repeal these Bylaws, and
adopt new Bylaws. All such Bylaw changes shall take effect upon adoption by the
Directors, subject to repeal or change by the Shareholders. Notice of Bylaws
changes
<PAGE>
shall be given in or before notice of the Shareholders' meeting following their
adoption.
ARTICLE TWO
DIRECTORS AND DIRECTORS' MEETINGS
2.01 ACTION BY CONSENT OF BOARD WITHOUT MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, and shall have the same force and effect as a
unanimous vote of Directors, if all members of the Board consent in writing to
the action. Such consent may be given individually or collectively.
2.02 PLACE OF MEETINGS
Meetings of the Board of Directors shall be held at the business office
of the Corporation or at such other place within or without the State of Texas
as may be designated by the Board.
2.03 REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held, without call
or notice, immediately following each annual meeting of the Shareholders of this
Corporation, and at such other regular times as the Directors may determine.
2.04 CALL OF SPECIAL MEETING
Special meetings of the Board of Directors for any purpose may be called
at any time by the President or, if the President is absent or unable or refuses
to act, by any Vice President or any two Directors. Written notices of the
special meetings, stating the time and place of the meeting, shall be mailed ten
days before, or telegraphed or personally delivered so as to be received by each
Director not later than two days before, the day appointed for the meeting.
Notice of meetings need not indicate an agenda. Generally, a tentative agenda
will be included, but the meeting shall not be confined to any agenda included
with the notice.
Meetings provided for in these Bylaws shall not be invalid for lack of
notice if all persons entitled to notice are present at the meeting in person or
by proxy and do not object to the notice given or if such persons consent to the
meeting in writing. Such consent may be given either before or after the
meeting.
Upon providing notice, the Secretary or other officer sending notice
shall sign and file in the Corporate record book a statement of the details of
notifying each Director. If such statement should later not be found in the
Corporate record book, due notice shall be presumed.
2
<PAGE>
2.05 QUORUM
The presence at any Directors' meeting of a majority of the authorized
number of Directors shall be necessary to constitute a quorum to transact any
business, except to adjourn. If a quorum is present, every act done or
resolution passed by a majority of the Directors present shall be the act of the
Board of Directors.
2.06 ADJOURNMENT - NOTICE OF ADJOURNED MEETINGS
A quorum of the Directors may adjourn any Directors' meeting to meet
again at a stated hour on a stated day. Notice of the time and place where an
adjourned meeting will be held need not be given to absent Directors if the time
and place is fixed at the adjourned meeting. In the absence of a quorum, a
majority of the Directors present may adjourn to a set time and place if notice
is duly given to the absent members, or until the time of the next regular
meeting of the Board.
2.07 CONDUCT OF MEETINGS
At every meeting of the Board of Directors, the Chairman of the Board of
Directors, if there is such an officer, and if not, the President, or in the
President's absence, a Vice President designated by the President, or in the
absence of such designation, a Chairman chosen by a majority of the Directors
present, shall preside. The Secretary of the Corporation shall act as Secretary
of the Board of Directors. When the Secretary is absent from any meeting, the
Chairman may appoint any person to act as Secretary of that meeting.
2.08 POWERS OF THE BOARD OF DIRECTORS
The business and affairs of the Corporation and all corporate powers
shall be exercised by or under authority of the Board of Directors, subject to
limitations imposed by law, the Articles of Incorporation, any applicable
Shareholders' agreement, or by these Bylaws.
2.09 BOARD COMMITTEES - AUTHORITY TO APPOINT
The Board of Directors may designate an executive committee
and one or more other committees to conduct the business and affairs of the
Corporation to the extent authorized by the resolution. The Board shall have
the power at any time to change the powers and membership of, fill vacancies in,
and dissolve any committee. Members of any committee shall receive such
compensation as the Board of Directors may from time to time provide. The
designation of any committee and the delegation of authority thereto shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed by law.
3
<PAGE>
2.10 TRANSACTIONS WITH INTERESTED DIRECTORS
Any contract or other transaction between the Corporation and any of its
Directors (or any corporation or firm in which any of its Directors are directly
or indirectly interested) shall be valid for all purposes notwithstanding the
presence of that Director at the meeting during which the contract or
transaction was authorized, and notwithstanding the Director's participation in
that meeting. This Article shall apply only if the contract or transaction is
just and reasonable to the Corporation at the time it is authorized and
ratified, the interest of each Director is known or disclosed to the Board of
Directors, and the Board nevertheless authorizes or ratifies the contract or
transaction by a majority of the disinterested Directors present. Each
interested Director is to be counted in determining whether a quorum is present,
but shall not vote and shall not be counted in calculating the majority
necessary to carry the vote. This Article shall not be construed to invalidate
contracts or transactions that would be valid in its absence.
2.11 NUMBER OF DIRECTORS
The number of Directors of this Corporation shall be three. No Director
need be a Shareholder or a resident of Texas. The number of Directors may be
increased or decreased from time to time by amendment to these Bylaws. Any
decrease in the number of Directors shall not have the effect of shortening the
tenure which any incumbent Director would otherwise enjoy.
2.12 TERM OF OFFICE
Directors shall be entitled to hold office until their successors are
elected and qualified. Election of Directors shall occur at each annual meeting
of the Shareholders and may be held at any special meeting of Shareholders
called specifically for that purpose.
2.13 REMOVAL OF DIRECTORS
The entire Board of Directors or any individual Director may be removed
from office by a vote of Shareholders holding a majority of the outstanding
shares entitled to vote at an election of Directors. However, if less than the
entire Board is to be removed, no one of the Directors may be removed if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors. No Director
may be so removed except at an election of the class of Directors of which he is
a part. If any or all Directors are so removed, new Directors may be elected at
the same meeting. Whenever a class or series of shares is entitled to elect one
or more Directors under authority granted by the Articles of Incorporation, the
provisions of this Paragraph apply to the vote of that class or series and not
to the vote of the outstanding shares as a whole.
4
<PAGE>
2.14 VACANCIES
Vacancies on the Board of Directors shall exist upon the occurrence of
any of the following events: (a) the death, resignation, or removal of any
Director; (b) an increase in the authorized number of Directors; or (c) the
failure of the Shareholders to elect the full authorized number of Directors to
be voted for at any annual, regular, or special Shareholders' meeting at which
any Director is to be elected.
2.14(a) DECLARATION OF VACANCY
The Board of Directors may declare vacant the office of a Director if
the Director: (a) is adjudged incompetent by a court order; (b) is convicted of
a crime involving moral turpitude; or (c) fails to accept the office of
Director, in writing or by attending a meeting of the Board of Directors, within
thirty (30) days of notice of election.
2.14(b) FILLING VACANCIES BY DIRECTORS
Vacancies other than those caused by an increase in the number of
Directors may be filled by majority vote of the remaining Directors, though less
than a quorum, or by a sole remaining Director. Each Director so elected shall
hold office until a qualified successor is elected at a Meeting of the
Shareholders.
2.14(c) FILLING VACANCIES BY SHAREHOLDERS
Any vacancy caused by an increase in the number of Directors shall be
filled by the Shareholders at an annual meeting or at a special meeting called
for that purpose. The Shareholders may also elect a Director at any time to fill
any vacancy not filled by the Directors. Upon the resignation of a Director
tendered to take effect at a future time, the Board or the Shareholders may
elect a successor to take office when the resignation becomes effective.
2.15 COMPENSATION
Directors shall receive such compensation for their services as
Directors as shall be determined from time to time by resolution of the Board.
Any Director may serve the Corporation in any other capacity as an officer,
agent, employee, or other wise, and receive compensation therefore.
2.16 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Board of Directors shall authorize the Corporation to pay or
reimburse any present or former Director or officer of the Corporation any costs
or expenses actually and necessarily incurred by that officer in any action,
suit, or proceeding to which the officer is made a party by reason of holding
that position, provided, however, that no officer shall receive such
indemnification if finally adjudicated therein to be liable for negligence or
misconduct in office. This indemnification shall extend to good-faith
5
<PAGE>
expenditures incurred in anticipation of threatened or proposed litigation. The
Board of Directors may, in proper cases, extend the indemnification to cover the
good faith settlement of any such action, suit, or proceeding, whether formally
instituted or not.
2.17 INSURING DIRECTORS, OFFICERS, AND EMPLOYEES
The Corporation may purchase and maintain insurance on behalf of any
Director, officer, employee, or agent of the Corporation, or on behalf of any
person serving at the request of the Corporation as a Director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against any liability asserted against that person and
incurred by that person in any such corporation, whether or not the Corporation
has the power to indemnify that person against liability for any of those acts.
ARTICLE THREE
SHAREHOLDERS' MEETINGS
3.01 ACTION WITHOUT MEETING
Any action that may be taken at a meeting of the Shareholders under any
provision of the Texas Business Corporation Act may be taken without a meeting
if authorized by a consent or waiver filed with the Secretary of the Corporation
and signed by all persons who would be entitled to vote on that action at a
shareholders' meeting. Each such signed consent or waiver, or a true copy
thereof, shall be placed in the minute book of the Corporation.
3.02 TELEPHONE MEETINGS
Subject to the notice provisions required by these Bylaws and by the
Business Corporation Act, Shareholders of the Corporation may participate in and
hold a meeting by means of conference call or similar communication by which all
persons participating can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting, except participation for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
3.03 PLACE OF MEETINGS
Meetings of Shareholders shall be held at the business office of the
Corporation, or at such other place within or without the State of Texas as may
be designated by the Board of Directors or by the Shareholders.
3.04 NOTICE OF MEETINGS
The President, the Secretary, or the officer or persons calling a
Shareholders' Meeting, shall give notice, or cause it to be given, in writing to
each Director and to each Shareholder entitled to vote at the meeting at least
ten (10) but not more than
6
<PAGE>
sixty (60) days before the date of the meeting. Such notice shall state the
place, day and hour of the meeting, and, in case of a special meeting, the
purpose or purposes for which the ' meeting is called. Such written notice may
be given personally, by mail, or other means. Such notice shall be addressed to
each recipient at such address as appears on the Books of the Corporation or as
the recipient has given to the Corporation for the purpose of notice. Any
meeting provided herein shall not be invalid for lack of notice if consent to
the meeting is given in writing by all persons entitled to vote at the meeting
and is filed with the Secretary of the Corporation. Such consent may be given
either before or after the meeting. Notice of the recon vening of an adjourned
meetings is not necessary unless the meeting is adjourned more than thirty days
past the date stated in the notice, in which case notice of the adjourned
meeting shall be given as in the case of any special meeting. Notice may be
waived by a written waiver signed either before or after the meeting by the
person entitled to the notice.
3.05 VOTING LIST
At least ten (10), but not more than sixty (60), days before each
Shareholders' meeting, the officer or agent having charge of the stock transfer
books for shares of the Corporation shall make a complete list of the
Shareholders entitled to vote at that meeting or any adjournment thereof,
arranged in alphabetical order, with the address and the number of shares held
by each. The list shall be kept on file at the Registered Office of the
Corporation for a period of ten (10) days prior to the meeting, and shall be
subject to inspection by any Shareholder-at any time during usual business
hours. The list shall also be produced and kept open at the time and place of
the meeting and shall be subject, during the entire time of the meeting, to the
inspection of any Shareholder. The original share transfer books shall be prima
facie evidence as to the Shareholders entitled to examine such list or transfer
books or to vote at any meeting of Shareholders. However, failure to prepare
and to make the list available in the manner provided above shall not affect the
validity of any action taken at the meeting.
3.06 VOTES PER SHARE
Each outstanding share, regardless of class, shall be entitled to one
(1) vote on each matter submitted to a vote at a meeting of Shareholders, except
to the extent that the voting rights of the shares of any class or classes are
limited or denied pursuant to the Articles of Incorporation. A Shareholder may
vote either in person or by proxy executed in writing by the Shareholder or by
the Shareholder's duly authorized attorney-in-fact.
3.07 CUMULATIVE VOTING
Subject to any limitation stated in the Articles of
Incorporation, every Shareholder entitled to vote at any election for Directors
may cumulate votes. For this purpose, each Shareholder shall have a number of
votes equal to the number of Directors to be elected multiplied by the number of
votes to
7
<PAGE>
which the Shareholder's shares are entitled. The Shareholder may cast all these
votes for one candidate or may distribute the votes among any number of
candidates. The candidates receiving the highest number of votes are elected, up
to the number of vacancies to be filled. No Shareholder may cumulate votes
unless that Shareholder shall have given written notice of his or her intention
to do so to the Secretary of the Corporation on or before the day preceding the
election at which the votes will be cumulated. If any Shareholder gives written
notice as provided above, all Shareholders may cumulate their votes.
3.08 PROXIES
A Shareholder may vote either in person or by proxy executed in writing
by the Shareholder or his duly authorized attorney in fact. Unless otherwise
provided in the proxy or by law, each proxy shall be revocable and shall not be
valid after eleven (11) months from the date of its execution.
3.09 QUORUM
3.09(a) QUORUM OF SHAREHOLDERS
The presence (in person or by proxy) of the persons who are entitled to
vote a majority of the outstanding voting shares shall constitute the quorum
necessary for the transaction of business at a meeting of the Shareholders of
the Corporation. The vote of the holders of a majority of the shares entitled to
vote and represented at a meeting at which a quorum is present shall be the act
of the Shareholders' meeting.
3.09(b) ADJOURNMENT FOR LACK OR LOSS OF QUORUM
No business may be transacted in the absence of a quorum, or upon the
withdrawal of enough Shareholders to leave less than a quorum, other than to
adjourn the meeting from time to time by the vote of a majority of the shares
the holders of which are present in person or by proxy.
3.10 VOTING BY VOICE OR BALLOT
Elections for Directors need not be by ballot unless a Shareholder
demands election by ballot at the election before the voting begins.
3.11 CONDUCT OF MEETINGS
Meetings of the Shareholders shall be chaired by the President, or, in
the President's absence, a Vice President designated by the President, or, in
the absence of such designation, any other person chosen by a majority of the
Shareholders of the Corporation present in person or by proxy and entitled to
vote. The Secretary of the Corporation, or, in the Secretary's absence, an
Assistant Secretary, shall act as Secretary of all meetings of the Shareholders.
In the absence of the Secretary or
8
<PAGE>
Assistant Secretary, the Chairman shall appoint another person to act as
Secretary of the meeting.
3.12 FAILURE TO HOLD ANNUAL MEETING
If, within any 13-month period, an annual Shareholders' meeting is not
held, any Shareholder may apply to a court of competent jurisdiction in the
county in which the principal office of the Corporation is located for a summary
order that an annual meeting be held.
3.13 SPECIAL MEETINGS
A special Shareholders' meeting may be called at any time by any of the
following: (a) the President; (b) the Board of Directors; (c) one or more
Shareholders holding in the aggregate one-tenth or more of all the shares
entitled to vote at the meeting. Such a meeting may be called for any purpose.
The party calling the meeting may do so only by written request sent by
registered mail or delivered in person to the President or Secretary. The
officer receiving the written request shall within ten (10) days from the date
of its receipt cause notice of the meeting to be sent to all the Shareholders
entitled to vote at such a meeting. If the officer does not give notice of the
meeting within ten (10) days after the date of receipt of the written request,
the person or persons calling the meeting may fix the time of meeting and give
the notice. Any notice of a special meeting of the Shareholders shall be sent
pursuant to Article 3.04 of these Bylaws. The notice of a special Shareholders'
meeting must state the purpose or purposes of the meeting and, absent consent of
every Shareholder to the specific action taken, shall be limited to purposes
plainly stated in the notice, notwithstanding other provisions herein.
ARTICLE FOUR
OFFICERS
4.01 TITLE AND APPOINTMENT
The officers of the Corporation shall be a President, a Secretary, and a
Treasurer. The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. Any two offices,
including President and Secretary, may be held by one person. All officers
shall be elected by and hold office at the pleasure of the Board of Directors,
which shall fix the compensation and tenure of all officers.
4.01(a) CHAIRMAN OF THE CORPORATION
The Chairman, if there shall be such an officer, shall, if present,
preside at the meetings of the Board of Directors and exercise and perform such
other powers and
9
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duties as may from time to time be assigned to the Chairman by the Board of
Directors or prescribed by these Bylaws.
4.01(b) PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman, if there is such an officer, the President shall
be the chief executive officer of the Corporation and shall, subject to the
control of the Board of Directors, have general supervision, direction, and
control of the business and officers of the Corporation. The President shall
have the general powers and duties of management usually vested in the office of
President of a corporation; shall have such other powers and duties as may be
prescribed by the Board of Directors or the Bylaws; and shall be ex officio a
--
member of all standing committees, including the executive committee, if any.
In addition, the President shall preside at all meetings of the Shareholders and
in the absence of the Chairman, or if there is no Chairman, at all meetings of
the Board of Directors.
4.01(c) VICE PRESIDENT
Any Vice President shall have such powers and perform such duties as
from time to time may be prescribed by these Bylaws, by the Board of Directors,
or by the President. In the absence or disability of the President, the senior
or duly appointed Vice President, if any, shall perform all the duties of the
President, pending action by the Board of Directors. When so acting, such Vice
President shall have all the powers of, and be subject to all the restrictions
on, the President.
4.01(d) SECRETARY
The Secretary shall:
(A) See that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law. In case of the absence or
disability of the Secretary, or the Secretary's refusal or neglect to act,
notice may be given and served by an Assistant Secretary or by the Chairman, the
President, any Vice President, or by the Board of Directors.
(B) Keep the minutes of corporate meetings, and the corporate record
book, as set out in Article 7.01 hereof.
(C) Maintain, in the official record book of the Corporation, a record
of all share certificates issued or cancelled and all shares of the Corporation
cancelled or transferred.
(D) Be custodian of the Corporation's records, and of any seal which the
Corporation may from time to time adopt. When the Corporation exercises its
right to use a seal, the Secretary shall see that the seal is embossed on all
share
10
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certificates prior to their issuance and on all documents authorized to be
executed under seal in accordance with the provisions of these Bylaws.
(E) In general, perform all duties incident to the office of Secretary,
and such other duties as from time to time may be required by Articles 7.01,
7.02, and 7.03 hereof, by these Bylaws generally, by the Board of Directors, or
by the President.
4.01(e) TREASURER
The Treasurer shall:
(A) Have charge and custody of, and be responsible for, all funds and
securities of the Corporation, and deposit all funds in the name of the
Corporation in those banks, trust companies, or other depositories that shall be
selected by the Board of Directors.
(B) Receive, and give receipt for, monies due and payable to the
Corporation.
(C) Disburse or cause to be disbursed the funds of the Corporation as
may be directed by the Board of Directors, taking proper vouchers for those
disbursements.
(D) If required by the Board of Directors or the President, give to the
Corporation a bond to assure the faithful performance of the duties of the
Treasurer's office and the restoration to the Corporation of all corporate
books, papers, vouchers, money, and other property of whatever kind in the
Treasurer's possession or control, in case of the Treasurer's death,
resignation, retirement or removal from office. Any such bond shall be in a sum
satisfactory to the Board of Directors, with one or more sureties or a surety
company satisfactory to the Board of Directors.
(E) In general, perform all the duties incident to the office of
Treasurer and-such other duties as from time to time may be required by Articles
7.04 and 7.05 hereof, by these Bylaws generally, by the Board of Directors, or
by the President.
4.01(f) ASSISTANT SECRETARY OR ASSISTANT TREASURER
The Assistant Secretary or Assistant Treasurer shall have such powers
and perform such duties as the Secretary or Treasurer, respectively, or as the
Board of Directors or President, may prescribe. In case of the absence of the
Secretary or Treasurer, the senior Assistant Secretary or Assistant Treasurer,
respectively, may perform all of the functions of the Secretary or Treasurer.
4.02 REMOVAL AND RESIGNATION
Any officer may be removed, either with or without cause, by vote of a
majority of the Directors, at any regular or special meeting of the Board, or,
except in case of an officer chosen by the Board of Directors, by any committee
or officer upon whom
11
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that power of removal may be conferred by the Board of Directors. Such removal
shall be without prejudice to the contract rights, if any, of the person
removed. Any officer may resign at any time by giving written notice to the
Board of Directors, the President, or the Secretary of the Corporation. Any
resignation shall take effect on the date of the receipt of that notice or at
any later time specified therein, and, unless otherwise specified therein, the
acceptance of that resignation shall not be necessary to make it effective.
4.03 VACANCIES
Upon the occasion of any vacancy occurring in any office of the
Corporation, by reason of death, resignation, removal, or otherwise, the Board
of Directors may elect an acting successor to hold office for the unexpired
term, or until a permanent suc cessor is elected.
4.04 COMPENSATION
The compensation of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving a salary by
reason of the fact that the officer is also a Shareholder or a Director of the
Corporation, or both.
ARTICLE FIVE
AUTHORITY TO EXECUTE INSTRUMENTS
5.01 NO AUTHORITY ABSENT SPECIFIC AUTHORIZATION
These Bylaws provide certain authority for the execution of instruments.
The Board of Directors, except as otherwise provided in these Bylaws, may
additionally authorize any officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances. Unless expressly authorized by these Bylaws or the Board of
Directors, no officer, agent, or employee shall have any power or authority to
bind the Corporation by any contract or engagement nor to pledge its credit nor
to render it liable pecuniarily for any purpose or in any amount.
5.02 EXECUTION OF CERTAIN INSTRUMENTS
Formal contracts of the Corporation, promissory notes, deeds, deeds of
trust, mortgages, pledges, and other evidences of indebtedness of the
Corporation, other corporate documents, and certificates of ownership of liquid
assets held by the Corporation shall be signed or endorsed by the President or
any Vice President and by the Secretary or the Treasurer, unless otherwise
specifically determined by the Board of Directors or otherwise required by law.
12
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ARTICLE SIX
ISSUANCE AND TRANSFER OF SHARES
6.01 CLASSES AND SERIES OF SHARES
The Corporation may issue one or more classes or series of shares, or
both. Any of these classes of series may have full, limited, or no voting
rights, and may have such other preferences, rights, privileges, and
restrictions as are stated or authorized in the Articles of Incorporation. All
shares of any one class shall have the same voting, conversion, redemption, and
other rights, preferences, privileges, and restrictions, unless the class is
divided into series. If a class is divided into series, all the shares of any
one series shall have the same voting, conversion, redemption, and other rights,
preferences, privileges, and restrictions. There shall always be a class or
series of shares outstanding that has complete voting rights except as limited
or restricted by voting rights conferred on some other class or series of
outstanding shares.
6.02 CERTIFICATES FOR FULLY PAID SHARES
Neither shares nor certificates representing shares may be issued by the
Corporation until the full amount of the consideration has been received. When
the consideration is received by the Corporation, the shares shall be deemed to
have been issued and the certificate representing the shares shall be issued to
the shareholder.
6.03 CONSIDERATION FOR SHARES
Shares may be issued for consideration as may be fixed from time to time
by the Board of Directors at not less than the par value stated in the Articles
of Incorporation. The consideration paid for the issuance of shares shall
consist of money paid, labor done, or property actually received, and neither
promissory notes nor the promise of future services shall constitute payment nor
partial payment for shares of the Corporation.
6.04 REPLACEMENT OF CERTIFICATES
No replacement share certificate shall be issued until the former
certificate for the shares represented thereby shall have been surrendered and
cancelled, except that replacements for lost or destroyed certificates may be
issued, upon such terms, conditions, and guarantees as the Board of Directors
may see fit to impose, including the filing of sufficient indemnity.
6.05 SIGNING CERTIFICATES - FACSIMILE SIGNATURES
All share certificates shall be signed by the officer(s) designated by
the Board of Directors. The signatures of the foregoing officers may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar, either of which is not the Corporation itself or an employee of
the Corporation. If the officer
13
<PAGE>
who has signed or whose facsimile signature has been placed on the certificate
has ceased to be such officer before the certificate issued, the certificate may
be issued by the Corporation with the same effect as if he or she were such
officer on the date of its issuance.
6.06 TRANSFER AGENTS AND REGISTRARS
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate. Each registrar appointed, if any, shall be an incorporated bank or
trust company, either domestic or foreign.
6.07 CONDITIONS OF TRANSFER
The party in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof as regards the Corporation,
provided that whenever any transfer of shares shall be made for collateral
security, and not absolutely, written notice thereof shall be given to the
Secretary of the Corporation, or to its transfer agent, if any, and such fact
shall be stated in the entry of the transfer.
6.08 REASONABLE DOUBTS AS TO RIGHT TO TRANSFER
When a transfer of shares is requested and there is reasonable doubt as
to the right of the person seeking the transfer, the Corporation or its transfer
agent, before recording the transfer of the shares on its books or issuing any
certificate therefor, may require from the person seeking the transfer
reasonable proof of that person's right to the transfer. If there remains a
reasonable doubt of the right to the transfer, the Corporation may refuse a
transfer unless the person gives adequate security or a bond of indemnity
executed by a corporate surety or by two individual sureties satisfactory to the
Corporation as to form, amount, and responsibility of sureties. The bond shall
be conditioned to protect the Corporation, its officers, transfer agents, and
registrars, or any of them, against any loss, damage, expense, or other
liability to the transfer or the issuance of a new certificate for shares.
ARTICLE SEVEN
CORPORATE RECORDS AND FISCAL YEAR
7.01 MINUTES OF CORPORATE MEETINGS
The Corporation shall keep at the Registered or principal office, or
such other place as the Board of Directors may order, a book recording the
minutes of all meetings of its Shareholders and Directors, with the time and
place of each meeting, whether such meeting was regular or special, a copy of
the notice given of such
14
<PAGE>
meeting, or of the written waiver thereof, and, if it is a special meeting, how
the meeting was authorized. The record book shall further show the names of
those present at Directors' meetings, the number of shares present or
represented at Share holders' meetings, and the proceedings of all meetings.
7.02 SHARE REGISTER
The Corporation shall keep at the Registered or principal office, or at
the office of the transfer agent, a share register, showing the names of the
Shareholders, their addresses, the number and class of shares issued to each,
the number and date of issuance of each certificate issued for such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation. The above specified information may be kept on an information
storage device such as electronic data processing equipment, provided that the
equipment is capable of reproducing the information in clearly legible form for
the purposes of inspection by any Shareholder, Director, Officer, or agent of
the Corporation during regular business hours. If the Corporation elects
taxation under internal Revenue Code (S) 1244 or Subchapter S, the officer
issuing shares shall ensure that the appropriate requirements regarding issuance
of shares are maintained in effect.
7.03 BOOKS OF ACCOUNT
The Corporation shall maintain correct and adequate accounts of its
properties and business transactions, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus, and
shares. The corporate bookkeeping procedures shall conform to accepted
accounting practices for the business or businesses in which the Corporation is
engaged. Subject to the foregoing, the chart of financial accounts shall be
taken from, and designed to facilitate preparation of, current corporate tax
returns. Any surplus, including earned surplus, paid-in surplus, and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. If the Corporation elects taxation under
Internal Revenue Code (S) 1244 or Subchapter S, the officers and agents
maintaining the books of account and issuing shares shall ensure that the
appropriate requirements are maintained in effect.
7.04 FISCAL YEAR
The fiscal year of the Corporation shall be as determined by the Board
of Directors and approved by the Internal Revenue Service. The Treasurer shall
forthwith arrange a consultation with the Corporation's tax advisers, to
determine if the Corporation is to have a fiscal year other than the calendar
year. If so, the Treasurer shall file an election with the Internal Revenue
Service as early as possible, and all correspondence with the I.R.S., including
the application for the Corporation's Employer Identification Number, shall
reflect such non-calendar year election.
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I certify that these are the Bylaws of CH4 Marketing, Inc., as adopted
on December 31, 1990.
/s/ Joyce Berthier
------------------
Joyce Berthier, Secretary
16
<PAGE>
EXHIBIT 3.7
============================================================
ARTICLES OF INCORPORATION
OF
ELECTRA RESOURCES, INC.
============================================================
ARTICLE ONE
The name of the Corporation is ELECTRA RESOURCES, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the transaction of
any and all lawful business for which a corporation may be incorporated under
the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have authority
to issue is One Thousand (1,000). The shares shall have a par value of Ten
Cents ($0.10).
ARTICLE FIVE
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of $1,000.00, consisting of
money, labor done or property actually received.
<PAGE>
ARTICLE SIX
The street address of its initial Registered Office, and the name of its
initial Registered Agent at this address, is as follows:
Grant W. Henderson
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
ARTICLE SEVEN
The number of initial Directors is one. The name and address of the initial
director is:
Grant W. Henderson
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
ARTICLE EIGHT
The Corporation shall have a delayed effective date of January 1, 1996.
ARTICLE NINE
The name and address of the Incorporator is:
Marilyn S. Hershman
408 W. 17th Street, Suite 101
Austin, Texas 78701-1207
(512) 474-2002
IN WITNESS WHEREOF: I have hereunto set my hand this 28th day of
December, 1995.
/s/ Marilyn S. Hershman
---------------------------------
Marilyn S. Hershman, Incorporator
- 2 -
<PAGE>
EXHIBIT 3.8
BYLAWS
OF
ELECTRA RESOURCES, INC.
(A Texas Corporation)
ARTICLE I
OFFICES
Section 1. Registered Office And Agent. The registered office and
---------------------------
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation with the Office of the Secretary of
State of the State of Texas.
Section 2. Other Offices. The Corporation may also have an office or
-------------
offices and keep the books and records of the Corporation, except as may
otherwise be required by law, in such other place or places, either within or
without the State of Texas, as the Board of Directors of the Corporation may
from time to time determine or the business of the Corporation may require or as
may be desirable.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders of the
-----------------
Corporation for any purpose shall be held at such times and places, within or
without the State of Texas, as may from time to time be fixed by the Board of
Directors or in the respective notices or waivers of notice thereof.
Section 2. Annual Meetings. The annual meeting of shareholders of the
---------------
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held annually on such
date and at such time as may be fixed by the Board of Directors from time to
time.
Section 3. Special Meetings. Special meetings of the shareholders, for
----------------
any purpose or purposes, unless otherwise prescribed by law or by the Articles
of Incorporation or by these Bylaws, may be called by the Chairman of the Board
(if any) or the President and shall be called by the Chairman of the Board (if
any), the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of shareholders owning at least
ten (10) percent of all shares of stock entitled to vote at such meeting. A
request for a special meeting shall state the purpose or purposes of the
proposed meeting. The person receiving the written request shall within five
(5) days from the date of its receipt cause notice of the meeting to be given in
the manner provided in Section 4 of this Article II. If the person does not
give notice of the meeting within five (5) days after the date of receipt of
written request, the person or persons calling the meeting may fix the time of
meeting and give notice in the manner provided in Section 4 of this Article II.
Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice of such meeting or in an executed waiver of
notice thereof.
<PAGE>
Section 4. Notice of Meetings. Except as may otherwise be required by
------------------
law, notice of each meeting of shareholders, annual or special, shall be in
writing, shall state the purpose or purposes of the meeting, the place, date and
hour of the meeting, and unless it is the annual meeting, shall indicate that
the notice is being issued by or at the direction of the person or persons
calling the meeting, and a copy thereof shall be delivered or sent by mail, not
less than 10 or more than 60 days before the date of said meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be directed to the shareholder at his address as it appears on the stock
record of the Corporation, unless he shall have filed with the Secretary a
written request that notices to him be mailed to some other address.
Section 5. Quorum. At each meeting of shareholders of the Corporation,
------
the holders of a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote, present in person or represented by
proxy, shall be requisite and shall constitute a quorum for the transaction of
business, except as otherwise provided by law or the Articles of Incorporation.
Section 6. Adjournments. In the absence of a quorum at any meeting of
------------
shareholders or any adjournment or adjournments thereof, the chairman of the
meeting or a majority in interest of those present or represented by proxy and
entitled to vote may adjourn the meeting from time to time until a quorum shall
be present or represented by proxy. At any such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
had been present or represented by proxy thereat.
Section 7. Voting. Except as otherwise provided in the Articles of
------
Incorporation or by law, at each meeting of shareholders, every shareholder of
the Corporation shall be entitled to one vote for every share of capital stock
standing in his name on the stock records of the Corporation at the time fixed
pursuant to these Bylaws as the record date for the determination of
shareholders entitled to vote at such meeting. At each meeting of shareholders,
all matters (except in cases where a larger or different vote is required by law
or by the Articles of Incorporation of the Corporation or these Bylaws) shall be
decided by a majority of the votes cast at such meeting by the holders of shares
present or represented by proxy and entitled to vote thereon, a quorum being
present.
Section 8. Request for Shareholder List and Corporation Records. The
----------------------------------------------------
officer or agent who has charge of the stock transfer books for shares shall
make, at least ten (10) days before every meeting of shareholders, a complete
list of the shareholders entitled to vote at the meeting or any adjournment
thereof, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares held by each shareholder. Such list shall
be kept on file at the registered office or the principal place of business of
the Corporation and shall be subject to the inspection of any shareholder during
usual business hours, for a period of at least ten (10) days prior to the
meeting. The list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and may be inspected by any
shareholder. The original stock ledger or transfer books, or a duplicate
thereof, shall be prima facie evidence as to who are the shareholders entitled
to examine such list or transfer books or to vote at any meeting of the
shareholders.
2
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Powers. The business of the Corporation shall be managed
------
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the Corporation and do all such lawful
acts and things as are not by law or otherwise directed or required to be
exercised or done by the shareholders.
Section 2. Number, Election and Terms. The initial Board of Directors
--------------------------
shall consist of the number of directors named in the Articles of Incorporation.
Thereafter, the number of directors to be elected shall be fixed and determined
by resolution adopted by the Board of Directors from time to time, or by the
shareholders. The number of directors may be increased or decreased from time
to time as provided in these Bylaws, but no decrease shall have the effect of
shortening the term of any incumbent director.
Section 3. Election. At each meeting of shareholders for the election
--------
of directors at which a quorum is present, the persons receiving a plurality of
the votes cast shall be elected directors.
Section 4. Place of Meetings. Meetings of the Board of Directors, both
-----------------
regular and special, shall be held at the Corporation's office in the State of
Texas or at such other place, within or without such State, as the Board of
Directors may from time to time determine or as shall be specified or fixed in
the notice or waiver of notice of any such meeting.
Section 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held in accordance with a yearly meeting schedule as
determined by the Board of Directors; or such meetings may be held on such other
days and at such other times as the Board of Directors may from time to time
determine. Notice of regular meetings of the Board of Directors need not be
given except as otherwise required by these Bylaws.
Section 6. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the President and shall be called by the Secretary at
the request of any two directors unless the Board of Directors consists of only
one director, in which case special meetings shall be called at the request of
the sole director.
Section 7. Notice of Meetings. Notice of each special meeting of the
------------------
Board of Directors (and of each regular meeting for which notice shall be
required), stating the time, place and purposes thereof, shall be mailed to each
director, addressed to him at his residence or usual place of business, or shall
be sent to him by telex, cable or telegram so addressed, or shall be given
personally or by telephone, on twenty-four hours notice, or such shorter notice
as the person or persons calling such meeting may deem necessary or appropriate
in the circumstances.
Section 8. Quorum and Manner of Acting. The presence of at least a
---------------------------
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board of Directors unless the Board of Directors consists of one director, in
which case one director shall constitute a quorum. If a quorum shall not be
present at any meeting of the Board of Directors, a majority of the directors
present thereat may adjourn the meeting from time to
3
<PAGE>
time, without notice other than announcement at the meeting, until a quorum
shall be present. Except where a different vote is required by law, the
Articles of Incorporation or these Bylaws, the act of a majority of the
directors present at any meeting at which a quorum shall be present shall be the
act of the Board of Directors unless the Board of Directors consists of one
director, in which case the action of the one director shall be the action of
the Board of Directors. Any action required or permitted to be taken by the
Board of Directors may be taken without a meeting if all the directors consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the directors shall be filed with
the minutes of the proceedings of the Board of Directors. Any one or more
directors may participate in any meeting of the Board of Directors by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting of the Board of
Directors.
Section 9. Resignation. Any director may resign at any time by giving
-----------
written notice to the Corporation, provided, however, that written notice to the
Board of Directors, the President or the Secretary shall be deemed to constitute
notice to the Corporation. Such resignation shall take effect upon receipt of
such notice or at any later time specified therein, and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
Section 10. Compensation of Directors. By resolution of the Board of
-------------------------
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD
Section 1. Designation, Powers and Name. The Board of Directors may,
----------------------------
be resolution passed by a majority of the whole Board of Directors, designate
one or more committees, including, if they shall so determine, an Executive
Committee, each such committee to consist of one or more of the directors of the
Corporation. Except as limited by law, the Articles of Incorporation, these
Bylaws or the resolution establishing such committee, each committee shall have
and may exercise all of the authority of the Board of Directors as the Board of
Directors may determine and specify in the respective resolutions appointing
each such committee. The designation of any committee and the delegation of any
authority to the committee shall not operate to relieve the Board of Directors,
or any member of the Board of Directors, of any responsibility imposed by law.
A majority of all the members of any such committee may fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide,
and meetings of any committee may be held upon such notice, or without notice,
as shall from time to time be determined by the members of any such committee.
At all meetings of any committee, a majority of its members shall
constitute a quorum for the transaction of business, and the act of a majority
of the members present shall be the act of any such committee, unless otherwise
specifically provided by law, the Articles of Incorporation, the Bylaws or the
4
<PAGE>
resolution establishing such committee. The committee may authorize the seal of
the corporation to be affixed to all papers which may require it. The Board of
Directors may designate one or more directors as alternate member of any
committee, who may replace any absent or disqualified member at any meeting.
Section 2. Minutes. Each committee of directors shall keep regular
-------
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 3. Compensation. Members of special or standing committees may
------------
be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
Section 4. Action by Consent; Participation by Telephone or Similar
--------------------------------------------------------
Equipment. Unless the Board of Directors shall otherwise provide, any action
- ---------
required or permitted to be taken by any committee may be taken without a
meeting if all members of the committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consents
thereto by the members of the committee shall be filed with the minutes of the
proceedings of the committee. Unless the Board of Directors shall otherwise
provide, any one or more members of any such committee may participate in any
meeting of the committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting of the committee.
Section 5. Changes in Committees; Resignations; Removals. The Board of
---------------------------------------------
Directors shall have power, by the affirmative vote of a majority of the
authorized number of directors, at any time to change the members of, to fill
vacancies in, and to discharge any committee of the Board of Directors. Any
member of any such committee may resign at any time by giving notice to the
Corporation, provided, however, that notice to the Board of Directors, the
President or the Secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, either with or without
cause by the affirmative vote of a majority of the authorized number of
directors at any meeting of the Board of Directors called for that purpose.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
--------
President (who may also be designated the Chief Executive Officer), one or more
Vice Presidents (any one or more of whom may be designated an Executive Vice
President or Senior Vice President), and a Secretary. The Board of Directors may
appoint such other officers and agents, including a Chairman of the Board (if
such office is created by resolution adopted by the Board of Directors and who
may also be designated the Chief Executive Officer), a Treasurer, Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers, as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined by the Board of Directors.
Any two or more offices may be
5
<PAGE>
held by the same person. The Chairman of the Board (if the Board of Directors
appoints one) shall be elected from among the directors. With the foregoing
exception, none of the other officers need be a director, and none of the
officers need be a shareholder of the Corporation.
Section 2. Election and Term of Office. Without limiting the right of
---------------------------
the Board of Directors to choose officers of the Corporation at any time when
vacancies occur or when the number of officers is increased, the officers of the
Corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of shareholders or as soon
thereafter as conveniently practicable. Each officer shall hold office until his
successor shall have been elected or appointed and shall have qualified or until
his death or the effective date of his resignation, disqualification or removal,
or until he shall cease to be a director in the case of the Chairman of the
Board.
Section 3. Removal and Resignation. Any officer or agent elected or
-----------------------
appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the Corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4. Vacancies. Any vacancy occurring in any office of the
---------
Corporation by death, resignation, removal or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 5. Salaries. The salaries of all officers and agents of the
--------
Corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a director.
Section 6. Chairman of the Board. The Chairman of the Board (if such
---------------------
office is created by resolution adopted by the Board of Directors and who may
also hold the office of President or other offices) shall have such duties as
the Board of Directors may prescribe. In the Chairman's absence, such duties
shall be attended to by the President.
Section 7. President. The President shall preside at all meetings of
---------
the Board of Directors and at all meetings of the shareholders. The President
shall perform such duties and exercise such powers as usually appertain to such
title and such other duties as may be prescribed by the shareholders, the Board
of Directors or the Executive Committee (if any) from time to time. The
President shall have the power to appoint and remove subordinate officers,
agents and employees, including Assistant Secretaries and Assistant Treasurers,
except that the President may not remove those elected or appointed by the Board
of Directors. The President shall keep the Board of Directors and the Executive
Committee (if any) fully informed and shall consult them concerning the business
of the Corporation. The President may sign, with the Secretary or another
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares for the Corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments the issue or execution of
which shall have been authorized by resolution of the Board of Directors, except
in cases where the signing and execution thereof has been expressly delegated by
these Bylaws or by the Board of Directors to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed. The President
shall vote, or give a proxy to any other officer
6
<PAGE>
of the Corporation to vote, all shares of stock of any other corporation
standing in the name of the Corporation. In general, the President shall
perform all other duties normally incident to or as usually appertain to the
office of President and such other duties as may be prescribed by the
shareholders, the Board of Directors or the Executive Committee (if any) from
time to time.
Section 8. Vice Presidents. In the absence of the President, or in the
---------------
event of his inability or refusal to act, the Executive Vice President (or in
the event there shall be no Vice President designated Executive Vice President,
any Vice President designated by the Board) shall perform the duties and
exercise the powers of the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the Corporation and
any deeds, bonds, mortgages, contracts, checks, notes, drafts or other
instruments the issue or execution of which shall have been authorized by
resolution of the Board of Directors, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed. The Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the Chairman
of the Board (if any), the President, the Board of Directors or the Executive
Committee (if any).
Section 9. Secretary. The Secretary shall (a) record the proceedings
---------
of the meetings of the shareholders, the Board of Directors and committees of
directors in the permanent minute books of the Corporation kept for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation, and see that the seal of
the Corporation or a facsimile thereof is affixed to all certificates for shares
of the Corporation prior to the issue thereof and to all documents, the
execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these Bylaws; (d) keep or cause
to be kept a register of the post office address of each shareholder which shall
be furnished by such shareholder; (e) sign with the Chairman of the Board (if
any), the President, or an Executive Vice President or Vice President,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments the issue or execution of
which shall have been authorized by resolution of the Board of Directors, except
in cases where the signing and execution thereof has been expressly delegated by
the Bylaws or by the Board of Directors to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general, perform all duties normally incident to the office of Secretary and
such other duties as from time to time may be assigned by the Chairman of the
Board (if any), the President, the Board of Directors or the Executive Committee
(if any).
Section 10. Treasurer. If required by the Board of Directors, the
---------
Treasurer shall give a bond for the faithful discharge of his or her duties in
such sum and with such surety or sureties as the Board of Directors shall
determine. The Treasurer shall (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever and deposit all such monies in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of these Bylaws; (b) prepare, or cause to be prepared, for
submission at each regular meeting of the Board of Directors, at each annual
meeting of the shareholders, and at such other times as may be required by the
Board of Directors, the Chairman of the Board (if any), the President or the
Executive Committee (if any), a statement of financial condition of the
Corporation in such detail as may be required; (c) sign with the Chairman of the
Board (if any), the President, or an Executive Vice President or Vice President,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts
7
<PAGE>
or other instruments the issue of execution of which shall have been authorized
by resolution of the Board of Directors, except in cases where the signing and
execution thereof has been expressly delegated by these Bylaws or by the Board
of Directors to some other officer or agent of the Corporation, or shall be
required by law to be otherwise executed; and (d) in general, perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned by the Chairman of the Board (if any), the President, the
Board of Directors or the Executive Committee (if any).
Section 11. Assistant Secretary or Treasurer. The Assistant Secretaries
--------------------------------
and Assistant Treasurers shall, in general, perform such duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board (if any), the President, the Board of Directors or the
Executive Committee (if any). The Assistant Secretaries and Assistant
Treasurers shall, in the absence of the Secretary or Treasurer, respectively, or
in their respective inability or refusal to act, perform all functions and
duties which such absent officers may delegate, but such delegation shall not
relieve the absent officer from the responsibilities and liabilities of their
office. The Assistant Secretaries may sign, with the Chairman of the Board (if
any), the President or Executive Vice President or Vice President, certificates
for shares of the Corporation and any deeds, bonds, mortgages, contracts,
checks, notes, drafts or other instruments the issue or execution of which shall
have been authorized by a resolution of the Board of Directors, except in cases
where the signing and execution thereof has been expressly delegated by these
Bylaws or by the Board of Directors to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed. The
Assistant Treasurers shall respectively, if required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
Section 1. Contracts. The Board of Directors may authorize any officer
---------
or officers, agent or agents, in the name and on behalf of the Corporation, to
enter into any contract or to execute and deliver any instrument, which
authorization may be general or confined to specific instances; and, unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable pecuniarily for any purpose or for
any amount.
Section 2. Checks, etc. All checks, drafts, bills of exchange or other
-----------
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board of Directors, which authorization may be general
or confined to specific instances.
Section 3. Loans. No loan shall be contracted on behalf of the
-----
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board of Directors, which authorization may be general or
confined to specific instances. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors shall
authorize.
8
<PAGE>
Section 4. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositaries as may be selected by or in
the manner designated by the Board of Directors. The Board of Directors of its
designees may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as may be deemed
expedient.
ARTICLE VII
CAPITAL STOCK
Section 1. Stock Certificates. Each shareholder shall be entitled to
------------------
have, in such form as shall be approved by the Board of Directors, a certificate
or certificates signed by the Chief Executive Officer, President or a Vice
President and by the Secretary or an Assistant Secretary or a Treasurer or
Assistant Treasurer (if any) (except that, when any such certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or any employee, the signatures of any such officers may be
facsimiles, engraved or printed), which may be sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed), certifying the
number of shares of capital stock of the Corporation owned by such shareholder.
In case any officer who has signed or whose facsimile signature has been placed
upon any such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer at the date of its issue.
Section 2. Stock Ledger. The stock ledger of the Corporation shall be
------------
the only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 9 of Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of shareholders.
Section 3. Transfers of Capital Stock. Transfers of shares of capital
--------------------------
stock of the Corporation shall be made only on the stock record of the
Corporation by the holder of record thereof or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or the transfer agent thereof, and only on surrender of the
certificate or certificates representing such shares, properly endorsed or
accompanied by a duly executed stock transfer power. The Board of Directors may
make such additional rules and regulations as it may deem expedient concerning
the issue and transfer of certificates representing shares of the capital stock
of the Corporation.
Section 4. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5. Fixing of Record Date. For the purpose of determining
---------------------
shareholders entitled to notice of, or to vote at, any meeting of shareholders
or any adjournment thereof, or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of
9
<PAGE>
its shares) or a share dividend, or in order to make a determination of
shareholders for any other proper purpose (other than determining shareholders
entitled to consent to action by shareholders proposed to be taken without a
meeting), the Board of Directors may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, sixty (60) days.
If the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as a record date for the determination of
shareholders, such date not to be more than sixty (60) days and, in the case of
a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section 5, such determination shall be applied
to any adjournment thereof except when the determination has been made through
the closing of the stock transfer books and the stated period of closing has
expired, in which case the Board of Directors shall make a new determination as
provided above.
Whenever action by shareholders is proposed to be taken by consent in
writing without a meeting of shareholders, the Board of Directors may fix by
resolution a record date for the purpose of determining shareholders entitled to
consent to that action, which record date shall neither precede nor be more than
ten (10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors; provided, however, that the Board of
Directors may not so fix a record date if a record date shall have previously
been fixed or determined pursuant to the remaining provisions of this paragraph
below. If no record date has been fixed by the Board of Directors and the prior
action of the Board of Directors is not required by the Texas Business
Corporation Act, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be the first date on which
a signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office, registered
agent, principal place of business, transfer agent, registrar, exchange agent,
or an officer or agent of the Corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. Delivery to the
corporation's principal place of business shall be addressed to the President or
the principal executive officer of the Corporation. If no record date shall
have been fixed by the Board of Directors and prior action of the Board of
Directors is required by the Texas Business Corporation Act, the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts a resolution taking such prior action.
Section 6. Beneficial Owners. The Corporation shall be entitled to
-----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive distributions or share dividends, to vote, to receive
notifications, and otherwise exercise all the nights and powers of an owner, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
10
<PAGE>
ARTICLE VIII
DIVIDENDS
Section 1. Declaration. Subject to the provisions of the Articles of
-----------
Incorporation relating thereto, if any, and the restrictions imposed by
applicable law, distributions and/or share dividends on the Corporation's
outstanding shares may be declared from time to time by the Board of Directors,
in its discretion, at any regular or special meeting, pursuant to law. The
terms "distribution" and "share dividend" shall have the meanings assigned to
them by the Texas Business Corporation Act.
Section 2. Reserve. Before payment of any distribution or share
-------
dividend, the Board of Directors by resolution from time to time, in their
absolute discretion, may create a reserve or reserves out of the Corporation's
surplus, or designate or allocate any part or all of such surplus in any manner
for any proper purpose, including, without limitation, a reserve or reserves for
meeting contingencies, equalizing distributions, repairing or maintaining any
property of the Corporation, or for such other purpose as the directors deem
beneficial to the interests of the Corporation, and the Board of Directors may
modify or abolish any such reserve, designation or allocation in the manner in
which it was created.
ARTICLE IX
INDEMNIFICATION
Section 1. Extent Of Indemnification. The Corporation shall indemnify
-------------------------
and advance expenses to any person who (i) is or was a director, officer,
employee, or agent of the Corporation or (ii) serves or has served at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent that a
corporation may or is required to grant indemnification to a director under the
Texas Business Corporation Act; notwithstanding the foregoing, however, the
Corporation may indemnify and advance expenses to an officer, employee or agent,
or any person who is identified in (ii) of the first clause of this Article IX
and who is not a director to such further extent, consistent with law, as a may
be provided by the Corporation's Articles of Incorporation, these Bylaws,
general or specific action of the Board of Directors, or by contract, or as
otherwise permitted or required by common law.
Section 2. Insurance. The Corporation may purchase and maintain
---------
insurance or make other arrangements, at its expense, to protect itself and any
such director, officer, employee, agent or person as specified in Section 1 of
this Article IX, against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify him against such expense,
liability or loss under the Texas Business Corporation Act.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required by law, the Articles of Incorporation or
these Bylaws, to be given to any director, member of a committee or shareholder,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
11
<PAGE>
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE XI
AMENDMENTS
The power to alter, amend, or repeal these Bylaws or adopt new Bylaws,
subject to repeal or change by action of the shareholders, shall be vested in
Board of Directors unless reserved to the shareholders by law or the Articles of
Incorporation. These Bylaws may be altered, amended or repealed or new Bylaws
may be adopted, subject to repeal or change by action of the shareholders, at
any regular or special meeting of the Board of Directors, without prior notice,
by resolution adopted thereat.
12
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EXHIBIT 4.1
================================================================================
CODA ENERGY, INC.
As Issuer
DIAMOND ENERGY OPERATING COMPANY
TAURUS ENERGY CORP.
ELECTRA RESOURCES, INC.
As Guarantors
SERIES A AND SERIES B
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
_________________
INDENTURE
Dated as of March 18, 1996
_________________
_________________
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
As Trustee
_________________
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1)............................................... 7.10
(a)(2)............................................... 7.10
(a)(3)............................................... N.A.
(a)(4)............................................... N.A.
(a)(5)............................................... 7.10
(b).................................................. 7.10
(c).................................................. N.A.
311 (a).................................................. 7.11
(b).................................................. 7.11
(c).................................................. N.A.
312 (a).................................................. 2.05
(b).................................................. 12.03
(c).................................................. 12.03
313 (a).................................................. 7.06
(b)(1)............................................... N.A.
(b)(2)............................................... 7.07
(c).................................................. 7.06; 12.02
(d).................................................. 7.06
314 (a).................................................. 4.03; 12.02
(b).................................................. N.A.
(c)(1)............................................... 12.04
(c)(2)............................................... 12.04
(c)(3)............................................... N.A.
(d).................................................. 10.03-10.05
(e).................................................. 12.05
(f).................................................. N.A.
315 (a).................................................. 7.01
(b).................................................. 7.05; 12.02
(c).................................................. 7.01
(d).................................................. 7.01
(e).................................................. 6.11
316 (a)(last sentence)................................... 2.09
(a)(1)(A)............................................ 6.05
(a)(1)(B)............................................ 6.04
(a)(2)............................................... N.A.
(b).................................................. 6.07
(c).................................................. 2.12
317 (a)(1)............................................... 6.08
(a)(2)............................................... 6.09
(b).................................................. 2.04
318 (a).................................................. 12.01
(b).................................................. N.A.
(c).................................................. 12.01
</TABLE>
______________
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions........................................... 1
Section 1.02. Other Definitions..................................... 15
Section 1.03. Incorporation by Reference of Trust Indenture Act..... 15
Section 1.04. Rules of Construction................................. 16
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating....................................... 16
Section 2.02. Execution and Authentication.......................... 17
Section 2.03. Registrar and Paying Agent............................ 17
Section 2.04. Paying Agent to Hold Money in Trust................... 18
Section 2.05. Holder Lists.......................................... 18
Section 2.06. Transfer and Exchange................................. 18
Section 2.07. Replacement Notes..................................... 24
Section 2.08. Outstanding Notes..................................... 24
Section 2.09. Treasury Notes........................................ 24
Section 2.10. Temporary Notes....................................... 25
Section 2.11. Cancellation.......................................... 25
Section 2.12. Defaulted Interest.................................... 25
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.................................... 25
Section 3.02. Selection of Notes to Be Redeemed..................... 26
Section 3.03. Notice of Redemption.................................. 26
Section 3.04. Effect of Notice of Redemption........................ 27
Section 3.05. Deposit of Redemption Price........................... 27
Section 3.06. Notes Redeemed in Part................................ 27
Section 3.07. Optional Redemption................................... 27
Section 3.08. Mandatory Redemption.................................. 28
Section 3.09. Offer to Purchase by Application of Excess Proceeds... 28
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes..................................... 30
Section 4.02. Maintenance of Office or Agency...................... 30
Section 4.03. Reports.............................................. 31
Section 4.04. Compliance Certificate............................... 31
Section 4.05. Taxes................................................ 32
Section 4.06. Stay, Extension and Usury Laws....................... 32
Section 4.07. Restricted Payments.................................. 32
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries......................................... 34
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.09. Incurrence of Indebtedness and Issuance of
Disqualified Stock.................................... 35
Section 4.10. Asset Sales........................................... 37
Section 4.11. Transactions with Affiliates.......................... 38
Section 4.12. Liens................................................. 38
Section 4.13. Offer to Repurchase Upon Change of Control............ 39
Section 4.14. Additional Subsidiary Guarantees...................... 40
Section 4.15. Corporate Existence................................... 40
Section 4.16. No Senior Subordinated Debt........................... 40
Section 4.17. Sale and Leaseback Transactions....................... 41
Section 4.18. Business Activities................................... 41
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of All or Substantially
All Assets............................................ 41
Section 5.02. Successor Corporation Substituted 42
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default...................................... 42
Section 6.02. Acceleration........................................... 44
Section 6.03. Other Remedies......................................... 45
Section 6.04. Waiver of Past Defaults................................ 45
Section 6.05. Control by Majority.................................... 45
Section 6.06. Limitation on Suits.................................... 46
Section 6.07. Rights of Holders of Notes to Receive Payment.......... 46
Section 6.08. Collection Suit by Trustee............................. 46
Section 6.09. Trustee May File Proofs of Claim....................... 46
Section 6.10. Priorities............................................. 47
Section 6.11. Undertaking for Costs.................................. 47
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee...................................... 48
Section 7.02. Rights of Trustee...................................... 49
Section 7.03. Individual Rights of Trustee........................... 49
Section 7.04. Trustee's Disclaimer................................... 49
Section 7.05. Notice of Defaults..................................... 50
Section 7.06. Reports by Trustee to Holders of the Notes............. 50
Section 7.07. Compensation and Indemnity............................. 50
Section 7.08. Replacement of Trustee................................. 51
Section 7.09. Successor Trustee by Merger, etc....................... 52
Section 7.10. Eligibility; Disqualification.......................... 52
Section 7.11. Preferential Collection of Claims Against Company...... 52
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance............................................. 52
Section 8.02. Legal Defeasance and Discharge......................... 53
</TABLE>
ii
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<TABLE>
<S> <C> <C>
Section 8.03. Covenant Defeasance................................... 53
Section 8.04. Conditions to Legal or Covenant Defeasance............ 53
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions......... 55
Section 8.06. Repayment to Company.................................. 55
Section 8.07. Reinstatement......................................... 56
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes................... 56
Section 9.02. With Consent of Holders of Notes...................... 57
Section 9.03. Compliance with Trust Indenture Act................... 58
Section 9.04. Revocation and Effect of Consents..................... 58
Section 9.05. Notation on or Exchange of Notes...................... 58
Section 9.06. Trustee to Sign Amendments, etc....................... 59
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.............................. 59
Section 10.02. Certain Definitions................................... 59
Section 10.03. Liquidation; Dissolution; Bankruptcy.................. 60
Section 10.04. Default on Designated Senior Debt..................... 61
Section 10.05. Acceleration of Notes................................. 62
Section 10.06. When Distribution Must Be Paid Over................... 62
Section 10.07. Notice by Company..................................... 62
Section 10.08. Subrogation........................................... 62
Section 10.09. Relative Rights....................................... 63
Section 10.10. Subordination May Not Be Impaired by Company.......... 63
Section 10.11. Distribution or Notice to Representative.............. 63
Section 10.12. Rights of Trustee and Paying Agent.................... 63
Section 10.13. Authorization to Effect Subordination................. 64
Section 10.14. Amendments............................................ 64
Section 10.15. No Waiver of Subordination Provisions................. 64
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. Subsidiary Guarantees................................. 64
Section 11.02. Execution and Delivery of Subsidiary Guarantees....... 65
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms.... 66
Section 11.04. Releases of Subsidiary Guarantees..................... 67
Section 11.05. Limitation on Guarantor Liability..................... 67
Section 11.06. "Trustee" to Include Paying Agent..................... 68
Section 11.07. Subordination of Subsidiary Guarantee................. 68
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.......................... 68
Section 12.02. Notices............................................... 68
Section 12.03. Communication by Holders of Notes with Other
Holders of Notes...................................... 69
Section 12.04. Certificate and Opinion as to Conditions Precedent.... 70
</TABLE>
iii
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<TABLE>
<S> <C> <C>
Section 12.05. Statements Required in Certificate or Opinion......... 70
Section 12.06. Rules by Trustee and Agents........................... 70
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders............................ 70
Section 12.08. Governing Law......................................... 71
Section 12.09. No Adverse Interpretation of Other Agreements......... 71
Section 12.10. Successors............................................ 71
Section 12.11. Severability.......................................... 71
Section 12.12. Counterpart Originals................................. 71
Section 12.13. Table of Contents, Headings, etc...................... 71
</TABLE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B CERTIFICATE OF TRANSFEROR
Exhibit C GUARANTORS
Exhibit D SUBSIDIARY GUARANTEE
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INDENTURE dated as of March 18, 1996 among Coda Energy, Inc., a Delaware
corporation (the "Company"), each of the Persons listed on Exhibit C hereto
(each, a "Guarantor" and, collectively, the "Guarantors") and Texas Commerce
Bank National Association, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 10 1/2% Series A Senior Subordinated Notes due 2006 of the Company (the
"Series A Senior Subordinated Notes") and the 10 1/2% Series B Senior
Subordinated Notes due 2006 of the Company (the "Series B Senior Subordinated
Notes" and, together with the Series A Senior Subordinated Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(but excluding the creation of a Lien) of any assets including, without
limitation, by way of a sale and leaseback (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole shall be governed by Sections 4.13
and/or 5.01 hereof and not by Section 4.10 hereof), and (ii) the issue or sale
by the Company or any of its Restricted Subsidiaries of Equity Interests of any
of the Company's Subsidiaries (including the sale by a Restricted Subsidiary of
Equity Interests in an Unrestricted Subsidiary), in the case of either clause
(i) or (ii), whether in a single transaction or a series of related transactions
(a) that have a fair market value in excess of $2.0 million or (b) for net
proceeds in excess of $2.0 million. Notwithstanding the foregoing, the
following shall not be deemed to be Asset Sales: (i) a transfer of assets by
the Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (ii) an issuance of Equity Interests by a Wholly Owned
Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary
of the Company, (iii) a Restricted Payment or Permitted Investment that is
permitted by Section 4.07, (iv) the sale or transfer (whether or not in the
ordinary course of business) of oil and gas properties or direct or indirect
interests in real property, provided that at the time of such sale or transfer
such properties do not have associated with them any proved reserves, (v) the
abandonment, farm-out, lease or sublease of developed or
<PAGE>
undeveloped oil and gas properties in the ordinary course of business, (vi) the
trade or exchange by the Company or any Subsidiary of the Company of any oil and
gas property owned or held by the Company or such Subsidiary for any oil and gas
property owned or held by another Person or (vii) the sale or transfer of
hydrocarbons or other mineral products or surplus or obsolete equipment in the
ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the Company, or any
authorized committee of the Board of Directors.
"Borrowing Base" means, as of any date, the aggregate amount of borrowing
availability as of such date under all Credit Facilities that determine
availability on the basis of a borrowing base or other asset-based calculation,
provided that in no event shall the Borrowing Base exceed $250.0 million.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having a rating of at least P1 from Moody's
Investors Service, Inc. and a rating of at least A1 from Standard & Poor's
Corporation.
"Certificated Securities" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
footnotes 1 and 2 thereof.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of
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<PAGE>
related transactions, of all or substantially all of the assets of the Company
and its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) other than a Person controlled
by the Principals, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any purchase, sale, acquisition, disposition,
merger or consolidation) the result of which is that (x) the Principals cease to
"beneficially own" (as such term is described in Rule 13d-3 and Rule 13d-5 under
the Exchange Act), in the aggregate, at least 33% of the aggregate voting power
of all classes of Capital Stock of the Company having the right to elect
directors under ordinary circumstances or (y) any "person" (as defined above)
becomes the "beneficial owner" (as such term is described in Rule 13d-3 and Rule
13d-5 under the Exchange Act) of more of the aggregate voting power of all
classes of Capital Stock of the Company having the right to elect directors
under ordinary circumstances than is owned at that time by the Principals in the
aggregate or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (together with any related provision for taxes), to the extent such
losses were deducted in computing such Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Interest Rate Hedging Agreements), to the extent that any such
expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, depletion and amortization expenses (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) for such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, depletion and
amortization expenses were deducted in computing such Consolidated Net Income,
plus (v) other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such other non-cash charges were deducted in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation, depletion and amortization and
other non-cash charges and expenses of, a Restricted Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
3
<PAGE>
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
"Consolidated Net Working Capital" of any Person as of any date of
determination means the difference (shown on the balance sheet of such Person
and its consolidated Subsidiaries determined on a consolidated basis in
accordance with GAAP as of the end of the most recent fiscal quarter of such
Person for which internal financial statements are available) between (i) all
current assets of such Person and its consolidated Subsidiaries and (ii) all
current liabilities of such Person and its consolidated Subsidiaries except the
current portion of long-term Indebtedness.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement, dated as of
February 14, 1996, by and among the Company and NationsBank of Texas, N.A., as
agent and as a lender, and certain other institutions, as lenders, providing for
up to $250.0 million of Indebtedness, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, restated, modified, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness
under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under this Indenture shall be deemed to have been incurred on
such date in reliance on the exception provided by clause (b) of the definition
of "Permitted Indebtedness."
4
<PAGE>
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Notes issuable or issued in whole
or in part in global form, the Person specified in Section 2.03 hereof as the
Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature, provided that the JEDI
Preferred Stock shall not constitute Disqualified Stock.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Enron Corp." means Enron Corp., a Delaware corporation.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement to exchange Series B Senior Subordinated
Notes for Series A Senior Subordinated Notes.
"Existing Indebtedness" means up to $3.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facilities and the JEDI Debt) in existence on the
date of this Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date (including, without
limitation, any acquisition to occur on the Calculation Date) shall be deemed to
have occurred on the first
5
<PAGE>
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the net
proceeds of Indebtedness incurred or Disqualified Stock issued by the Company
pursuant to the first paragraph of Section 4.09 hereof during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have been received by the Company on the
first day of the four-quarter reference period and applied to its intended use
on such date, (iii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iv) the Fixed
Charges attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, but only to the extent that the obligations giving rise
to such Fixed Charges shall not be obligations of the referent Person or any of
its Restricted Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Interest Rate Hedging
Agreements) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or any of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or any of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all cash dividend payments
(and non-cash dividend payments in the case of a Person that is a Restricted
Subsidiary) on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Global Note" means a Note that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in footnote 2 to the form of
the Note attached hereto as Exhibit A.
"Government Securities" means securities that are (a) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (b) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
6
<PAGE>
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Diamond Energy Operating Company, an
Oklahoma corporation, Taurus Energy Corp., a Texas corporation, and Electra
Resources, Inc., a Texas corporation, and (ii) any other subsidiary of the
Company that executes a Subsidiary Guarantee in accordance with the provisions
of this Indenture, and, in each case, their respective successors and assigns.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, (vii) in
respect of obligations to pay rent or other amounts with respect to a sale and
leaseback transaction to which such Person is a party, and (viii) in respect of
any Production Payment, (b) all indebtedness of others secured by a Lien on any
asset of such Person (whether or not such indebtedness is assumed by such
Person), (c) obligations of such Person in respect of production imbalances and
(d) to the extent not otherwise included in the foregoing, the Guarantee by such
Person of any indebtedness of any other Person, provided that the indebtedness
described in clauses (a)(i), (ii), (iv) and (v) shall be included in this
definition of Indebtedness only if, and to the extent that, the indebtedness
described in such clauses would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the oil and gas industry), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP;
7
<PAGE>
provided that the following shall not constitute Investments: (i) an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company, (ii) Interest Rate
Hedging Agreements entered into in accordance with the limitations set forth in
clause (h) of the definition of "Permitted Indebtedness" set forth in Section
4.09 hereof and (iii) Oil and Gas Hedging Agreements entered into in accordance
with the limitations set forth in clause (i) of the definition of "Permitted
Indebtedness". If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"JEDI" means Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership.
"JEDI Debt" means the indebtedness of the Company evidenced by that
certain Credit, Subordination and Further Assurances Agreement dated as of
February 16, 1996 between JEDI and Coda Acquisition, Inc., a Delaware
corporation, which indebtedness was assumed by the Company upon the merger of
Coda Acquisition, Inc. with and into the Company on February 16, 1996.
"JEDI Preferred Stock" means all outstanding shares of the Company's 15%
Cumulative Preferred Stock held by JEDI as in effect on the date of this
Indenture, including any shares of the Company's 15% Cumulative Preferred Stock
issued thereafter as payment of accrued dividends thereon in accordance with the
terms thereof as in effect on the date of this Indenture.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of the Company and (ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; provided,
that securities meeting the requirements of clauses (i) and (ii) above shall be
treated as Liquid Securities from the date of receipt thereof until and only
until the earlier of (x) the date on which such securities are sold or exchanged
for cash or cash equivalents and (y) 180 days following the date of the closing
of the Asset Sale in connection with which such Liquid Securities were received.
In the event such securities are not sold or exchanged for cash or cash
equivalents within such 180-day period, for purposes of determining whether the
transaction pursuant to which the Company or a Restricted Subsidiary received
the securities was in compliance with the provisions of the first paragraph of
Section 4.10 hereof, such securities shall be deemed not to have been Liquid
Securities at any time.
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"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
Liquid Securities or any other any non-cash consideration received in any Asset
Sale, but excluding cash amounts placed in escrow, until such amounts are
released to the Company), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than Indebtedness
under any Credit Facility) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP and any
reserve established for future liabilities.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Offering Circular" means the circular, dated March 12, 1996, prepared in
connection with and relating to the Offering, as supplemented by that certain
Supplement to Offering Circular, dated March 12, 1996.
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"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary, the Assistant Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon properties, (ii) the gathering, marketing, treating, processing,
storage, selling and transporting of any production from such interests or
properties, (iii) any business relating to exploration for or development,
production, treatment, processing, storage, transportation or marketing of oil,
gas and other minerals and products produced in association therewith and (iv)
any activity that is ancillary to or necessary or appropriate for the activities
described in clauses (i) through (iii) of this definition.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.05 hereof.
The counsel may be an employee of or counsel to the Company, any Guarantor or
the Trustee.
"Pari Passu Indebtedness" means indebtedness which ranks pari passu in
right of payment to the Notes.
"Permitted Business Investments" means investments made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as a means of actively exploiting, exploring for, acquiring,
developing, processing, gathering, marketing or transporting oil and gas through
agreements, transactions, interests or arrangements which permit one to share
risks or costs, comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the conduct of Oil and Gas
Business jointly with third parties, including, without limitation, (i)
ownership interests in oil and gas properties, processing facilities, gathering
systems or ancillary real property interests and (ii) Investments in the form of
or pursuant to operating agreements, processing agreements, farm-in agreements,
farm-out agreements, development agreements, area of mutual interest agreements,
unitization agreements, pooling agreements, joint bidding agreements, service
contracts, joint venture agreements, partnership agreements (whether general or
limited), subscription agreements, stock purchase agreements and other similar
agreements with third parties.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment and any related transactions that, at the time of such
Investment are contractually mandated to occur (i) such
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Person becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made
as a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with Section 4.10 hereof; (e) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (e) that are at the time outstanding, not to exceed the greater
of $5.0 million or two percent of Total Assets of the Company; (f) Permitted
Business Investments; (g) any Investment acquired by the Company in exchange for
Equity Interests in the Company (other than Disqualified Stock); (h) Investments
in Unrestricted Subsidiaries with net cash proceeds contributed to the common
equity capital of the Company since the date of this Indenture, provided that
the amount of any such net cash proceeds that are utilized for any such
Investment shall be excluded from clause (c)(ii) of the first paragraph of
Section 4.07 hereof and (i) shares of Capital Stock received in connection with
any good faith settlement of a bankruptcy proceeding involving a trade creditor.
"Permitted Liens" means (i) Liens securing Indebtedness of a Subsidiary or
Senior Debt that is outstanding on the date of issuance of the Notes or that is
permitted by the terms of this Indenture to be incurred; (ii) Liens securing
Attributable Debt with respect to sale and leaseback transactions permitted by
the terms of this Indenture; (iii) Liens in favor of the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, provided that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (v) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including lessee or operator
obligations under statutes, governmental regulations or instruments related to
the ownership, exploration and production of oil, gas and minerals on state or
federal lands or waters); (vi) Liens existing on the date of this Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (viii) statutory liens of landlords,
mechanics, suppliers, vendors, warehousemen, carriers or other like Liens
arising in the ordinary course of business; (ix) judgment Liens not giving rise
to an Event of Default so long as any appropriate legal proceeding that may have
been duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall not
have expired; (x) Liens on, or related to, properties or assets to secure all or
part or the costs incurred in the ordinary course of the Oil and Gas Business
for the exploration, drilling, development, or operation thereof; (xi) Liens in
pipeline or pipeline facilities that arise under operation of law; (xii) Liens
arising under operating agreements, joint venture agreements, partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, transportation or exchange of oil or natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements and
other agreements that are customary in the Oil and Gas Business; (xiii) Liens
reserved in oil and gas mineral leases for bonus or rental payments and for
compliance with the terms of such leases; (xiv) Liens not otherwise permitted by
clauses (i) through (xiii) and that are incurred in the ordinary course of
business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0
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<PAGE>
million at any one time outstanding; and (xv) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Facility) of the
Company or any of its Restricted Subsidiaries; provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a final
maturity date on or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Principal(s)" means (a) Enron, (b) the California Public Employees'
Retirement System, or (c) JEDI or another entity or entities, as long as JEDI or
such other entity or entities is controlled by (i) Enron, (ii) California Public
Employees' Retirement System, (iii) any direct or indirect wholly owned
subsidiary of either such entity or (iv) any combination of any of the foregoing
entities.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of March 18, 1996, by and among the Company and the other parties named
on the signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"Repurchase Offer" means an offer made by the Company to purchase all or
any portion of a Holder's Notes pursuant to Section 4.10 or 4.13 hereof.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
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<PAGE>
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Guarantees" means the Guarantees of Obligations payable under the
documentation governing any Senior Debt.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
of its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantees" means the Guarantees by the Guarantors of the
Obligations under this Indenture and the Notes.
"Taurus" means the Company's gas gathering and processing business and the
properties and other assets related thereto, whether or not held by Taurus
Energy Corp.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Restricted Subsidiaries, as shown on the most
recent balance sheet of such Person.
"Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such in the preamble to this Indenture
until a successor replaces it in accordance with the applicable provisions of
this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary (other than Diamond or
any successor to Diamond) that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution, and any Subsidiary of an
Unrestricted Subsidiary; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the
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terms of any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company; (c) is
a Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not a
director or executive officer of the Company or any of its Restricted
Subsidiaries, provided, however, that the death or resignation of any such
director or executive officer shall not cause a Subsidiary that would otherwise
be an Unrestricted Subsidiary to be deemed to be a Restricted Subsidiary unless
ten days has elapsed in which the Company has failed to appoint or elect a
successor to replace such director or executive officer who satisfies the
criteria set forth in this clause (e). Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, the Company shall be in
default of such provision). The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and
(ii) no Default or Event of Default would be in existence following such
designation.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"............................ 4.11
"Asset Sale Offer"................................. 3.09
"Bankruptcy Law.................................... 10.02
"Change of Control Offer".......................... 4.13
"Change of Control Payment"........................ 4.13
"Change of Control Payment Date"................... 4.13
"Closing Date"..................................... 2.01
"Covenant Defeasance".............................. 8.03
"Custodian"........................................ 6.01
"Designated Senior Debt"........................... 10.02
"DTC".............................................. 2.03
"Event of Default"................................. 6.01
"Excess Proceeds".................................. 4.10
"Global Note Holder"............................... 2.01
"incur"............................................ 4.09
"Legal Defeasance"................................. 8.02
"Notice of Default"................................ 6.01
"Offer Amount"..................................... 3.09
"Offer Period"..................................... 3.09
"Paying Agent"..................................... 2.03
"Payment Blockage Notice".......................... 10.04
"Payment Default".................................. 6.01
"Permitted Indebtedness............................ 4.09
"Purchase Date".................................... 3.09
"Registrar"........................................ 2.03
"Restricted Payments".............................. 4.07
"Senior Debt"...................................... 10.02
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes and the Subsidiary Guarantees means the Company and
the Guarantors, respectively, and any successor obligor upon the Notes and the
Subsidiary Guarantees, respectively.
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All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by rule enacted by the
Commission under the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall be
deemed to include substitute, replacement of successor sections or rules
adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Subsidiary Guarantees shall
be substantially in the form of Exhibit D hereto, the terms of which are
incorporated in and made part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes initially sold to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) shall be fully registered as to principal and interest in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof. The
Notes initially sold to "institutional accredited investors" (as defined in Rule
501 under the Securities Act) will be fully registered as to principal and
interest in minimum denominations of $100,000 and integral multiples of $1,000
in excess thereof.
The Notes initially shall be issued in the form of two fully registered
Global Notes. The Global Notes shall be deposited on the date of the closing of
the sale of the Notes offered pursuant to the Offering (the "Closing Date")
with, or on behalf of, The Depository Trust Company and registered in the name
of Cede & Co., as nominee of the Depository (such nominee being referred to
herein as the "Global Note Holder"). Except as set forth in Section 2.06, the
Global Notes may be transferred, in whole and not in part, only to another
nominee of the Depository or to a successor of the Depository or its nominee.
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The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and (as to the Trustee, to the extent such terms and provisions
pertain to the Trustee) to be bound thereby.
Notes issued in global form shall be substantially in the form of Exhibit
A attached hereto (including the text referred to in footnotes 1 and 2 thereto).
Notes issued in certificated form shall be substantially in the form of Exhibit
A attached hereto (but without including the text referred to in footnotes 1 and
2 thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.06 hereof.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be reproduced on the Notes and may be in
facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity
as Registrar or Paying
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Agent, the Trustee shall act as such. The Company or any of its Subsidiaries
may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent, including the Trustee (who
shall be deemed to have agreed by its execution of this Indenture), to agree in
writing that the Paying Agent shall hold in trust for the benefit of Holders or
the Trustee (unless the Paying Agent is the Trustee, in which case it shall hold
in trust for the Holders) all money held by the Paying Agent for the payment of
principal, premium, if any, or interest, including Liquidated Damages, if any,
on the Notes, and shall notify the Trustee of any default by the Company or any
Guarantor in making any such payment. While any such default continues, the
Trustee may require a Paying Agent to pay all money held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all money held by it
to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Company or a Subsidiary) shall have no further liability for the money.
If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold
in a separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company or a Guarantor, the Trustee shall serve as sole Paying Agent for the
Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company and/or the Guarantors shall furnish to the
Trustee at least seven Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Holders of Notes and the Company and the Guarantors shall otherwise
comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Certificated Securities. When Certificated
Securities are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Certificated Securities; or
(y) to exchange such Certificated Securities for an equal principal
amount of Certificated Securities of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Certificated Securities presented or surrendered for register of transfer or
exchange:
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(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his attorney,
duly authorized in writing; and
(ii) in the case of a Certificated Security that is a Transfer
Restricted Security, such request shall be accompanied by
the following additional information and documents, as
applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from such
Holder (in substantially the form of Exhibit B
hereto);
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in
accordance with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective
registration statement under the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act, a
certification to that effect from such Holder (in
substantially the form of Exhibit B hereto) and an
Opinion of Counsel from such Holder or the transferee
reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in
compliance with the Securities Act.
(b) Transfer of a Certificated Security for a Beneficial Interest in a
Global Note. A Certificated Security may not be exchanged for a beneficial
interest in a Global Note except upon satisfaction of the requirements set forth
below. Upon receipt by the Trustee of a Certificated Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Trustee, together with:
(i) if such Certificated Security is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form of
Exhibit B hereto) to the effect that such Certificated Security is
being transferred by such Holder to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in accordance with
Rule 144A under the Securities Act; and
(ii) whether or not such Certificated Security is a Transfer Restricted
Security, written instructions from the Holder thereof directing the
Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by the Global Note,
in which case the Trustee shall cancel such Certificated Security in accordance
with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, the aggregate principal amount of Notes
represented by the applicable Global Note to be increased accordingly. If no
Global Note is then
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<PAGE>
outstanding, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall authenticate a
new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Note. The transfer and exchange of
the Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture and the procedures of the
Depository therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a Certificated
Security.
(i) Any Person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a
Certificated Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary
for the Depository, from the Depository or its nominee on
behalf of any Person having a beneficial interest in a Global
Note, and, in the case of a Transfer Restricted Security, the
following additional information and documents (all of which
may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the
beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit B
hereto);
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with Rule
144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144
or Rule 904 under the Securities Act or pursuant to an
effective registration statement under the Securities
Act, a certification to that effect from the transferor
(in substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification to
that effect from the transferor (in substantially the
form of Exhibit B hereto) and an Opinion of Counsel
from the transferee or transferor reasonably acceptable
to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act,
in which case the Trustee or the Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the
Depository and the Note Custodian, cause the aggregate
principal amount of the applicable Global Note to be reduced
accordingly and, following such reduction, the Company shall
execute and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall
authenticate and deliver to the transferee a Certificated
Security in the appropriate principal amount.
(ii) Certificated Securities issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.06(d)
shall be registered in such names and in such authorized
denominations as the Depository, pursuant to instructions from
its direct
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<PAGE>
or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Certificated Securities
to the Persons in whose names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Note. Notwithstanding
any other provision of this Indenture (other than the provisions set forth in
subsection (f) of this Section 2.06), a Global Note may not be transferred as a
whole except by the Depository to a nominee of the Depository or by a nominee of
the Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository.
(f) Authentication of Certificated Securities in Absence of Depository.
If at any time:
(i) the Depository for the Notes notifies the Company that the
Depository is unwilling or unable to continue as Depository for
a Global Note and a successor Depository for such Global Note
is not appointed by the Company within 90 days after delivery
of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Certificated
Securities under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Certificated Securities in an aggregate principal amount equal to the
principal amount of such Global Note in exchange for such Global Note.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and (iii),
each Note certificate evidencing the Global Notes and
Certificated Securities (and all Notes issued in exchange
therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THE NOTES EVIDENCED HEREBY WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
THE NOTES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTES
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER
OF THE NOTES EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT SUCH NOTES MAY NOT BE REOFFERED, RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR (1)
TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
MEETING THE
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<PAGE>
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION
COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (B) BY
SUBSEQUENT INVESTORS, AS SET FORTH IN (A) ABOVE AND, IN
ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES
AND (C) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTES EVIDENCED HEREBY
OF THE RESALE RESTRICTIONS SET FORTH IN (A) AND (B) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that is
a Certificated Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security
for a Certificated Security that does not bear the legend
set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B)in the case of any Transfer Restricted Security represented
by a Global Note, such Transfer Restricted Security shall
not be required to bear the legend set forth in (i) above,
but shall continue to be subject to the provisions of
Section 2.06(c) hereof; provided, however, that with respect
to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Note for a
Certificated Security that does not bear the legend set
forth in (i) above, which request is made in reliance upon
Rule 144, the Holder thereof shall certify in writing to the
Registrar that such request is being made pursuant to Rule
144 (such certification to be substantially in the form of
Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof,
the Trustee shall authenticate Series B Senior Subordinated
Notes in exchange for Series A Senior Subordinated Notes
accepted for exchange in the Exchange Offer, which Series B
Senior Subordinated Notes shall not bear the legend set forth
in (i) above, and the Registrar shall rescind any restriction
on the transfer of such Series A Senior Subordinated Notes, in
each case unless the Holder of such Series A Senior
Subordinated Notes is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series A Senior
Subordinated Notes or (C) a Person who is an affiliate (as
defined in Rule 144A) of the Company.
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<PAGE>
(h) Cancellation and/or Adjustment of Global Note. At such time as all
beneficial interests in a Global Note have been exchanged for Certificated
Securities, redeemed, repurchased or cancelled, such Global Note shall be
returned to or retained and cancelled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in a Global Note is exchanged for Certificated Securities, redeemed, repurchased
or cancelled, the principal amount of Notes represented by such Global Note
shall be reduced accordingly and an endorsement shall be made on such Global
Note, by the Trustee or the Note Custodian, at the direction of the Trustee, to
reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Certificated
Securities and the Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax
or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental
charge payable upon exchange or transfer pursuant to Sections
3.07, 4.10, 4.13 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed
in part.
(iv) All Certificated Securities and the Global Note issued upon any
registration of transfer or exchange of Certificated Securities
or a Global Note shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits
under this Indenture, as the Certificated Securities or the
Global Note surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange
Notes during a period beginning at the opening of
business 15 days before the day of any selection of
Notes for redemption under Section 3.02 hereof and
ending at the close of business on the day of
selection; or
(B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note
between a record date and the next succeeding interest
payment date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and
treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving
payment
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<PAGE>
of principal of and interest on such Notes, and neither the
Trustee, any Agent nor the Company shall be affected by notice
to the contrary.
(vii) The Trustee shall authenticate Certificated Securities and the
Global Notes in accordance with the provisions of Section 2.02
hereof.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the receipt of
a written authentication order of the Company signed by two Officers of the
Company, shall authenticate a replacement Note if the Trustee's requirements are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Guarantor, or by any Affiliate of the Company or any Guarantor,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that a Trustee actually knows are so
owned shall be so disregarded.
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Section 2.10. Temporary Notes.
Until Certificated Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon the receipt of a
written authentication order of the Company signed by two Officers of the
Company. Temporary Notes shall be substantially in the form of Certificated
Securities but may have variations that the Company considers appropriate for
temporary Notes and as shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
Certificated Securities in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be
delivered to the Company. The Company may not issue new Notes to replace Notes
that it has paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or,
upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30
days but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption
price.
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Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. In the event of
partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof shall be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
unless the Company defaults in payment of the redemption price, interest ceases
to accrue on Notes or portions of them called for redemption. Except as
provided in this Section 3.02, provisions of this Indenture that apply to Notes
called for redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed, by first class mail, a notice of redemption to each Holder of Notes
to be redeemed at such Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
Liquidated Damages, if any, and interest on Notes called for redemption cease
to accrue on and after the redemption date;
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(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request and expense, the Trustee shall give the notice of
redemption in the Company's name; provided, however, that the Company shall have
delivered to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price
of, Liquidated Damages, if any, and accrued interest on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, Liquidated
Damages, if any, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest and Liquidated Damages, if any, shall
cease to accrue on the Notes or the portions of Notes called for redemption. If
a Note is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name such Note
was registered at the close of business on such record date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the receipt of a written authentication order of the Company signed by
two Officers of the Company, the Trustee shall authenticate for the Holder at
the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to April 1, 2001. From and after April 1, 2001,
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<PAGE>
the Company shall have the option to redeem the Notes, in whole or in part, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on April 1 of each of the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
2001.............................................. 105.250%
2002.............................................. 102.625%
2003 and thereafter............................... 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time prior to March 12, 1999, the Company may, at its option, on any one or
more occasions, redeem up to $25.0 million in aggregate principal amount of
Notes at a redemption price of 110.50% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of an offering of common equity of the
Company; provided that at least $82.5 million in aggregate principal amount of
Notes remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 75 days of the
date of the closing of such offering of common equity of the Company.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.13 hereof, the Company shall
not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company shall be
required to commence an offer to all Holders of Notes and, to the extent
required by the terms thereof, to all holders or lenders of Pari Passu
Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an "Asset
Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
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If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrue interest and Liquidated Damages, if any;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest and Liquidated Damages, if any, after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a Depository,
if appointed by the Company, or a Paying Agent at the address specified in
the notice at least three Business Days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depository or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
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On or before the Purchase Date, the Company shall, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Offer
Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer,
or if less than the Offer Amount has been tendered, all Notes tendered, and
shall deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depository or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Note, and the
Trustee, upon receipt of a written authentication order of the Company signed by
two Officers of the Company shall authenticate and mail or deliver such new Note
to such Holder, in a principal amount equal to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay
all Liquidated Damages, if any, in immediately available funds in the same
manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
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The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the following office of an Affiliate of the
Trustee as one such office or agency of the Company in accordance with Section
2.03: Chemical Bank Corporate Trust Securities Window, 55 Water Street, N.
Building, New York, New York 10041.
Section 4.03. Reports.
(a) The Company and the Guarantors shall file with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company and the
Guarantors would be required to file if the Company were subject to Section 13
or 15 of the Exchange Act, in each case on or before the dates on which such
reports and other documents would have been required to have been filed with the
Commission if the Company had been subject to Section 13 or 15 of the Exchange
Act, beginning with the Company's fiscal quarter ended March 31, 1996. The
Company shall also (i) file with the Trustee (with exhibits), and provide to
each Holder of Notes (without exhibits), without cost to such Holder, copies of
such reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company were
so required and (ii) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, supply
at the Company's cost copies of such reports and documents (including any
exhibits thereto) to any Holder of Notes promptly upon written request. The
Company shall at all times comply with TIA (S) 314(a).
(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, premium, Liquidated Damages or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take
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with respect thereto. As of the date hereof, the Company's fiscal year ends on
December 31 of each calendar year. In the event the Company changes its fiscal
year, it shall promptly notify the Trustee of such change.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the fiscal year-end
financial statements delivered pursuant to Section 4.0 3(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, within five Business Days of any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that it
may lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantors (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Company's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving the Company) or to the direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any direct or indirect parent or
other Affiliate of the Company that is not a Subsidiary of the Company; (iii)
make any principal payment on, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Notes, except
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at final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of Section 4.09
hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by
clauses (2), (3), (5), (6) and (7) of the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of this Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date of this Indenture of Equity
Interests of the Company (other than the JEDI Preferred Stock) or of debt
securities of the Company that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (iii) to the extent that any Restricted Investment that was made after
the date of this Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the net proceeds of such sale, liquidation or
repayment and (B) the initial amount of such Restricted Investment, plus (iv)
50% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary after the date of this Indenture from an Unrestricted Subsidiary
of the Company.
The foregoing provisions shall not prohibit (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of Subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Debt or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary of the
Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of this Indenture; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $1.5 million in
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any twelve-month period (plus the aggregate cash proceeds received by the
Company during such twelve-month period from any issuance of Equity Interests by
the Company to any Principal and to employees of the Company and its
Subsidiaries); and provided further that no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; (5) the
redemption of the JEDI Preferred Stock, at a redemption price equal to the
liquidation preference thereof plus accrued dividends thereon to the date of
redemption, in each case calculated in accordance with the provisions thereof as
the same are in effect on the date of this Indenture, with the net proceeds from
the sale of the Equity Interests in or all or substantially all of the assets of
Taurus in accordance with Section 4.10 hereof; (6) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options; (7) the
repayment of all amounts due in respect of the JEDI Debt; and (8) other
Restricted Payments in an aggregate amount not to exceed $5.0 million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee, which determination shall
be conclusive evidence of compliance with this provision) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
the applicable Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. Not later than five days after the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the properties currently operated by Diamond be
transferred to or held by an Unrestricted Subsidiary. For purposes of making
such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated shall be deemed to be Restricted Payments at the time of such
designation and shall reduce the amount available for Restricted Payments under
clause (c) of the first paragraph of this covenant and/or the applicable
provisions of the second paragraph of this covenant, as appropriate. All such
outstanding Investments shall be deemed to constitute Investments in an amount
equal to the greatest of (x) the net book value of such Investments at the time
of such designation, (y) the fair market value of such Investments at the time
of such designation and (z) the original fair market value of such Investments
at the time they were made. Such designation shall only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (y) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) the Credit Agreement as in
effect as of the date of this Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof or any other Credit Facility, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
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refundings, replacements, refinancings or other Credit Facilities are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Agreement as in effect on the date of this
Indenture, (b) this Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (e) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (f) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, or (g) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Stock.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been
at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be continuing
at the time such additional Indebtedness is incurred or such Disqualified
Stock is issued or would occur as a consequence of the incurrence of the
additional Indebtedness or the issuance of the Disqualified Stock.
Notwithstanding the foregoing, this Indenture shall not prohibit any of
the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company of Indebtedness
pursuant to Credit Facilities, so long as the aggregate principal amount of all
Indebtedness outstanding under all Credit Facilities does not, at any one time,
exceed the Borrowing Base, provided that if the Company incurs any Indebtedness
pursuant to this clause (b) that would cause the total principal amount of
Indebtedness under this clause (b) to exceed an amount equal to $150.0 million
(less the aggregate amount of all Net Proceeds of Asset Sales including, without
limitation, an Asset Sale involving Taurus, applied to reduce Senior Debt
pursuant to clause (a) of the second paragraph of Section 4.10 hereof), the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
would have been at least 2.0 to 1, determined on a pro forma basis as set forth
in the definition of Fixed Charge Coverage Ratio; (c) the guarantee by the
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Guarantors of any Indebtedness that is permitted by this Indenture to be
incurred by the Company; (d) Existing Indebtedness; (e) intercompany
Indebtedness between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be; (f) Indebtedness in connection
with one or more standby letters of credit, Guarantees, performance bonds or
other reimbursement obligations, in each case, issued in the ordinary course of
business and not in connection with the borrowing of money or the obtaining of
advances or credit (other than advances or credit on open account, includible in
current liabilities, for goods and services in the ordinary course of business
and on terms and conditions which are customary in the Oil and Gas Business, and
other than the extension of credit represented by such letter of credit,
Guarantee or performance bond itself), not to exceed in the aggregate at any
given time 5% of Total Assets; (g) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness in connection with the acquisition of
assets or a new Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Subsidiary prior to such acquisition by the
Company or one of its Restricted Subsidiaries and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or one of its
Restricted Subsidiaries; and provided further that (i) the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred would have been at least 2.5 to
1, determined on a pro forma basis as set forth in the definition of Fixed
Charge Coverage Ratio and (ii) no Default or Event of Default shall have
occurred and be continuing at the time such additional Indebtedness is incurred
or would occur as a consequence of the incurrence of such additional
Indebtedness; (h) Indebtedness under Interest Rate Hedging Agreements entered
into for the purpose of limiting interest rate risks, provided that the
obligations under such agreements are related to payment obligations on
Indebtedness otherwise permitted by the terms of this covenant and that the
aggregate notional principal amount of such agreements does not exceed the
principal amount of the Indebtedness to which such agreements relate; (i)
Indebtedness under Oil and Gas Hedging Contracts, provided that such contracts
were entered into in the ordinary course of business for the purpose of limiting
risks that arise in the ordinary course of business of the Company and its
Subsidiaries; (j) the incurrence by the Company of Indebtedness not otherwise
permitted to be incurred pursuant to this paragraph, provided that the aggregate
principal amount (or accreted value, as applicable) of all Indebtedness incurred
pursuant to this clause (j), together with all Permitted Refinancing Debt
incurred pursuant to clause (k) of this paragraph in respect of Indebtedness
previously incurred pursuant to this clause (j), does not exceed $15.0 million
at any one time outstanding; (k) Permitted Refinancing Debt incurred in exchange
for, or the net proceeds of which are used to refinance, extend, renew, replace,
defease or refund, Indebtedness that was permitted by this Indenture to be
incurred (including Indebtedness previously incurred pursuant to this clause
(k)); (l) accounts payable or other obligations of the Company or any Subsidiary
to trade creditors created or assumed by the Company or such Subsidiary in the
ordinary course of business in connection with the obtaining of goods or
services; (m) Indebtedness consisting of obligations in respect of purchase
price adjustments, guarantees or indemnities in connection with the acquisition
or disposition of assets; (n) the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
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and (o) production imbalances that do not, at any one time outstanding, exceed
two percent of the Total Assets of the Company.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee, which determination shall be conclusive evidence of
compliance with this provision) of the assets or Equity Interests issued or sold
or otherwise disposed of and (ii) at least 85% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any Liquid Securities received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 180
days of closing such Asset Sale, shall be deemed to be cash for purposes of this
provision (to the extent of the cash received).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt, (b) to acquire a controlling interest in another Oil and Gas Business, to
make a Permitted Business Investment, to make capital expenditures in respect of
the Company's or its Restricted Subsidiaries' Oil and Gas Business, or to
purchase long-term assets that are used or useful in the Oil and Gas Business or
(c) in the case of any Net Proceeds derived from an Asset Sale in respect of
Taurus, to redeem JEDI Preferred Stock. Pending the final application of any
such Net Proceeds, the Company may temporarily reduce Senior Debt that is
revolving debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall
(after the expiration of the periods specified in this paragraph) be deemed to
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall make an Asset Sale Offer to purchase the maximum principal amount
of Notes and any Pari Passu Indebtedness to which the Asset Sale Offer applies
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase, in
accordance with the procedures set forth in Section 3.09 hereof or the
agreements governing the Pari Passu Indebtedness, as applicable. To the extent
that the aggregate amount of Notes tendered or Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof and Pari
Passu Indebtedness surrendered by holders or lenders thereof, collectively,
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
Pari Passu Indebtedness to be purchased on a pro rata basis, based on the
aggregate principal amount (or accreted value, as applicable) thereof
surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
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Section 4.11.Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the members of the Board of
Directors who are disinterested with respect to such Affiliate Transaction,
which resolution shall be conclusive evidence of compliance with this provision,
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal, engineering or
investment banking firm of national standing; provided that the following shall
not be deemed Affiliate Transactions: (1) any sale of hydrocarbons or other
mineral products or the entering into or performance of Oil and Gas Hedging
Contracts, gas gathering, transportation or processing contracts or oil or
natural gas marketing or exchange contracts, in each case, in the ordinary
course of business, so long as the terms of any such transaction are approved by
a majority of the members of the Board of Directors who are disinterested with
respect to such transaction as being the most favorable of at least (x) two
bids, quotes or proposals, at least one of which is from a Person that is not an
Affiliate of the Company (in the event that the Company determines in good faith
that it is able to obtain only two bids, quotes or proposals with respect to
such transaction) or (y) three bids, quotes or proposals, at least two of which
are from Persons that are not Affiliates of the Company (in all other
circumstances), (2) the repayment of all amounts due in respect of the JEDI
Debt, (3) the sale to an Affiliate of the Company of Equity Interests in the
Company that do not constitute Disqualified Stock, (4) transactions contemplated
by any employment agreement or other compensation plan or arrangement entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business and consistent with the past practice of the Company or such
Restricted Subsidiary, including those described in the Offering Circular under
the caption "Executive Compensation and Other Information-Employment
Agreements," (5) transactions between or among the Company and/or its Restricted
Subsidiaries, (6) Restricted Payments and Permitted Investments that are
permitted by Section 4.07 hereof (7) the transactions described in the Offering
Circular under the caption "Certain Transactions" and (8) the payment of
dividends on, or the redemption of, the JEDI Preferred Stock, in either case, to
the extent otherwise permitted by this Indenture.
Section 4.12.Liens.
The Company shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien securing Indebtedness of any kind (other than Permitted Liens) upon any
of its property or assets, now owned or hereafter acquired.
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Section 4.13.Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company shall mail a notice to each Holder stating: (1) that the Change of
Control Offer is being made pursuant to this Section 4.13 and that all Notes
tendered shall be accepted for payment; (2) the purchase price and the purchase
date described below (the "Change of Control Payment Date"); (3) that any Note
not tendered shall continue to accrue interest and Liquidated Damages, if any;
(4) that, unless the Company defaults in the payment of the Change of Control
Payment, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest and Liquidated Damages, if any, after the Change
of Control Payment Date; (5) that Holders electing to have any Notes purchased
pursuant to a Change of Control Offer shall be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Notes completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes delivered for purchase, and a statement
that such Holder is withdrawing his election to have the Notes purchased; and
(7) that Holders whose Notes are being purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) On a date that is no earlier than 30 days nor later than 60 days from
the date that the Company mails or causes to be mailed notice of the Change of
Control to the Holders (the "Change of Control Payment Date"), the Company
shall, to the extent lawful, (i) accept for payment all Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (iii) deliver or cause
to be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent shall promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee shall promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note shall be in a principal amount of $1,000 or an integral multiple
thereof. Prior to complying with the provisions of this Section 4.13, but in
any event within 90 days following a Change of Control, the Company shall either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Notes required by this Section 4.13. The Company shall publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
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The Change of Control provisions described above shall be applicable
whether or not any other provisions of this Indenture are applicable.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.13 and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
Section 4.14.Additional Subsidiary Guarantees.
In the event that the Company or any of its Subsidiaries shall acquire or
create another Subsidiary after the date of this Indenture, such newly acquired
or created Subsidiary shall be deemed to make the guarantee set forth in Section
11.01 and the Company shall cause such Subsidiary to evidence such guarantee in
the manner set forth in Section 11.02. Notwithstanding the foregoing, this
Section 4.14 shall not apply to any newly acquired or created Subsidiary that
has been properly designated as an Unrestricted Subsidiary in accordance with
this Indenture for so long as it continues to constitute an Unrestricted
Subsidiary.
Section 4.15.Corporate Existence.
Subject to Article 5 hereof, the Company and the Guarantors shall do or
cause to be done all things necessary to preserve and keep in full force and
effect (i) its corporate existence, and the corporate, partnership or other
existence of each of its Restricted Subsidiaries, in accordance with the
respective organizational documents (as the same may be amended from time to
time) of the Company or any such Restricted Subsidiary and (ii) the rights
(charter and statutory), licenses and franchises of the Company, the Guarantors
and their respective Restricted Subsidiaries; provided, however, that the
Company and the Guarantors shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
their respective Restricted Subsidiaries, if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company or such Guarantor, as applicable, and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
Section 4.16.No Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Notes and (ii) no
Guarantor shall directly or indirectly incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Guarantees issued in respect of Senior Debt and senior
in any respect in right of payment to the Subsidiary Guarantees, provided,
however, that the foregoing limitations shall not apply to distinctions between
categories of Indebtedness that exist by reason of any Liens arising or created
in respect of some but not all such Indebtedness.
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Section 4.17.Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the test set forth
in the first paragraph of Section 4.09 hereof and (b) incurred a Lien to secure
such Indebtedness pursuant to Section 4.12 hereof (ii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by a resolution the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee, which determination
shall be conclusive evidence of compliance with this provision) of the property
that is the subject of such sale and leaseback transaction and (iii) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the Company applies the net proceeds of such transaction in compliance with
Section 4.10 hereof.
Section 4.18.Business Activities.
The Company and the Guarantors shall not, and shall not permit any
Restricted Subsidiary to, engage in any material respect in any business other
than the Oil and Gas Business.
ARTICLE 5
SUCCESSORS
Section 5.01.Merger, Consolidation, or Sale of All or Substantially All
Assets.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets, in one or more related transactions, to another Person and the Company
may not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale, assignment, transfer,
lease, conveyance, or other disposition of all or substantially all of the
properties or assets of the Company to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately before and after giving effect to
such transaction no Default or Event of Default exists; and (iv) except in the
case of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) shall
have Total Assets immediately after the transaction equal to or greater than the
Total Assets of the Company immediately preceding the transaction and (B) will,
at the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the test set forth in the first paragraph of Section 4.09 hereof.
Notwithstanding the foregoing clauses (iii) and (iv), (a) any
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Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company and (b) the Company may merge with
an Affiliate incorporated solely for the purpose of reincorporating in another
jurisdiction.
Section 5.02.Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01.Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest, including Liquidated
Damages, if any, on the Notes when the same becomes due and payable and the
Default continues for a period of 30 days, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of or premium,
if any, on the Notes when the same become due and payable at maturity, upon
redemption or otherwise, whether or not such payment is prohibited by the
provisions of Article 10 hereof;
(3) the Company fails to observe or perform any covenant, condition or
agreement on the part of the Company to be observed or performed pursuant to
Sections 4.07, 4.09, 4.10, 4.13 and 5.01 hereof and the Default continues for
the period and after the notice specified below;
(4) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Notes or this Indenture and the Default
continues for the period and after the notice specified below;
(5) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is Guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists or shall be created hereafter, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
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Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and,
in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there is then
existing a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(6) a final, nonappealable judgment or final, nonappealable judgments for
the payment of money are entered by a court or courts of competent
jurisdiction against the Company or any of its Subsidiaries and such judgment
or judgments remain unpaid or undischarged for a period (during which
execution shall not be effectively stayed) of 60 days, provided that the
aggregate of all such undischarged judgments exceeds $5.0 million;
(7) the Company or any of its Restricted Subsidiaries that constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, pursuant to or within
the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
(c) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due;
(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(a) is for relief against the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, in an involuntary case,
(b) appoints a Custodian of the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, or for all or substantially all of the property of
the Company or any of its Restricted Subsidiaries that constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, or
(c) orders the liquidation of the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(9) except as otherwise permitted under the provisions of this Indenture,
any Subsidiary Guarantee of a Significant Subsidiary is held in any judicial
proceeding to be unenforceable or
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invalid or ceases for any reason to be in full force and effect or any
Guarantor that is a Significant Subsidiary, or any Person acting on behalf of
any such Guarantor, denies or disaffirms such Guarantor's obligations under
its Subsidiary Guarantee.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
An Event of Default shall not be deemed to have occurred under clause (5)
or (6) until the Trustee shall have received written notice from the Company or
any of the Holders or unless a Responsible Officer shall have actual knowledge
of such Event of Default. A Default under clause (3) is not an Event of Default
until the Trustee notifies the Company, or the Holders of at least 25% in
principal amount of the then outstanding Notes notify the Company and the
Trustee, of the Default and the Company does not cure the Default within 30 days
after receipt of the notice. A Default under clause (4) is not an Event of
Default until the Trustee notifies the Company, or the Holders of at least 25%
in principal amount of the then outstanding Notes notify the Company and the
Trustee, of the Default and the Company does not cure the Default within 60 days
after receipt of the notice. The notice must specify the Default, demand that
it be remedied and state that the notice is a "Notice of Default."
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07 hereof, an equivalent premium shall also become and be immediately due and
payable to the extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs prior to April 1, 2001 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
April 1, 2001, pursuant to Section 3.07 hereof, then the premium immediately due
and payable for purposes of this paragraph for each of the years beginning on
April 1 of the years set forth below shall be as set forth in the following
table expressed as a percentage of the amount that would otherwise be due but
for the provisions of this sentence, plus accrued interest, if any, to the date
of payment:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
- ---- ----------------
<S> <C>
1996.................................................... 10.50%
1997.................................................... 109.45%
1998.................................................... 108.40%
1999.................................................... 107.35%
2000.................................................... 106.30%
</TABLE>
SECTION 6.02.ACCELERATION.
If an Event of Default (other than an Event of Default specified in clauses
(7) and (8) of Section 6.01 hereof) relating to the Company or any Restricted
Subsidiary occurs and is continuing, the Trustee by notice to the Company, or
the Holders of at least 25% in principal amount of the then outstanding Notes
by written notice to the Company and the Trustee, may declare the unpaid
principal amount of, any accrued interest on and any Liquidated Damages due in
respect of all the Notes to be due and payable immediately. Upon such
declaration the principal, interest and Liquidated Damages shall
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be due and payable immediately (together with the premium referred to in Section
6.01 hereof, if applicable); provided, however, that so long as any Senior Debt
or any commitment therefor is outstanding under the Credit Agreement, any such
notice or declaration shall not become effective until the earlier of (a) five
Business Days after such notice is delivered to the representative for the
Senior Debt or (b) the acceleration of any Indebtedness under the Credit
Agreement. Notwithstanding the foregoing, if an Event of Default specified in
clause (7) or (8) of Section 6.01 hereof relating to the Company, any Restricted
Subsidiary that would constitute a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary occurs, such an amount shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. The Holders of a majority in principal amount of the then
outstanding Notes by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
Section 6.03.Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium and Liquidated
Damages, if any, and interest on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04.Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of principal of, premium and Liquidated Damages, if any, or interest on,
the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05.Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
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Section 6.06.Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
Section 6.07.Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
Section 6.08.Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company or any Guarantor for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09.Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
or any of the Guarantors (or any other obligor upon the Notes), its creditors or
its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such
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payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10.Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Sections 6.08 and 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any, and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11.Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
Section 7.01.Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have furnished to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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Section 7.02.Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Guarantor shall be
sufficient if signed by an Officer of the Company or such Guarantor.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have furnished to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Sections 4.01 and 4.04 hereof, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 4.01, 4.04 and 6.01(1) or (2) hereof or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
Section 7.03.Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, the
Guarantors or any Affiliate of the Company with the same rights it would have if
it were not Trustee. However, in the event that the Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as trustee or resign. Any Agent may do
the same with like rights and duties. The Trustee is also subject to Sections
7.10 and 7.11 hereof.
Section 7.04.Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Notes or the Subsidiary
Guarantees, it shall not be accountable for the Company's use of the proceeds
from the Notes or any money paid to the Company or upon the
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Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or in any certificate delivered pursuant hereto or any statement
in the Notes or any other document in connection with the sale of the Notes or
pursuant to this Indenture other than its certificate of authentication.
Section 7.05.Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on, any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
Section 7.06.Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described in
TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2) and transmit by mail all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed in accordance with TIA (S) 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
Section 7.07.Compensation and Indemnity.
The Company and the Guarantors shall pay to the Trustee from time to
time reasonable compensation for its acceptance of this Indenture and services
hereunder, including, without limitation, extraordinary services such as default
administration. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company and the Guarantors
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company and the Guarantors shall indemnify the Trustee against any
and all losses, liabilities or expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company, the Guarantors or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company and the Guarantors promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company and the Guarantors shall not relieve the Company and the Guarantors
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of their obligations hereunder. The Company and the Guarantors shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company and the Guarantors shall pay the reasonable
fees and expenses of such counsel. The Company and the Guarantors need not pay
for any settlement made without their consent, which consent shall not be
unreasonably withheld.
The obligations of the Company and the Guarantors under this Section
7.07 are joint and several and shall survive the satisfaction and discharge of
this Indenture.
To secure the Company's and the Guarantors' payment obligations in
this Section, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
SECTION 7.08.REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal
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amount of the then outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09.Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10.Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11.Preferential Collection of Claims Against Company.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01.Option to Effect Legal Defeasance or Covenant Defeasance.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
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Section 8.02.Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
deemed to have been discharged from their obligations with respect to all
outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of outstanding Notes to receive payments in respect of the
principal of, premium and Liquidated Damages, if any, and interest on such Notes
when such payments are due from the trust fund described in Section 8.04 hereof,
and as more fully set forth in such Section, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article 8, the Company may exercise its option under this
Section 8.02 notwithstanding the prior exercise of its option under Section 8.03
hereof.
Section 8.03.Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors shall, subject
to the satisfaction of the conditions set forth in Section 8.04 hereof, be
released from their obligations under the covenants contained in Sections 4.05,
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.18 hereof and
in clause (iv) of Section 5.01 and the covenants contained in the Subsidiary
Guarantees with respect to the outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not "outstanding" for the purposes of
any compliance certificate, direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Notes shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture, such Notes and such Subsidiary Guarantees shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through
6.01(6) hereof shall not constitute Events of Default.
Section 8.04.Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company or the Guarantors must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the Notes, cash in
United States dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay
the principal of, premium, if any, and interest, including Liquidated
Damages, if any, on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company or the
Guarantors must specify whether the Notes are being defeased to maturity
or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the
Company or the Guarantors shall have delivered to the Trustee an Opinion
of Counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company or the Guarantors have received from, or
there has been published by, the Internal Revenue Service a ruling or (B)
since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders of
the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company or the Guarantors shall have delivered to the Trustee an Opinion
of Counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.01(7) or 6.01(8) hereof is concerned, at
any time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any of its Restricted Subsidiaries is a party or by which the Company
or any of its Restricted Subsidiaries is bound;
(f) the Company or the Guarantors shall have delivered to the
Trustee an Opinion of Counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company or the Guarantors shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by
the Company or the Guarantors, as applicable, with the intent of
preferring the Holders of Notes over the other creditors of the
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Company or the Guarantors, as applicable, with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or the
Guarantors, as applicable, or others; and
(h) the Company or the Guarantors shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Section 8.05.Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company and the Guarantors shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the cash or non-
callable Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or non-callable Government Securities held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06.Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium or Liquidated
Damages, if any, or interest on any Note and remaining unclaimed for two years
after such principal, premium or Liquidated Damages, if any, or interest has
become due and payable shall be paid to the Company on its request or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
Note shall thereafter, as a general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to the Company.
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Section 8.07.Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and the Guarantors under this
Indenture, the Notes and the Subsidiary Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.02 or 8.03 hereof, as the case may be;
provided, however, that, if the Company or any Guarantor makes any payment of
principal of, premium or Liquidated Damages, if any, or interest on any Note
following the reinstatement of its obligations, the Company or such Guarantor
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01.Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company and each of the Guarantors, as the case may be,
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 hereof,
the Trustee shall join with the Company and the Guarantors in the execution of
any amended or supplemental Indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to enter
into such amended or supplemental Indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.
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Section 9.02.With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company, the Guarantors
and the Trustee may amend or supplement this Indenture and the Notes with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes). Notwithstanding the foregoing,
without the consent of at least 662/3% in aggregate principal amount of the
Notes then outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes), no waiver or
amendment to this Indenture may make any change in the provisions of Sections
3.09, 4.10 and 4.13 hereof that adversely affect the rights of any Holder of
Notes. In addition, any amendment to the provisions of Article 10 of this
Indenture shall require the consent of the Holders of at least 662/3% in
aggregate principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Company or any Guarantor with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a non-
consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (except
as provided above with respect to Sections 3.09, 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of interest,
including Liquidated Damages, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest, including Liquidated Damages, if any, on
the Notes (except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of premium if any, or interest, including Liquidated
Damages, if any, on the Notes;
(g) waive a redemption payment with respect to any Note (except as
provided above with respect to Sections 3.09, 4.10 and 4.13 hereof); or
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(h) make any change in the foregoing amendment and waiver provisions.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company and each of the Guarantors, as the case may be,
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company and the Guarantors in the execution of such amended or supplemental
Indenture unless such amended or supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.
Section 9.03.Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in a amended or supplemental Indenture that complies with the TIA as then
in effect.
Section 9.04.Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05.Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
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Section 9.06.Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. Neither
the Company nor any Guarantor may sign an amendment or supplemental Indenture
until its respective Board of Directors approves it. In executing any amended
or supplemental indenture, the Trustee shall be entitled to receive and (subject
to Section 7.01) shall be fully protected in relying upon, an Officer's
Certificate and an Opinion of Counsel stating that the execution of such amended
or supplemental indenture is authorized or permitted by this Indenture and that
there has been compliance with all conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that the
Indebtedness evidenced by the Note is subordinated in right of payment, to the
extent and in the manner provided in this Article, to the prior payment in full
of all Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.
Section 10.02. Certain Definitions.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or state
law for the relief of debtors.
"Designated Senior Debt" means (i) the Credit Agreement and (ii) any other
Senior Debt permitted under this Indenture the principal amount of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility and (ii) any other
Indebtedness permitted under the terms of this Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of this Indenture (other than Indebtedness under any Credit Facility
that is incurred on the basis of a representation by the Company to the
applicable lenders that it is permitted to incur such Indebtedness under this
Indenture).
A "distribution" may consist of cash, securities or other property, by
set-off or otherwise.
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All Designated Senior Debt now or hereafter existing and all other
Obligations relating thereto shall not be deemed to have been paid in full
unless the holders or owners thereof shall have received payment in full in cash
(or other form of payment consented to by the holders of Designated Senior Debt)
with respect to such Designated Senior Debt and all other Obligations with
respect thereto.
Section 10.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, or
in an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities:
(1) the holders of Senior Debt shall be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified
in the applicable Senior Debt) before the Holders of Notes shall be entitled
to receive any payment with respect to the Notes (except that Holders of
Notes may receive (i) securities that are subordinated to at least the same
extent as the Notes to (a) Senior Debt and (b) any securities issued in
exchange for Senior Debt, provided that the operation of this clause (b)
shall not cause the Notes to be treated in any case or proceeding or similar
event described in this Section 10.03 in the same class of claims as the
Senior Debt or any class of claims pari passu with the Senior Debt for any
payment or distribution and (ii) payments and other distributions made from
any defeasance trust created pursuant to Section 8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, any distribution to which the Holders
of Notes would be entitled shall be made to holders of Senior Debt (except
that Holders of Notes may receive (i) securities that are subordinated at
least to the same extent as the Notes to (a) Senior Debt and (b) any
securities issued in exchange for Senior Debt, provided that the operation of
this clause (b) shall not cause the Notes to be treated in any case or
proceeding or similar event described in this Section 10.03 in the same class
of claims as the Senior Debt or any class of claims pari passu with the
Senior Debt for any payment or distribution and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof).
Under the circumstances described in this Section 10.03, the Company or
any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
person making any payment or distribution of cash or other property is
authorized or instructed to make any payment or distribution to which the
Holders of the Notes would otherwise be entitled (other than the securities and
payments made from any defeasance trust referred to in the second parenthetical
clause of each of clauses (1) and (2) above, which shall be delivered or paid to
the Holders of Notes as set forth in such clauses) directly to the holders of
the Senior Debt (pro rata to such holders on the basis of the respective amounts
of Senior Debt held by such holders) or their representatives, or to any trustee
or trustees under any other indenture pursuant to which any such Senior Debt may
have been issued, as their respective interests appear, to the extent necessary
to pay all such Senior Debt in full, in cash or cash equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Debt.
To the extent any payment of Senior Debt (whether by or on behalf of the
Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
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agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to , such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Debt is
declared to be fraudulent, invalid or otherwise set aside under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then the
obligation so declared fraudulent, invalid or otherwise set aside (and all other
amounts that would come due with respect thereto had such obligation not been so
affected) shall be deemed to be reinstated and outstanding as Senior Debt for
all purposes hereof as if such declaration, invalidity or setting aside had not
occurred.
Section 10.04. Default on Designated Senior Debt.
The Company may not make any payment or distribution to the Trustee or any
Holder in respect of Obligations with respect to the Notes and may not acquire
from the Trustee or any Holder any Notes for cash or property (other than (i)
securities that are subordinated to at least the same extent as the Notes to (a)
Senior Debt and (b) any securities issued in exchange for Senior Debt, provided
that the operation of this clause (b) shall not cause the Notes to be treated in
any case or proceeding or similar event described in section 10.03 in the same
class of claims as the Senior Debt or any class of claims pari passu with the
Senior Debt for any payment or distribution and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:
(i) a default in the payment of any principal or other Obligations with
respect to Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii) a default, other than a payment default, on Designated Senior Debt
occurs and is continuing that then permits, or with the giving of notice or
passage of time or both (unless cured or waived) would permit, holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a Person who may give it pursuant to Section 10.12
hereof. If the Trustee receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of this
Section unless and until (i) at least 360 days shall have elapsed since the
date of commencement of the payment blockage period resulting from the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Company shall resume payments on and distributions in respect of the
Notes and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.04(ii) hereof, 179
days past the date on which the Payment Blockage Notice is received if the
maturity of such Designated Senior Debt has not been accelerated,
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if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.05. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration.
Section 10.06. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Notes at a time when the Trustee or such Holder,
as applicable, has actual knowledge that such payment is prohibited by Section
10.03 or Section 10.04 hereof, such payment shall be held by the Trustee or such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of Notes or the
Company or any other Person money or assets to which any holders of Senior Debt
shall be entitled by virtue of this Article 10, except if such payment is made
as a result of the willful misconduct or gross negligence of the Trustee.
Section 10.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article, but failure to give such notice
shall not affect the subordination of the Notes to the Senior Debt as provided
in this Article.
Section 10.08. Subrogation.
After all Senior Debt is paid in full and until the Notes are paid in
full, Holders of Notes shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to the
payment of Senior Debt. A distribution made under this Article to holders of
Senior Debt that otherwise would have been made to Holders of Notes is not, as
between the Company and Holders of Notes, a payment by the Company on the Notes.
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Section 10.09. Relative Rights.
This Article defines the relative rights of Holders of Notes and holders
of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the obligation of
the Company, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of the
Company other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Senior Debt to receive distributions and payments otherwise
payable to Holders of Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any present or future holders of any Senior Debt to enforce
subordination as provided in this Article Ten will at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof that any such holder of Senior Debt may have or otherwise be
charged with. The provisions of this Article Ten are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior Debt.
Section 10.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders of Notes
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least
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two Business Days prior to the date of such payment written notice of facts that
would cause the payment of any Obligations with respect to the Notes to violate
this Article, which notice shall specifically refer to Section 10.04 hereof.
Only the Company or a Representative may give the notice. Nothing in this
Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder by the Holder's acceptance thereof authorizes and directs the
Trustee on the Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article 10, and
appoints the Trustee to act as the Holder's attorney-in-fact for any and all
such purposes. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in Section 6.09 hereof
at least 30 days before the expiration of the time to file such claim, each
lender under the Credit Agreement is hereby authorized to file an appropriate
claim for and on behalf of the Holders of the Notes.
Section 10.14. Amendments.
The provisions of this Article 10 shall not be amended or modified without
the written consent of the holders of all Senior Debt.
Section 10.15. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 10.09 of this
Indenture, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding or secured; (b) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (c) release any Person liable in any manner for the
collection of Senior Debt; and (d) exercise or refrain from exercising any
rights against the Company and any other Person.
ARTICLE 11
SUBSIDIARY GUARANTEES
Section 11.01. Subsidiary Guarantees.
Each of the Guarantors hereby, jointly and severally, unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that: (a) the principal of and premium and
interest, including Liquidated Damages, if any, on the Notes shall be promptly
paid in full when due, whether at maturity,
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by acceleration, redemption or otherwise, and interest on the overdue principal
of and interest on premium and interest, including Liquidated Damages, on the
Notes, if any, if lawful, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder shall be promptly paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, that the same shall be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay the same immediately.
The Guarantors hereby agree that their obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenant that this Subsidiary Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture. If any Holder or the Trustee is required by any court or otherwise
to return to the Company or Guarantors, or any Custodian, Trustee, liquidator or
other similar official acting in relation to either the Company or Guarantors,
any amount paid by either to the Trustee or such Holder, this Subsidiary
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders of Notes in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article 6 for the purposes of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of this Subsidiary
Guarantee. The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Subsidiary Guarantees.
Section 11.02. Execution and Delivery of Subsidiary Guarantees.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form of Exhibit D shall be endorsed by an officer of such
Guarantor on each Note authenticated and delivered by the Trustee, that this
Indenture shall be executed on behalf of such Guarantor by its President or one
of its Vice Presidents and attested to by an Officer and that such Guarantor
shall deliver to the Trustee an Opinion of Counsel that the foregoing have been
duly authorized, executed and delivered by such Guarantor and that such
Guarantor's Subsidiary Guarantee is a valid and legally binding obligation of
such Guarantor, enforceable against such Guarantor in accordance with its terms.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
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If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms.
No Guarantor may consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another corporation, Person or entity
whether or not affiliated with such Guarantor unless:
(a) subject to the provisions of Section 11.04 hereof, the Person formed
by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee in respect of the Notes, this Indenture and such Guarantor's
Subsidiary Guarantee;
(b) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(c) such transaction does not violate any of Sections 4.03, 4.07, 4.08,
4.09, 4.11, 4.12, 4.14, 4.16, 4.17 and 4.18.
Notwithstanding the foregoing, no Guarantor shall be permitted to consolidate
with or merge with or into (whether or not such Guarantor is the surviving
Person), another corporation, Person or entity pursuant to the preceding
sentence if such consolidation or merger would not be permitted by Section 5.01
hereof.
In case of any such consolidation or merger and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee
endorsed upon the Notes and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by the Guarantor,
such successor corporation shall succeed to and be substituted for the Guarantor
with the same effect as if it had been named herein as a Guarantor. Such
successor corporation thereupon may cause to be signed any or all of the
Guarantees to be endorsed upon all of the Notes issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee. All the Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Guarantees theretofore
and thereafter issued in accordance with the terms of this Indenture as though
all of such Subsidiary Guarantees had been issued at the date of the execution
hereof.
Except as set forth in Articles 4 and 5 hereof, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Guarantor with or into the Company, or shall prevent any sale or conveyance of
the property of a Guarantor as an entirety or substantially as an entirety to
the Company.
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Section 11.04. Releases of Subsidiary Guarantees.
In the event of a sale or other disposition of all or substantially all of
the assets of any Guarantor to a third party or an Unrestricted Subsidiary in a
transaction that does not violate any provisions of this Indenture, by way of
merger, consolidation or otherwise, or a sale or other disposition (including,
without limitation, by foreclosure) of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition
(including, without limitation, by foreclosure), by way of such a merger,
consolidation or otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) shall be released and
relieved of any obligations under its Subsidiary Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
Section 4.10 hereof. Upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to the effect that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture, including without limitation Section 4.10, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 11.
Any Guarantor that is designated an Unrestricted Subsidiary in accordance
with the terms of this Indenture shall be released from and relieved of its
obligations under its Subsidiary Guarantee and any Unrestricted Subsidiary that
ceases to be an Unrestricted Subsidiary shall be required to execute a
Subsidiary Guarantee in accordance with the terms of this Indenture.
Section 11.05. Limitation on Guarantor Liability.
For purposes hereof, each Guarantor's liability shall be that amount from
time to time equal to the aggregate liability of such Guarantor thereunder, but
shall be limited to the lesser of (i) the aggregate amount of the Obligations of
the Company under the Notes and this Indenture and (ii) the amount, if any,
which would not have (A) rendered such Guarantor "insolvent" (as such term is
defined in the federal Bankruptcy Law and in the Debtor and Creditor Law of the
State of New York) or (B) left it with unreasonably small capital at the time
its Guarantee of the Notes was entered into, after giving effect to the
incurrence of existing Indebtedness immediately prior to such time; provided
that, it shall be a presumption in any lawsuit or other proceeding in which such
Guarantor is a party that the amount guaranteed pursuant to its Guarantee is the
amount set forth in clause (i) above unless any creditor, or representative of
creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of
such Guarantor, otherwise proves in such a lawsuit that the aggregate liability
of such Guarantor is limited to the amount set forth in clause (ii). In making
any determination as to the solvency or sufficiency of capital of a Guarantor in
accordance with the previous sentence, the right of such Guarantor to
contribution from other Guarantors and any other rights such Guarantor may have,
contractual or otherwise, shall be taken into account.
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Section 11.06. "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in such case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
Section 11.07. Subordination of Subsidiary Guarantee.
The obligations of each Guarantor under its Subsidiary Guarantee pursuant
to this Article 11 shall be junior and subordinated to the Senior Guarantee of
such Guarantor on the same basis as the Notes are junior and subordinated to
Senior Debt of the Company. For the purposes of the foregoing sentence, the
Trustee and the Holders shall have the right to receive and/or retain payments
by any of the Guarantors only at such times as they may receive and/or retain
payments in respect of the Notes pursuant to this Indenture, including Article
10 hereof.
ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by the Company, the Guarantors or the Trustee
to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guarantors:
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Telecopier No.: (214) 265-4777
Attention: Grant W. Henderson
68
<PAGE>
With a copy to:
Haynes and Boone, L.L.P.
3100 NationsBank Plaza
901 Main Street
Dallas, TX 75202
Telecopier No.: (214) 651-5940
Attention: William Boeing, Esq.
If to the Trustee:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Telecopier No.: (214) 965-3577
Attention: Corporate Trust Department
The Company, any Guarantor or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Guarantors, the Trustee, the Registrar and anyone else shall have the protection
of TIA (S) 312(c).
69
<PAGE>
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, the Company or such Guarantor,
as the case may be, shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been complied with.
Section 12.05. Statements Required In Certificate Or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with.
Section 12.06. Rules By Trustee And Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07. No Personal Liability Of Directors, Officers, Employees And
Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes, by
accepting a Note, waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
70
<PAGE>
Section 12.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture and the Subsidiary Guarantees.
Section 12.10. Successors.
All agreements of the Company and each Guarantor in this Indenture and the
Notes shall bind its respective successors. All agreements of the Trustee in
this Indenture shall bind its successors.
Section 12.11. Severability.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 12.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
71
<PAGE>
SIGNATURES
Dated as of March 18, 1996
CODA ENERGY, INC.
Attest: By: /s/ J. DAVID CHOISSER
______________________________________
/s/ JOE CALLAWAY Name: J. David Choisser
___________________________ Title: Vice President; Treasurer
DIAMOND ENERGY OPERATING COMPANY
Attest: By: /s/ J. DAVID CHOISSER
______________________________________
/s/ JOE CALLAWAY Name: J. David Choisser
___________________________ Title: Vice President
TAURUS ENERGY CORP.
Attest: By: /s/ J. DAVID CHOISSER
______________________________________
/s/ JOE CALLAWAY Name: J. David Choisser
___________________________ Title: Vice President
ELECTRA RESOURCES, INC.
Attest: By: J. DAVID CHOISSER
_____________________________________
/s/ JOE CALLAWAY Name: J. David Choisser
___________________________ Title: Vice President
72
<PAGE>
Dated as of March 18, 1996 TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Trustee
Attest: By: /s/ JOHN G. JONES
______________________________________
/s/ MELISSA SCOTT Name: John G. Jones
___________________________ Title: Vice President
73
<PAGE>
================================================================================
EXHIBIT A
(Face of Note)
10 1/2% [Series A] [Series B] Senior Subordinated Notes due 2006
No. $__________
CODA ENERGY, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on April 1, 2006.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
Dated: _______________ __, 1996
CODA ENERGY, INC.
By:____________________________
Name:
Title:
Cusip Number:
By:____________________________
Name:
Title:
This is one of the Notes referred to (SEAL)
in the within-mentioned Indenture:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee
By:__________________________________
================================================================================
A-1
<PAGE>
(Back of Note)
10 1/2% [Series A] [Series B] Senior Subordinated Note due 2006
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]/1/
THE NOTES EVIDENCED HEREBY WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") AND THE NOTES EVIDENCED HEREBY MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
NOTES EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTES EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH NOTES MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL INVESTOR
(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES
ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (B) BY SUBSEQUENT INVESTORS, AS SET
FORTH IN (A) ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED
INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (C) THE HOLDER WILL,
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF
THE NOTES EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) AND
(B) ABOVE.
____________________________
/1/. This paragraph should be included only if the Senior Subordinated Note is
issued in global form.
A-2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
A-3
<PAGE>
1. Interest. Coda Energy, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate of 10
1/2% per annum, which interest shall be payable in cash semi-annually in arrears
on April 1 and October 1, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"); provided that the
first Interest Payment Date shall be October 1, 1996. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company will pay
interest to the Person who is the Holder of record of this Note as of the close
of business on the March 15 or September 15 immediately preceding such Interest
Payment Date, even if this Note is cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section 2.12 of the
Indenture with respect to defaulted interest. Principal, premium if any and
interest, including Liquidated Damages, if any, on this Note will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest,
including Liquidated Damages, if any, may be made by check mailed to the Holder
of this Note at its address set forth in the register of Holders of Notes;
provided that all payments with respect to the Global Notes and Certificated
Securities having an aggregate principal amount of $5.0 million or more the
Holders of which have given wire transfer instructions to the Company at least
10 Business Days prior to the applicable payment date will be required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Such payment shall be in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
3. Paying Agent and Registrar. Initially, Texas Commerce Bank National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company, any Guarantor or any other of its Subsidiaries may
act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as of
March 18, 1996 ("Indenture") among the Company, the Guarantors and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general unsecured obligations of the Company limited in an
aggregate principal amount to $110,000,000 and will mature on April 1, 2006.
5. Optional Redemption.
(a) The Notes are not redeemable at the Company's option prior to April 1,
2001. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001............................................... 105.250%
2002............................................... 102.652%
2003 and thereafter................................ 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Paragraph 5,
prior to March 12, 1999 the Company may, at its option, on any one or more
occasions, redeem up to $27.5.0 million in aggregate principal amount of Notes
at a redemption price equal to 110.50% of the principal amount thereof, plus
accrued and unpaid
A-4
<PAGE>
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net proceeds of an offering of common equity of the Company; provided that
at least $82.5 million in aggregate principal amount of Notes must remain
outstanding immediately after the occurrence of such redemption; and provided,
further, that any such redemption shall occur within 75 days of the date of the
closing of such offering of common equity of the Company.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be required
to make mandatory redemption payments with respect to the Notes.
7. Repurchase At Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any Asset Sales
permitted by the Indenture, when the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company shall make an Asset Sale Offer to purchase
the maximum principal amount of Notes and any Pari Passu Indebtedness to which
the Asset Sale Offer applies that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase, in accordance with the procedures set forth in Section
3.09 of the Indenture or the agreements governing the Pari Passu Indebtedness,
as applicable. To the extent that the aggregate amount of Notes tendered or
Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof and Pari Passu Indebtedness surrendered by
holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and Pari Passu Indebtedness to be purchased
on a pro rata basis, based on the aggregate principal amount (or accreted value,
as applicable) thereof surrendered in such Asset Sale Offer. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes initially sold to qualified
institutional buyers are in registered form without coupons in minimum
denominations of $1,000 and integral multiples of $1,000. The Notes initially
sold to institutional accredited investors are in registered form as to
principal and interest without coupons in minimum denominations of $100,000 and
integral multiplies of $1,000 in excess thereof. The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or portion of
a Note selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, it need not exchange or register the transfer of
any
A-5
<PAGE>
Notes for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding Interest Payment
Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. Without the consent
of any Holder of a Note, the Indenture or the Notes may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages, if any, with
respect to, the Notes (whether or not prohibited by the provisions of Article 10
of the Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the provisions of
Article 10 of the Indenture); (iii) failure by the Company for 30 days after
notice from the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding to comply with the provisions of Sections
4.07, 4.09, 4.10, 4.13 and 5.01 of the Indenture; (iv) failure by the Company
for 60 days after notice from the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding to comply with any of
its other agreements in the Indenture or the Notes; (v) except as permitted by
the Indenture, any Subsidiary Guarantee of a Significant Subsidiary shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor that is a
Significant Subsidiary, or any Person acting on behalf of any such Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; (vi)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there is then existing a Payment Default or the maturity of which
has been so accelerated, aggregates $10.0 million or more; (vii) failure by the
Company or any of its Restricted Subsidiaries to pay final, non-appealable
judgments aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; and (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary that
constitutes a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any
A-6
<PAGE>
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Indenture contains certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
14. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes, by accepting a Note, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
15. Authentication. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transfer Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of March 18, 1996, between the Company
and the parties named on the signature pages thereof (the "Registration Rights
Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Telecopier No.: (214) 265-4777
Attention: Secretary
[NOTE: THE FORM OF SUBSIDIARY GUARANTEE ATTACHED AS EXHIBIT D TO THE INDENTURE
IS TO BE ATTACHED TO THIS NOTE]
A-7
<PAGE>
Assignment Form
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
________________________________________________________________________________
(Insert assignee's Social Security or tax I.D. No.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date:______________
Your Signature:____________________________________________
(Sign exactly as your name appears on the face of this
Security)
Signature Guarantee:/*/____________________________________
________________________
/*/ Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-8
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[_] Section 4.10 [_]Section 4.13
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased: $___________
Date: Your Signature:
(Sign exactly as your name appears on the Security)
Tax Identification No.:_________________________
Signature Guarantee:/*/_________________________
_____________________
/*/ Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED SECURITIES/2/
The following exchanges of a part of this Global Note for Certificated
Securities have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ------------------ --------------------- --------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
______________________
/2/. To be included only if the Senior Subordinated Note is issued in global
form.
A-10
<PAGE>
Exhibit B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 10 1/2% Senior Subordinated Notes due 2006 of Coda Energy, Inc. (the
"Notes")
This Certificate relates to $_____ principal amount of Notes held in *
________ book-entry or *_______ definitive form by ________________ (the
"Transferor").
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in a Global Note held by the Depository a Note or Notes
in definitive, registered form of authorized denominations in an aggregate
principal amount equal to its beneficial interest in such Global Note (or the
portion thereof indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
[_] Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
[_] Such Note is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A (in satisfaction of Section
2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i)(B) of the Indenture) or
pursuant to an exemption from registration in accordance with Rule 904 under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture.)
_______________
*Check applicable box.
B-1
<PAGE>
[_] Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
[_] Such Note is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Securities Act, other
than Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel
to the effect that such transfer does not require registration under the
Securities Act accompanies this Certificate (in satisfaction of Section
2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the Indenture).
_______________________________________________
[INSERT NAME OF TRANSFEROR]
By:____________________________________________
Date:_____________________
_______________
*Check applicable box.
B-2
<PAGE>
Exhibit C
GUARANTORS
1. Diamond Energy Operating Company, an Oklahoma corporation
2. Taurus Energy Corp., a Texas corporation
3. Electra Resources, Inc., a Texas corporation
C-1
<PAGE>
Exhibit D
Subsidiary Guarantee
Each of the Guarantors hereby, jointly and severally, unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of this Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that: (a) the principal of and premium and
interest, including Liquidated Damages, if any, on the Notes shall be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal of and interest on premium and
interest, including Liquidated Damages, on the Notes, if any, if lawful, and all
other obligations of the Company to the Holders or the Trustee hereunder or
thereunder shall be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that same
shall be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors shall be jointly
and severally obligated to pay the same immediately.
The obligations of the Guarantors to the Holders of Notes and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article 11 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee. The terms of
Article 11 of the Indenture are incorporated herein by reference.
This is a continuing Subsidiary Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Notes and the
Indenture and shall inure to the benefit of the Trustee and the Holders of Notes
and their successors and assigns and, in the event of any transfer or assignment
of rights by any Holder of Notes or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
Notwithstanding the foregoing, any Guarantor that satisfies the provisions of
Section 11.04 of the Indenture shall be released of its obligations hereunder.
This is a Subsidiary Guarantee of payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
For purposes hereof, each Guarantor's liability will be that amount from
time to time equal to the aggregate liability of such Guarantor hereunder, but
shall be limited to the lesser of (i) the aggregate amount of the obligations of
the Company under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Guarantor "insolvent" (as such term is defined
in the federal Bankruptcy Law and in the Debtor and Creditor Law of the State of
New York) or (B) left it with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into, after giving effect to the
incurrence of existing Indebtedness immediately prior to such time; provided
that, it shall be a presumption in any lawsuit or other proceeding in which such
Guarantor is a party that the amount guaranteed pursuant to its Subsidiary
Guarantee is the amount set forth in clause (i) above unless any creditor, or
representative of creditors of such Guarantor, or debtor in possession or
trustee in bankruptcy of such Guarantor, otherwise proves in such a lawsuit that
the aggregate liability of such Guarantor is limited to the amount set forth in
clause (ii). The Indenture provides that, in making any determination as to the
solvency or sufficiency of capital of a Guarantor in accordance with the
previous sentence, the right of such Guarantor to contribution from other
Guarantors and any other rights such Guarantor may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
D-1
<PAGE>
DIAMOND ENERGY OPERATING COMPANY,
an Oklahoma corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
TAURUS ENERGY CORP.,
a Texas corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
ELECTRA RESOURCES, INC.,
a Texas corporation
By:________________________________________
Name:______________________________________
Title:_____________________________________
D-2
<PAGE>
EXHIBIT 4.2
================================================================================
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of March 18, 1996
by and among
CODA ENERGY, INC.
DIAMOND ENERGY OPERATING COMPANY
TAURUS ENERGY CORP.
ELCECTRA RESOURCES, INC.
and
GOLDMAN, SACHS & CO.
CHEMICAL SECURITIES INC.
ECT SECURITIES CORP.
NATIONSBANC CAPITAL MARKETS, INC.
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into as of March 18, 1996 by and among Coda Energy, Inc., a Delaware corporation
(the "Company"), Diamond Energy Operating Company, an Oklahoma corporation,
-------
Taurus Energy Corp., a Texas corporation, Electra Resources, Inc., a Texas
corporation (each a "Guarantor" and, collectively, the "Guarantors"), and
--------- ----------
Goldman, Sachs & Co., Chemical Securities Inc., ECT Securities Corp. and
NationsBanc Capital Markets, Inc. (each a "Purchaser" and, collectively, the
---------
"Purchasers"), each of whom has agreed to purchase the Company's 10 1/2% Series
----------
A Senior Subordinated Notes due 2006 (the "Series A Notes") pursuant to the
--------------
Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated March 12,
1996 (the "Purchase Agreement"), by and among the Company, the Guarantors and
------------------
the Purchasers. In order to induce the Purchasers to purchase the Notes, the
Company has agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
obligations of the Purchasers set forth in Section 2 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
---
Blocking Notice: Written notice from the Company that (i) an amendment or
---------------
supplement to the Exchange Offer Registration Statement, or a distribution of
Notes under a Shelf Registration Statement, as applicable, would require the
public disclosure of material non-public information concerning any transaction
or negotiation involving the Company or any of its affiliates that, in the
Company's judgment exercised reasonably and in good faith, would materially
interfere with such transaction or negotiations, or (ii) such amendment or
supplement would otherwise require premature disclosure of non-public
information that, in the Company's judgment, exercised reasonably and in good
faith, would adversely affect or otherwise be detrimental to the Company.
Blocking Period: The period of time beginning with the receipt by the
---------------
Holders of a Blocking Notice and ending on the earliest to occur of (x) 30 days
from the receipt by the Holders of a Blocking Notice, (y) the date upon which
the transactions or negotiations that are the subject of the Blocking Notice
have been publicly disclosed or terminated and (z) the receipt by the Holders of
a Blocking Termination Notice or a Shelf Blocking Termination Notice, as
applicable.
Blocking Termination Notice: As defined in Section 3(c) hereof.
---------------------------
1
<PAGE>
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Closing Date: The date of this Agreement.
------------
Commission: The Securities and Exchange Commission.
----------
Consummate: A Registered Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes that were
tendered by Holders thereof pursuant to the Exchange Offer. The term
"Consummation" shall have a correlative meaning.
Damages Payment Date: With respect to the Series A Notes, each Interest
--------------------
Payment Date.
Effectiveness Target Date: As defined in Section 5 hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The registration by the Company under the Act of the
--------------
Series B Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchasers propose to sell
--------------
the Series A Notes to certain "qualified institutional buyers," as such term is
defined in Rule 144A under the Act, and to certain institutional "accredited
investors," as such term is defined in Rule 501(a)(1), (2), (3) and (7) of
Regulation D under the Act ("Accredited Institutions").
-----------------------
Holders: As defined in Section 2(b) hereof.
-------
Indemnified Holder: As defined in Section 8(a) hereof.
------------------
2
<PAGE>
Indenture: The Indenture, dated as of March 18, 1996, among the Company,
---------
Texas Commerce Bank Dallas National Association, as trustee (the "Trustee"), and
-------
the Guarantors, pursuant to which the Notes are to be issued, as such Indenture
is amended or supplemented from time to time in accordance with the terms
thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
---------------------
NASD: National Association of Securities Dealers, Inc.
----
Notes: The Series A Notes and the Series B Notes.
-----
Person: An individual, partnership, corporation, limited liability
------
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement, as
----------
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to the
-------------
Notes, each Person who is a Holder of the Notes on the record date with respect
to the Interest Payment Date on which such Damages Payment Date shall occur and
who is entitled to liquidated damages in accordance with Section 5 hereof.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Series B Notes: The Company's 10 1/2% Series B Senior Subordinated
--------------
Notes due 2006 to be issued pursuant to the Indenture in the Exchange Offer.
Shelf Blocking Termination Notice: As defined in Section 4(c) hereof.
---------------------------------
Shelf Filing Deadline: As defined in Section 4 hereof.
---------------------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date on which the Indenture is qualified under the TIA.
3
<PAGE>
Transfer Restricted Securities: Each Note until (i) the date on which
------------------------------
such Note has been exchanged by a person other than a broker-dealer for a Series
B Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Note for a Series B Note, the date on which such Series
B Note is sold to a purchaser who receives from such broker-dealer on or prior
to the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement, (iii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in
------------------------- ---------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to be a
-----------------------------------------
holder of Transfer Restricted Securities (each, a "Holder") whenever such Person
------
owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable
law or Commission policy (after the procedures set forth in Section 6(a) below
have been complied with), the Company and the Guarantors shall (i) cause to be
filed with the Commission on or prior to 30 days after the Closing Date (which
30-day period shall be extended by a number of days equal to the number of
business days that the Commission is officially closed during such period, if
any), a Registration Statement under the Act relating to the Series B Notes and
the Exchange Offer, (ii) use their best efforts to cause such Registration
Statement to be declared effective by the Commission on or prior to 90 days
after the Closing Date (which 90-day period shall be extended by a number of
days equal to the number of business days that the Commission is officially
closed during such period, if any), (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
file, if applicable, a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary filings in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Exchange Offer shall
be on the appropriate form
4
<PAGE>
permitting registration of the Series B Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of Notes held by Broker-
Dealers as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
provided, however, that in no event shall such period be less than 20 business
days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Notes shall be
included in the Exchange Offer Registration Statement. The Company shall use
its best efforts to cause the Exchange Offer to be Consummated on or prior to 30
business days after the Exchange Offer Registration Statement has become
effective.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus forming a part of the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Series A Notes pursuant to the Exchange Offer; however, such Broker-Dealer may
be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Series B Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission.
The Company and the Guarantors shall use their best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of the Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer Registration Statement is declared effective;
provided that, following the thirtieth day after the Consummation of the
Exchange Offer, the Company shall not be required to amend or supplement the
Exchange Offer Registration Statement during the occurrence of a Blocking
Period. The Company shall promptly send each Holder written notice (a "Blocking
--------
Termination Notice") at the earliest of such times as (x) the transactions or
- ------------------
negotiations that are the subject of the Blocking Period Notice that triggered
the Blocking Period have been publicly disclosed
5
<PAGE>
or terminated, (y) such non-public information has been publicly disclosed, or
(z) counsel to the Company has determined that such disclosure is not required
due to subsequent events. In no event may a Blocking Notice be delivered prior
to the Consummation of the Exchange Offer and, thereafter, only two Blocking
Notices may be delivered pursuant to this Agreement during any period of 360
consecutive days.
The Company shall provide sufficient copies of the latest version of such
Prospectus to Broker-Dealers promptly upon request at any time during such one-
year period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
------------------
Exchange Offer Registration Statement or to Consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities shall notify the
Company on or prior to the 20th business day following the Consummation of the
Exchange Offer (A) that such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) that such
Holder may not resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder, or (C) that such Holder is a Broker-Dealer and
holds Series A Notes acquired directly from the Company or one of its
affiliates, then the Company and the Guarantors shall
(x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Act, which may be an amendment to the
Exchange Offer Registration Statement (in either event, the "Shelf
-----
Registration Statement") on or prior to the earliest to occur of (1)
----------------------
the 30th day after the date on which the Company determines that it
is not required to file the Exchange Offer Registration Statement
(which 30-day period shall be extended by a number of days equal to
the number of business days that the Commission is officially closed
during such period, if any) or not permitted to Consummate the
Exchange Offer as contemplated in clause (i) above or (2) the 30th
day after the date on which the Company receives notice from a Holder
of Transfer Restricted Securities as contemplated by clause (ii)
above (which 30-day period shall be extended by a number of days
equal to the number of business days that the Commission is
officially closed during such period, if any) (such earliest date
being the "Shelf Filing Deadline"), which Shelf Registration
---------------------
Statement shall provide for resales of all Transfer Restricted
Securities the Holders of which shall have provided the information
required pursuant to Section 4(b) hereof; and
6
<PAGE>
(y) use their best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission on
or before the 90th day after the Shelf Filing Deadline (which 90-day
period shall be extended by a number of days equal to the number of
business days that the Commission is officially closed during such
period, if any).
Subject to Section 4(c), the Company and the Guarantors shall use their best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended as required by the provisions of Sections 6(b) and (c)
hereof to the extent necessary to ensure that it is available for resales of the
Notes by the Holders of Transfer Restricted Securities entitled to the benefit
of this Section 4(a), and to ensure that it conforms with the requirements of
this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of at least three years
following the Closing Date or such shorter period permitted under Rule 144(k)
(or a successor clause) promulgated pursuant to the Securities Act.
(b) Provision by Holders of Certain Information in Connection
---------------------------------------------------------
with the Shelf Registration Statement. No Holder of Transfer Restricted
- -------------------------------------
Securities may include any of its Transfer Restricted Securities in any
Shelf Registration Statement pursuant to this Agreement unless and until
such Holder furnishes to the Company in writing, within 10 business days
after receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No
Holder of Transfer Restricted Securities shall be entitled to Liquidated
Damages pursuant to Section 5 hereof unless and until such Holder shall
have provided all such reasonably requested information. Each Holder as to
which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company all information required to be disclosed in order
to make the information previously furnished to the Company by such Holder
not materially misleading and not to omit any material fact.
Each Holder shall (i) furnish each broker through whom it offers the
Notes such number of copies of the Prospectus included in the Shelf Registration
Statement and any supplements thereto or amendments thereof which such broker
may require and (ii) inform such broker (a) as to the aggregate principal amount
of Notes offered through such broker; (b) that such Notes are part of a
distribution and (c) that such broker may, therefore, be subject to the
provisions of Rule 10b-6 under the Exchange Act until such time as such broker
has completed the sale of all such Notes pursuant to the Shelf Registration
Statement.
Each Holder shall promptly furnish to each person (including each
broker) to whom such Holder has delivered copies of the Prospectus included in a
Shelf Registration Statement an equivalent number of copies of any amendment
thereof or supplement thereto.
Each Holder shall, promptly after the end of each week in which any
disposition of the Notes by such Holder has occurred and upon completion of the
distribution of the Notes
7
<PAGE>
pursuant to the Shelf Registration Statement, report to the Company, upon
request, such dispositions made during such week or upon such completion, as the
case may be.
Upon request from the Company, each Holder shall advise the Company of
the dates on which it then expects to commence and terminate a distribution, the
aggregate principal amount of Notes expected to be sold, the method of
disposition and such other information as the Company may reasonably request in
order to supplement the Prospectus included in a Shelf Registration Statement in
accordance with the rules and regulations of the Commission.
(c) Upon the receipt by the Holders of a Blocking Notice from the
Company, the Holders shall cease any distribution of the Notes under a Shelf
Registration Statement for the Blocking Period. The Company shall promptly send
each Holder written notice (a "Shelf Blocking Termination Notice") at the
---------------------------------
earliest such time as (x) the transactions or negotiations that are the subject
of the Blocking Notice have been publicly disclosed or terminated, (y) such non-
public information has been publicly disclosed, or (z) counsel to the Company
has determined that such disclosure is not required due to subsequent events.
No Blocking Notice may be delivered prior to the Consummation of the Exchange
Offer and, thereafter, only two Blocking Notices may be delivered pursuant to
this Agreement during any period of 360 consecutive days.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
-------------------------
Exchange Offer has not been Consummated on or prior to 30 business days after
the Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose (other than pursuant to Section 4(c) hereof),
without being succeeded within five business days by a post-effective amendment
or supplement to such Registration Statement that cures such failure and that
has been declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"), the Company and the Guarantors hereby jointly
--------------------
and severally agree to pay liquidated damages to each Holder of Transfer
Restricted Securities affected thereby with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities. All
8
<PAGE>
accrued liquidated damages shall be paid on each Damages Payment Date at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of liquidated
damages may be made by federal funds check mailed to each Record Holder at its
address set forth in the register of Holders of Notes; provided that all
payments with respect to the Global Note and Certificated Securities having an
aggregate principal amount of $5.0 million or more the Holders of which have
given wire transfer instructions to the Company at least 10 Business Days prior
to the applicable Damages Payment Date be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. Following the
cure of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of liquidated damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantors shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Company and the Guarantors hereby agree to seek a no-
action letter or other favorable decision from the Commission allowing the
Company and the Guarantors to Consummate an Exchange Offer for such Series
A Notes. The Company and the Guarantors each hereby agrees to pursue the
issuance of such a decision to the Commission staff level but shall not be
required to take commercially unreasonable action to effect a change of
Commission policy. The Company and the Guarantors each hereby agrees,
however, to (A) participate in telephonic conferences with the Commission
staff, (B) deliver to the Commission staff an analysis prepared by counsel
to the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted and
(C) diligently pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written
9
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representation to the Company and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
In addition, all such Holders of Transfer Restricted Securities shall
otherwise cooperate in the Company's preparations for the Exchange Offer.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of
the securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
----------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including any
no-action letter obtained pursuant to clause (i) above), and (2) must
comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and that such a
secondary resale transaction should be covered by an effective registration
statement containing the selling security holder information required by
Item 507 or 508, as applicable, of Regulation S-K if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantors
are registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
----------------------------
applicable, any no-action letter obtained pursuant to clause (i) above and
(B) including a representation that neither the Company nor the Guarantors
has entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series B Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
10
<PAGE>
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration
------------------
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
the Notes by Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder, financial
statements of the Guarantor) for the period specified in Section 3 or 4 of
this Agreement, as applicable; upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall, subject to
Section 4(c), file promptly an appropriate amendment or supplement to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B), use
its best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to any Registration
Statement or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the
11
<PAGE>
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company and the Guarantors shall use
their best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) in connection with the Shelf Registration Statement
contemplated by Section 6(b) above, furnish to each of the selling Holders
who shall have requested such and each of the underwriter(s), if any,
before filing with the Commission, copies of any Registration Statement or
any Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of such Holders
and underwriter(s), if any, for a period of at least five business days,
and the Company will not file any such Registration Statement or Prospectus
or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which a selling Holder of Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s), if any, shall reasonably
object within five business days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
(v) in connection with the Shelf Registration contemplated by
Section 6(b) above, promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders who shall have
requested such and to the underwriter(s), if any, make the Company's
representatives available (and representatives of the Guarantor) for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
such selling Holders or underwriter(s), if any, reasonably may request;
(vi) subject to appropriate confidentiality protections, make
available at reasonable times for inspection by the selling Holders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant
12
<PAGE>
retained by such selling Holders or any of the underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Company and the Guarantors and cause the Company's and the
Guarantors' officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement subsequent to the
filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s),
if any, promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the offering of
the Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies
(unless already so rated), if so requested by the Holders of a majority in
aggregate principal amount of Notes covered thereby or the underwriter(s),
if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all, if requested, exhibits (including, if requested, exhibits
incorporated therein by reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company and the
Guarantors hereby consent to the use of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment
or supplement thereto;
(xi) in connection with the Shelf Registration Statement
contemplated by Section 6(b) above, enter into, and cause the Guarantors to
enter into, such agreements (including an underwriting agreement), and
make, and cause the Guarantors to make, such representations and
warranties, and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
13
<PAGE>
Securities pursuant to any Registration Statement contemplated by this
Agreement, all to such extent as may be requested by any Purchaser or by
any Holder of Transfer Restricted Securities or underwriter in connection
with any sale or resale pursuant to any Registration Statement contemplated
by this Agreement; and if the registration is an Underwritten Registration,
the Company and the Guarantors shall:
(A) furnish to each Purchaser, each selling Holder and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the Consummation of the
Exchange Offer and, if applicable, the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (y) the
President or any Vice President and (z) a principal financial or
accounting officer of each of the Company and the Guarantors,
confirming, as of the date thereof, the matters set forth in
subsections (c), (d), (e) and (k) of Section 7 of the Purchase
Agreement and such other matters as such parties may reasonably
request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantors, covering, to the extent reasonably
necessary in connection with an Underwritten Offering, the
matters set forth in subsections (c) and (d) of Section 7 of the
Purchase Agreement and such other matter as such parties may
reasonably request, and in any event including a statement to the
effect as set forth in the last paragraph of subsections (c) and
(d) of Section 7 of the Purchase Agreement;
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 7(d) of the Purchase
Agreement, without exception; and
(4) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from the
Company's independent petroleum engineer, in the customary form
and covering
14
<PAGE>
matters of the type customarily covered in comfort letters by
independent petroleum engineers in connection with primary
underwritten offerings of securities of companies involved in the
oil and gas industry, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 7(e) of the
Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (xi), if any.
If at any time the representations and warranties of the Company and
the Guarantors contemplated in clause (A)(1) above cease to be true and
correct, the Company or the Guarantors shall so advise the Purchasers and
the underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with, and cause the Guarantors to cooperate with, the
selling Holders, the underwriter(s), if any, and their respective counsel
in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may request and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; provided, however, that
neither the Company nor the Guarantors shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xiii) shall issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Series B Notes to be registered
in the name of such Holder or in the name of the purchaser(s) of such
Notes, as the case may be; in return, the Series A Notes held by such
Holder shall be surrendered to the Company for cancellation;
15
<PAGE>
(xiv) cooperate with, and cause the Guarantors to cooperate
with, the selling Holders and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and enable such Transfer Restricted Securities to be in such denominations
and registered in such names as the Holders or the underwriter(s), if any,
may request at least two business days prior to any sale of Transfer
Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s), if
any, to consummate the disposition of such Transfer Restricted Securities,
subject to the provision contained in clause (viii) above; provided,
however, that the Company's obligations pursuant to this clause (xv) shall
not extend to actions necessary to enable the seller or sellers of Transfer
Restricted Securities or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities if such actions are
necessary only as a result of the status of such seller or sellers or
underwriter(s) as regulated entities under any regulatory regime other than
the securities laws of the United States or any state thereof;
(xvi) subject to Sections 3(c) and 4(c) hereof, if any fact or
event contemplated by clause (c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of Transfer Restricted Securities,
the Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for deposit
with the Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
16
<PAGE>
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if not
sold to underwriters in such an offering, beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of
the Registration Statement;
(xx) use its best efforts to cause the Indenture to be
qualified under the TIA not later than the effective date of the first
Registration Statement required by this Agreement, and, in connection
therewith, cooperate, and cause the Guarantors to cooperate, with the
Trustee and the Holders of the Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute, and cause the Guarantors
to execute, and use its best efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xxi) use its best efforts to cause all Transfer Restricted
Securities covered by the Registration Statement to be listed on each
securities exchange on which similar securities issued by the Company are
then listed if requested by the Holders of a majority in aggregate
principal amount of Series A Notes or the managing underwriter(s), if any;
and
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
------
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If
so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
17
<PAGE>
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantors'
performance of or compliance with this Agreement will be borne by the Company or
the Guarantors, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses (including filings made by any Purchaser or Holder with the NASD
(and, if applicable, the reasonable and necessary fees and expenses of any
"qualified independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD)); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing certificates for the Series B Notes to
be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company, the Guarantors and, subject to Section 7(b) below, the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements, which, without the prior approval of the Company (which approval
shall not be unreasonably withheld), shall not exceed $20,000, of not more than
one counsel, who shall be Latham & Watkins or such other counsel as may be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
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<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"),
------------------
against losses, claims, damages or liabilities to which such Indemnified Holder
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, and will reimburse each Indemnified Holder for any legal
or other expenses reasonably incurred by such Indemnified Holder in connection
with investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company and the Guarantors shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Registration Statement or
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Indemnified
Holder expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company or any Guarantor, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Company and the
Guarantors in writing (provided, that the failure to give such notice shall not
relieve the Company or any Guarantor of its obligations pursuant to this Section
8(a), except to the extent that the Company and the Guarantors are substantially
prejudiced thereby). Such Indemnified Holder shall have the right to employ its
own counsel in any such action and the fees and expenses of such counsel shall
be paid, as incurred, by the Company and the Guarantors, provided that the
Company and the Guarantors may assume the defense of such action with counsel
satisfactory to the Indemnified Holder (who shall not, except with the consent
of the Indemnified Holder, be counsel for the Company or the Guarantors). Each
of the Company and the Guarantors shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) at any time
for such Indemnified Holders, which firm shall be designated by the Indemnified
Holders. The Company shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent and the Company
agrees to
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<PAGE>
indemnify and hold harmless any Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Company. The Company shall not,
without the prior written consent of each Indemnified Holder, settle or
compromise or consent to the entry of judgment in or otherwise seek to terminate
any pending or threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities, severally and not
jointly, agree to indemnify and hold harmless the Company and the Guarantors,
and their respective directors, officers, and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
and the respective officers, directors, partners, employees, representatives and
agents of each such person, to the same extent as the foregoing indemnity from
the Company and the Guarantors to each of the Indemnified Holders, but only with
respect to claims and actions based on information relating to such Holder
furnished in writing by such Holder expressly for use in any Registration
Statement. In case any action or proceeding shall be brought against the
Company or its directors or officers or any such controlling person in respect
of which indemnity may be sought against a Holder of Transfer Restricted
Securities, such Holder shall have the rights and duties given the Company and
the Company or its directors or officers or such controlling person shall have
the rights and duties given to each Holder by the preceding paragraph. In no
event shall the liability of any selling Holder hereunder be greater than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Guarantors on the one hand and
the Holders on the other from their sale of Transfer Restricted Securities. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (a) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Guarantors on the one hand and the
Indemnified Holders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
20
<PAGE>
information supplied by the Company and the Guarantors on the one hand or the
Indemnified Holders on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Guarantors and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this subsection (c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this subsection (c). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (c) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8, none of the Holders
(and its related Indemnified Holders) shall be required, in the aggregate, to
contribute any amount in excess of the amount by which the total discount
received by such Holder with respect to the Series A Notes exceeds the amount of
any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations in this
subsection (c) to contribute are several in proportion to the respective
principal amount of Series A Notes held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
21
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors agree that monetary
--------
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, and will cause
--------------------------
the Guarantors not to, on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantors has previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
22
<PAGE>
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Telecopier No.: (214) 265-4777
Attention: Grant W. Henderson
With a copy to:
Haynes and Boone, L.L.P.
3100 NationsBank Plaza
901 Main Street
Dallas, TX 75202
Telecopier No.: (214) 651-5940
Attention: William L. Boeing, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
mechanically acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
23
<PAGE>
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement together with the other
----------------
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CODA ENERGY, INC.
By: /s/ JOE CALLAWAY
____________________________________
Name: Joe Callaway
Title: Vice President; General
Counsel and Secretary
DIAMOND ENERGY OPERATING
COMPANY
By: /s/ JOE CALLAWAY
_____________________________________
Name: Joe Callaway
Title: Vice President; Assistant
Secretary
TAURUS ENERGY CORP.
By: /s/ JOE CALLAWAY
_____________________________________
Name: Joe Callaway
Title: Vice President; Assistant
Secretary
ELECTRA RESOURCES, INC.
By: /s/ JOE CALLAWAY
_____________________________________
Name: Joe Callaway
Title: Vice President; Assistant
Secretary
25
<PAGE>
GOLDMAN, SACHS & CO.
By: ____________________________________
Goldman, Sachs & Co.
CHEMICAL SECURITIES INC.
By: ____________________________________
Name:
Title:
ECT SECURITIES CORP.
By: ____________________________________
Name:
Title:
NATIONSBANC CAPITAL MARKETS, INC.
By: ____________________________________
Name:
Title:
26
<PAGE>
GOLDMAN, SACHS & CO.
as Representative of the Purchasers
By: /s/ GOLDMAN, SACHS & CO.
_________________________________
Goldman, Sachs & Co.
27
<PAGE>
EXHIBIT 4.3
CODA ENERGY, INC.
10 1/2% SENIOR SUBORDINATED NOTES DUE 2006
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY, BY THE
SUBSIDIARY GUARANTORS LISTED ON SCHEDULE II HERETO
______________________________
NOTE PURCHASE AGREEMENT
March 12, 1996
Goldman, Sachs & Co.
As Representative of the several Purchasers
named in Schedule I hereto.
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Coda Energy, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Purchasers named in Schedule I hereto (the "Purchasers"), for whom Goldman,
Sachs & Co. is acting as representative (in such capacity, the "Representative")
hereunder, an aggregate of $110 million principal amount of the 10 1/2% Senior
Subordinated Notes due 2006 specified above (the "Notes") of the Company, which
are to be offered for resale by the Purchasers to qualified institutional buyers
(within the meaning of Rule 144A ("Rule 144A") under the Securities Act of 1933,
as amended (the "Act")) ("Qualified Institutional Buyers") in reliance upon Rule
144A and to institutional accredited investors (within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Act (Regulation D))("Institutional
Accredited Investors"). The Notes will be fully and unconditionally guaranteed
(the "Guarantees") as to payment of principal, interest, liquidated damages and
premium, if any, on an unsecured senior subordinated basis, jointly and
severally, by each of the subsidiaries of the Company listed on Schedule II
hereto and any other subsidiary of the Company (collectively, the "Guarantors")
that executes a Guarantee in accordance with the provisions of the Indenture to
be dated as of March 18, 1996 (the "Indenture") among
<PAGE>
the Company, the Guarantors and Texas Commerce Bank National Association, as
Trustee (the "Trustee").
1. The Company and each of the Guarantors represent and warrant to,
and agree with, each of the Purchasers that:
(a) A preliminary offering circular, dated February 22, 1996 (the
"Preliminary Offering Circular") and an offering circular, dated March 12,
1996 (the "Offering Circular"), have been prepared in connection with the
offering of the Notes. Any reference to the Preliminary Offering Circular
or the Offering Circular shall be deemed to refer to and include any
Additional Issuer Information (as defined in Section 5(f)) furnished by the
Company prior to the completion of the distribution of the Notes. The
Preliminary Offering Circular and the Offering Circular and any amendments
or supplements thereto did not and will not, as of their respective dates,
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Purchaser through
Goldman, Sachs & Co. expressly for use therein. Each of the Preliminary
Offering Circular and the Offering Circular, as of its date, conforms in
all material respects to the requirements of Rule 144A(d)(4) under the Act;
(b) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Offering Circular any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
except for any such loss or interference individually or in the aggregate
that would not have a material adverse effect on the condition (financial
or other), business, properties, future financial outlook or results of
operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect") or except as set forth in the Offering Circular;
neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are material to
the Company and its subsidiaries taken as a whole; and, since the
respective dates as of which information is given in the Offering Circular,
there has not been any material change, on a consolidated basis, in the
capital stock, short-term debt or long-term debt of the Company and its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the
2
<PAGE>
Company and its subsidiaries on a consolidated basis, otherwise than as set
forth or contemplated in the Offering Circular;
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Offering Circular,
and has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction;
(d) Each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Offering Circular, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no material
liability or disability by reason of the failure to be so qualified in any
such jurisdiction;
(e) The Company has an authorized capitalization as set forth in the
Offering Circular, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully paid
and non-assessable; all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and (except as otherwise stated in the
Offering Circular) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims; and except as set
forth in the Offering Circular, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments of
sale or liens related to or entitling any person to purchase or otherwise
to acquire any shares of the capital stock of, or other ownership interest
in, the Company or any of its subsidiaries;
(f) The Company and each of its subsidiaries has (A) good and
defensible title to their respective interests in oil and gas leases, free
and clear of any liens, mortgages, pledges, charges, defects or
encumbrances of any kind (collectively, "Liens"), except for those (i)
created pursuant to operating agreements, unitization and pooling
arrangements and crude oil and gas sales contracts that secure payment of
amounts not yet due and payable and which are of a nature and scope
customary in similar oil and gas drilling and producing
3
<PAGE>
operations or (ii) which neither individually or in the aggregate would
have a Material Adverse Effect and (B) good and defensible title to all the
other properties and assets reflected as owned by it in the Offering
Circular, free and clear of any Liens, except for those (i) described in
the Offering Circular, if any, or (ii) which in the aggregate would not
have a Material Adverse Effect. Except to the extent described in the
Offering Circular, the leases, options to lease, drilling concessions or
other arrangements held by the Company and its subsidiaries reflect in all
material respects the right of the Company and its subsidiaries to develop
and exploit their properties, and the manner in which the Company and its
subsidiaries acquired or otherwise procured such leases, options to lease,
drilling concessions and other arrangements was generally consistent with
standard industry practices for acquiring or procuring leases to explore
acreage for hydrocarbons. The Company and each of its subsidiaries,
respectively, has complied in all respects with the terms of oil and gas
leases in which each purports to own an interest, and no claim has been
asserted by any person or entity adverse to the rights of the Company or
any of its subsidiaries as lessee or sublessee under any of such leases or
questioning its rights to the continued possession of the leased premises
under any such lease except for such noncompliance as would not
individually or in the aggregate have a Material Adverse Effect. The
concessions, reservations, licenses, permits and rights to hydrocarbons
held by the Company and each of its subsidiaries are valid, subsisting and
enforceable with such exceptions as are described in the Offering Circular
or which in the aggregate would not have a Material Adverse Effect. Except
as disclosed in the Offering Circular, the Company and each of its
subsidiaries own or lease or have the right to use or enjoy the benefits of
all such properties as are necessary to their respective operations as now
conducted.
(g) This Agreement has been duly authorized, executed and delivered
by the Company and the Guarantors and constitutes a valid and legally
binding agreement of the Company and the Guarantors, enforceable against
the Company and the Guarantors in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditor's
rights, to general principles of equity (whether considered in a proceeding
in equity or at law) and, as to rights of indemnification, to principles of
public policy or federal or state securities laws relating thereto;
(h) The Notes and the notes having terms identical to the Notes (the
"Exchange Notes") to be offered in exchange for the Notes (the "Exchange
Offer") have been duly authorized by the Company and, when issued and
delivered pursuant to this Agreement (and, as to the Exchange Notes and the
Registration Rights Agreement) and duly authenticated by the Trustee under
the Indenture, will have been duly executed, authenticated, issued and
delivered and will constitute
4
<PAGE>
valid and legally binding obligations of the Company entitled to the
benefits provided by the Indenture under which they are to be issued, which
Notes, Exchange Notes and Indenture will be substantially in the form
delivered to you on the date hereof; the Indenture has been duly authorized
by the Company and the Guarantors and will be in a form that would meet the
requirements for qualification under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), and, when executed and delivered by
the Company, the Guarantors and the Trustee, the Indenture will constitute
a valid and legally binding instrument, enforceable against the Company and
the Guarantors in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights and to
general principles of equity (whether considered in a proceeding in equity
or at law); and the Notes and the Indenture and the Exchange Notes, when
issued, will conform in all material respects to the descriptions thereof
in the Offering Circular;
(i) The registration rights agreement (the "Registration Rights
Agreement"), to be dated the Time of Delivery (as defined below), has been
duly authorized by the Company and the Guarantors and, when duly executed
and delivered by the Company and the Guarantors will be the valid and
legally binding obligation of the Company and the Guarantors, enforceable
against the Company and the Guarantors in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditor's rights, to general principles of equity (whether considered in a
proceeding in equity or at law) and, as to rights of indemnification, to
principles of public policy or federal or state securities laws relating
thereto;
(j) The Credit Agreement (as defined in the Offering Circular) has
been duly and validly authorized by the Company and the Guarantors (except
for Electra Resources, Inc.) and is the valid and legally binding
obligation of the Company and the Guarantors (except for Electra Resources,
Inc.), enforceable against the Company and the Guarantors (except for
Electra Resources, Inc.) in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws of general applicability relating to or affecting creditor's
rights and to general principles of equity (whether considered in a
proceeding in equity or at law);
(k) The Guarantees of the Notes have been duly authorized by the
Guarantors, and, when executed and delivered in accordance with the terms
of the Indenture and when the Notes have been issued and authenticated in
accordance with the terms of the Indenture and delivered to and paid for by
the Purchasers in accordance with the terms of this Agreement, will be the
valid and
5
<PAGE>
legally binding obligation of the Guarantors, enforceable against the
Guarantors in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights and to
general principles of equity (whether considered in a proceeding in equity
or at law). The Guarantees of the Notes, when issued, will conform in all
material respects to the description thereof in the Offering Circular;
(l) The guarantees of the Exchange Notes (the "Exchange Note
Guarantees") have been duly authorized by the Guarantors, and, when
executed and delivered in accordance with the terms of the Indenture and
the Registration Rights Agreement, will be the valid and legally binding
obligation of the Guarantors, enforceable against the Guarantors in
accordance with their terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (whether considered in a proceeding in equity or at
law). The Exchange Note Guarantees, when issued, will conform in all
material respects to the description thereof in the Offering Circular;
(m) The Company and the Guarantors have all requisite corporate power
and authority to execute, deliver and perform their obligations under this
Agreement, the Indenture, the Notes, the Guarantees, the Registration
Rights Agreement, the Exchange Notes and the Exchange Note Guarantees
(collectively, the "Operative Documents") to which they are a party and to
consummate the transactions contemplated hereby and thereby, including
without limitation the corporate power and authority to issue, sell and
deliver the Notes and the Exchange Notes and to issue the Guarantees and
the Exchange Note Guarantees, as applicable, as provided herein and
therein;
(n) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Notes, the issuance of the
Guarantees, the application of the proceeds from the issuance and sale of
the Notes and the consummation of the transactions contemplated hereby and
thereby as set forth in the Offering Circular, will violate Section 7 of
the Exchange Act, or any regulation promulgated thereunder, including,
without limitation, Regulation G, T, U, or X promulgated by the Board of
Governors of the Federal Reserve System;
(o) Prior to the date hereof, none of the Company or any of the
Guarantors or any Person acting on behalf of any of them has taken any
action that is designed to or that has constituted or that might have been
expected to cause or result in stabilization or manipulation of the price
of the Notes;
6
<PAGE>
(p) The issuance and sale of the Notes and the issuance of the
Guarantees, the issuance of the Exchange Notes and the issuance of the
Exchange Note Guarantees in the Exchange Offer, and the compliance by the
Company and the Guarantors with all of the provisions of this Agreement and
the other Operative Documents and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, sale/leaseback
agreement, loan agreement, or other similar financing agreement or
instrument or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject which conflict, breach,
violation or default would have a Material Adverse Effect or would have a
material adverse effect on the offering of the Notes, the Exchange Offer or
the consummation of the transactions contemplated hereby or by the other
Operative Documents; nor will such action result in any violation of the
provisions of the Certificate of Incorporation, Articles of Incorporation
or By-laws of the Company or any of its subsidiaries; nor will such action
result in any violation of the provisions of any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties, other than any such violation that would not have a Material
Adverse Effect; and no consent, approval, authorization, order,
registration, filing or qualification of or with any such court or
governmental agency or body is required for the issuance and sale of the
Notes or the issuance of the Guarantees or the issuance of the Exchange
Notes or the issuance of the Exchange Note Guarantees in the Exchange Offer
or the consummation by the Company or the Guarantors of the transactions
contemplated by this Agreement or the other Operative Documents, except for
(i) the filing of a registration statement by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the Act
pursuant to Section 5(g) hereof, (ii) the filing of a notice on Form D by
the Company with the Commission pursuant to Section 5(i) hereof, (iii) such
consents, approvals, authorizations, registrations or qualifications as may
be required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Notes by the Purchasers, (iv) such
approvals, registrations and qualifications as may be required under the
Act, the Trust Indenture Act, and state securities or Blue Sky laws in
connection with the Exchange Offer or resale registration contemplated by
the Offering Circular and described in the Registration Rights Agreement,
and (v) such consents, approvals, authorizations, registrations, filings or
qualifications as have been obtained or made or of which the failure to
obtain would not have a Material Adverse Effect or a material adverse
effect on the offering of the Notes, the Exchange Offer or the consummation
of the transactions contemplated hereby or by the other Operative
Documents;
7
<PAGE>
(q) The Company and each of its subsidiaries have complied in all
respects with all laws, regulations and orders applicable to it or its
businesses other than violations which would not have a Material Adverse
Effect;
(r) Neither the Company nor any of its subsidiaries is in violation
of its respective Certificate of Incorporation, Articles of Incorporation
or By-laws; neither the Company nor any of its subsidiaries is in default
in the performance or observance of any obligation, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound, other than any such default that would
not have a Material Adverse Effect, and no other party under any such
agreement or instrument to which either the Company or any of its
subsidiaries is a party is, to the knowledge of any executive officer of
the Company or any Guarantor after reasonable inquiry, in default in any
material respect thereunder, other than any such default that would not
have a Material Adverse Effect;
(s) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (i) the Company and each of its subsidiaries has
all certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals (each, an "Authorization") of and from,
and has made all declarations and filings with, all Federal, state, local
and other governmental authorities, all self-regulatory organizations and
all courts and other tribunals, necessary or required to engage in the
business currently conducted by it in the manner described in the Offering
Circular, (ii) all such Authorizations are valid and in full force and
effect and (iii) the Company and each of its subsidiaries is in compliance
in all material respects with the terms and conditions of all such
Authorizations and with the rules and regulations of the regulatory
authorities and governing bodies having jurisdiction with respect thereto;
(t) The statements set forth in the Offering Circular under the
caption "Description of Notes" insofar as they purport to constitute a
summary of the terms of the Notes and under the captions "Business--
Regulation," "Business--Environmental Matters" and "Description of Other
Indebtedness," insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate and complete in all
material respects;
(u) Other than as set forth in the Offering Circular, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, to
interfere with or adversely affect the issuance and sale of the Notes or
the issuance of the Guarantees or
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to affect the validity of any Operative Document or the Credit Agreement;
and, to the knowledge of any executive officer of the Company or any
Guarantor after reasonable inquiry, no such proceedings are threatened
overtly or contemplated by governmental authorities or threatened overtly
by others;
(v) When the Notes and the Guarantees are issued and delivered
pursuant to this Agreement, no Notes or Guarantees will be of the same
class (within the meaning of Rule 144A under the Act) as securities which
are listed on a national securities exchange registered under Section 6 of
the Exchange Act or quoted in a U.S. automated inter-dealer quotation
system;
(w) Neither the Company nor any of its subsidiaries is, and after
giving effect to the offering and sale of the Notes and the issuance of the
Guarantees, will be, an "investment company," or an entity "controlled" by
an "investment company," as such terms are defined in the United States
Investment Company Act of 1940, as amended (the "Investment Company Act");
(x) None of the Company or any of its subsidiaries or any person
acting on their behalf has sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of any security (as defined in the Act)
that is or will be integrated with the sale of the Notes in a manner that
would require registration under the Act of the Notes; and none of the
Company or any of its subsidiaries (other than the Purchasers) or any
person acting on their behalf (other than the Purchasers) has offered or
sold or will offer or sell any of the Notes by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under
the Act;
(y) The Company and the Guarantors will take reasonable precautions
designed to insure that any offer or sale, direct or indirect, in the
United States or to any U.S. person (as defined in Rule 902 under the Act)
of any Notes, Guarantees or any substantially similar security issued by
the Company or any Guarantor, within six months subsequent to the date on
which the distribution of the Notes has been completed (as notified to the
Company by Goldman, Sachs & Co.), is made under restrictions and other
circumstances reasonably designed not to affect the status of the offer and
sale of the Notes in the United States and to U.S. persons contemplated by
this Agreement as transactions exempt from the registration provisions of
the Act;
(z) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
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(aa) The consolidated historical financial statements, together with
related schedules and notes, set forth in the Offering Circular fairly
present the consolidated financial position and condition of the Company
and its subsidiaries at the respective dates indicated and the results of
their operations and their cash flows for the respective periods indicated,
in accordance with generally accepted accounting principles consistently
applied throughout such periods. The pro forma financial statements
contained in the Offering Circular have been prepared on a basis consistent
with such historical statements, except as described in such pro forma
financial statements and except for the pro forma adjustments specified
therein, and give effect to assumptions made on a reasonable basis and
present fairly the historical and proposed transactions contemplated by
this Agreement, the other Operative Documents, the Credit Agreement and the
Agreement and Plan of Merger dated as of October 30, 1995, among the
Company, Coda Acquisition, Inc. and Joint Energy Development Investments
Limited Partnership, as amended. The other financial and statistical
information and data included in the Offering Circular, historical and pro
forma, are, in all material respects, accurately presented and prepared on
a basis consistent with such financial statements and the books and records
of the Company except as otherwise specifically stated in the Offering
Circular;
(ab) Except as set forth in the Offering Circular, neither the Company
nor any of its subsidiaries (i) has violated any applicable existing
federal, state, local or international laws and regulations relating to
protection of human health or the environment or imposing liability or
standards of conduct concerning any Hazardous Material ("Environmental
Laws"), lacks any permits, licenses or other approvals required of them
under applicable Environmental Laws or is violating any term or condition
of any such permit, license or approval, or (ii) owns or occupies any real
property on which Hazardous Substances have been released, or which may
reasonably be expected to be adversely affected by a release of Hazardous
Substances released at another location, except as to clauses (i) and (ii),
for such instances of noncompliance or releases of Hazardous substances
which, either singly or in the aggregate, would not have a Material Adverse
Effect. The term "Hazardous Material" means (A) any "hazardous substance"
as defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), (B) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act, as amended, (C) any
petroleum or petroleum product, (D) any polychlorinated biphenyl, and (E)
any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of any
other law relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any such chemical
material, waste or substance. The term "release" shall have the same
meaning given to it under CERCLA, 42 U.S.C. (S) 9601(22);
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(ac) The Company and each of its subsidiaries owns or possesses or has
the right to use the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively, the
"Intellectual Property") presently employed by it in connection with, and
material to, individually or in the aggregate, the operation of the
businesses now operated by it, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to the foregoing which, individually
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect. The use of such
Intellectual Property in connection with the business and operations of the
Company and its subsidiaries does not infringe on the rights of any person,
except as would not, individually or in the aggregate, result in a Material
Adverse Effect;
(ad) All tax returns required to be filed by the Company or its
subsidiaries in all jurisdictions have been timely and duly filed, other
than those filings being contested in good faith or except where the
failure to so file any such returns could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. There
are no tax returns of the Company or its subsidiaries that are currently
being audited by state, local or federal taxing authorities or agencies
(and with respect to which the Company or its subsidiaries has received
notice), where the findings of such audit, if adversely determined, would
result in a Material Adverse Effect. All taxes, including withholding
taxes, penalties and interest, assessments, fees and other charges due or
claimed to be due from such entities have been paid, other than those being
contested in good faith and for which adequate reserves have been provided
or those currently payable without penalty or interest or except if the
failure to so pay could not reasonably be expected to have a Material
Adverse Effect;
(ae) The Company and each of its subsidiaries maintains insurance
covering its properties, operations, personnel and businesses which insures
against such losses and risks as are adequate in accordance with its
reasonable business judgment. Neither the Company nor any of its
subsidiaries has received notice from any insurer or agent of such insurer
that substantial capital improvements or other expenditures will have to be
made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof and will be outstanding and duly in
force at the Time of Delivery (as defined below);
(af) No general labor dispute with the employees of the Company or its
subsidiaries exists or, to the knowledge of any executive officer of the
Company or any Guarantor after reasonable inquiry, is imminent; and neither
the Company
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<PAGE>
nor any Guarantor is aware of any existing or imminent general labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors which could reasonably be expected to have a
Material Adverse Effect;
(ag) There are no holders of securities of the Company or any
Guarantor who, by reason of the execution of this Agreement or any other
Operative Document by the Company or the Guarantors, as the case may be, or
the consummation of the transactions contemplated hereby and thereby, have
the right to request or demand the Company or any Guarantor to register
under the Act or analogous foreign laws and regulations any securities held
by them (other than pursuant to the Registration Rights Agreement);
(ah) The Company and each of the Guarantors maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to financial assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect thereto;
(ai) Ernst & Young LLP, who have audited certain financial statements
of the Company and its subsidiaries, are independent public accountants as
defined by the Act and the rules and regulations of the Commission
thereunder;
(aj) The present fair saleable value of the assets of the Company and
its subsidiaries, taken as a whole, exceeds the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including the maximum amount of liability that may reasonably
be expected to result from contingent liabilities) of the Company and its
subsidiaries as they become absolute and matured. The assets of the Company
and its subsidiaries, taken as a whole, do not constitute unreasonably
small capital to carry out their business as conducted or as proposed to be
conducted. The Company does not intend to, or believe that it will, incur
debts beyond its ability to pay such debts as they mature. The Company does
not intend to permit any of its subsidiaries to incur debts beyond their
respective ability to pay such debts as they mature. Upon the issuance of
the Notes and the Guarantees, the present fair saleable value of the assets
of the Company and its subsidiaries, taken as a whole, will exceed the
amount that will be required to be paid on or in respect of their existing
debts and other liabilities (including the maximum amount of liability that
may reasonably be expected to result from contingent liabilities) as they
become absolute and
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<PAGE>
matured, the assets of the Company and its subsidiaries, taken as a whole,
will not constitute unreasonably small capital to carry out their business
as now conducted or as proposed to be conducted, including the capital
needs of the Company and its subsidiaries, taking into account the
projected capital requirements and capital availability of the Company and
its subsidiaries;
(ak) Each certificate signed by any officer of the Company or any
Guarantor and delivered to the Purchasers or counsel for any of the
Purchasers shall be deemed to be a representation and warranty only by such
Company or such Guarantor, as the case may be, to the Purchasers as to the
matters covered thereby; and
(al) Lee Keeling and Associates, Inc. ("Keeling") is an independent
petroleum engineer; the Purchasers have received from Keeling a true and
correct copy of its reserve report with respect to the Company dated
January 1, 1996 (the "Reserve Report"); all information and production data
provided to Keeling for the preparation of the Reserve Report were true and
correct in all material respects as of the date provided and the
assumptions provided by the Company or any Guarantor to Keeling and used by
Keeling in the preparation of the Reserve Report were reasonable as of the
date provided; and the Reserve Report and the letter from Keeling to the
Company with respect thereto (the "Keeling Letter") has been reviewed, and
accepted as having a reasonable basis, by the Company and the Guarantors
and the Keeling Letter has been included in the Offering Circular in good
faith by the Company.
The Company and the Guarantors acknowledge that the Purchasers and, for purposes
of the opinions to be delivered to the Purchasers pursuant to Section 7 hereof,
counsel for the Company and the Guarantors and counsel for any of the
Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consent to such reliance.
2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees to purchase from the Company, at a purchase price of 97.5% of the
principal amount of the Notes, the principal amount of Notes set forth opposite
the name of such Purchaser in Schedule I hereto. Immediately following
consummation of the transactions contemplated hereby to occur at the Time of
Delivery, the Purchasers hereby agree, severally and not jointly, to reimburse
the Company an aggregate of $500,000, representing costs and expenses incurred
by the Company in connection with the transactions contemplated hereby and that
the Company shall not be required to submit documentation supporting the
incurrence by it of such $500,000 of expenses. The obligation of each of the
Purchasers under the preceding sentence will be in proportion
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<PAGE>
to the principal amount of Notes set forth opposite their respective names in
Schedule I hereto.
3. The several Purchasers propose to offer the Notes for sale upon the
terms and conditions set forth in this Agreement and the Offering Circular and
each Purchaser hereby represents and warrants to, and agrees with, the Company
that:
(a) It will offer and sell the Notes only to: (i) persons who it
reasonably believes are Qualified Institutional Buyers within the meaning of
Rule 144A under the Act in transactions meeting the requirements of Rule 144A or
(ii) institutions which it reasonably believes are Institutional Accredited
Investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Act
and who, as purchasers, have executed and delivered to the Purchasers copies of
the letter set forth in Annex A to the Offering Circular;
(b) It is an Institutional Accredited Investor; and
(c) It will not offer or sell the Notes by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Act.
Goldman, Sachs & Co. further agrees to inform the Company with respect
to the progress of the distribution of the Notes from time to time upon the
reasonable request of the Company.
4. (a) The Notes to be purchased by each Purchaser hereunder will be
represented by one Global Note in book-entry form which will be deposited by or
on behalf of the Company with The Depository Trust Company ("DTC") or its
designated custodian. The Company will deliver the Notes to Goldman, Sachs & Co.
against payment by or on behalf of each Purchaser of the purchase price therefor
by wire transfer to or at the direction of the Company of Federal (same day)
funds, by causing DTC to credit the Notes to the account of Goldman, Sachs & Co.
at DTC. The Company will cause the certificates representing the Notes to be
made available to Goldman, Sachs & Co. for checking at least twenty-four hours
prior to the Time of Delivery (as defined below) at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be 9:30 a.m., New York City time, on March 18, 1996
or such other time and date as Goldman, Sachs & Co. and the Company may agree
upon in writing. Such time and date are herein called the "Time of Delivery."
(b) The documents to be delivered at the Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross-
receipt for the Notes and any additional documents requested by the Purchasers
pursuant to
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<PAGE>
Section 7(k) hereof, will be delivered at such time and date at the offices of
Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022 (the
"Closing Location"), and the Notes will be delivered at the Designated Office,
all at the Time of Delivery. A meeting will be held at the Closing Location at
1:00 p.m., New York City time, on the New York Business Day immediately
preceding the Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company and the Guarantors, jointly and severally, covenant and
agree with each of the Purchasers:
(a) To prepare the Offering Circular in a form reasonably approved by
you; to make no amendment or supplement to the Offering Circular which shall be
reasonably disapproved by you promptly after reasonable notice thereof and to
furnish you with such number of copies thereof as you may reasonably request and
to consent to the use of the Preliminary Offering Circular and the Offering
Circular, and any amendments or supplements thereto, by you in connection with
resales in accordance with Section 3 of this Agreement until such time as the
Exchange Offer is Consummated (as defined below). The Exchange Offer shall be
deemed Consummated for the purposes of this Agreement upon the occurrence of (i)
the filing and effectiveness of a registration statement under the Act relating
to the Exchange Notes to be issued in the Exchange Offer, (ii) the maintenance
of such registration statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 3(b) of the Registration Rights Agreement and (iii) the
delivery by the Company to the Registrar under the Indenture of Exchange Notes
in the same aggregate principal amount as the aggregate principal amount of
Notes that were tendered by holders thereof pursuant to the Exchange Offer.
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Notes for offering and sale under the
securities or Blue Sky laws of such jurisdictions as you may reasonably request
and to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions until the Exchange Offer is Consummated,
provided that in connection therewith neither the Company nor any Guarantor
shall be required to qualify as a foreign corporation, to file a general consent
to service of process or to subject itself to general taxation in any such
jurisdiction;
(c) Until such time as the Exchange Offer is Consummated, to furnish
the Purchasers with copies of the Offering Circular and each amendment or
supplement thereto, together with the independent accountants' report(s) in the
Offering Circular and
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<PAGE>
any amendment or supplement containing amendments to the financial statements
covered by such report(s), signed by the accountants, and additional copies
thereof in such quantities as you may from time to time reasonably request; and
if, at any time prior to the Consummation of the Exchange Offer, any event shall
have occurred as a result of which the Offering Circular as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Offering
Circular is delivered, not misleading, or, if for any other reason it shall be
necessary or desirable during such same period to amend or supplement the
Offering Circular, to notify you as soon as reasonably possible; and upon your
request to prepare and furnish without charge to each of the Purchasers as many
copies as you may from time to time reasonably request of an amended Offering
Circular or a supplement to the Offering Circular which will correct such
statement or omission or effect such necessary or desirable change;
(d) During the period beginning from the date hereof and continuing
until the date 180 days after the Time of Delivery, not to offer, sell, contract
to sell or otherwise dispose of, except as provided hereunder, any securities of
the Company or any Guarantor that are substantially similar to the Notes or the
Guarantees, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, Notes,
Guarantees or any such substantially similar securities without your prior
written consent;
(e) Not to be or become, at any time prior to the expiration of the
earliest to occur of (i) three years after the Time of Delivery and (ii) such
time as the Notes are exchanged for registered Exchange Notes pursuant to the
Exchange Offer and the Notes are no longer outstanding, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under Section 8 of
the Investment Company Act;
(f) To use its best efforts to file in a timely manner all reports
and other documents required to be filed by it pursuant to Section 13 or 15(d)
of the Exchange Act, and, at any time when the Company is not subject to Section
13 or 15(d) of the Exchange Act, for the benefit of holders and beneficial
owners from time to time of Notes, to furnish at the Company's expense, upon
request, to holders and beneficial owners of Notes and prospective purchasers of
Notes information (the "Additional Issuer Information") satisfying the
requirements of subsection (d)(4)(i) of Rule 144A under the Act (or any
successor provision thereto, in each case as may be amended from time to time);
(g) To execute and deliver the Registration Rights Agreement in the
form previously agreed upon, to comply with all provisions and obligations of,
and to cause the Exchange Offer to be made in the appropriate form as
contemplated by, the
16
<PAGE>
Registration Rights Agreement, and to comply with all applicable federal and
state securities laws in connection with the Exchange Offer;
(h) If requested by you, the Company will use its best efforts to
cause the Notes to be eligible for the National Association of Securities
Dealers, Inc. Automated Quotation System - PORTAL ("PORTAL");
(i) To file with the Commission, not later than 15 days after the
Time of Delivery, five copies of a notice on Form D under the Act (one of which
will be manually signed by a person duly authorized by the Company); to
otherwise comply with the requirements of Rule 503 under the Act; and to furnish
promptly to you evidence of each such required timely filing (including a copy
thereof);
(j) During a period of five years from the date of the Offering
Circular, to furnish to you copies of all reports or other communications
(financial or other) generally furnished to holders of the Notes and to deliver
to you as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission under the Exchange Act or
any securities exchange on which the Notes, the Guarantees or any class of
securities of the Company or any Guarantor is listed;
(k) Prior to the expiration of the earlier to occur of (i) three
years after the Time of Delivery and (ii) such time as the Notes are exchanged
for registered Exchange Notes pursuant to the Exchange Offer and the Notes are
no longer outstanding, the Company and the Guarantors will not resell any of the
Notes which constitute "restricted securities" under Rule 144 that have been
reacquired by any of them;
(l) To comply with all agreements set forth in the representation
letter of the Company to DTC relating to the approval of the Notes by DTC for
"book-entry" transfer;
(m) To advise the Purchasers promptly, and, if requested by the
Purchasers, confirm such advice in writing, of the issuance by any state
securities commission of any stop order suspending the qualification or
exemption of any of the Notes or Guarantees for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any state
securities commission or other regulatory authority, and to use its best efforts
to prevent the issuance of any stop order or order suspending the qualification
or exemption of any of the Notes or Guarantees under any state securities or
Blue Sky laws, and if, at any time, any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption of any of the Notes or Guarantees under any state securities or Blue
Sky laws, to use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
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<PAGE>
(n) To use the net proceeds received by the Company from the sale of
the Notes pursuant to this Agreement in the manner specified in the Offering
Circular under the caption "Use of Proceeds"; and
(o) Upon original issuance thereof by the Company, and until such
time as the same is no longer required under the applicable requirements of the
Act, the Notes (and all securities issued in exchange therefor or in
substitution thereof) shall bear the following legend:
"THE NOTES EVIDENCED HEREBY WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND THE NOTES
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTES EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. THE HOLDER OF THE NOTES EVIDENCED HEREBY AGREES FOR
THE BENEFIT OF THE COMPANY THAT SUCH NOTES MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
INVESTOR (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER
THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING
WITH RULE 903 OR RULE 904 OR REGULATION S UNDER THE SECURITIES ACT,
(3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO THE
COMPANY OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (B) BY SUBSEQUENT INVESTORS, AS SET FORTH IN (A)
ABOVE AND, IN ADDITION, TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE
LAWS OF THE STATES OF THE UNITED STATES AND (C) THE HOLDER WILL, AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT
OF THE NOTES EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) AND (B) ABOVE."
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6. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated, the Company
and the Guarantors covenant and agree with the several Purchasers to pay or
cause to be paid the following: (i) the fees, disbursements and expenses of the
Company's and the Guarantors' counsel and accountants in connection with the
issuance of the Notes, the Guarantees, the Exchange Notes and the Exchange Note
Guarantees and all other expenses in connection with the preparation, printing
and filing of the Preliminary Offering Circular, the Offering Circular and any
prospectus and registration statement filed pursuant to Section 5(g) hereof and
any amendments and supplements thereto, and the mailing and delivery of copies
thereof to each of the Purchasers and dealers, if any; (ii) all expenses in
connection with the qualification of the Notes for offering and sale under state
securities laws as provided in Section 5(b) hereof, including the reasonable
fees and disbursements of Latham & Watkins, counsel for each of the Purchasers
in connection with such qualification and in connection with the Blue Sky and
legal investment surveys, which fees and disbursements will aggregate $15,000;
(iii) any fees charged by securities rating services for rating the Notes; (iv)
the cost of preparing and delivering the Notes and the Exchange Notes; (v) the
fees and expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of counsel for the Trustee in connection with the Indenture, the
Notes and the Exchange Notes; (vi) any cost incurred in connection with the
designation of the Notes for trading in PORTAL; (vii) all fees and expenses in
connection with approval of the Notes by DTC for "book-entry" transfer; and
(viii) all other costs and expenses incurred by the Company or the Guarantors
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that
except as provided in this Section and Sections 8 and 10 hereof, each of the
Purchasers will pay all of its own costs and expenses, including the fees of its
counsel and transfer taxes on resale of any of the Notes by it.
7. The obligations of each Purchaser hereunder shall be subject, in its
discretion, to the condition that all representations and warranties and other
statements of the Company and the Guarantors herein are, at and as of the Time
of Delivery, true and correct, the condition that the Company and the Guarantors
shall have performed all of their obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Purchasers shall not have advised the Company that the
Offering Circular, or any amendment or supplement thereto, contains an untrue
statement of fact that in the Purchasers' reasonable opinion is material, or
omits to state a fact that in the Purchasers' opinion is material and is
required to make the statements therein not misleading in light of the
circumstances under which they are made;
(b) Latham & Watkins, counsel for the Purchasers, shall have
furnished to you such opinion or opinions, dated the Time of Delivery, with
respect to such matters
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as you may reasonably request, and Latham & Watkins shall have received such
papers and information as they may reasonably request to enable them to pass
upon such matters;
(c) Haynes and Boone, L.L.P., counsel for the Company and the
Guarantors, shall have furnished to you their written opinion, dated the Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
own its properties and conduct its business as described in the Offering
Circular;
(ii) The Company has an authorized capitalization as set forth
in the Offering Circular, and all of the issued shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid
and non-assessable;
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and the Guarantors;
(iv) The Notes being delivered on the date hereof have been
duly authorized and, when (a) executed, authenticated and issued in
accordance with the terms of the Indenture and (b) delivered to and paid
for by the Purchasers in accordance with the terms of this Agreement, will
be the valid and legally binding obligations of the Company entitled to the
benefits of the Indenture, subject, as to enforcement, to bankruptcy,
fraudulent transfer, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (whether considered in a proceeding in equity or at
law);
(v) The Indenture has been duly authorized, executed and
delivered by the Company and the Guarantors and constitutes a valid and
legally binding instrument, enforceable against the Company and the
Guarantors in accordance with its terms, subject, as to enforcement, to
bankruptcy, fraudulent transfer, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and to
general principles of equity (whether considered in a proceeding in equity
or at law); the Indenture is in a form which would meet, in all material
respects, the requirements for qualification under the Trust Indenture Act;
(vi) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the Guarantors and
constitutes a
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valid and legally binding obligation of the Company and the Guarantors,
enforceable against the Company and the Guarantors in accordance with its
terms, subject, as to enforcement, to bankruptcy, fraudulent transfer,
insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights, to general
principles of equity (whether considered in a proceeding in equity or at
law) and, as to rights of indemnification, to principles of public policy
or federal or state securities laws relating thereto;
(vii) The Exchange Notes have been duly authorized for issuance
by the Company, and when executed, authenticated and issued in accordance
with the terms of the Indenture, the Registration Rights Agreement and the
Exchange Offer, will be the valid and legally binding obligations of the
Company entitled to the benefits of the Indenture subject, as to
enforcement, to bankruptcy, fraudulent transfer, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (whether considered in a
proceeding in equity or at law);
(viii) The Guarantees of the Notes have been duly authorized,
executed and delivered by the Guarantors in accordance with the terms of
the Indenture and when the Notes have been executed, authenticated and
issued in accordance with the terms of the Indenture and delivered to and
paid for by the Purchasers in accordance with the terms of this Agreement,
will be the valid and legally binding obligation of the Guarantors,
enforceable against the Guarantors in accordance with their terms, subject,
as to enforcement, to bankruptcy, fraudulent transfer, insolvency,
reorganization, moratorium and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity
(whether considered in a proceeding in equity or at law). The Guarantees of
the Notes conform in all material respects to the description thereof in
the Offering Circular;
(ix) The Exchange Note Guarantees have been duly authorized by
the Guarantors in accordance with the terms of the Indenture and when the
Exchange Notes have been executed, authenticated and issued in accordance
with the terms of the Indenture and delivered to and paid for by the
Purchasers in accordance with the terms of this Agreement, will be the
valid and legally binding obligation of the Guarantors, enforceable against
the Guarantors in accordance with their terms, subject, as to enforcement,
to bankruptcy, fraudulent transfer, insolvency, reorganization, moratorium
and other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity (whether considered in a
proceeding in equity or at law).
(x) The Company and the Guarantors have all requisite
corporate power to execute, deliver and perform their obligations under
this Agreement and
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the other Operative Documents to which they are a party and to consummate
the transactions contemplated hereby and thereby, including without
limitation the corporate power to issue, sell and deliver the Notes and the
Exchange Notes and to issue the Guarantees and the Exchange Note
Guarantees, as applicable, as provided herein and therein;
(xi) None of the execution, delivery and performance of this
Agreement, the issuance and sale of the Notes, the issuance of the
Guarantees, the application of the proceeds from the issuance and sale of
the Notes and the consummation of the transactions contemplated thereby as
set forth in the Offering Circular will violate Section 7 of the Exchange
Act, or any regulation promulgated thereunder, including, without
limitation, Regulation G, T, U, or X promulgated by the Board of Governors
of the Federal Reserve System.
(xii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required for the issuance and sale of the Notes or the issuance of the
Guarantees of the Notes or the issuance of the Exchange Notes or the
issuance of the Exchange Note Guarantees in the Exchange Offer or the
consummation by the Company or the Guarantors of the transactions
contemplated by this Agreement or the other Operative Documents, except for
(i) the filing of a registration statement by the Company with the
Commission pursuant to the Act pursuant to Section 5(g) hereof, (ii) the
filing of a notice on Form D by the Company with the Commission pursuant to
Section 5(i) hereof, (iii) such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Notes by the Purchasers, (iv) such approvals, registrations and
qualifications as may be required under the Act, the Trust Indenture Act,
and state securities or Blue Sky laws in connection with the Exchange Offer
or resale registration contemplated by the Offering Circular and described
in the Registration Rights Agreement, and (v) such consents, approvals
authorizations, registrations or qualifications as have been obtained or
made; such counsel may state that the opinions set forth in this paragraph
are based upon consideration only of those statutes, rules and regulations
that, in such counsel's experience are normally applicable to transactions
such as those contemplated by the issuance and sale of the Notes, the
issuance of the Guarantees of the Notes, the issuance of the Exchange Notes
or the issuance of the Exchange Note Guarantees in the Exchange Offer, or
the consummation by the Company or the Guarantors of the transactions
contemplated by this Agreement or the other Operative Documents;
(xiii) The statements set forth in the Offering Circular under
the caption "Description of Notes," insofar as they purport to summarize
the terms of the Notes and the Indenture, and under the caption
"Description of Other
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Indebtedness," insofar as they purport to describe the provisions of the
documents referred to therein, are materially accurate and fairly present
such documents in all material respects;
(xiv) Neither the Company nor any of its subsidiaries is an
"investment company", or an entity "controlled" by an "investment company",
as such terms are defined in the Investment Company Act;
(xv) No registration of the Notes under the Act, and no
qualification of an indenture under the Trust Indenture Act with respect
thereto, is required for the offer, sale and initial resale of the Notes by
the Purchasers in the manner contemplated by this Agreement and the
Offering Circular, other than any registration or qualification that may be
required in connection with the Exchange Offer contemplated by the Offering
Circular or in connection with the Registration Rights Agreement; and
(xvi) Each of the Preliminary Offering Circular and the Offering
Circular, as of its date, and each amendment or supplement thereto, as of
its date (except for the reserve data, financial statements and related
schedules and other financial information included therein, as to which no
opinion need be expressed), complied as to form in all material respects
with the requirements of Rule 144A of the Act.
In addition, such counsel shall state that they have participated
in conferences with officers and representatives of the Company and the
Guarantors, accountants of the Company and the Guarantors and
representatives of the Purchasers at which the contents of the Offering
Circular and related matters were discussed and, subject to the fact that
such counsel shall not assume any responsibility for and cannot guarantee
the accuracy, completeness or fairness of the statements contained in the
Offering Circular and shall have made no independent check or verification
thereof, on the basis of the foregoing, such counsel shall state that it
has no reason to believe that the Offering Circular and any further
amendments or supplements thereto made by the Company prior to the Time of
Delivery (other than the reserve data, financial statements and related
schedules and other financial information contained in the Offering
Circular, as to which such counsel need express no opinion) contained as of
its date or contains as of the Time of Delivery an untrue statement of a
material fact or omitted or omits, as the case may be, to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
23
<PAGE>
(d) Joe Callaway, counsel for the Company and the Guarantors, shall
have furnished to you his written opinion, dated the Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified to transact business
as a foreign corporation and is in good standing under the laws of each
jurisdiction (other than its jurisdiction of incorporation) in which it
owns or leases material property or conducts material business so as to
require such qualification, except where failure to be so qualified in any
such jurisdiction would not have a material adverse effect on the financial
position of the Company and its subsidiaries, taken as a whole;
(ii) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and authority
to own its properties and conduct its business as described in the Offering
Circular; and has been duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases material property or conducts
material business so as to require such qualification, except where the
failure to be so qualified in any such jurisdiction would not have a
material adverse effect on the financial position of the Company and its
subsidiaries, taken as a whole;
(iii) All of the issued shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued, are
fully paid and non-assessable, and except as otherwise stated in the
Offering Circular are owned of record by the Company directly or
indirectly, and, to such counsel's actual knowledge, the Company has not
received notice of any adverse claim;
(iv) The issuance and sale of the Notes and the issuance of the
Guarantees and the issuance of the Exchange Notes and the issuance of the
Exchange Note Guarantees in the Exchange Offer and the compliance by the
Company and the Guarantors with all of the provisions of this Agreement and
the other Operative Documents and the consummation of the transactions
herein and therein contemplated will not conflict with, violate or result
in a breach of any of the terms and provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, sale/leaseback agreement,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or to which any of the property or assets of
the Company or any of its subsidiaries is subject and, in either case, that
is actually known to such counsel and that is material to the Company and
its subsidiaries, taken as a whole, nor will such action result in any
violation of the provisions of the respective Certificate of Incorporation,
Articles of Incorporation or By-laws of the Company
24
<PAGE>
or any of its subsidiaries or any United States statute, rule or regulation
or the Delaware General Corporation Law or any order of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties, provided, however, that this
opinion does not address the securities laws of the United States, the
states thereof, and any other applicable jurisdiction;
(v) The statements set forth in the Offering Circular under
the captions "Business--Regulation" and "Business--Environmental Matters,"
insofar as they purport to describe the provisions of the laws referred to
therein, are materially accurate and complete in all material respects;
(vi) Other than as disclosed in the Offering Circular, there
are no legal or governmental proceedings pending or, to such counsel's
actual knowledge, overtly threatened to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which could reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
current or future financial position or results of operations of the
Company and its subsidiaries, taken as a whole, to materially adversely
affect the issuance and sale of the Notes or the issuance of the Guarantees
or to materially affect the validity of any Operative Document; and, to
such counsel's actual knowledge, no such proceedings are threatened overtly
or contemplated by governmental authorities or threatened overtly by
others;
(vii) To such counsel's actual knowledge, neither the Company
nor any of its subsidiaries is in violation of its Certificate of
Incorporation, Articles of Incorporation or By-laws; or is in default in
the performance or observance of any obligation, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which it is a party or by which any of
its properties may be bound, in each case where any such default has a
material adverse effect on the financial position of the Company and its
subsidiaries, taken as a whole.
(viii) To such counsel's actual knowledge, except as set forth in
the Offering Circular, there are no outstanding subscriptions, rights,
warrants, options, calls, convertible securities, commitments of sale or
liens related to or entitling any person to purchase or otherwise to
acquire any shares of the capital stock of, or other ownership interest in,
the Company or any of its subsidiaries.
(ix) The Credit Agreement has been duly authorized, executed
and delivered by the Company and the Guarantors (except for Electra
Resources, Inc.) and constitutes a valid and legally binding obligation of
the Company and the Guarantors (except for Electra Resources, Inc.),
enforceable against the Company
25
<PAGE>
and the Guarantors (except for Electra Resources, Inc.) in accordance with
its terms, subject, as to enforcement, to bankruptcy, fraudulent transfer,
insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (whether considered in a proceeding in equity or at
law);
In addition, such counsel shall state that he has participated in
conferences with officers and representatives of the Company and the Guarantors,
accountants of the Company and the Guarantors and representatives of the
Purchasers at which the contents of the Offering Circular and related matters
were discussed and, subject to the fact that such counsel shall not assume any
responsibility for and cannot guarantee the accuracy, completeness or fairness
of the statements contained in the Offering Circular and shall have made no
independent check or verification thereof, on the basis of the foregoing, such
counsel shall state that it has no reason to believe that the Offering Circular
and any further amendments or supplements thereto made by the Company prior to
the Time of Delivery (other than the reserve data, financial statements and
related schedules and other financial information contained in the Offering
Circular, as to which such counsel need express no opinion) contained as of its
date or contains as of the Time of Delivery an untrue statement of a material
fact or omitted or omits, as the case may be, to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(e) On the date of the Offering Circular prior to the execution of
this Agreement, Ernst & Young LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in the form previously
agreed upon. At the time of Delivery, Ernst & Young LLP shall have delivered an
additional letter confirming the matters set forth in the prior letter as of the
date not more than three days prior to the Time of Delivery, in form and
substance satisfactory to you;
(f) On the date of the Offering Circular prior to the execution of
this Agreement and also at the Time of Delivery, Keeling shall have furnished to
you a letter or letters, dated the respective dates of delivery thereof, in form
and substance satisfactory to you;
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Offering Circular any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Offering Circular, and (ii) since the
respective dates as of which information is given in the Offering Circular,
there shall not have been any change, on a consolidated basis, in the capital
stock or short-term or long-term debt of the Company and its subsidiaries or any
change, or any development involving a prospective change in or affecting the
26
<PAGE>
general affairs, management, financial position, stockholders' equity or results
of operations of the Company or any of its subsidiaries, on a consolidated
basis, otherwise than as set forth or contemplated in the Offering Circular, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Purchasers so material and adverse as to make it impracticable
or inadvisable to proceed with the offering or the delivery of the Notes on the
terms and in the manner contemplated in this Agreement and in the Offering
Circular;
(h) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the debt securities of the Company or any
Guarantor by any "nationally recognized statistical rating organization," as
that term is defined by the Commission for purposes of Rule 436(g)(2) under the
Act, and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its rating of
any debt securities of the Company or any Guarantor;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on the NASDAQ National Market
System; (ii) a general moratorium on commercial banking activities declared by
either Federal or New York State authorities; (iii) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this clause (iii), in the judgment of the Purchasers, makes it impracticable
or inadvisable to proceed with the offering or the delivery of the Notes on the
terms and in the manner contemplated in the Offering Circular; or (iv) the
occurrence of any material adverse change in financial, political or economic
conditions in the United States or elsewhere which, in the judgment of the
Purchasers, would materially and adversely affect the financial markets or the
markets for the Notes and other debt securities;
(j) The Notes shall have been designated for trading in PORTAL;
(k) The Company and the Guarantors shall have furnished or caused to
be furnished to you at the Time of Delivery certificates of officers of the
Company and the Guarantors satisfactory to you as to the accuracy of the
representations and warranties of the Company and the Guarantors herein at and
as of the Time of Delivery, as to the performance by the Company and the
Guarantors of all of their obligations hereunder to be performed at or prior to
the Time of Delivery, as to the matters set forth in subsection (g) of this
Section and as to such other matters as you may reasonably request;
(l) No stop order suspending the qualification or exemption from
qualification of any of the Notes in any jurisdiction referred to in Section
5(b) shall have
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<PAGE>
been issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened;
(m) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental agency
which would, as of the Time of Delivery, prevent the issuance of any of the
Notes or Guarantees; and no injunction, restraining order or order of any nature
by a federal or state court of competent jurisdiction shall have been issued as
of the Time of Delivery which would prevent the issuance of the Notes or the
Guarantees. No action, suit or proceeding shall be pending against or affecting
or, to the knowledge of any executive officer of the Company or any Guarantor
after reasonable inquiry, threatened against the Company or any of its
subsidiaries before any court or arbitrator or any governmental body, agency or
official that, if adversely determined, would prohibit, interfere with or
adversely affect the issuance or sale of the Notes or the issuance of the
Guarantees or would have a Material Adverse Effect, or in any manner draw into
question the validity of this Agreement or the other Operative Documents; and no
stop order preventing the use of the Offering Circular, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Act shall have been issued;
(n) The Company, the Guarantors and the Trustee shall have entered
into the Indenture and you shall have received executed counterparts thereof;
(o) The Company and the Guarantors shall have entered into the
Registration Rights Agreement and you shall have received executed counterparts
thereof;
(p) At the Time of Delivery, copies of all opinions and certificates
issued in connection with the Credit Agreement shall have been delivered to the
Purchasers;
(q) At the Time of Delivery, copies of all opinions and certificates
issued in connection with the Merger (as defined in the Offering Circular) shall
have been delivered to the Purchasers;
(r) The Offering Circular shall have been printed and copies
distributed to you no later than 12:00 p.m. (noon), New York City time on March
14, 1996, or at such later date and time as you may approve in writing; and
(s) The Company shall have furnished to the Purchasers a certificate
of the Company, signed by the Chairman and Chief Executive Officer and Principal
Accounting Officer of the Company, dated the Time of Delivery, certifying as to
the solvency of the Company, giving effect to the offering of the Notes as
contemplated
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<PAGE>
hereby and the transactions described in the Offering Circular under the caption
"Use of Proceeds."
All opinions, certificates, letters and other documents required to be
delivered by the Company and the Guarantors will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to the Purchasers. The Company and the Guarantors will furnish each of the
Purchasers with such conformed copies of such opinions, certificates, letters
and other documents as the Purchasers shall reasonably request.
8. (a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless each Purchaser against any losses, claims, damages
or liabilities to which such Purchaser may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Circular or the Offering Circular, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact necessary to make the statements therein not misleading, and
will reimburse each Purchaser for any legal or other expenses reasonably
incurred by such Purchaser in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and the Guarantors shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Offering Circular or the Offering Circular or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Purchaser through Goldman, Sachs &
Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Company and
the Guarantors against any losses, claims, damages or liabilities to which the
Company or any Guarantor may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Offering Circular or the
Offering Circular, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary Offering
Circular or the Offering Circular or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Purchaser through Goldman, Sachs & Co. expressly for use
therein; and will reimburse the Company and the Guarantors for any legal or
other expenses
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reasonably incurred by the Company and the Guarantors in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel for the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
Notwithstanding the foregoing, any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless the indemnified party shall have been advised by
counsel that representation of the indemnified party by counsel provided by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between the indemnifying party and the indemnified party, including
situations in which there are one or more legal defenses available to the
indemnified party that are different from or additional to those available to
the indemnifying party; provided, however, that the indemnifying party shall
not, in connection with any one such action or proceeding or separate but
substantially similar actions or proceedings arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all indemnified parties, except to the extent that
local counsel, in addition to its regular counsel, is required in order to
effectively defend against such action or proceeding. No indemnifying party
shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of any indemnified party.
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<PAGE>
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Guarantors on the one hand and
the Purchasers on the other from the offering of the Notes. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Guarantors on the one hand and the Purchasers on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Guarantors on the one hand and the Purchasers on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts received by the Purchasers, in each case as set
forth in the Offering Circular, provided that the total underwriting discounts
shall be deemed to be reduced, and the total net proceeds received by the
Company and the Guarantors shall be deemed to be increased, by the amount of
expenses of the Company reimbursed by the Purchasers pursuant to Section 2
hereof. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Guarantors on the one hand or the Purchasers on
the other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Guarantors and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (d) were determined by pro rata
allocation (even if the Purchasers were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Purchaser shall be required to contribute any amount in excess of the amount
by which the total discounts received by it under this Agreement exceeds the
amount of any damages which such Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The Purchasers' obligations in this subsection (d) to
31
<PAGE>
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Guarantors under this
Section 8 shall be in addition to any liability which the Company and the
Guarantors may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Purchaser within the
meaning of the Act; and the obligations of the Purchasers under this Section 8
shall be in addition to any liability which the respective Purchasers may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company or any Guarantor and to each person, if any,
who controls the Company or any Guarantor within the meaning of the Act.
9. (a) If any Purchaser shall default in its obligation to purchase the
Notes which it has agreed to purchase hereunder, you may in your discretion
arrange for you or another party or other parties to purchase such Notes on the
terms contained herein. If within thirty-six hours after such default by any
Purchaser you do not arrange for the purchase of such Notes, then the Company
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Notes on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Notes, or the Company notifies you that it has so arranged for the purchase
of such Notes, you or the Company shall have the right to postpone the Time of
Delivery for a period of not more than seven days, in order to effect whatever
changes may thereby be made necessary in the Offering Circular, or in any other
documents or arrangements, and the Company agrees to prepare promptly any
amendments to the Offering Circular which in your opinion may thereby be made
necessary. The term "Purchaser" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Notes.
(b) If, after giving effect to any arrangements for the purchase of the
Notes of a defaulting Purchaser or Purchasers by you and the Company as provided
in subsection (a) above, the aggregate principal amount of such Notes which
remains unpurchased does not exceed one-eleventh of the aggregate principal
amount of all the Notes, then the Company shall have the right to require each
non-defaulting Purchaser to purchase the principal amount of Notes which such
Purchaser agreed to purchase hereunder and, in addition, to require each non-
defaulting Purchaser to purchase its pro rata share (based on the principal
amount of Notes which such Purchaser agreed to purchase hereunder) of the Notes
of such defaulting Purchaser or Purchasers for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Purchaser from
liability for its default.
32
<PAGE>
(c) If, after giving effect to any arrangements for the purchase of the
Notes of a defaulting Purchaser or Purchasers by you and the Company as provided
in subsection (a) above, the aggregate principal amount of Notes which remains
unpurchased exceeds one-eleventh of the aggregate principal amount of all the
Notes, or if the Company shall not exercise the right described in subsection
(b) above to require non-defaulting Purchasers to purchase Notes of a defaulting
Purchaser or Purchasers, then this Agreement shall thereupon terminate, without
liability on the part of any non-defaulting Purchaser or the Company, except for
the expenses to be borne by the Company and the Purchasers as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Purchaser from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Guarantors and the several Purchasers,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Purchaser or any controlling person of any Purchaser, or the
Company or any Guarantor or any officer or director or any controlling person of
the Company or any Guarantor and shall survive delivery of and payment for the
Notes.
11. If the Notes or the Guarantees are not delivered by or on behalf of
the Company and the Guarantors, as applicable, as provided herein, the Company
and the Guarantors will reimburse the Purchasers for all out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred by the
Purchasers in making preparations for the purchase, sale and delivery of the
Notes, but the Company and the Guarantors shall then be under no further
liability to any Purchaser except as provided in Sections 6 and 8 hereof.
12. All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, overnight
courier or facsimile transmission to you as the Representative, in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department (facsimile number, 212-902-3000); and if to the Company
or the Guarantors shall be delivered or sent by mail, overnight courier or
facsimile transmission to 5735 Pineland Drive, Dallas, Texas 75231, Attention:
President (facsimile number, 214-265-4777). Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers, the Company, the Guarantors and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company, any
Guarantor and any Purchaser and each person who controls the Company, any
Guarantor or any of the Purchasers, and their respective heirs, executors,
administrators, successors and
33
<PAGE>
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. No purchaser of any of the Notes from any Purchaser shall be
deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Guarantors and the Purchasers, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company, the Guarantors and the Purchasers.
Very truly yours,
CODA ENERGY, INC.
By: /s/ JOE CALLAWAY
__________________________________________
Name: Joe Callaway
Title: Vice President
DIAMOND ENERGY OPERATING COMPANY
By: /s/ JOE CALLAWAY
__________________________________________
Name: Joe Callaway
Title: Vice President
TAURUS ENERGY CORP.
By: /s/ JOE CALLAWAY
__________________________________________
Name: Joe Callaway
Title: Vice President
ELECTRA RESOURCES, INC.
By: /s/ JOE CALLAWAY
__________________________________________
Name: Joe Callaway
Title: Vice President
<PAGE>
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
/s/ GOLDMAN, SACHS & CO.
________________________________________
(Goldman, Sachs & Co.)
CHEMICAL SECURITIES, INC.
By: /s/ THOMAS WALKER
_____________________________________
Name: Thomas Walker
Title: Managing Director
ECT SECURITIES CORP.
By: /s/ RICHARD B. BUY
_____________________________________
Name: Richard B. Buy
Title: President
NATIONSBANC CAPITAL MARKETS, INC.
By: /s/ GREGORY P. MEREDITH
_____________________________________
Name: Gregory P. Meredith
Title: Managing Director
<PAGE>
SCHEDULE I
PURCHASERS
<TABLE>
<S> <C>
Goldman, Sachs & Co. $57,500,000
Chemical Securities, Inc. $12,500,000
ECT Securities Corp. $27,500,000
NationsBanc Capital Markets, Inc. $12,500,000
</TABLE>
<PAGE>
SCHEDULE II
GUARANTORS
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
38
<PAGE>
EXHIBIT 4.5
CREDIT AGREEMENT
among
CODA ENERGY, INC.,
Borrower,
NATIONSBANK OF TEXAS, N.A.,
Agent,
and
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE 1.1 HERETO,
Banks
$250,000,000
FEBRUARY 14, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. CERTAIN DEFINITIONS AND TERMS............................................... 1
- --------- -----------------------------
1.1 Accounting Terms; Changes in GAAP.................................................. 1
---------------------------------
1.2 Money and Interest................................................................. 2
------------------
1.3 Number and Gender of Words......................................................... 2
--------------------------
1.4 Petroleum Terms.................................................................... 2
---------------
1.5 Other Definitions.................................................................. 2
-----------------
SECTION 2. COMMITMENT.................................................................. 24
- --------- ----------
2.1 Revolving Credit Advances.......................................................... 24
-------------------------
2.2 Letters of Credit.................................................................. 24
-----------------
2.3 Borrowing Base..................................................................... 25
--------------
2.4 Borrowing Procedure................................................................ 27
-------------------
2.5 Procedure for Requesting Letters of Credit......................................... 28
------------------------------------------
2.6 Reduction or Cancellation.......................................................... 28
-------------------------
SECTION 3. TERMS OF PAYMENT............................................................ 28
- ---------- ----------------
3.1 Notes; Payments.................................................................... 29
---------------
3.2 Interest........................................................................... 29
--------
3.3 Maturity........................................................................... 32
--------
3.4 Prepayments........................................................................ 32
-----------
3.5 Funding Losses..................................................................... 32
--------------
3.6 Order of Application............................................................... 32
--------------------
3.7 Capital Adequacy................................................................... 33
----------------
SECTION 4. FEES........................................................................ 33
- --------- ----
4.1 Facility Fee....................................................................... 33
------------
4.2 Commitment Fee..................................................................... 33
--------------
4.3 Closing Fee........................................................................ 34
-----------
4.4 Agency and Other Fees.............................................................. 34
---------------------
SECTION 5. SECURITY.................................................................... 34
- --------- --------
5.1 Grant of Bank Liens Covering Subject Interests..................................... 34
----------------------------------------------
5.2 Mortgages.......................................................................... 34
---------
5.3 Effectiveness of Mortgages; Recordation of Mortgages............................... 35
----------------------------------------------------
5.4 Assignment......................................................................... 35
----------
5.5 No Assumption of Obligations....................................................... 35
----------------------------
5.6 Pledge of Subsidiary Stock......................................................... 36
--------------------------
5.7 Designated Subsidiary Guarantees................................................... 36
--------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6. REPRESENTATIONS AND WARRANTIES.............................................. 36
- ---------- ------------------------------
6.1 Corporate Existence and Authority................................................. 36
---------------------------------
6.2 Ownership of Subsidiaries and Name................................................ 36
----------------------------------
6.3 Relationship with Banks........................................................... 37
-----------------------
6.4 Financial Information............................................................. 37
---------------------
6.5 Compliance with Laws and Documents................................................ 38
----------------------------------
6.6 Litigation........................................................................ 38
----------
6.7 Taxes............................................................................. 38
-----
6.8 Government Regulation............................................................. 38
---------------------
6.9 Employee Benefit Plans............................................................ 38
---------------------
6.10 Purpose of Loan and Letters of Credit............................................. 39
-------------------------------------
6.11 Properties; Liens................................................................. 39
-----------------
6.12 Leases............................................................................ 41
------
6.13 Contractual Obligations........................................................... 41
-----------------------
6.14 Material Agreements............................................................... 41
-------------------
6.15 No Partnerships................................................................... 41
---------------
6.16 Advance Payment Contracts and Gas Balancing Agreements............................ 41
------------------------------------------------------
6.17 General........................................................................... 41
-------
6.18 Environmental..................................................................... 42
-------------
6.19 Closing Transaction Documents..................................................... 42
-----------------------------
6.20 Investments....................................................................... 42
-----------
SECTION 7. CONDITIONS PRECEDENT........................................................ 42
- --------- --------------------
7.1 Initial Advance.................................................................... 42
---------------
7.2 Conditions to Any Advance and Participation in Letter of Credit Exposure........... 46
------------------------------------------------------------------------
7.3 Conditions to Increase in Borrowing Base........................................... 48
----------------------------------------
7.4 Materiality of Conditions.......................................................... 48
-------------------------
7.5 Waiver of Conditions............................................................... 48
--------------------
SECTION 8. COVENANTS................................................................... 48
- --------- ---------
8.1 Use of Proceeds................................................................... 48
---------------
8.2 Books and Records................................................................. 49
-----------------
8.3 Items to be Furnished............................................................. 49
---------------------
8.4 Inspection........................................................................ 50
----------
8.5 Taxes............................................................................. 51
-----
8.6 Payment of Obligations............................................................ 51
----------------------
8.7 Expenses of Agent................................................................. 51
-----------------
8.8 Maintenance of Corporate Existence, Assets, Business, and Insurance............... 51
-------------------------------------------------------------------
8.9 Maintenance and Evidence of Priority of Bank Liens................................ 52
--------------------------------------------------
8.10 Subject Mineral Interests and Related Assets...................................... 52
--------------------------------------------
8.11 Employee Benefit Plans............................................................ 53
----------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
8.12 Debt.............................................................................. 53
----
8.13 Lease Obligations................................................................. 54
-----------------
8.14 Liens............................................................................. 54
-----
8.15 Mergers, Consolidations and Dissolutions.......................................... 54
----------------------------------------
8.16 Loans, Advances, and Investments.................................................. 54
--------------------------------
8.17 Distributions..................................................................... 54
-------------
8.18 Issuance of Securities............................................................ 55
----------------------
8.19 Transactions with Affiliates...................................................... 55
----------------------------
8.20 Sale of Assets.................................................................... 56
--------------
8.21 Current Ratio..................................................................... 56
-------------
8.22 Environmental Compliance.......................................................... 56
------------------------
8.23 Compliance with Laws and Documents................................................ 56
----------------------------------
8.24 New Businesses.................................................................... 57
--------------
8.25 Fiscal Year and Accounting Methods................................................ 57
----------------------------------
8.26 Assignment........................................................................ 57
----------
8.27 Advance Payment Contracts and Gas Balancing Agreements............................ 57
------------------------------------------------------
8.28 Modification of Charter Documents and Closing Transaction Documents............... 57
-------------------------------------------------------------------
8.29 Closing Repayment................................................................. 58
-----------------
SECTION 9. DEFAULT..................................................................... 58
- --------- -------
9.1 Payment of Principal Debt......................................................... 58
-------------------------
9.2 Payment of Other Obligations...................................................... 58
----------------------------
9.3 Covenants......................................................................... 58
---------
9.4 Debtor Relief..................................................................... 58
-------------
9.5 Attachment........................................................................ 59
----------
9.6 Payment of Judgments.............................................................. 59
--------------------
9.7 Default on Other Debt or Security................................................. 59
---------------------------------
9.8 Default under JEDI Subordinate Debt............................................... 59
-----------------------------------
9.9 Default under Public Subordinate Debt............................................. 59
-------------------------------------
9.10 Material Agreements............................................................... 59
-------------------
9.11 Antitrust Proceedings............................................................. 59
---------------------
9.12 Misrepresentation................................................................. 60
-----------------
9.13 Change of Control................................................................. 60
-----------------
9.14 Change of Management.............................................................. 60
--------------------
9.15 Disposition of Stock Ownership (Henderson)........................................ 60
-----------------------------------------
9.16 Disposition of Stock Ownership (Miller)........................................... 60
---------------------------------------
SECTION 10. CERTAIN RIGHTS AND REMEDIES.................................................. 60
- ----------- ---------------------------
10.1 Remedies Upon Default.............................................................. 61
---------------------
10.2 Waivers by Borrower and Others..................................................... 61
------------------------------
10.3 Performance by Agent............................................................... 61
--------------------
10.4 Delegation of Duties and Rights.................................................... 62
-------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
10.5 Banks and Agent Not in Control.................................................... 62
------------------------------
10.6 Waivers by Agent and Banks........................................................ 62
--------------------------
10.7 Cumulative Rights................................................................. 62
-----------------
10.8 Expenditures by Agent and Banks................................................... 62
-------------------------------
10.9 Diminution in Value of Collateral................................................. 62
---------------------------------
10.10 Indemnification of Agent and Banks................................................ 62
----------------------------------
SECTION 11. AGENT........................................................................ 63
- ---------- -----
11.1 Appointment and Authorization..................................................... 63
-----------------------------
11.2 Agent and Affiliates.............................................................. 63
--------------------
11.3 Action by Agent................................................................... 63
---------------
11.4 Consultation with Experts......................................................... 64
-------------------------
11.5 Liability of Agent................................................................ 64
------------------
11.6 Delegation of Duties.............................................................. 64
--------------------
11.7 Indemnification................................................................... 64
---------------
11.8 Credit Decision................................................................... 65
---------------
11.9 Successor Agent................................................................... 65
---------------
SECTION 12. PROTECTION OF YIELD; CHANGE IN LAWS.......................................... 65
- ---------- -----------------------------------
12.1 Basis for Determining Interest Rate Applicable to CD Rate
---------------------------------------------------------
Tranches and Eurodollar Tranches Inadequate....................................... 65
-------------------------------------------
12.2 Illegality of CD Rate Tranche, or Eurodollar Tranches............................. 66
-----------------------------------------------------
12.3 Increased Cost of CD Rate Tranches or Eurodollar Tranches......................... 66
---------------------------------------------------------
12.4 Alternative Tranches Substituted for Affected Eurodollar Tranches or CD
-----------------------------------------------------------------------
Rate Tranches..................................................................... 67
-------------
12.5 Discretion of Banks as to Manner of Funding....................................... 68
------------------------------------------
SECTION 13. MISCELLANEOUS................................................................ 68
- ---------- -------------
13.1 Headings.......................................................................... 68
--------
13.2 Exhibits.......................................................................... 68
--------
13.3 Communications.................................................................... 69
--------------
13.4 Form and Number of Documents...................................................... 69
----------------------------
13.5 Exceptions to Covenants........................................................... 69
-----------------------
13.6 Survival.......................................................................... 69
--------
13.7 Governing Law..................................................................... 69
-------------
13.8 Venue; Service of Process......................................................... 69
-------------------------
13.9 Waiver of Jury Trial.............................................................. 70
--------------------
13.10 Maximum Interest Rate............................................................. 70
---------------------
13.11 Invalid Provisions................................................................ 71
------------------
13.12 Entirety.......................................................................... 71
--------
13.13 Multiple Counterparts............................................................. 71
---------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
13.14 Assignments and Participations by Banks........................................... 71
--------------------------------------
13.15 Parties Bound; Assignments by Borrower............................................ 72
--------------------------------------
13.16 Right and Sharing of Set-Offs..................................................... 72
-----------------------------
13.17 Amendments and Waivers............................................................ 73
----------------------
13.18 Certain Agreements Regarding Existing Credit Agreement............................ 74
------------------------------------------------------
</TABLE>
EXHIBITS
Exhibit A Certificate Regarding Description of Mineral Interests
Exhibit B [INTENTIONALLY DELETED]
Exhibit C Form of Designated Subsidiary Guaranty
Exhibit D Form of Financial Report Certificate
Exhibit E-1 Form of Mortgage
Exhibit E-2 Form of Financing Statement
Exhibit F Form of Promissory Note
Exhibit G Form of Notice of Advance
Exhibit H Form of Request for Letter of Credit
Exhibit I Form of Rollover Notice
Exhibit J Form of Pledge Agreement
Exhibit K Form of Legal Opinion (Borrower)
Exhibit L Form of Legal Opinion (Agent)
SCHEDULES
Schedule 1.1 Commitments/Commitment Percentages/Addresses
Schedule 1.2 Pro Forma Balance Sheet
Schedule 1.3 Mortgaged Property Reserve Summary
Schedule 6.1 Jurisdictional Information
Schedule 6.2 Subsidiaries/Prior Corporate Names
Schedule 6.6 Litigation
Schedule 6.11 Liens/Suspended Funds
Schedule 6.13 Contractual Obligations
Schedule 6.14 Material Agreements
Schedule 6.15 Partnerships or Joint Ventures
Schedule 6.16 Gas Balancing Agreement
Schedule 6.20 Investments
Schedule 8.19 Permitted Affiliate Transactions
Schedule 8.24 Description of Businesses
v
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of February 14, 1996, among Coda
Energy, Inc., a Delaware corporation ("Borrower"), NationsBank of Texas, N.A.,
as Agent ("Agent"), and the financial institutions listed on SCHEDULE 1.1 hereto
(individually a "Bank" and collectively "Banks"). Reference is made to SECTION
1 for definitions of certain of the terms used herein.
W I T N E S S E T H:
WHEREAS, Banks, Borrower and Agent are parties to the Existing Credit
Agreement pursuant to which credit is outstanding to Borrower; and
WHEREAS, Borrower has requested that (a) Banks provide a revolving credit
loan to Borrower pursuant to this Agreement, the proceeds of which will be used
in part to repay the Principal Debt, all accrued but unpaid interest, all
accrued but unpaid fees and certain other liabilities under the Existing Credit
Agreement in their entirety, and (b) that the Existing Credit Agreement and the
Commitments of the Banks thereunder terminate in their entirety.
NOW, THEREFORE, for and in consideration of the premises, the
representations, warranties, covenants, and agreements contained herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Banks, Borrower and Agent agree, each to the other, as
follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
- --------- -----------------------------
1.1 Accounting Terms; Changes in GAAP. As used herein, the term "GAAP"
---------------------------------
means generally accepted accounting principles, applied on a consistent basis,
(a) as set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants ("AICPA") and in statements of the
Financial Accounting Standards Board which are applicable in the circumstances
as of the date in question, and (b) where not inconsistent with such opinions
and statements, as set forth in other AICPA publications and guidelines,
statements or pronouncements of the Securities and Exchange Commission or which
otherwise arise by custom for the particular industry; and the requirement that
such principles be applied on a consistent basis means that the accounting
principles in a current period are comparable in all material respects to those
applied in a preceding period. All accounting and financial terms used in any
of the Loan Papers and the compliance with each covenant contained in the Loan
Papers which relates to financial matters shall be determined in accordance with
GAAP, except to the extent that a deviation therefrom is expressly stated in
such Loan Papers. Should a change in GAAP require a change in any method of
accounting or should any voluntary change in the accounting methods be permitted
pursuant to SECTION 8, then such change shall not result in a Default if, at
-1-
<PAGE>
the time of such change, such Default had not occurred and was not then
continuing, based upon the former methods of accounting used by or on behalf of
the Companies; provided that, after any such change in accounting methods, only
the next set of Financial Statements required to be delivered to Banks pursuant
to the terms hereof shall be prepared in comparative form, in compliance with
the former methods of accounting used prior to such change, as well as with the
new method or methods of accounting.
1.2 Money and Interest. Unless stipulated otherwise (a) all references
------------------
in any of the Loan Papers to "dollars," money," "payments," or other similar
financial or monetary terms, are references to currency of the United States of
America, and (b) all references to interest are to simple and not compound
interest.
1.3 Number and Gender of Words. Whenever in any Loan Paper the singular
--------------------------
number is used, the same shall include the plural where appropriate, and vice
versa; and words of any gender in any Loan Paper shall include each other gender
where appropriate. The words "herein," "hereof," and "hereunder," and other
words of similar import refer to the relevant Loan Paper as a whole and not to
any particular part or subdivision thereof.
1.4 Petroleum Terms. As used herein, the terms "proved reserves,"
---------------
"proved developed reserves," "proved developed producing reserves," "proved
developed nonproducing reserves," and "proved undeveloped reserves" have the
meaning given such terms from time to time and at the time in question by the
Society of Petroleum Engineers of the American Institute of Mining Engineers.
1.5 Other Definitions. As used herein, the following terms have the
-----------------
meanings indicated:
ADJUSTED CD RATE applicable to any Interest Period, means a rate per annum
equal to (a) the quotient obtained (rounded upwards if necessary to the next
higher 1/16 of 1%) by dividing (i) the applicable CD Rate by (ii) 1.00 minus the
CD Reserve Percentage plus (b) the Assessment Rate.
ADJUSTED LONDON INTERBANK OFFERED RATE applicable to any Interest Period,
means a rate per annum equal to the quotient obtained (rounded upwards, if
necessary to the next higher 1/16 of 1%) by dividing (i) the applicable London
Interbank Offered Rate by (ii) 1.00 minus the Eurodollar Reserve Percentage.
ADVANCE means any disbursement to Borrower under, or to satisfy the
obligations of any Company under, any of the Loan Papers. Any Advance which
will constitute a Base Rate Tranche is referred to herein as a BASE RATE
ADVANCE. Any Advance which will constitute a CD Rate Tranche is referred to
herein as a CD RATE ADVANCE. Any Advance which will constitute a Eurodollar
Rate Tranche is referred to herein as a EURODOLLAR ADVANCE.
-2-
<PAGE>
ADVANCE DATE means any date on which an Advance is made hereunder.
ADVANCE PAYMENT CONTRACT means any contract whereby Borrower or any
Designated Subsidiary either (a) receives or becomes entitled to receive (either
directly or indirectly to a third party for Borrower's or a Designated
Subsidiary's account or benefit) any payment (an "Advance Payment") to be
applied toward payment of the purchase price of Hydrocarbons produced or to be
produced from any of the Subject Mineral Interests or from the operation of the
Related Assets and which Advance Payment is paid or to be paid in advance of
actual delivery of such production to or for the account of the purchaser
regardless of such production, or (b) grants an option or right of refusal to
the purchaser to take delivery of such production in lieu of payment, and, in
either of the foregoing instances, the Advance Payment is, or is to be, applied
as payment in full for such production when sold and delivered or is, or is to
be, applied as payment for a portion only of the purchase price thereof or of a
percentage or share of such production; provided that inclusion of the standard
"take or pay" provision in any gas sales or purchase contract or any other
similar contract shall not, in and of itself, constitute such contract as an
Advance Payment Contract for the purposes hereof.
AFFILIATE means any Person who (a) would be an "affiliate" of any Company
within the meaning of the regulations promulgated pursuant to the Securities Act
of 1933, as such regulations and act are amended and in effect on the date in
question, if such Person were subject to such act and regulations, or (b) owns
any legal or beneficial interest in such Person, is a director or officer of any
Company, or is a relative of any of the Persons described in this clause (b).
AGREEMENT means this Credit Agreement, including the Schedules and Exhibits
hereto, as the same may be amended or supplemented from time to time.
APPLICABLE COMMITMENT FEE PERCENTAGE means (a) on any date on which the sum
of (i) the Principal Debt, and (ii) the Letter of Credit Exposure is less than
ninety percent (90%) of the Borrowing Base, .375%, and (b) on any date on which
the sum of (i) the Principal Debt, and (ii) the Letter of Credit Exposure is
equal to or greater than ninety percent (90%) of the Borrowing Base, .425%.
APPLICABLE ENVIRONMENTAL LAW means any Law, statute, ordinance, rule,
regulation, order or determination of any governmental authority or any board of
fire underwriters (or other body exercising similar functions), or any
restrictive covenant or deed restriction (recorded or otherwise) affecting the
Property of Borrower or its Subsidiaries pertaining to health, safety or the
environment, including, without limitation, all applicable zoning ordinances and
building codes, flood disaster Laws and health, safety and environmental Laws
and regulations pertaining to health, safety or the environment, including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended from time to time, herein referred to as
"CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by the
-3-
<PAGE>
Used Oil Recycling Act of 1980, the Solid Waste Disposal Act of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as amended from time to time
herein referred to as "RCRA"), the Laws, rules and regulations of any state
having jurisdiction over any asset of any Company or any agency or
instrumentality thereof which relate to health, safety or the environment, as
each may be amended from time to time, and any federal, state or municipal Laws,
ordinances, or regulations which may now or hereafter require removal of
asbestos or other hazardous wastes or impose any liability related to asbestos
or other hazardous wastes.
APPLICABLE MARGIN means (a) on any day on which the sum of (i) the
Principal Debt, and (ii) the Letter of Credit Exposure, is less than fifty
percent (50%) of the Borrowing Base, the amount set forth below (based on the
type of Tranche):
<TABLE>
<S> <C> <C>
(i) Base Rate 0%
(ii) Eurodollar 1.25%
(iii) CD Rate 1.25%
</TABLE>
(b) on any day on which the sum of (i) the Principal Debt, and (ii)
the Letter of Credit Exposure, is equal to or greater than fifty percent
(50%) but less than seventy percent (70%) of the Borrowing Base, the amount
set forth below (based on the type of Tranche):
<TABLE>
<S> <C> <C>
(i) Base Rate 0%
(ii) Eurodollar 1.375%
(iii) CD Rate 1.375%
</TABLE>
(c) on any day on which the sum of (i) the Principal Debt, and (ii)
the Letter of Credit Exposure, is equal to or greater than seventy percent
(70%) but less than ninety percent (90%) of the Borrowing Base, the amount
set forth below (based on the type of Tranche):
<TABLE>
<S> <C> <C>
(i) Base Rate 0%
(ii) Eurodollar 1.5%
(iii) CD Rate 1.5%
</TABLE>
(d) on any day on which the sum of (i) the Principal Debt, and (ii)
the Letter of Credit Exposure, is equal to or greater than ninety percent
(90%) of the Borrowing Base, the amount set forth below (based on the type
of Tranche):
<TABLE>
<S> <C> <C>
(i) Base Rate 0%
(ii) Eurodollar 1.625%
(iii) CD Rate 1.625%
</TABLE>
-4-
<PAGE>
ASSESSMENT RATE means, with respect to CD Rate Tranches, the net annual
assessment rate, as determined by Agent (expressed as a percentage rounded to
the next higher 1/16 of 1%), which is in effect on such day under the
regulations of the Federal Deposit Insurance Corporation (or any successor) for
insuring time deposits made in dollars at Agent's headquarters office. If such
net assessment rate changes after the date hereof, the Assessment Rate shall be
automatically increased or decreased correspondingly, from time to time as of
the effective time of each change in such net assessment rate.
BANK LIENS means Liens securing all or any part of the Obligation,
including, but not limited to, Rights in any Collateral created in favor of
Agent, whether by mortgage, pledge, hypothecation, assignment, transfer, or
other granting or creating of Liens.
BASE RATE means the floating rate of interest established from time to time
by Agent as its "prime rate" of interest, which rate might not be the lowest
rate of interest which it charges, each change in the Base Rate to become
effective without notice to Borrower on the effective date of each such change.
BASE RATE TRANCHE means any portion of the Principal Debt bearing interest
at a rate computed by reference to the Base Rate.
BORROWING BASE means, on the date hereof, the amount set forth in SECTION
2.3(A) and, thereafter, an amount which is determined by the Banks in accordance
with SECTION 2.3(A) (in their sole discretion, but determined in accordance with
their usual and customary engineering practices and methods and economic
parameters for evaluating Hydrocarbon reserves and pipelines, processing plants,
gathering systems, compressors, compressor stations, refineries and similar
assets from time to time in effect generally) to be the loan value attributable,
at the time in question, to the ownership interests of Borrower and the
Designated Subsidiaries in the Subject Mineral Interests and Related Assets for
which legal, record title is in Borrower or a Designated Subsidiary after
discounting (in accordance with such Bank's usual and customary practices and
methods from time to time in effect generally) for present value the future Cash
Proceeds attributable thereto by such Bank, based upon reports and information
furnished to Banks hereunder and upon such other evaluation studies that may be
prepared by, or otherwise available to, any Bank with respect to the Subject
Mineral Interest and Related Assets.
BORROWING BASE DEFICIENCY means, as of any date, the amount if any, by
which (a) the sum of (i) the Principal Debt, and (ii) the outstanding Letter of
Credit Exposure, all determined as of such date, exceeds (b) the Borrowing Base
on such date; provided, that, for purposes of determining the existence and
amount of any Borrowing Base Deficiency, Letter of Credit Exposure will not be
deemed to be outstanding to the extent it is secured by cash collateral in the
manner contemplated by the second paragraph of SECTION 2.2.
CASH COLLATERAL means cash, deposit accounts, certificates of deposit, and
marketable securities owned by any Company which are subject to a Lien (other
than a Bank Lien) securing
-5-
<PAGE>
Contractual Obligations of any Company and Letters of Credit securing
Contractual Obligations of any Company. For purposes of determining the amount
of Cash Collateral securing any obligation at any time, (a) the amount
attributable to deposit accounts shall be the amount on deposit therein, (b) the
amount attributable to Certificates of Deposit shall be the face amount of such
certificates of deposit, (c) the amount attributable to marketable securities
shall be the market value of such securities determined by reference to the
closing price for such securities published in The Wall Street Journal (or any
-----------------------
other reference acceptable to Agent) on the Domestic Business Day immediately
preceding the date of determination, and (d) the amount attributable to Letters
of Credit shall be the face amount thereof.
CASH MERGER CONSIDERATION means the aggregate cash consideration payable
pursuant to the Merger Agreement to holders of Borrower's common stock, par
value $.02 per share, and holders of options and warrants to purchase Borrower's
common stock, par value $.02 per share (assuming for purposes of this definition
that no holders of Borrower's common stock elect to exercise dissenter's
appraisal rights available under Section 262 of the Delaware General Corporation
Law). The aggregate amount of the Cash Merger Consideration (based on such
assumption) will not exceed $180,000,000.
CASH PROCEEDS means, for any period, (a) the aggregate amount of revenues
paid to and received by Borrower or any Designated Subsidiary and derived from
the disposition, sale, transportation or processing of Hydrocarbons, less (b)
all (i) amounts attributable to production, severance, excise, windfall profits,
or any other Tax, impost, or levy on, or measured by volumes of production, or
volumes of Hydrocarbons transported or processed, (ii) payments due to the
owners (other than Borrower or a Designated Subsidiary) of any royalties,
overriding royalty interests, net profits interests, production payments, and
any other similar interests which are payable out of, are attributable to, or
are a burden upon, any production of such Hydrocarbons, (iii) operating expenses
which are ordinary and necessary to recover, process and transport such
Hydrocarbons during such period, and (iv) capital expenditures related to
workovers and similar enhancements of production from existing well bores.
CD RATE applicable to any Interest Period means the rate per annum
determined by Agent (in accordance with its customary general practices) to be
the arithmetic average (rounded upwards, to the next higher 1/16 of 1%) of the
prevailing bid rates per annum offered to Agent at approximately 12:00 noon
(Dallas, Texas time) one (1) Domestic Business Day before the first day of the
applicable Interest Period by three (3) or more certificate of deposit dealers
of recognized standing for the purchase in the secondary market at face value of
a domestic certificate of deposit of Agent in an amount approximately equal to
the amount of the CD Rate Loan and for a period approximately equal to the
length of the applicable Interest Period. Agent shall determine the CD Rate and
shall notify Borrower and Banks of such determination as soon as practicable.
Agent's determination of the CD Rate shall in each case be, in the absence of
manifest error, conclusive and binding.
-6-
<PAGE>
CD RATE TRANCHE means with respect to any Interest Period, any portion of
the Principal Debt which bears interest on a rate computed by reference to the
Adjusted CD Rate for such Interest Period.
CD RESERVE PERCENTAGE means, on any day, that percentage (expressed as a
decimal) which is in effect on such day, as prescribed by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement for a member bank of the Federal Reserve System in Dallas,
Texas (including, without limitation, basic supplemental, marginal and emergency
reserves) in respect of any time deposits in dollars in Dallas, Texas having a
maturity approximately equal to that of the Interest Period.
CLOSING DATE means February 16, 1996.
CLOSING REPAYMENT means a payment to be made by Borrower on the Closing
Date of a portion of the indebtedness and obligations (including, without
limitation, the Obligation [as defined in the Existing Credit Agreement])
outstanding under the Existing Credit Agreement, which repayment shall be made
from sources other than an Advance under this Agreement, and which repayment
shall, together with the Refinancing Advance, be in an amount sufficient to, and
be applied to, repay in full (a) the aggregate outstanding Principal Debt under
the Existing Credit Agreement on the Closing Date, (b) the aggregate amount of
interest which has accrued under the Existing Credit Agreement which is unpaid
as of the Closing Date, (c) the aggregate amount of fees which have accrued
under SECTIONS 4.2 and 4.3 of the Existing Credit Agreement which is unpaid as
of the Closing Date, and (d) all losses which are payable by Borrower to any
Bank pursuant to SECTION 3.5 of the Existing Credit Agreement as a result of the
prepayment of Fixed Rate Tranches outstanding under the Existing Credit
Agreement prior to the last day of the Interest Period applicable thereto.
CLOSING TRANSACTION DOCUMENTS means (a) the Merger Agreement, (b) the JEDI
Subordinate Debt Documents, (c) the Restated Certificate of Incorporation, (d)
the Management Investor Notes, (e) all other material documents, instruments or
agreements executed by or among any Company, JEDI, Coda Acquisition or any
Management Investor in connection with or otherwise pertaining to the Closing
Transactions in any way, and (f) all amendments and modifications to any of the
foregoing and any waivers granted by any party with respect to any of the
foregoing.
CLOSING TRANSACTIONS means the transactions to occur on the Closing Date
pursuant to the Closing Transaction Documents and this Agreement, including,
without limitation, (a) a capital contribution by JEDI to the common equity of
Coda Acquisition of not less than $90,000,000 in cash, (b) the Merger, (c) the
advance by JEDI to Coda Acquisition of $100,000,000 representing the proceeds of
the JEDI Subordinate Debt, which JEDI Subordinate Debt will be assumed by
Borrower pursuant to the Merger, (d) the issuance and sale by Borrower to JEDI
of 20,000 shares of Preferred Stock for a cash consideration of not less than
$20,000,000, (e) the consummation
-7-
<PAGE>
of the Management Investment by the Management Investors, and (f) the payment of
the Cash Merger Consideration to The First National Bank of Boston as Paying
Agent.
CODA ACQUISITION means Coda Acquisition, Inc., a newly formed Delaware
corporation, which is a wholly owned subsidiary of JEDI.
COLLATERAL means the Property of any Company which now or hereafter becomes
the subject of a Bank Lien.
COMMITMENT means, with respect to each Bank, the amount set forth opposite
the name of such Bank on SCHEDULE 1.1 attached hereto as such amount may be
reduced from time to time pursuant hereto.
COMMITMENT PERCENTAGE means, with respect to each Bank, the percentage
determined by dividing its Commitment by the Total Commitment.
COMPANIES means, as of a point in time, Borrower and all of its
Subsidiaries, and "COMPANY" means any one of the foregoing.
CONTAMINATED SITE LIST means the National Priorities List established under
the Comprehensive Environmental Response, Compensation and Liability Act, the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), and any other listing, compilation, or other designation by
any Tribunal of sites contaminated or potentially contaminated by Hazardous
Substances or other substances posing any health or environmental hazards, each
as amended from time to time.
CONTRACTUAL OBLIGATIONS of any Person means (a) all Debt owed by such
Person, and (b) all other direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several material obligations or
liabilities of such Person for the payment of money, including, but not limited
to, obligations or liabilities evidenced by promissory notes, chattel paper,
leases, or other contractual obligations which are not cancelable by such Person
on notice of ninety (90) days or less without liability for further payment
other than nominal penalty.
CONVERSION DATE has the meaning set forth in SECTION 3.2(D).
CURRENT DATE means any date not more than thirty (30) days prior to the
date hereof.
CURRENT FINANCIALS means the consolidated Financial Statements of the
Companies for the fiscal year ended December 31, 1995.
DEBT of any Person includes all obligations, contingent or otherwise, which
in accordance with GAAP should be classified upon such Person's balance sheet as
liabilities, but in any event including liabilities secured by any Lien existing
on property owned or acquired by such Person
-8-
<PAGE>
or a Subsidiary thereof (whether or not the liability secured thereby shall have
been assumed), obligations which have been or under GAAP should be capitalized
for financial reporting purposes, and all guaranties, endorsements, and other
contingent obligations with respect to Debt of others, including, but not
limited to, any obligations to acquire any such Debt, to purchase, sell, or
furnish property or services primarily for the purpose of enabling such other
Person to make payment of any of such Debt, or to otherwise assure the owner of
any of such Debt against loss with respect thereto.
DEBTOR RELIEF LAWS means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension
of payments, or similar debtor relief Laws from time to time in effect affecting
the Rights of creditors generally.
DEDICATED means, with respect to any particular volume of Hydrocarbons,
that a Company has the exclusive right to acquire, transport, process or refine
such volume of Hydrocarbons either (a) because a Company is the owner of such
volume, or (b) because a Company was granted such Right by the owner of such
volume pursuant to a binding contract which (i) is not subject to any material
condition to be satisfied by the Company which is a party thereto (other than
payment of the applicable purchase price), and (ii) is not cancelable or
otherwise subject to termination by such owner during the term such volume is
considered Dedicated without subjecting such owner to material penalty.
DEFAULT has the meaning set forth in SECTION 9.
DEFAULT RATE means a per annum rate of interest equal from day to day to
the lesser of (a) the sum of the Base Rate plus three percent (3%), or (b) the
Highest Lawful Rate.
DESCRIPTION OF MINERAL INTERESTS means a description, in form and
containing such information as may be acceptable to Agent and in legally
sufficient form for the creation of Bank Liens thereon, of the Subject Mineral
Interests required to be described in such Description of Mineral Interests
pursuant to the terms hereof and owned at the time in question by Borrower (or,
if applicable, any Designated Subsidiary), delivered to Banks pursuant hereto
and as supplemented from time to time by Borrower pursuant to SECTION 7.3(C)
hereof, and accompanied by a certificate, executed by the Chairman of the Board
or President of Borrower, substantially in the form of EXHIBIT A attached
hereto.
DESIGNATED SUBSIDIARY means Diamond, Taurus and any other Subsidiary of
Borrower which (a) is, directly or indirectly, wholly owned by Borrower, (b) has
executed a Designated Subsidiary Guaranty, (c) to the extent requested by Agent
or Majority Banks, one hundred percent of the issued and outstanding capital
stock (on a Fully Diluted Basis) of which has been pledged to Agent for the
ratable benefit of the Banks pursuant to a Pledge Agreement executed by Borrower
and each Subsidiary of Borrower which is an owner of such issued and outstanding
capital stock, and (d) with respect to which Agent has received opinions of
counsel acceptable
-9-
<PAGE>
to it regarding (i) the due organization and existence of such Subsidiary, (ii)
the due authorization, execution and delivery of the Loan Papers executed by
such Subsidiary, (iii) the enforceability of all such Loan Papers against such
Subsidiary, and (iv) such other matters with respect to such Subsidiary as Agent
shall reasonably require.
DESIGNATED SUBSIDIARY GUARANTY means a Guaranty substantially in the form
of EXHIBIT C attached hereto to be executed by each Designated Subsidiary
pursuant to which each Designated Subsidiary shall guarantee payment and
performance in full of the Obligation.
DIAMOND means Diamond Energy Operating Company, an Oklahoma corporation and
a wholly owned Subsidiary of Borrower.
DISTRIBUTION by any Person means (a) the retirement, redemption, purchase,
or other acquisition for value of any capital stock or other equity securities
issued by such Person, (b) the declaration or payment of any dividend on or with
respect to any such securities, (c) any loan or advance by such Person to, or
other investment by such Person in, the holder of any of such securities with
respect to such securities (provided that, any loan to a holder of such
-------------
securities which is a Permitted Investment will not be deemed a Distribution
hereunder), and (d) any other payment (other than salaries of employees or
advances made in the ordinary course of business to employees for travel and
other expenses incurred in the ordinary course of business) by such Person with
respect to such securities.
DOMESTIC BUSINESS DAY means every day on which Agent is open for banking
business in Dallas, Texas.
DOMESTIC LENDING OFFICE means, as to each Bank, its office identified as
its Domestic Lending Office on SCHEDULE 1.1 hereto or such other office as such
Bank may hereafter designate as its Domestic Lending Office by notice to
Borrower and Agent.
ENGINEERING REPORT means unsuperseded reports prepared by Lee Keeling &
Associates of Tulsa, Oklahoma or one or more other firms of independent
consulting petroleum engineers (selected by Borrower but who must be acceptable
to Majority Banks and regularly engaged in the business of evaluating and
reporting on matters relating to the quantity, quality, recovery, and economic
value of Hydrocarbon reserves), and prepared on the basis of findings and data
as of the last day of each fiscal year of Borrower and on the basis of price and
escalation parameters or assumptions acceptable to Majority Banks, which reports
shall, among other things, (a) identify the wells covered thereby, (b) specify
such engineers' opinion with respect to the total volume of reserves (the
"available reserves") of Hydrocarbons (using the terms "reserves," and "proved
undeveloped reserves") which Borrower has advised such engineers that Borrower
or its Designated Subsidiaries have the Right to produce for their own accounts,
(c) set forth such engineers' opinion with respect to the projected future Cash
Proceeds from the available reserves, discounted for present value at a rate
acceptable to Majority Banks, for each calendar year or portion thereof after
the date of such findings and data, (d) set forth such engineers' opinion
-10-
<PAGE>
thereof after the date of such findings and data, and (e) set forth such
engineers' opinion with respect to the projected future rate of production of
the available reserves; and "CURRENT ENGINEERING REPORT" means the Engineering
Report prepared as of January 1, 1996, by Borrower's in-house engineering staff,
correct and complete copies of which have been furnished to each Bank.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations, promulgations, and rulings issued thereunder.
EURODOLLAR BUSINESS DAY means any Domestic Business Day on which commercial
banks are open for international business (including dealings in dollar
deposits) in London.
EURODOLLAR LENDING OFFICE means, as to each Bank, its office, branch or
affiliate located at the address identified on SCHEDULE 1.1 hereto as its
Eurodollar Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Eurodollar Lending Office by notice to
Borrower and Agent.
EURODOLLAR TRANCHE means, with respect to any Interest Period, any portion
of the Principal Debt which bears interest at a rate computed by reference to
the Adjusted London Interbank Offered Rate for such Interest Period.
EURODOLLAR RESERVE PERCENTAGE means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in Dallas, Texas in respect of "Eurocurrency liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate applicable to any portion of the Principal
Debt which is subject to a Eurodollar Tranche is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of any Bank to United States residents). The Adjusted London Interbank
Offered Rate shall be adjusted automatically on and as of the effective date of
any change in the Eurodollar Reserve Percentage.
EXHIBIT means an exhibit attached hereto unless otherwise specified.
EXISTING CREDIT AGREEMENT means the Second Amended and Restated Credit
Agreement, dated as of July 21, 1994, by and among Borrower, Agent and Banks as
amended by (a) that certain First Amendment to Second Amended and Restated
Credit Agreement dated as of February 24, 1995, by and among Borrower, Agent and
Banks, and (b) that certain Second Amendment to Second Amended and Restated
Credit Agreement dated as of August 1, 1995, by and among Borrower, Agent and
Banks.
FINANCIAL REPORT CERTIFICATE means a certificate, executed by the Chairman
of the Board, President, or Chief Financial Officer of Borrower, substantially
in the form of EXHIBIT D attached
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<PAGE>
hereto but containing such other certifications, statements, calculations,
explanations, and conclusions as Majority Banks may reasonably request with
respect to compliance with any or all of the covenants and conditions contained
in the Loan Papers.
FINANCIAL STATEMENTS includes, but is not limited to, balance sheets,
profit and loss statements, reconciliations of capital and surplus or of
partnership capital accounts, as appropriate, statements of cash flows prepared
in comparative form with respect to the corresponding period of the preceding
fiscal year and prepared in accordance with GAAP.
FIXED RATE TRANCHE means any CD Rate Tranche or any Eurodollar Tranche.
FULLY DILUTED BASIS means, with reference to the capital stock of any class
of any Person, the shares of capital stock of such class that would be
outstanding assuming that all outstanding options, warrants and other rights to
acquire capital stock of such class had been exercised (regardless of whether
such rights are then exercisable) and all securities of such Person convertible
into capital stock of such class had then been converted (regardless of whether
such securities are then convertible). Any reference in this Agreement or any
of the other Loan Papers to "holder(s) of outstanding capital stock on a Fully
Diluted Basis" or words of similar import shall be deemed to include holder(s)
of outstanding options, warrants or similar rights to acquire common stock or
securities convertible into capital stock of such class.
GAS BALANCING AGREEMENT means any agreement or arrangement whereby Borrower
or any other party having an interest in any Hydrocarbons to be produced from
the Subject Mineral Interests has a right to take more than its proportionate
share of production therefrom.
HEDGE TRANSACTIONS means transactions pursuant to which any Company hedges
the price to be received for anticipated future production of Hydrocarbons.
Hedge Transactions may include option agreements, price swap agreements and
other derivative transactions, including transactions under which a Company
agrees to pay for a specified amount of Hydrocarbons determined by reference to
a recognized market price and the contracting party agrees to pay such Company a
fixed price for the same or similar amount of Hydrocarbons.
HENDERSON means Grant W. Henderson.
HIGHEST LAWFUL RATE means the maximum rate of interest (or, if the context
so requires, an amount calculated at such rate) which any Bank is allowed to
contract for, charge, take, reserve, or receive under applicable federal or
state (whichever is higher) Law from time to time in effect after taking into
account, to the extent required by applicable federal or state (whichever is
higher) Law from time to time in effect, any and all relevant payments or
charges under the Loan Papers.
HYDROCARBONS means oil, gas, casinghead gas, drip gasolines, natural
gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons
produced or to be produced in
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<PAGE>
conjunction therewith, and all products, by-products, and all other substances
derived therefrom or the processing thereof, and all other minerals and
substances, including, but not limited to, sulphur, lignite, coal, uranium,
thorium, iron, geothermal steam, water, carbon dioxide, helium, and any and all
other minerals, ores, or substances of value, and the products and proceeds
therefrom, including, without limitation, all gas resulting from the in-situ
combustion of coal or lignite.
INITIAL MORTGAGED PROPERTIES means the Mineral Interests owned by Borrower
and Diamond on the Closing Date described on the Mortgaged Property Reserve
Summary.
INTEREST PERIOD means: (a) with respect to each Eurodollar Tranche, the
period commencing on the Advance or Conversion Date applicable to such Tranche
and ending one (1), three (3), six (6), or to the extent available, nine (9) or
twelve (12) months thereafter, as Borrower may elect in the applicable Notice of
Advance; provided that:
(i) any Interest Period which would otherwise end on a
day which is not a Eurodollar Business Day shall be extended to the
next succeeding Eurodollar Business Day unless such Eurodollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business
Day;
(ii) any Interest Period which begins on the last
Eurodollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to clause (iii)
below, end on the last Eurodollar Business Day of a calendar month;
(iii) if any Interest Period includes a date on which any
payment of Principal Debt which is the subject of such Eurodollar
Tranche is required to be made hereunder, but does not end on such
date, then (A) the principal amount of each Eurodollar Tranche
required to be repaid on such date shall have an Interest Period
ending on such date, and (B) the remainder of such Eurodollar Tranche
shall have an Interest Period determined as set forth above; and
(iv) no Interest Period shall extend past the Termination
Date.
(b) with respect to each CD Rate Tranche, the period commencing on
the Advance or Conversion Date applicable to such Tranche and ending thirty
(30), sixty (60), ninety (90), one hundred eighty (180), or to the extent
available, two hundred seventy (270), or three hundred sixty (360) days
thereafter, as Borrower may elect in the applicable Notice of Advance;
provided that:
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<PAGE>
(i) any Interest Period which would otherwise end on a
day which is not a Domestic Business Day shall be extended to the
next succeeding Domestic Business Day unless such Domestic Business
Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Domestic Business Day;
(ii) if any Interest Period includes a date on which any
payment of Principal Debt which is the subject of such CD Rate
Tranche is required to be made hereunder, but does not end on such
date, then (A) the principal amount of each CD Rate Tranche required
to be repaid on such date shall have an Interest Period ending on
such date, and (B) the remainder of each such CD Rate Tranche shall
have an Interest Period determined as set forth above; and
(iii) no Interest Period shall extend past the Termination
Date.
INVENTORY MINERAL INTERESTS means all present and future Mineral Interests
that are not Proved Mineral Interests and which are now owned or hereafter
acquired and held in inventory by any Company for exploratory purposes.
INVESTMENT in any Person means any investment, whether by means of
securities purchase (whether by direct purchase from such Person or from an
existing holder of securities of such Person), loan, advance, extension of
credit, capital contribution or otherwise, in or to such Person, the guaranty of
any Debt or other obligations of such Person, or the subordination of any claim
against such Person to other Debt or other obligation of such Person; provided,
that, "Investments" shall not include advances made to employees of such Person
for reasonable travel, entertainment and similar expenses incurred in the
ordinary course of business or trade credit extended in the ordinary course of
business.
IRC means the Internal Revenue Code of 1986, as amended, and the
regulations, promulgations, and rulings issued thereunder.
JEDI means Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership and an affiliate of Enron Capital and Trade
Resources Corp.
JEDI SUBORDINATE DEBT means senior subordinate debt of Coda Acquisition to
JEDI in the original principal amount of $100,000,000 to be incurred pursuant
to, and evidenced by, the JEDI Subordinate Debt Documents which JEDI Subordinate
Debt shall be assumed by Borrower pursuant to the Merger.
JEDI SUBORDINATE DEBT DOCUMENTS means the JEDI Subordinate Loan Agreement
and all promissory notes and other documents, instruments and agreements
executed and delivered pursuant to the JEDI Subordinate Loan Agreement
evidencing, securing, guaranteeing or
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<PAGE>
otherwise pertaining to the JEDI Subordinate Debt, as the foregoing may be
amended, modified, renewed, extended or supplemented from time to time to the
extent permitted hereunder.
JEDI SUBORDINATE LOAN AGREEMENT means that certain Credit, Subordination
and Further Assurances Agreement dated as of February 16, 1996, by and between
Coda Acquisition and JEDI.
LAWS means all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of any state, commonwealth, nation, territory,
possession, county, township, parish, municipality, or Tribunal.
LENDING OFFICE means, as to any Bank, its Domestic Lending Office or its
Eurodollar Lending Office, as the context may require.
LETTERS OF CREDIT means letters of credit issued for the account of
Borrower or any of its Subsidiaries pursuant to SECTION 2.2.
LETTER OF CREDIT EXPOSURE means the unfunded portion and the funded but
unreimbursed portion of Letters of Credit outstanding at any time.
LIEN means any lien, mortgage, security interest, pledge, charge, or
encumbrance of any kind, including, without limitation, the Rights of a vendor,
lessor, or similar party under any conditional sales agreement (or other title
retention agreement or lease substantially equivalent thereto), any production
payment, and any other Right of, or arrangement with, any creditor to have his
claim satisfied out of any property or assets, or the proceeds therefrom, prior
to the general creditors of the owner thereof.
LITIGATION means any proceeding, claim, lawsuit, or investigation (a)
conducted or threatened by or before any Tribunal, or (b) pending before any
public or private arbitration board or panel.
LOAN means the revolving credit loan made by Banks to Borrower pursuant to
the Commitment.
LOAN PAPERS means (a) this Agreement, (b) any and all notes, mortgages,
deeds of trust, security agreements, guarantees, assignments, and other
agreements, documents, and instruments ever delivered pursuant to this
Agreement, as any of the same may hereafter be amended, supplemented, or
restated, and (c) any and all future renewals and extensions or restatements of,
or amendments or supplements to, all or any part of the foregoing.
LONDON INTERBANK OFFERED RATE applicable to any Interest Period means the
rate per annum determined by Agent (rounded upward, if necessary, to the next
higher 1/16 of 1%) at which deposits in dollars are offered to Agent by first
class banks in the London interbank market
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at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days
before the first day of such Interest Period in an amount approximately equal to
the principal amount of the Eurodollar Loan to which such Interest Period is to
apply and for a period of time comparable to such Interest Period. Agent shall
determine the London Interbank Offered Rate and shall notify Borrower and Banks
as soon as practicable.
LONG TERM DEBT means any Debt which matures more than one (1) year from the
date it is incurred or which has a maturity date which can be extended solely at
the option of the obligor to a date more than one (1) year from the date it is
incurred.
LONG TERM HEDGE TRANSACTIONS means Hedge Transactions which, as of any date
of determination, have a remaining term (excluding any period prior to the
effective date of such transaction) of three (3) years or more or which can be
extended at the option of any Company to a date three (3) years or more from the
date of determination (again excluding any period prior to the effective date of
such transaction).
MAJORITY BANKS means Banks holding greater than sixty-six and two-thirds
percent (66%) of the Total Commitment.
MANAGEMENT INVESTMENT means the investment by the Management Investors (a)
in an aggregate amount of not less than $3,622,700 in (i) Coda Acquisition (any
such investment in Coda Acquisition shall be in the form of a contribution of
(A) cash, (B) common stock of Borrower, or (C) options and warrants to acquire
common stock of Borrower [for purposes of this definition such common stock
shall be valued at $7.75 per share, and such options and warrants shall be
valued at $7.75 per underlying share less the exercise or strike price per share
----
for such options and warrants]), and/or (ii) Borrower (any such investments in
Borrower shall be in the form of a contribution of cash), and (b) in an
aggregate amount of $937,800 in Borrower in the form of a contribution to
Borrower of Management Investor Notes.
MANAGEMENT INVESTOR NOTES means limited recourse promissory notes in the
aggregate amount of $937,800 to be executed by Management Investors and payable
to the order of Borrower evidencing the purchase price payable by such
Management Investors for common stock of Borrower (or options or warrants to
acquire common stock of Borrower) purchased from Borrower as a part of the
Management Investment.
MANAGEMENT INVESTORS means certain officers and employees of Borrower and
Designated Subsidiaries which make Management Investments in Borrower as part of
the Closing Transactions.
MATERIAL ADVERSE EVENT means any set of circumstances or events which (a)
will or could reasonably be expected to have any adverse effect whatsoever upon
the validity, or enforceability of any Loan Paper, (b) is or could reasonably be
expected to be material and adverse to the financial condition or business
operations of any Company, as represented to Banks in the Current
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Financials, or to the prospects of any Company, (c) will or could reasonably be
expected to impair any Company's ability to fulfill its obligations under the
terms and conditions of the Loan Papers, or (d) will or could reasonably be
expected to cause a Default or a Potential Default.
MATERIAL AGREEMENT of any Person means any material written or oral
agreement, contract, commitment, or understanding to which such Person is a
party, by which such Person is directly or indirectly bound, or to which any
assets of such Person may be subject, which is not cancelable by such Person
upon sixty (60) days or less notice without liability for further payment other
than nominal penalty.
MERGER means the merger of Coda Acquisition into Borrower (with Borrower
being the surviving corporation) in accordance with the Merger Agreement and
pursuant thereto (a) the conversion of all then outstanding shares of Borrower's
common stock, par value $.02 per share (other than shares owned by Coda
Acquisition or any Company) into the right to receive, in cash, $7.75 per share
(subject to statutory appraisal rights of dissenting shareholders), (b) the
conversion of all outstanding options or warrants (other than the "Specified
Options" and "Specified Warrants" as defined in the Merger Agreement) to acquire
shares of Borrower's common stock, par value $.02 per share, into the right to
receive the remainder of (i) $7.75 per share, less (ii) the per share exercise
or strike price of such options or warrants, and (c) approximately 98.5% of the
issued and outstanding common stock of Borrower (on an undiluted basis or
approximately 95% on a Fully Diluted Basis) will be owned by JEDI.
MERGER AGREEMENT means that certain Agreement and Plan of Merger dated as
of October 30, 1995, as amended by that certain Amendment to Agreement and Plan
of Merger dated as of December 22, 1995, and that certain Second Amendment to
Agreement and Plan of Merger dated as of January 10, 1996, by and among
Borrower, Coda Acquisition and JEDI.
MILLER means Douglas H. Miller.
MINERAL INTERESTS means Rights, estates, titles, and interests in and to
oil, gas, sulphur, or other mineral (or any combination thereof) leases (and all
extensions, amendments, ratifications, and subleases thereof or thereunder) and
any mineral interests, royalty and overriding royalty interests, production
payment and net profits interests, mineral fee interests, and Rights therein,
including, without limitation, any reversionary or carried interests relating to
the foregoing, together with Rights, titles, and interests created by or arising
under the terms of any unitization, communization, and pooling agreements or
arrangements, and all properties, Rights, and interests covered thereby, whether
arising by contract, by order, or by operation of Law, which now or hereafter
include all or any part of the foregoing.
MORTGAGE means, collectively, (a) a Mortgage, Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production, (b) a Financing
Statement, and (c) such other affidavits, certificates, documents, instruments
and agreements as Agent shall reasonably request to subject Subject Mineral
Interests to first and prior Bank Liens to secure the Obligation. Each
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Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment
of Production encumbering Mineral Interests required to be delivered hereunder
shall be substantially in the form of EXHIBIT E-1 attached hereto, and each
Financing Statement encumbering Mineral Interests required to be delivered
hereunder shall be substantially in the form of EXHIBIT E-2 attached hereto, in
each case with such changes as Agent shall reasonably request.
MORTGAGE RECORDATION EVENT means any of the following: (a) the failure of
Borrower to make any payment required pursuant to SECTION 2.3, (b) the failure
of Borrower to eliminate at least eighty percent (80%) of any Borrowing Base
Deficiency resulting from a redetermination of the Borrowing Base within ninety
(90) days following the date of such redetermination, (c) the amount of Cash
Collateral securing Hedge Transactions exceeds twenty percent (20%) of the
Borrowing Base at any time, (d) the occurrence of any Default, or (e) the
occurrence of any Material Adverse Event.
MORTGAGED PROPERTY RESERVE SUMMARY means the Interests and Reserves Summary
attached hereto as SCHEDULE 1.3 setting forth certain engineering and financial
information with respect to the Initial Mortgaged Properties.
NOTE means, with respect to a Bank, the Note to be issued to such Bank
evidencing such Bank's Commitment in the form and upon the terms of EXHIBIT F
attached hereto.
NOTICE OF ADVANCE means the Notice of Advance in the form and upon the
terms of EXHIBIT G attached hereto.
OBLIGATION means all present and future indebtedness, obligations, and
liabilities, and all renewals and extensions thereof, or any part thereof, now
or hereafter owed to any Bank by any Company, arising from, by virtue of, or
pursuant to any Loan Paper, or otherwise, together with all interest accruing
thereon and reasonable costs, expenses, and attorneys' fees incurred in the
enforcement or collection thereof, whether such indebtedness, obligations, and
liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several or were, prior to acquisition thereof by
such Bank, owed to some other Person, including without limitation (a) the
indebtedness, obligations and liabilities evidenced by that certain Promissory
Note dated December 24, 1992, executed by Borrower and payable to NationsBank of
Texas, N.A. in the stated principal amount of $910,000 having a final maturity
date of December 31, 1995, as amended by that certain Amendment to Promissory
Note dated as of February 24, 1995, executed by and between Borrower and
NationsBank of Texas, N.A., pursuant to which the maturity date of such
promissory note was extended to January 2, 1998, together with all renewals,
extensions, modifications and increases to such promissory note, (b) all
indebtedness, obligations and liabilities owing by any Company to any Bank under
or in connection with any Hedge Transactions, (c) all indebtedness, obligations
and liabilities owing by any Company to any Bank under or in connection with any
interest rate swap, cap, collar hedge or other interest rate protection device,
and (d) all indebtedness, obligations and liabilities owing by any Company
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<PAGE>
to any Bank under or in connection with any other financial "derivative" product
provided by any Bank to Borrower.
PARTICIPANT means any Person to which a participation in the Obligation is
sold.
PBGC means the Pension Benefit Guaranty Corporation, or any successor
thereof, established pursuant to ERISA.
PERMITTED CONTRACTUAL OBLIGATIONS means (a) the Obligation, (b) the JEDI
Subordinate Debt, (c) subject to SECTION 8.12 hereof, the Public Subordinate
Debt, (d) the Contractual Obligations described in SCHEDULE 6.13 and renewals
thereof (excluding, however, Contractual Obligations set forth under paragraph C
of Part II of such SCHEDULE 6.13), (e) obligations to pay Taxes, (f) accounts
payable in the ordinary course of business, (g) salaries and wages, (h) prior
assignments reserving interests, grants of overrides, standard form operating
agreements, fully executed farmout agreements, fully performed joint venture
agreements, oil and gas leases, surface leases, and turnkey drilling contracts
with respect to Subject Mineral Interests, (i) obligations under interest rate
swaps, caps, collars and similar interest rate protection devices, and (j)
obligations under Permitted Hedge Transactions.
PERMITTED HEDGE TRANSACTIONS means Hedge Transactions pursuant to which the
Companies hedge the price to be received for up to, but not in excess of,
seventy-five percent (75%) of the anticipated future production for the
Companies' account of Hydrocarbons from (i) Proved Mineral Interests owned by
the Companies as set forth in the Engineering Report (or any other engineering
report provided to Banks and approved by Majority Banks), and (ii) the operation
of Related Assets owned by the Companies as set forth in the Related Asset
Report (or any other engineering report provided to Banks and approved by
Majority Banks); provided, that, for purposes of determining the volume of
Hydrocarbons which may be the subject of Hedge Transactions for such
transactions to be considered Permitted Hedge Transactions, the anticipated
future production of Hydrocarbons from the operation of Related Assets will be
excluded to the extent such anticipated future production is attributable to the
transportation, processing or refining of Hydrocarbons which are not Dedicated
at the time such determination is made.
PERMITTED INVESTMENTS means (a) readily marketable direct obligations of
the United States of America, (b) fully insured time deposits and certificates
of deposit with maturities of one (1) year or less of any commercial bank
operating in the United States having capital and surplus in excess of
$50,000,000.00, (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories of
Standard and Poor's Corporation or Moody's Investors Service, (d) Investments
described on SCHEDULE 6.20, which, with the exception of Investments consisting
of Management Investor Notes, are made prior to the date hereof, (e) Investments
in Designated Subsidiaries and in Persons which, simultaneously with such
Investment, become Designated Subsidiaries, and (f) Investments made after the
Closing Date (in addition to those referred to in Subsections (a), (b), (c), (d)
and (e) of this
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<PAGE>
definition) measured at cost and not exceeding an aggregate amount, at any time
outstanding, of five percent (5%) of the Borrowing Base at such time.
PERMITTED LIENS means (a) Bank Liens, (b) Liens securing any purchase money
obligation which is a Permitted Contractual Obligation if such Liens do not
encumber any property other than the property for which such purchase money
obligation was incurred, (c) Liens related to any capitalized lease which is a
Permitted Contractual Obligation if such Liens encumber only the property
demised by such lease, (d) the Liens described in SCHEDULE 6.11 and renewals
thereof (provided that upon any such renewal, such Liens shall not secure any
additional Debt), (e) Liens encumbering Cash Collateral securing Hedge
Transactions; provided, that, the amount of Cash Collateral securing Hedge
Transactions (including the amount of Letters of Credit securing Hedge
Transactions) at any time shall not exceed twenty five percent (25%) of the
Borrowing Base in effect at such time, (f) pledges or deposits made to secure
payment of worker's compensation, or to participate in any fund in connection
with worker's compensation, unemployment insurance, pensions, or other social
security programs, (g) good-faith pledges or deposits made to secure performance
of bids, tenders, contracts (other than for the repayment of borrowed money), or
leases, not in excess of ten percent (10%) of the aggregate amount due
thereunder, or to secure statutory obligations, surety or appeal bonds, or
indemnity, performance, or other similar bonds in the ordinary course of
business, (h) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of Related Assets, none of which impair the use of
such Related Assets by the Person in question in the operation of its business,
and none of which is violated by existing or proposed structures or land use,
(i) Rights of royalty owners to receive payments, (j) in respect of Subject
Mineral Interests and Related Assets, defects in title thereto which do not
affect the marketability thereof nor restrict the full use and other benefits of
ownership by Borrower and its Designated Subsidiaries or the ability of Borrower
and its Designated Subsidiaries to receive their respective shares of production
from, allocated to, or attributable to such Subject Mineral Interests as
otherwise represented herein, (k) the following to the extent no Lien has been
filed in any jurisdiction or agreed to: Liens for Taxes not yet due and
payable; mechanic's Liens and materialman's Liens for services or materials for
which payment is not yet due; and landlord's Liens for rental not yet due and
payable and which, to the extent the same encumbers any of the Collateral, is
subordinate to the Bank Liens, and (l) the following, if the validity or amount
thereof is being contested in good faith and by appropriate and lawful
proceedings and so long as levy and execution thereon have been stayed and
continue to be stayed, and they do not in the aggregate materially detract from
the value of the property of the Person in question, or materially impair the
use thereof in the operation of its business: claims and Liens for Taxes due
and payable; claims and Liens upon, and defects of title to, real or personal
property (other than any Related Asset or any Subject Mineral Interests)
including any attachment of personal or real property or other legal process
prior to adjudication of a dispute on the merits; claims and Liens of mechanics,
materialmen, warehousemen, carriers, landlords, operators and non-operators
arising by virtue of operating or joint operating agreements, or other like
Liens; and adverse judgments on appeal.
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<PAGE>
PERSON means any individual, firm, corporation, association, partnership,
joint venture, Tribunal, or other entity.
POTENTIAL DEFAULT means the occurrence of any event which, with notice or
lapse of time or both, could become a Default.
PREFERRED STOCK means Borrower's Preferred Stock, $.01 par value per share,
which will be authorized upon adoption and filing of the Restated Certificate of
Incorporation.
PRINCIPAL DEBT means, as of a point in time, the aggregate unpaid principal
balance of all Advances hereunder.
PRO FORMA BALANCE SHEET means Borrower's Pro Forma Consolidated Balance
Sheet, a copy of which is attached hereto as SCHEDULE 1.2, which reflects
Borrower's assets, liabilities and shareholder's equity as of December 31, 1995
adjusted to give effect to the Closing Transactions.
PROPERTY means any interest in any kind of property or asset, whether real,
personal, or mixed, or tangible or intangible.
PROVED MINERAL INTERESTS means Proved Producing Mineral Interests, Proved
Nonproducing Mineral Interests, and Proved Undeveloped Mineral Interests.
PROVED NONPRODUCING MINERAL INTERESTS means all Subject Mineral Interests
which constitute proved developed nonproducing reserves.
PROVED PRODUCING MINERAL INTERESTS means all Subject Mineral Interests
(including all acreage subject to such Subject Mineral Interests that may be
perpetuated beyond the primary term therefor) which constitute proved developed
producing reserves.
PROVED UNDEVELOPED MINERAL INTERESTS means all Subject Mineral Interests
which constitute proved undeveloped reserves.
PUBLIC SUBORDINATE DEBT has the meaning given such term in SECTION 8.12
hereof.
PUBLIC SUBORDINATE DEBT DOCUMENTS means any and all indentures, loan
agreements, promissory notes, bonds, guarantees, or other documents, instruments
or agreements evidencing, securing, guaranteeing or otherwise pertaining to the
Public Subordinate Debt as the foregoing may be amended, modified, renewed,
extended or supplemented from time to time to the extent permitted hereunder.
RATABLE, RATABLE SHARE, RATABLE BENEFIT and words of similar import shall
mean with reference to any Advance, any payment or any right or obligation of
any Bank, a percentage of such Advance, payment, right or obligation equal to
such Bank's Commitment Percentage.
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REFINANCING ADVANCE means a Base Rate Advance to be made on the Closing
Date, which Advance shall, together with the Closing Repayment, be in an amount
sufficient to, and be applied to, repay in full (a) the aggregate outstanding
Principal Debt under the Existing Credit Agreement on the Closing Date, (b) the
aggregate amount of interest which has accrued under the Existing Credit
Agreement which is unpaid as of the Closing Date, (c) the aggregate amount of
fees which have accrued under SECTIONS 4.2 and 4.3 of the Existing Credit
Agreement which is unpaid as of the Closing Date, and (d) all losses which are
payable by Borrower to any Bank pursuant to SECTION 3.5 of the Existing Credit
Agreement as a result of the prepayment of Fixed Rate Tranches outstanding under
the Existing Credit Agreement prior to the last day of the Interest Period
applicable thereto.
RELATED ASSETS means all pipelines, gathering systems, compressors,
compressor stations, processing plants, refineries and similar assets owned by
Borrower and its Designated Subsidiaries used or usable in connection with the
processing, transportation and marketing of Hydrocarbons, including, without
limitation, (a) all easements, servitudes, leasehold interests, fee interests
and other interests in real property held by Borrower and its Designated
Subsidiaries on which such pipelines, gathering systems, compressors, compressor
stations, refineries and similar assets are located, (b) all machinery,
equipment, fixtures, tools, spare parts and other items of tangible personal
property owned by Borrower or any Designated Subsidiary located on, attached to,
forming a part of or otherwise used in connection with such pipelines, gathering
systems, compressors, compressor stations, refineries and similar assets, and
(c) all licenses, permits and other Rights held by Borrower and its Designated
Subsidiaries related to the ownership or operation of such pipelines, gathering
systems, compressors, compressor stations, refineries and similar assets.
RELATED ASSET REPORT means unsuperseded reports prepared by Borrower on the
basis of findings and data as of the last day of each fiscal year of Borrower
and on the basis of price and escalation parameters or assumptions acceptable to
Majority Banks, which report shall, among other things, (a) identify the Related
Assets which are the subject of such report, (b) set forth Borrower's opinion
with respect to the levels of through put for such Related Assets and the
projected volumes of Hydrocarbons to be produced for Borrower's and its
Designated Subsidiaries' own account in connection with the operation of such
Related Assets, and (c) specify Borrower's opinion with respect to the projected
future Cash Proceeds to Borrower and its Designated Subsidiaries resulting from
the ownership and operation of such Related Assets discounted for the present
value at a rate acceptable to Majority Banks for each calendar year or portion
thereof after the date of such findings and data. "Current Related Asset
Report" means the Related Asset Report prepared with respect to certain Related
Assets owned by Taurus as of January 18, 1995, by Borrower, correct and complete
copies of which have been furnished to each Bank.
RESTATED CERTIFICATE OF INCORPORATION means a Restated Certificate of
Incorporation of Borrower substantially in the form of Exhibit 2.1 to the Merger
Agreement which is to be
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adopted by the shareholders of Borrower and filed of record with the Secretary
of State of Delaware simultaneously with consummation of the Merger.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SCHEDULE means a schedule attached hereto unless specified otherwise.
SECTION means a section or subsection of this Agreement unless specified
otherwise.
SUBJECT MINERAL INTERESTS means all Mineral Interests owned by Borrower and
its Designated Subsidiaries at the time in question.
SUBSIDIARY means, as of a point in time, any Person of which an aggregate
of fifty percent (50%) or more of the stock of any class or classes (or
equivalent interests) is owned of record or beneficially, directly or
indirectly, by another Person or any of its Subsidiaries, if the holders of the
stock of such class or classes (or equivalent interests) (a) are ordinarily, in
the absence of contingencies, entitled to vote for the election of a majority of
the directors (or individuals performing similar functions) of such Person, even
though the Right so to vote has been suspended by the happening of such a
contingency, or (b) are entitled, as such holders, to vote for the election of a
majority of the directors (or individuals performing similar functions) of such
Person, whether or not the Right so to vote exists by reason of the happening of
a contingency.
TAURUS means Taurus Energy Corp., a Texas corporation and a wholly owned
Subsidiary of Borrower.
TAXES means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings, or other charges of any nature whatsoever from time to
time or at any time imposed by any Law or Tribunal.
TERMINATION DATE means February 16, 2001.
TOTAL COMMITMENT means the total of all Banks' Commitments.
TRANCHE means a CD Rate Tranche, a Eurodollar Tranche or a Base Rate
Tranche and TRANCHES means CD Rate Tranches, Eurodollar Tranches and Base Rate
Tranches or any combination thereof.
TRIBUNAL means any court or governmental department, commission, board,
bureau, agency, or instrumentality of the United States or of any state,
commonwealth, nation, territory, possession, county, parish, or municipality,
whether nor or hereafter constituted or existing.
UCC means the Uniform Commercial Code as enacted in the State of Texas or
other applicable jurisdiction, as amended.
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SECTION 2. COMMITMENT.
- --------- ----------
2.1 Revolving Credit Advances. Subject to and upon the terms and
-------------------------
conditions of this Agreement, each Bank severally agrees to loan to Borrower an
amount up to the amount of its Commitment reduced by an amount equal to its
Commitment Percentage of Letter of Credit Exposure in one or more Advances so
long as (a) the sum of (i) the Principal Debt, and (ii) the Letter of Credit
Exposure, never exceeds (b) the lesser of (i) the Total Commitment, or (ii) the
Borrowing Base; provided that, no Bank shall have an obligation to (y) make any
Base Rate Advance or CD Rate Advance, on a non-Domestic Business Day or on or
after the Termination Date, or (z) make any Eurodollar Advance on a non-
Eurodollar Business Day or on or after the Termination Date.
2.2 Letters of Credit. Agent, or such Bank designated by Agent which
-----------------
(without obligation to do so) consents to the same ("Issuer") will, from time to
time until the Termination Date, upon request by Borrower, issue Letters of
Credit for the account of Borrower or its Subsidiaries so long as (i) the sum of
(A) the Letter of Credit Exposure then existing, and (B) the amount of the
requested Letter of Credit, does not exceed twenty percent (20%) of the
Borrowing Base, and (ii) Borrower would be entitled to obtain Advances under
SECTION 2.1 in an amount equal to or greater than the amount of the requested
Letter of Credit. Not less than two (2) Domestic Business Days prior to the
requested date of issuance of any such Letter of Credit, Borrower and any
Subsidiary for whose account such Letter of Credit is to be issued shall execute
and deliver to Issuer such Issuer's customary letter of credit application.
Each Letter of Credit shall be in the minimum amount of $50,000 and shall be in
form and substance acceptable to Issuer. No Letter of Credit shall have an
expiration date later than the earlier of (i) the Termination Date, or (ii)
eighteen (18) months from the date of issuance. Upon the date of issuance of a
Letter of Credit, Issuer shall be deemed to have sold to each other Bank, and
each other Bank shall be deemed to have purchased from Issuer, a participation
in the related Letter of Credit and Letter of Credit Exposure equal to such
Bank's Commitment Percentage of such Letter of Credit and Letter of Credit
Exposure at such date. Issuer shall notify Agent and each Bank by telephone,
teletransmission or telex of each Letter of Credit issued pursuant to the terms
hereof, which notice shall specify such Bank's percentage of such Letter of
Credit and the actual dollar amount of such Bank's participation held by the
Issuer for such Bank's account and risk. If any Letter of Credit is presented
for payment by the beneficiary thereof, Agent shall cause a Base Rate Advance to
be made to reimburse Issuer for the payment under the Letter of Credit, whether
or not Borrower would then be entitled to an Advance pursuant to the terms
hereof, and each Bank shall be obligated to fund its Commitment Percentage of
each Base Rate Advance so made. At the time of issuance of each Letter of
Credit, Borrower shall pay to Agent a fee equal to one percent (1%) per annum
(based upon the amount and term of such Letter of Credit). Agent shall
distribute a portion of such fee equal to one-eighth of one percent (.125%) per
annum (based on the amount and term of such Letter of Credit), to the Issuer of
such Letter of Credit, and the remaining portion of such fee shall be paid to
the Banks ratably. Notwithstanding the foregoing, no Bank (nor Agent) shall
have an obligation to issue any Letter of Credit or
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participate in Letter of Credit Exposure on a non-Domestic Business Day or on or
after the Termination Date.
Upon the occurrence of any Default, Borrower shall, on the next succeeding
Domestic Business Day, deposit with Agent such funds as Agent may request, up to
a maximum amount equal to the existing Letter of Credit Exposure. Any funds so
deposited shall be held by Agent for the ratable benefit of all Banks as
security for the Obligation and Borrower will, in connection therewith, execute
and deliver such security agreements in form and substance satisfactory to Agent
which it may, in its discretion, require. As drafts or demands for payment are
presented under any Letter of Credit, Agent shall apply such funds to satisfy
such drafts or demands. When all Letters of Credit have expired and the
Obligation has been repaid in full (and no Bank has any obligation to make
further Advances or issue Letters of Credit hereunder) or such Default has been
cured to the satisfaction of Majority Banks, Agent shall release to Borrower any
remaining funds deposited under this SECTION 2.2.
Whenever Borrower is required to make deposits under this SECTION 2.2 and
fails to do so on the day such deposit is due, Agent or any Bank may, without
notice to Borrower, make such deposit (whether by transfers from other accounts
maintained with any Bank or otherwise) using any funds then available to any
Bank of Borrower, any guarantor, or any other person liable for all or any part
of the Principal Debt.
2.3 Borrowing Base
--------------
(a) The aggregate Borrowing Base in effect during the period
commencing on the Closing Date and ending on July 1, 1996 is $115,000,000.
The Borrowing Base shall be redetermined by the Banks as of July 1, 1996
and October 31, 1996, and as of each April 30 and October 31 thereafter (or
as of a date shortly thereafter to be designated by Agent in a notice to
Borrower). Any increase in the Borrowing Base upon any redetermination
thereof from the Borrowing Base in effect prior to such redetermination
shall require the unanimous agreement of all Banks and in the event all
Banks are unable to agree on the amount of such increase, the Borrowing
Base which becomes effective upon such redetermination shall be the higher
of (i) the Borrowing Base in effect prior to such redetermination, or (ii)
the Borrowing Base recommended by the Bank recommending the lowest
Borrowing Base. Any (i) decrease in the Borrowing Base upon any
redetermination thereof from the Borrowing Base in effect immediately prior
to such redetermination, or (ii) reaffirmation of the Borrowing Base upon
any redetermination thereof in effect immediately prior to such
redetermination, shall require the agreement of Majority Banks. In the
event Majority Banks are unable to agree on the amount of any decrease in
the Borrowing Base, the Borrowing Base which becomes effective upon such
redetermination shall be the Borrowing Base recommended by the Bank
recommending the lowest Borrowing Base. After each redetermination of the
Borrowing Base, Agent shall promptly notify Borrower of the redetermined
Borrowing Base. In addition to the redetermination of the Borrowing Base
on July 1, 1996 and the semi-
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annual redeterminations of the Borrowing Base required by this SECTION
2.3(A), the Borrowing Base shall be redetermined upon (i) a sale or other
disposition of the capital stock or assets of Taurus, (ii) the issuance of
the Public Subordinate Debt if the principal amount thereof is greater than
$100,000,000, or (iii) receipt by Agent or any Bank of notification from
Borrower that Borrower does not intend to issue the Public Subordinate Debt
(and apply the proceeds thereof to refinance the JEDI Subordinate Debt), or
that Borrower intends to defer issuance of the Public Subordinate Debt
until after July 1, 1996; provided, that, nothing contained in this
sentence shall be construed as the consent or agreement of any Bank to any
transaction not permitted by SECTION 8 hereof. Borrower acknowledges that
Banks have agreed to the $115,000,000 Borrowing Base effective upon the
Closing Date based upon the expectation that prior to July 1, 1996,
Borrower will refinance the JEDI Subordinate Debt with Public Subordinate
Debt having the terms set forth in SECTION 8.12 hereof and otherwise having
terms reasonably acceptable to Majority Banks. Without limiting the
discretion of the Banks to determine the Borrowing Base or to grant or
withhold their approval to the issuance of the Public Subordinate Debt in
accordance with SECTION 8.12 hereof, Borrower acknowledges that upon a
redetermination of the Borrowing Base (i) pursuant to clause (iii) of the
immediately preceding sentence, or (ii) on July 1, 1996 (if, at that time,
Borrower has not refinanced the JEDI Subordinate Debt by issuing the Public
Subordinate Debt) the Borrowing Base will be reduced by such amount as the
Banks (or the requisite percentage thereof) deem appropriate to compensate
for the less favorable debt service requirements of the JEDI Subordinate
Debt compared to those anticipated in respect of the Public Subordinate
Debt.
(b) If a Borrowing Base Deficiency ever exists, then at the request
of any Bank, Agent shall make demand upon Borrower pursuant to this SECTION
2.3(B), and Borrower shall, on or before the 30th day after such demand at
Borrower's option, (i) eliminate such Borrowing Base Deficiency in its
entirety by making a mandatory prepayment of the Principal Debt in the
amount of such Borrowing Base Deficiency; provided, that if such Borrowing
Base Deficiency is not eliminated by prepaying the Principal Debt in full
(as a result of outstanding Letter of Credit Exposure), Borrower shall
deposit sufficient funds with Agent, to be held by Agent to secure
outstanding Letter of Credit Exposure in the manner contemplated by SECTION
2.2, to eliminate such Borrowing Base Deficiency, or (ii) provide written
notice to each Bank that Borrower intends to eliminate such Borrowing Base
Deficiency by making mandatory prepayments of the Principal Debt in equal,
consecutive monthly installments in an amount sufficient to eliminate such
Borrowing Base Deficiency in its entirety on or prior to the next scheduled
Borrowing Base redetermination required by SECTION 2.3(A). In the event
Borrower delivers such notice, Borrower shall thereafter be obligated to
make such installment payments, and the first such installment shall be due
simultaneously with such notice, and each subsequent installment shall be
due on the same day of each month thereafter (or the last day of each month
thereafter if there is no corresponding day in such subsequent months)
until such Borrowing Base Deficiency is eliminated. In the event Borrower
elects to eliminate such Borrowing Base Deficiency in the manner
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contemplated by clause (ii) of this SECTION 2.3(B), but such Borrowing Base
Deficiency cannot be eliminated by prepaying the Principal Debt in full (as
a result of outstanding Letter of Credit Exposure), on the date that each
principal installment is due pursuant to such clause (ii), Borrower shall
also deposit sufficient funds with Agent, to be held by Agent to secure
outstanding Letter of Credit Exposure in the manner contemplated by the
second paragraph of SECTION 2.2, to eliminate such Borrowing Base
Deficiency prior to the next scheduled redetermination of the Borrowing
Base. The funds so deposited by Borrower, together with each principal
installment, shall be at least equal to the quotient obtained by dividing
(x) the number of installments required to be made by Borrower pursuant to
such clause (ii) prior to the next Borrowing Base redetermination, by (y)
the aggregate amount of funds which must be so deposited to fully eliminate
such Borrowing Base Deficiency. Notwithstanding Borrower's right to
eliminate any Borrowing Base Deficiency in the manner contemplated by
clause (ii) of this SECTION 2.3(B), Borrower's failure to eliminate at
least eighty percent (80%) of any Borrowing Base Deficiency through
principal reductions within ninety (90) days after the redetermination of
the Borrowing Base which resulted in such Borrowing Base Deficiency shall
constitute a Mortgage Recordation Event.
2.4 Borrowing Procedure.
-------------------
(a) In the case of each Advance other than the Refinancing Advance,
Borrower shall give Agent notice (a "Notice of Advance") prior to 12:00
noon (Dallas, Texas time) (i) at least one (1) Domestic Business Day prior
to each Base Rate Advance and CD Rate Advance, and (ii) at least two (2)
Eurodollar Business Days prior to each Eurodollar Advance. Each Notice of
Advance shall be substantially in the form of EXHIBIT G attached hereto,
and shall specify (i) the date such Advance is requested, which shall be a
Domestic Business Day in the case of a Base Rate Advance or a CD Rate
Advance, or a Eurodollar Business Day in the case of a Eurodollar Advance;
(ii) the aggregate amount of such Advance; (iii) whether such Advance is
to be a Base Rate Advance, a CD Rate Advance or a Eurodollar Advance; and
(iv) in the case of a CD Rate Advance or Eurodollar Advance, the duration
of the Interest Period applicable thereto (subject to the provisions of the
definition of Interest Period). Borrower is hereby deemed to have
requested that the Refinancing Advance be made on the Closing Date, and it
is not necessary that Borrower issue any Notice of Borrowing in respect
thereof.
(b) Upon receipt of a Notice of Advance, Agent shall promptly notify
each Bank of the contents thereof and of such Bank's ratable share of the
Advance requested therein, and such Notice of Advance shall not thereafter
be revocable by Borrower.
(c) Not later than 11:00 a.m. (Dallas, Texas time) on the date such
Advance is requested, each Bank shall make available its ratable share of
such Advance, in Federal or other funds immediately available in Dallas,
Texas to Agent at its address set forth on SCHEDULE 1.1 hereto. Unless
Agent determines that any applicable condition specified in
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SECTION 7.2 has not been satisfied, Agent will make the funds so received
from Banks available to Borrower at Agent's address set forth on SCHEDULE
1.1 hereto. Notwithstanding the foregoing, in the case of the Refinancing
Advance, each Bank shall only be required to make available to Agent
pursuant to this SECTION 2.4 the positive remainder of (i) such Bank's
Commitment Percentage of the Refinancing Advance, minus (ii) the aggregate
amount of Principal Debt, accrued but unpaid interest, accrued but unpaid
fees and unreimbursed losses due and owing to such Bank under the Existing
Credit Agreement on the Closing Date and to be paid to such Bank pursuant
to the definitions of "Refinancing Advance" and "Closing Repayment" and
SECTION 13.18 hereof.
2.5 Procedure for Requesting Letters of Credit.
------------------------------------------
(a) Borrower shall give Agent notice (a "Request for Letter of
Credit") prior to 12:00 noon (Dallas, Texas time) at least two (2) Domestic
Business Days before the date Borrower requests that a Letter of Credit be
issued. Each Request for Letter of Credit shall be substantially in the
form of EXHIBIT H attached hereto and shall specify the date such Letter of
Credit is to be issued. Each Request for Letter of Credit shall be
accompanied by the executed, complete letter of credit application and
agreement referenced in SECTION 2.2.
(b) Upon receipt of a Request for Letter of Credit, Agent shall
promptly notify each Bank of the contents thereof and of the material
provisions of the related letter of credit application and agreement.
Agent shall provide a copy of the Request for Letter of Credit and the
original counterpart of the letter of credit application and agreement to
the proposed Issuer.
(c) Provided that the proposed Issuer agrees to issue the requested
Letter of Credit, and provided further that Agent has not determined that a
condition to such issuance referred to in SECTION 7.2 has not been
satisfied, not later than 11:00 a.m. (Dallas, Texas time) on the date
Borrower requests that such Letter of Credit be issued, the Issuer shall
issue such Letter of Credit and deliver the same to the beneficiary thereof
and shall promptly thereafter provide to each other Bank and Agent the
notice required by SECTION 2.2 with respect to such Letter of Credit.
2.6 Reduction or Cancellation. Borrower may at its option at any time,
-------------------------
upon giving five (5) Domestic Business Days prior written notice to Agent,
effective as of the date specified in such notice and with no Right of
reinstatement, either (a) terminate in whole the Total Commitment, or (b) reduce
in part the Total Commitment; provided that any such reduction in part must be
at least $1,000,000; and provided further that Borrower shall not be permitted
to reduce the Total Commitment to an amount less than the Letter of Credit
Exposure at such time. Any reduction in the Total Commitment shall reduce the
Commitment of each Bank ratably.
SECTION 3. TERMS OF PAYMENT.
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3.1 Notes; Payments. The Principal Debt and interest thereon shall be
---------------
evidenced by, and due and payable in accordance with, the Notes. Each Note
shall provide for the principal and interest payments specifically contemplated
by this SECTION 3. Borrower shall make each payment of principal of, and
interest on, all Notes and all fees payable hereunder not later than 12:00 noon
(Dallas, Texas time) on the date when due, in Federal or other funds immediately
available in Dallas, Texas to Agent at its address set forth on SCHEDULE 1.1
hereto. Agent will promptly distribute to each Bank its ratable share of each
such payment received by Agent for the account of Banks. If a payment is due on
a day which is not a Domestic Business Day, Borrower shall be entitled to delay
such payment until the next succeeding Domestic Business Day, but interest shall
continue to accrue until the payment is made; provided, however, with respect to
-----------------
any payment of any Principal Debt which is the subject of a Eurodollar Tranche
(or any payment of interest thereon), if a payment is due on a day which is not
a Eurodollar Business Day, Borrower shall be entitled to delay such payment
until the next succeeding Eurodollar Business Day, but interest shall continue
to accrue until the payment is made.
3.2 Interest.
--------
(a) The Principal Debt outstanding from day to day which is the
subject of a Base Rate Tranche shall bear interest at a rate per annum
which shall from day to day be equal to the lesser of (i) the sum of the
Applicable Margin plus the Base Rate in effect from day to day or (ii) the
Highest Lawful Rate. The rate contemplated by this SECTION 3.2(A) shall
change, without notice to any Company, upon the effective date of each
change in the Base Rate or the Highest Lawful Rate, as the case may be.
(b) The Principal Debt outstanding from day to day which is the
subject of a Eurodollar Tranche shall bear interest for the Interest Period
applicable thereto at a rate per annum which shall be equal to the lesser
of (i) the sum of the Applicable Margin plus the Adjusted London Interbank
Offered Rate, or (ii) the Highest Lawful Rate.
(c) The Principal Debt outstanding from day to day which is the
subject of a CD Rate Tranche shall bear interest for the Interest Period
applicable thereto at a rate per annum equal to the lesser of (i) the sum
of the Applicable Margin plus the Adjusted CD Rate, or (ii) the Highest
Lawful Rate.
(d) So long as no Default shall be continuing, subject to the
provisions of this SECTION 3.2, Borrower shall have the option of having
all or any portion of the Principal Debt be the subject of a Base Rate
Tranche, one (1) or more CD Rate Tranches, or one (1) or more Eurodollar
Tranches, which shall bear interest at rates based upon the Base Rate, the
Adjusted CD Rate and the Adjusted London Interbank Offered Rate,
respectively (each such option is referred to herein as an "INTEREST
OPTION"); provided, that each Fixed Rate Tranche shall be in a minimum
amount of $500,000 and shall be in an amount which is an integral multiple
of $100,000. Each change in an Interest Option made pursuant to this
SECTION 3.2(D) shall be deemed both a payment in full of the portion of
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the Principal Debt which was the subject of the Base Rate Tranche, CD Rate
Tranche or Eurodollar Tranche from which such change was made and an
Advance (notwithstanding that the unpaid principal amount of the Loan is
not changed thereby) of Principal Debt which is the subject of the Base
Rate Tranche, CD Rate Tranche or Eurodollar Tranche into which such change
was made. Prior to the termination of each Interest Period with respect to
each Fixed Rate Tranche, Borrower shall give written notice (a "ROLLOVER
NOTICE") in the form of EXHIBIT I attached hereto to Agent of the Interest
Option which shall be applicable to such portion of the Principal Debt upon
the expiration of such Interest Period. Such Rollover Notice shall be
given to Agent at least one (1) Domestic Business Day, in the case of a CD
Rate Tranche or Base Rate Tranche selection, or two (2) Eurodollar Business
Days, in the case of a Eurodollar Tranche selection, prior to the
termination of the Interest Period then expiring. If Borrower shall
specify a Fixed Rate Tranche, such Rollover Notice shall also specify the
length of the succeeding Interest Period (subject to the provisions of the
definitions of such term), selected by Borrower. Each Rollover Notice
shall be irrevocable and effective upon notification thereof to Agent. If
the required Rollover Notice shall not have been timely received by Agent,
Borrower shall be deemed to have elected that the Principal Debt which is
the subject of the Interest Period then expiring be the subject of a Base
Rate Tranche upon the expiration of such Interest Period and Borrower will
be deemed to have given Agent notice of such election. Subject to the
limitations on the minimum amount of Fixed Rate Tranches, Borrower shall
have the right to convert each Base Rate Tranche to a Fixed Rate Tranche by
giving Agent a Rollover Notice of such election at least one (1) Business
Day, in the case of CD Rate Tranche selection, or two (2) Eurodollar
Business Days, in the case of the Eurodollar Tranche selection, prior to
the date on which Borrower elects to make such conversion (a "CONVERSION
DATE"). The Conversion Date selected by Borrower shall be a Domestic
Business Day in the case of a conversion to a CD Rate Tranche, and a
Eurodollar Business Day in the case of a conversion to a Eurodollar
Tranche. Notwithstanding anything in this SECTION 3.2 to the contrary, no
portion of the Principal Debt which is the subject of a Base Rate Tranche
may be converted to a Eurodollar Tranche, no portion of the Principal Debt
which is the subject of a Eurodollar Tranche may be converted to a CD Rate
Tranche, no portion of the Principal Debt which is the subject of a CD Rate
Tranche may be converted to a Eurodollar Tranche and no Eurodollar Tranche
or CD Rate Tranche may be continued as such when any Default or Potential
Default has occurred and is continuing, but each such Tranche shall be
automatically converted to a Base Rate Tranche on the last day of each
applicable Interest Period. Pursuant to the first sentence of this SECTION
3.2(D), Borrower is prohibited from effecting a conversion of the Principal
Debt to a Fixed Rate Tranche at any time a Default shall be continuing.
Borrower further agrees that Borrower will be prohibited, at any time a
Potential Default shall be continuing, from (i) converting any Base Rate
Tranche into a Fixed Rate Tranche with an Interest Period exceeding thirty
(30) days or (ii) rolling over any Fixed Rate Tranche into a new Fixed Rate
Tranche with an Interest Period exceeding thirty (30) days.
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(e) During the continuance of a Default, interest shall, at the
option of Majority Banks, accrue on the Principal Debt and, to the extent
permitted by applicable Law, on accrued but unpaid interest, at the Default
Rate.
(f) Interest which accrues on that portion of the Principal Debt
which is the subject of a Base Rate Tranche shall be payable on March 31,
1996 and on each June 30, September 30, December 31 and March 31
thereafter. Interest which accrues on that portion of the Principal Debt
which is the subject of a CD Rate Tranche with an Interest Period of ninety
(90) days or less or a Eurodollar Tranche with an Interest Period of three
(3) months or less shall be payable on the expiration of such Interest
Period. Interest which accrues on that portion of the Principal Debt which
is the subject of a CD Rate Tranche with an Interest Period of greater than
ninety (90) days or a Eurodollar Tranche with an Interest Period of greater
than three (3) months shall be payable on the expiration of such Interest
Period and on each March 31, June 30, September 30 and December 31 during
the term of such Interest Period.
(g) Interest payable hereunder shall be calculated on the basis of
actual days elapsed, but computed as if each calendar year consisted of 360
days.
(h) Notwithstanding the foregoing, if at any time the rate calculated
with reference to the Base Rate, the Adjusted CD Rate or the Adjusted
London Interbank Offered Rate hereunder (the "Contract Rate") is limited to
the Highest Lawful Rate, any subsequent reductions in the Contract Rate
shall not reduce the rate on the Principal Debt below the Highest Lawful
Rate until the total amount of interest paid and accrued equals the amount
of interest which would have accrued if the Contract Rate had at all times
been in effect. In the event that at maturity (stated or by acceleration),
or at final payment of the Notes, the total amount of interest paid and
accrued is less than the amount of interest which would have accrued if the
Contract Rate had at all times been in effect, then, at such time and to
the extent permitted by Law, Borrower shall pay to Agent for the ratable
benefit of Banks an amount equal to the difference between (i) the lesser
of the amount of interest which would have accrued if the Contract Rate had
at all times been in effect and the amount of interest which would have
accrued if the Highest Lawful Rate had at all times been in effect, and
(ii) the amount of interest actually paid or accrued on the Notes.
(i) Interest calculations may be made ten (10) (or less) days prior
to any due date. If there is an adjustment in the interest rate in
accordance with the terms hereof during such ten-day (or shorter) period,
then the interest payable for the succeeding period will be adjusted
appropriately or if such installment were the last installment of interest
under the applicable Note, Borrower shall subsequently, on demand, pay to
Agent for the ratable benefit of Banks any underpayment or Banks shall pay
to Agent (ratably according to the Commitment Percentage of each Bank) for
payment over to Borrower any overpayment resulting from any adjustment
during such ten-day (or shorter) period.
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3.3 Maturity. The entire outstanding Principal Debt and all accrued but
--------
unpaid interest thereon and all accrued but unpaid fees hereunder shall be due
and payable in full on the Termination Date.
3.4 Prepayments. Borrower shall be required to make mandatory
-----------
prepayments of Principal Debt from time to time pursuant to SECTION 2.3(B), and
subject to SECTION 3.5, shall otherwise be entitled to prepay the Principal Debt
from time to time and at any time, in whole or in part, without penalty;
provided, that (a) Borrower shall give Agent one (1) Domestic Business Day's
prior written notice of any voluntary prepayment (whereupon the amount specified
in such notice shall be due and payable on the date specified in such notice),
and (b) any partial voluntary prepayment shall be in the amount of $1,000,000 or
any larger integral multiple of $100,000. Prior to the Termination Date, any
Principal Debt that is prepaid may, subject to the conditions of this Agreement,
be reborrowed hereunder, and this Agreement shall not be deemed to be terminated
or cancelled prior to the Termination Date solely because the Principal Debt may
from time to time be paid in full and no Letter of Credit Exposure is
outstanding hereunder. On and after the Termination Date, no Principal Debt may
be reborrowed hereunder.
3.5 Funding Losses. If Borrower makes any payment of Principal Debt
--------------
which is the subject of a Fixed Rate Tranche (whether pursuant to SECTION
2.3(B), as a voluntary prepayment or otherwise) on any day other than the last
day of an Interest Period applicable thereto, or if Borrower fails to borrow any
Eurodollar Advance or CD Rate Advance after notice has been given in accordance
with SECTION 2.4, Borrower shall reimburse each Bank on demand for any resulting
loss or expense incurred by any such Bank, including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, or any loss arising from the reemployment of funds at rates lower than
the cost to such Bank of such funds and related costs, which shall include the
amount, if any, by which (a) the interest which such Bank would have received,
absent such payment or prepayment for the applicable Interest Period exceeds (b)
the interest which such Bank would receive if the amount of such Fixed Rate
Tranche were deposited, loaned, or placed by such Bank in the interbank
eurodollar market or certificate of deposit market (as applicable) (i) on the
date of such payment or prepayment for the remainder of the applicable Interest
Period, in the case of a payment or prepayment prior to the end of the Interest
Period, or (ii) on the date such Fixed Rate Advance was to be made for a period
equivalent to the Interest Period selected by Borrower to be applicable to such
Fixed Rate Advance at the time Borrower requested such Advance, in the case of a
failure of Borrower to borrow any Fixed Rate Advance after notice has been given
in accordance with SECTION 2.4. Such Bank shall promptly deliver to Borrower
and Agent a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
3.6 Order of Application. Except as otherwise provided in the Loan
--------------------
Papers, all payments and prepayments of the Obligation, including proceeds from
the exercise of any Rights under the Loan Papers or proceeds of any Collateral,
shall be applied in the following order (any instructions from Borrower to the
contrary notwithstanding): (a) to any expenses for which
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Agent shall not have been reimbursed under the Loan Papers, (b) to any expenses
for which Banks shall not have been reimbursed under the Loan Papers, (c) to
accrued interest on the Principal Debt, (d) to the portion of the Principal Debt
being paid or prepaid, or, if unclear, in such order as Majority Banks deem
appropriate, (e) to the remaining Principal Debt in the order and manner as
Majority Banks deem appropriate, (f) to establish any deposit required pursuant
to SECTION 2.2, and (g) to the remaining Obligation. Any payment applied to
Principal Debt in accordance with the foregoing shall be applied first to
Principal Debt which is the subject of a Base Rate Tranche until all such
Principal Debt has been paid in full, and then to Principal Debt which is the
subject of Fixed Rate Tranches in the order in which the Interest Periods
applicable to such Tranches expire.
3.7 Capital Adequacy. Notwithstanding any provision contained herein to
----------------
the contrary, if, with respect to all or any portion of any Commitment, any Law,
rule, regulation, or treaty now existing or hereafter promulgated regarding
capital adequacy, or any adoption thereof, ruling thereon, change therein, or
interpretation thereof now existing or hereafter made by any Tribunal or central
bank regarding capital adequacy, or compliance by any Bank with any request,
directive, or requirement now existing or hereafter imposed by any Tribunal or
central bank regarding capital adequacy (whether or not having the force of Law)
shall result in a reduction in the rate of return on such Bank's capital as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank otherwise could have achieved (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material (and such Bank may, in determining such amount, utilize such
assumptions and allocations of costs and expenses as such Bank shall deem
reasonable and may use any reasonable averaging or attribution method), then,
such Bank shall notify Borrower and Agent and deliver to Borrower and Agent a
certificate setting forth in reasonable detail (a) the Law, rule, regulation or
treaty (or change therein or change in interpretation thereof) giving rise to
such request for compensation, and (b) the calculation of the amount necessary
to compensate such Bank therefor, which certificate shall constitute prima facie
evidence of the contents thereof. Borrower shall promptly pay such amount to
such Bank.
SECTION 4. FEES.
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4.1 Facility Fee. In the event of any increase in the Borrowing Base,
------------
Borrower shall pay to Agent for the ratable benefit of each Bank, within thirty
(30) days after the effective date of each such increase, a facility fee in an
amount equal to 0.25% of the difference between the increased Borrowing Base and
the amount of the Borrowing Base in effect immediately after giving effect to
the most recent redetermination of the Borrowing Base pursuant to SECTION 2.3(A)
(i.e. the redetermination prior to the redetermination resulting in such
increase).
4.2 Commitment Fee. From the date hereof until the Total Commitment is
--------------
terminated, Borrower shall pay to Agent for the ratable benefit of each Bank a
commitment fee equal to the Applicable Commitment Fee Percentage on the
difference between (a) the average daily Borrowing Base during the three (3)
month period (or portion thereof) preceding the date
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such payment is due, and (b) the average daily balance during such period of the
sum of (i) the Principal Debt, plus (ii) the outstanding Letter of Credit
Exposure. Such fee shall be payable as it accrues on each March 31, June 30,
September 30 and March 31 (commencing March 31, 1996) and on the Termination
Date. Such fee shall be payable based on the actual number of days elapsed
assuming a calendar year of 365 days. Borrower shall pay to Agent all amounts
due under this SECTION 4.2 within fourteen (14) days after Borrower receives a
billing notice therefor.
4.3 Closing Fee. On the Closing Date, Borrower shall pay to Agent for
-----------
the ratable benefit of Banks a closing fee in the amount of $115,000.00.
4.4 Agency and Other Fees. Borrower shall pay to Agent and/or its
---------------------
affiliates, such fees and other amounts as Borrower shall be required to pay to
Agent and/or its affiliates from time to time pursuant to any separate agreement
between Borrower and Agent and/or its affiliates. Such fees and other amounts
shall be retained by Agent and/or its affiliates and no Bank (other than Agent
and/or its affiliates) shall have any interest therein.
SECTION 5. SECURITY.
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5.1 Grant of Bank Liens Covering Subject Interests. Upon the occurrence
----------------------------------------------
of a Mortgage Recordation Event, the Obligations shall be secured by first and
prior Bank Liens covering such Subject Mineral Interests now owned or hereafter
acquired by Borrower or any Designated Subsidiary as Majority Banks shall
designate from time, together with (a) all present and future tenements,
hereditaments, appurtenances, and properties in any way pertaining, belonging,
affixed, or incidental to such Subject Mineral Interests, (b) all Hydrocarbons
located on or produced from such Subject Mineral Interests, (c) all present and
future fixtures and equipment and other personal property now owned or hereafter
acquired by Borrower or any Designated Subsidiary and used or useful in
connection with the Subject Mineral Interests or now or hereafter situated on or
affixed to any real property related to or apprising a part of such Subject
Mineral Interests, and (d) all present and future Rights, titles, and interests
of Borrower and each Designated Subsidiary (including, without limitation, the
Right to receive payments due thereunder) in and to all present and future
contracts for sale of Hydrocarbons now or hereafter existing in connection with
any of the Subject Mineral Interests.
5.2 Mortgages. In furtherance of SECTION 5.1 preceding, Borrower hereby
---------
agrees to execute and deliver to Agent, and to cause each Designated Subsidiary
to execute and deliver to Agent, on or prior to the Closing Date, such Mortgages
as Agent or Majority Banks may require to evidence and perfect (subject in each
case to SECTION 5.3 below) in favor of Agent for the ratable benefit of each
Bank, first and prior Bank Liens encumbering the Initial Mortgaged Properties.
Thereafter on or prior to each redetermination of the Borrowing Base pursuant to
SECTION 2.3 (or any other redetermination of the Borrowing Base requested by
Borrower) and upon the occurrence of any Mortgage Recordation Event, Borrower
shall execute and deliver to Agent, and cause each Designated Subsidiary to
execute and deliver to Agent, Mortgages which, subject to SECTION 5.3 below,
encumber all Subject Mineral Interests then owned by Borrower
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or any Designated Subsidiary (or are to be acquired by Borrower or any
Designated Subsidiary simultaneously with such redetermination of the Borrowing
Base (if applicable)) required by Majority Banks, to the extent such Subject
Mineral Interests are not subject to existing Mortgages, establishing Bank Liens
in favor of Agent for the ratable benefit of Banks subject to SECTION 5.3
below.
5.3 Effectiveness of Mortgages; Recordation of Mortgages. Unless and
----------------------------------------------------
until a Mortgage Recordation Event occurs, each Mortgage executed and delivered
by Borrower or any Designated Subsidiary to Agent pursuant to SECTION 5.2 shall
be held by Agent and not filed or recorded in any jurisdiction or with any
Tribunal and shall not be effective unless and until a Mortgage Recordation
Event shall occur. Upon the occurrence of a Mortgage Recordation Event, each
such Mortgage shall be immediately and automatically effective to create Bank
Liens in favor of Agent for the ratable benefit of the Banks on the Subject
Mineral Interests covered thereby, and Agent may, and upon the request of
Majority Banks, Agent shall, at Borrower's expense, file and record each
Mortgage then in Agent's possession with each appropriate Tribunal and take all
such other action as Agent shall deem necessary or appropriate to perfect and
protect the Bank Liens created or evidenced by such Mortgages for the ratable
benefit of the Banks. Any determination by Agent or Majority Banks that a
Mortgage Recordation Event has occurred shall be conclusive and binding upon
Borrower and each Designated Subsidiary.
5.4 Assignment. The Mortgages executed pursuant to SECTION 5.2 will
----------
contain an assignment to Agent of all Hydrocarbons to be produced from the
Subject Mineral Interests and all revenues and proceeds from any disposition
thereof and will grant to Agent the Right to notify purchasers of such
Hydrocarbons to pay directly to Agent for the ratable benefit of Banks and for
application to the Obligation all such revenues and proceeds (such assignment
and grant to become effective immediately upon a Mortgage Recordation Event);
provided that, notwithstanding such assignment, which will be absolute and
unconditional, or any delay or failure of Agent or any Bank to exercise its
Rights in respect thereof under the Loan Papers, (a) nothing in the Loan Papers
shall be deemed or construed as limiting any Bank or Agent to such revenues or
proceeds for the payment or discharge of all or any part of the Obligation, and
(b) the obligations of Borrower to make mandatory prepayments under SECTION 2.3
shall not be impaired or diminished. Furthermore, notwithstanding that such
Loan Papers will contain an assignment of Hydrocarbons and the revenues and
proceeds from the disposition thereof, so long as no Default has occurred which
is continuing, Borrower and the Designated Subsidiaries shall be permitted to
continue to receive from the purchasers of production all of such revenues and
proceeds and the Agent shall not request payment of such revenues and proceeds;
provided, however, that upon the occurrence and during the continuation of a
Default, Agent, at the request of Majority Banks, may exercise all Rights and
remedies granted to it thereby, including, without limitation, the right to
receive directly from the purchasers of production, such revenues and proceeds.
5.5 No Assumption of Obligations. Nothing contained in any Mortgage or
----------------------------
any other Loan Paper shall be construed as an assumption by, or the transfer to,
Agent or any Bank, of any
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<PAGE>
obligation of Borrower or any Designated Subsidiary with respect to any Subject
Mineral Interest or any other property of any Company.
5.6 Pledge of Subsidiary Stock. Promptly, but in all events within five
--------------------------
(5) Domestic Business Days following request by Agent or Majority Banks from
time to time, Borrower shall execute and deliver to Agent, and cause each other
Company which is the owner and holder of the issued and outstanding capital
stock of any Designated Subsidiary, to execute and deliver to Agent a Pledge
Agreement in the form of EXHIBIT J attached hereto, pursuant to which Borrower
and such other Companies grant a Bank Lien to Agent for the ratable benefit of
the Banks in the issued and outstanding capital stock of each Subsidiary.
5.7 Designated Subsidiary Guarantees. Borrower hereby agrees to cause
--------------------------------
each Designated Subsidiary to execute and deliver to each Bank a Designated
Subsidiary Guaranty pursuant to which such Designated Subsidiary shall guaranty
payment and performance in full of the Obligation.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
- --------- ------------------------------
Agent and each Bank as follows:
6.1 Corporate Existence and Authority: Each Company (a) is a corporation
---------------------------------
duly organized, validly existing, and in good standing under the Laws of its
state of incorporation, as reflected in SCHEDULE 6.1, (b) is duly qualified to
transact business and is in good standing as a foreign corporation in each
jurisdiction where the nature and extent of its business and properties require
the same (such jurisdictions being identified on SCHEDULE 6.1), and (c)
possesses all requisite authority, power, licenses, permits, and franchises to
conduct its business and execute, deliver, and comply with the terms of the Loan
Papers and the Closing Transaction Documents to which it is a party, which have
been duly authorized and approved by all necessary corporate action and for
which no approval or consent of any Person or Tribunal is required which has not
been obtained. Coda Acquisition (x) is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware, (y) is
duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction where the nature and extent of its business and
properties require the same (such jurisdictions being identified on SCHEDULE
6.1), and (z) possesses all requisite authority, power, licenses, permits, and
franchises to conduct its business and execute, deliver, and comply with the
terms of the Closing Transaction Document to which it is a party, which have
been duly authorized and approved by all necessary corporate action and for
which no approval or consent of any Person or Tribunal is required which has not
been obtained.
6.2 Ownership of Subsidiaries and Name.
----------------------------------
(a) Except as set forth on SCHEDULE 6.2 attached hereto, Borrower has
no Subsidiaries.
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<PAGE>
(b) Except as set forth on SCHEDULE 6.2, none of Borrower, any
Designated Subsidiary, any Company merged into Borrower, nor any Company
merged into any Designated Subsidiary, nor Coda Acquisition has transacted
business under any other corporate or trade name, or has been a party to
any merger, combination, or consolidation, or acquired all or substantially
all of the assets of any Person in the last five (5) years.
6.3 Relationship with Banks. No director, officer, manager, or employee
-----------------------
of any Company or Coda Acquisition is a director, officer, or employee of, or
has any substantial interest in, any Bank. No Person who may be deemed to have
"control" of any Company is an "executive officer," "director," or "principal
shareholder" of any Bank or any correspondent of any Bank. Terms appearing in
quotations in this SECTION 6.3 are used herein as defined in Section 215.2 of
Regulation O of the Board of Governors of the Federal Reserve System, as
amended.
6.4 Financial Information.
---------------------
(a) The Current Financials were prepared in accordance with GAAP and
fairly present the consolidated financial condition and the results of
operations of the Companies as of, and for the portion of the fiscal year
ending on, the date or dates thereof. There were no material liabilities,
direct or indirect, fixed or contingent, of the Companies as of the date or
dates of the Current Financials which are not reflected therein or in the
notes thereto.
(b) Subject to final purchase price adjustments in connection with
the Closing Transactions, the Pro Forma Balance Sheet fairly presents what
the consolidated assets, liabilities and financial condition of the
Companies will be immediately after giving effect to the Closing
Transactions subject only to variances resulting from the actual results of
operations of the Companies' businesses for the period from January 1, 1996
to the Closing Date.
(c) Except for the Closing Transactions directly related to, or
specifically contemplated by, the Loan Papers, there have been no material
adverse changes in the respective financial conditions of the Companies
from those shown in the Current Financials between such date or dates and
the date hereof, nor has any Company incurred any material liability,
direct or indirect, fixed or contingent, except for the liabilities under
the Closing Transaction Documents and the Contractual Obligations described
in SCHEDULE 6.13.
(d) (i) Prior to giving effect to the Closing Transactions, Coda
Acquisition is a wholly owned Subsidiary of JEDI, (ii) Coda Acquisition was
formed solely for the purpose of consummating the Merger, (iii) Coda
Acquisition has no material assets, liabilities, obligations or commitments
(fixed, contingent, contractual or otherwise) other than rights,
liabilities and obligations under the Closing Transaction Documents;
provided,
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<PAGE>
that, immediately prior to or simultaneously with the Closing Transactions,
Coda Acquisition will receive a contribution to its common equity
consisting of $90,000,000 in cash, and (iv) Coda Acquisition has not
engaged and currently does not engage in any operations or activities other
than the negotiation, execution and delivery of the Closing Transaction
Documents and the consummation of the Closing Transactions.
6.5 Compliance with Laws and Documents. No Company is, nor will the
----------------------------------
execution, delivery, and the performance of and compliance with the terms of the
Loan Papers and the Closing Transaction Documents cause any Company to be, in
violation of (a) any Laws, other than such violations which could not,
individually or collectively, cause a Material Adverse Event, or (b) the Bylaws
or Articles of Incorporation or Certificate of Incorporation of any Company.
6.6 Litigation. Except for the Litigation described in SCHEDULE 6.6 and
----------
other Litigation described to each Bank in writing, neither Coda Acquisition nor
any Company is involved in, nor is Coda Acquisition or any Company aware of the
threat of, any Litigation, nor are there any outstanding or unpaid judgments
against any Company or Coda Acquisition; and none of the Litigation described in
SCHEDULE 6.6 or so disclosed to each Bank in writing could, collectively or
individually, cause a Material Adverse Event if determined adversely against
Coda Acquisition or any Company.
6.7 Taxes. All Tax returns of Coda Acquisition and each Company required
-----
to be filed have been filed, and all Taxes imposed upon Coda Acquisition or any
Company have been paid prior to the time when any penalty or fine shall be
assessed with respect thereto, other than Taxes for which the criteria for
Permitted Liens have been satisfied.
6.8 Government Regulation. Neither Coda Acquisition nor any Company or
---------------------
Affiliate of Coda Acquisition or any Company is (a) subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other Law (other than Regulation X of
the Board of Governors of the Federal Reserve System) which regulates the
incurrence of Debt, including, but not limited to, Laws relating to common or
contract carriers or the sale of electricity, gas, steam, water, or other public
utility services, or (b) a "utility" as defined in Chapter 35 of the Texas
Business and Commerce Code, as amended.
6.9 Employee Benefit Plans. No (a) employee benefit plan (as defined in
----------------------
the IRC and ERISA) of any Company has incurred an accumulated funding deficiency
in an amount sufficient to have a Material Adverse Event, (b) Company has
incurred material liability to the PBGC in connection with any such plan, (c)
Company has withdrawn in whole or in part from participation in a multiemployer
pension plan (as defined in ERISA), and (d) prohibited transaction or reportable
event (as such terms are defined in ERISA) has occurred which could cause a
Material Adverse Event. Coda Acquisition does not currently have and is not
currently
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<PAGE>
bound by any such plan and at no time prior to the date hereof has Coda
Acquisition had or been bound by any such plan.
6.10 Purpose of Loan and Letters of Credit. The proceeds of the Advances
-------------------------------------
and Letters of Credit (a) are not and will not be used directly or indirectly
for the purpose of purchasing or carrying, or for the purpose of extending
credit to others for the purpose of purchasing or carrying, any "margin stock"
as that term is defined in Regulation U of the Board of Governors of the Federal
Reserve System, as amended, (b) will be used for the acquisition, exploration
and development of Mineral Interests and Related Assets and for general
corporate purposes (including Cash Collateral for Permitted Hedge Transactions),
and (c) will be otherwise used in accordance with each Bank's prior written
consent; provided, that, in the event subsequent to the date of this Agreement,
Borrower agrees to any additional restrictions regarding the use of the proceeds
of any Advance, such proceeds will not be used in violation of such
restrictions. Without limiting the foregoing, the Letter of Credit Exposure
under Letters of Credit securing Hedge Transactions shall not exceed, at any
time, twenty percent (20%) of the Borrowing Base in effect at such time.
6.11 Properties; Liens.
-----------------
(a) Borrower and the Designated Subsidiaries have, except as
otherwise stated in the Loan Papers, defensible record, legal title to all
Mineral Interests described in the Engineering Report and all Related
Assets described in the Related Asset Report, free and clear of all Liens
except Permitted Liens, and have full authority to create Bank Liens
thereon. All such Mineral Interests which constitute Proved Mineral
Interests are valid, subsisting, and in full force and effect in all
material respects, and all rentals, royalties, and other amounts due and
payable in respect thereof have been duly paid or will be paid in the
ordinary course of business prior to the date any failure to pay would
result in the forfeiture of any Right, the creation of any Lien or cause
any other material penalty to be assessed against Borrower or its
Designated Subsidiaries. Without regard to any consent or non-consent
provisions of any joint operating agreement covering any of the Proved
Mineral Interests, Borrower's and the Designated Subsidiaries' share of (i)
(A) the costs for each Proved Mineral Interest described in the Mortgaged
Property Reserves Summary is not greater than the decimal fraction set
forth in the Mortgaged Property Reserves Summary, before and after payout,
as the case may be, and described therein by the designation "working
interest fraction", and (B) production from, allocated to, or attributed to
each such Proved Mineral Interest described in the Mortgaged Property
Reserve Summary is not less than the decimal fraction set forth in the
Mortgaged Property Reserve Summary, before and after payout, as the case
may be, and described therein by the designations "net interest fraction",
and "net oil fraction", and (ii) (A) the costs for each Proved Mineral
Interest described in the Engineering Report is not greater than the amount
taken into account in the calculation of net operating expense, and capital
costs and similar items in the "Engineering Report," and, to the extent
such fraction is included in the Engineering Report, not greater than the
decimal fraction described therein by the
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<PAGE>
designations "working interests," "WI," "gross working interest," "GWI," or
similar terms, and (B) production from, allocated to, or attributable to
each such Proved Mineral Interest described on the Engineering Report is
not less, before or after as the case may be, than the amount taking into
account in the calculation of net production, net operating revenues, net
cash flow and similar items in the Engineering Report, and, to the extent
such fraction is included in the Engineering Report, not less than the
decimal fraction described therein, before and after payout, as the case
may be, by reference to the designations "net revenue interest," "NRI" or
similar terms. To the best of Borrower's knowledge, with the exception of
injector wells and wells which are temporarily not producing, each well
drilled in respect of each Proved Producing Mineral Interest described in
the Engineering Report which has been owned by Borrower or a Designated
Subsidiary for a period of one (1) year or more (i) is capable of, and is
presently, producing Hydrocarbons in commercially profitable quantities,
and Borrower and/or the Designated Subsidiaries are currently receiving
payments for their share of production, with no funds in respect of any
thereof being presently held in suspense, other than as described in
SCHEDULE 6.11 or any such funds being held in suspense pending delivery of
appropriate division orders, and (ii) has been drilled, bottomed,
completed, and operated in compliance with all Laws and no such well which
is currently producing Hydrocarbons is subject to any penalty in production
by reason of such well having produced in excess of its allowable
production. To the best of Borrower's knowledge, with the exception of
injector wells and wells which are temporarily not producing, each well
drilled in respect of each Proved Producing Mineral Interest described in
the Engineering Report which has been owned by Borrower for a period of
less than one (1) year (i) is capable of, and is presently, producing
Hydrocarbons in commercially profitable quantities, and Borrower and/or the
Designated Subsidiaries are currently receiving payments for their share of
production, with no funds in respect of any thereof being presently held in
suspense, other than as described in SCHEDULE 6.11 or any such funds being
held in suspense pending delivery of appropriate division orders, and (ii)
has been drilled, bottomed, completed, and operated in compliance with all
Laws and no such well which is currently producing Hydrocarbons is subject
to any penalty in production by reason of such well having produced in
excess of its allowable production. As used herein "temporarily not
producing" means, with reference to any well as of a particular time, that
such well is either shut in at such time or producing in quantities which
are not commercially profitable at such time, but that Borrower reasonably
expects that such well will be returned to production in commercially
profitable quantities within one hundred fifty (150) days from the date
such well was originally shut in or ceased producing in commercially
profitable quantities.
(b) Without limiting SECTION 6.11(A), Borrower and the Designated
Subsidiaries have good and marketable title to all of the Related Assets
and other properties reflected on the Current Financials and, except for
the Liens described in SCHEDULE 6.11, there is no Lien encumbering any
asset of Borrower.
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<PAGE>
6.12 Leases. All material leases under which any Company is lessee or
------
tenant are in full force and effect, and no default or potential default exists
thereunder.
6.13 Contractual Obligations. Except for obligations under the Closing
-----------------------
Transaction Documents and the Contractual Obligations described in SCHEDULE
6.13, neither Coda Acquisition nor any Company is directly, indirectly, or
contingently obligated with respect to any Contractual Obligation.
6.14 Material Agreements. Except for the Closing Transaction Documents,
-------------------
the Loan Papers, the Material Agreements described on SCHEDULE 6.14, agreements,
documents, and instruments giving rise to Subject Mineral Interests, farmout
agreements, gas contracts, and operating and joint operating agreements related
to any Related Asset or Subject Mineral Interest, there are no Material
Agreements of Coda Acquisition or any Company that could cause a Material
Adverse Event if such Material Agreement were to terminate in accordance with
its terms or if Coda Acquisition or any Company defaulted thereunder; neither
Coda Acquisition nor any of the Companies is, nor will the execution, delivery,
and performance of and compliance with the terms of the Closing Transaction
Documents or the Loan Papers cause any of the Companies to be, in default (nor
has any potential default occurred) under any Material Agreement described on
SCHEDULE 6.14, any agreement, document, or instrument giving rise to Subject
Mineral Interests, farmout agreements, gas contracts, or any operating or joint
operating agreements related to any Related Asset or Subject Mineral Interests,
other than in each case such defaults or potential defaults which could not,
individually or collectively, cause a Material Adverse Event; and a default by
any of the Companies under any operating or joint operating agreement related to
any Related Asset or any Subject Mineral Interest it owns will not result in any
loss or diminution of any other Subject Mineral Interests it owns.
6.15 No Partnerships. Except for any of the same described on SCHEDULE
---------------
6.15, neither Coda Acquisition nor any Company has any interests in any general
or limited partnership or any joint venture.
6.16 Advance Payment Contracts and Gas Balancing Agreements. Except for
------------------------------------------------------
(a) Gas Balancing Agreements described in SCHEDULE 6.16, and (b) Gas Balancing
Agreements which, when considered together with all other Gas Balancing
Agreements to which any Company is a party, result in a net gas imbalance of
$1,000,000 or less to the Companies (considered in the aggregate), no Company is
a party to, and none of the Hydrocarbons to be produced for any Company's
account from any of the Subject Mineral Interests or as a result of the
operation of any of the Related Assets are the subject of, any Advance Payment
Contract or Gas Balancing Agreement affecting or relating to any Subject Mineral
Interests or any Related Asset.
6.17 General. There are no material facts or conditions relating to the
-------
Closing Transactions, the Closing Transaction Documents, the Loan Papers, Coda
Acquisition, any Company, any of the Property of Coda Acquisition or any of the
Companies, or the individual or combined financial conditions and businesses
Coda Acquisition or any of the Companies which
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<PAGE>
could, collectively or individually, cause a Material Adverse Event and which
have not been related, in writing, to all Banks; and all writings heretofore or
hereafter exhibited or delivered to any Bank by or on behalf of Coda Acquisition
or any Company are and will be genuine and in all respects what they purport and
appear to be.
6.18 Environmental. To the best of Borrower's knowledge after reasonable
-------------
inquiry, (a) no part of any Company's assets (whether owned by ownership or
lease and including, without limitation, the Related Assets and the Subject
Mineral Interests) is contaminated in any material respect by any substance or
material presently identified to be toxic, a pollutant or contaminant or
hazardous substance according to any Applicable Environmental Law, (b) no
Company has caused or suffered to occur any material discharge, release
spillage, emission, uncontrolled loss, seepage or filtration of oil or petroleum
or chemical liquids or solids, liquid or gaseous products or hazardous waste or
hazardous substance at, from, upon, under or within any real property owned,
operated or leased by any Company (including, without limitation, the Related
Assets and the Mineral Interests), or any contiguous real property estate, and
(c) no Company has been and none are currently involved in operations at or near
any real property owned, operated or leased by any Company (including, without
limitation, the Related Assets and the Subject Mineral Interests) which is
reasonably expected to lead to the imposition on any Company of liability or
creation of a lien on any Company's assets under any Applicable Environmental
Law or under any similar applicable Laws or regulations.
6.19 Closing Transaction Documents. Borrower has provided Agent with a
-----------------------------
true and correct copy of each Closing Transaction Document in effect on the date
hereof. No rights or obligations of any party to any of the Closing Transaction
Documents have been waived in any material respect, and no party to any of the
Closing Transaction Documents is in default of its obligations thereunder. Each
of the Closing Transaction Documents is a valid, binding and enforceable
obligation of the parties thereto in accordance with its terms and is in full
force and effect, except as limited by Debtor Relief Laws.
6.20 Investments. Neither Borrower, nor any Company, has any Investments
-----------
other than Permitted Investments.
SECTION 7. CONDITIONS PRECEDENT.
- --------- --------------------
7.1 Initial Advance. The obligation of the Banks to make the initial
---------------
Advance hereunder (including, if applicable, the Refinancing Advance) is subject
to the satisfaction by Borrower, on or before the Closing Date, of each of the
following conditions precedent:
(a) Closing Deliveries. Agent shall have received each of the following
------------------
documents, instruments and agreements, all of which shall, unless otherwise
indicated, be dated the Closing Date, and be in form and substance satisfactory
to Agent and each Bank:
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<PAGE>
(i) Notes. The Notes, payable to each Bank as applicable, in the
-----
form and upon the terms of EXHIBIT F attached hereto with appropriate
insertions and appropriate modifications to reflect the applicable Bank as
payee, the amount of such note (which shall be the amount of each Bank's
Commitment) and the fact that it evidences Base Rate or CD Rate Loans or
Eurodollar Loans, as the case may be, dated the date hereof, executed by
Borrower;
(ii) Designated Subsidiary Guarantees. A Designated Subsidiary
--------------------------------
Guaranty executed by each Designated Subsidiary in favor of Agent for the
ratable benefit of Banks;
(iii) Mortgage. Each Mortgage required to be executed and delivered
--------
by Borrower and each Designated Subsidiary on or prior to the Closing Date
pursuant to SECTION 5.2 hereof;
(iv) Mortgage Opinions. Opinions of counsel in each jurisdiction
-----------------
(other than the State of Texas) in which any of the Subject Mineral
Interests are located to the extent such Subject Mineral Interests are
required to be mortgaged on or before the Closing Date pursuant to SECTION
5.2 hereof, which opinions of counsel shall opine to (A) the validity and
enforceability of each Mortgage encumbering Subject Mineral Interests in
the applicable jurisdiction, (B) the method of perfection of each such
Mortgage, and (C) such other matters with respect to each such Mortgage as
Agent shall reasonably request;
(v) Certificate as to Representations and Warranties. A Certificate
------------------------------------------------
executed by Borrower's President, Executive Vice President or Chief
Financial Officer confirming that each representation and warranty
contained herein and in the other Loan Papers is true and correct on the
Closing Date and that no Default or Potential Default has occurred which is
continuing as of the Closing Date;
(vi) Certificate as to Consummation of Closing Transactions. A
------------------------------------------------------
Certificate executed by Borrower's President, Executive Vice President or
Chief Financial Officer confirming that subject only to the amendment and
restatement of the Existing Credit Agreement pursuant to and upon the terms
set forth in this Agreement, the Closing Transactions have been
consummated;
(vii) Charter. A copy of the Articles of Incorporation or
-------
Certificate of Incorporation, and all amendments thereto, of each Company
specified by Agent, accompanied by certificates that such copy is correct
and complete, one (1) dated no earlier than a Current Date issued by the
appropriate Tribunal of the jurisdiction of incorporation of such Company,
and one (1) dated the date hereof, executed by the President or a Vice
President and the Secretary or an Assistant Secretary of such Company;
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<PAGE>
(viii) Bylaws. A copy of the Bylaws, and all amendments thereto, of
------
each Company specified by Agent, accompanied by a certificate that such
copy is correct and complete, dated the date hereof, executed by the
President, Executive Vice President or a Vice President and the Secretary
or an Assistant Secretary of such Company;
(ix) Good Standing and Authority. Certificates of the appropriate
---------------------------
Tribunals of such jurisdictions as Agent has requested, each dated a
Current Date, to the effect that each Company specified by Agent is in good
standing with respect to the payment of franchise and similar Taxes and is
duly qualified to transact business in such jurisdictions;
(x) Incumbency. A certificate of incumbency of all officers of each
----------
Company who will be authorized to execute or attest to any Loan Paper,
dated the date hereof, executed by the President, Executive Vice President
or a Vice President and the Secretary or an Assistant Secretary of such
Company;
(xi) Resolutions. A copy of resolutions approving the Loan Papers
-----------
and authorizing the transactions contemplated by this Agreement and the
other Loan Papers, duly adopted by the Board of Directors of each Company
requested by Agent, accompanied by a certificate, dated the date hereof, of
the Secretary or an Assistant Secretary of such Company, that such copy is
a true and correct copy of resolutions duly adopted at a meeting of (which
may be held by conference telephone or similar communications equipment by
means of which all Persons participating in such a meeting could hear each
other, if permitted by applicable Law and, if required by such Law, by the
Bylaws of such Company), or by the unanimous written consent of (if
permitted by applicable Law and, if required by such Law, by the Bylaws of
such Company), the Board of Directors of such Company, and that such
resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any respect,
and are in full force and effect as of the date hereof;
(xii) Opinion of Counsel to Companies. The opinion, dated the date
-------------------------------
hereof, of Joe Callaway, general counsel to Borrower, substantially in the
form of EXHIBIT K attached hereto;
(xiii) Opinion of Special Counsel to Agent. The opinion, dated the
-----------------------------------
date hereof, of the law firm of Gardere & Wynne, L.L.P., special counsel to
Agent, substantially in the form of EXHIBIT L attached hereto;
(xiv) Closing Transaction Documents. A copy of each Closing
-----------------------------
Transaction Document, together with a certificate from the President,
Executive Vice President or Chief Financial Officer of Borrower certifying
that such copies are accurate and complete and represent the complete
understanding and agreement of the parties with respect to the subject
matter thereof;
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<PAGE>
(xv) Closing Repayment. The payment by Borrower of the Closing
-----------------
Repayment.
(xvi) Closing Fee. The payment by Borrower to Agent for the ratable
-----------
benefit of Banks of the closing fee required by SECTION 4.3 hereof in the
amount of $115,000.00; and
(xvii) Other Fees. The payment by Borrower to Agent of any other
----------
fees due on the Closing Date and contemplated by Section 4.4 hereof.
(b) Closing Transactions. Subject only to disbursement and application of
--------------------
the Refinancing Advance, the Closing Transactions shall have occurred (or Agent
shall be satisfied that such transactions will occur simultaneously therewith).
Without limiting the foregoing, each of the following shall have occurred (or
Agent shall be satisfied that each of the following shall occur simultaneously
therewith):
(i) (A) Coda Acquisition and JEDI shall have entered into the JEDI
Subordinate Loan Agreement and the other JEDI Subordinate Debt Documents to
be entered into on or before the Closing Date, (B) all conditions set forth
in the JEDI Subordinate Loan Agreement for the advance by JEDI to Coda
Acquisition of the proceeds of the JEDI Subordinate Loan shall have been
satisfied, and (C) JEDI shall have advanced to Coda Acquisition
$100,000,000 in cash representing the proceeds of the JEDI Subordinate
Debt;
(ii) the Restated Certificate of Incorporation shall have been duly
adopted by the shareholders of Borrower and duly filed with the Secretary
of State of Delaware;
(iii) the Company shall have issued and sold to JEDI, and JEDI shall
have purchased from the Company, 20,000 shares of Preferred Stock for an
aggregate consideration of $20,000,000 in cash;
(iv) the Management Investors shall have made the Management
Investment;
(v) JEDI shall have made a contribution to the common equity of Coda
Acquisition in an amount not less than $90,000,000 in cash; and
(vi) the Merger shall have been completed pursuant to the terms of
the Merger Agreement, and pursuant thereto (A) the certificate of merger
contemplated by Section 1.2 of the Merger Agreement shall have been duly
filed with the Secretary of State of Delaware, (B) the Cash Merger
Consideration shall have been paid to The First National Bank of Boston as
Paying Agent, and (C) approximately ninety eight and one half percent
(98.5%) of the issued and outstanding common stock of Borrower on an
undiluted basis (or approximately ninety-five percent [95%] on a Fully
Diluted Basis) shall be owned by JEDI and the remaining one and one half
percent (1.5%) (on an undiluted basis, or
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<PAGE>
approximately five percent [5%] on a Fully Diluted Basis) shall be owned by
the Management Investors.
(c) Title Review. Agent or its counsel shall have completed a review of
------------
title to the Subject Mineral Interests owned by Borrower and the Designated
Subsidiaries as Agent or Majority Banks shall require, and such review shall not
have revealed any condition or circumstance which would reflect that the
representations and warranties contained in SECTION 6.11 hereof are inaccurate
in any respect.
(d) No Material Adverse Change. In the sole discretion of each Bank, no
--------------------------
material adverse change shall have occurred in the assets, liabilities,
financial conditions or prospects of any Company or Coda Acquisition.
(e) No Legal Prohibition. The transactions contemplated by this Agreement
--------------------
and the other Closing Transactions shall be permitted by Law and shall not
subject the Agent, any Bank or any Company to any onerous condition.
(f) Other Matters. All matters related to this Agreement, the other Loan
-------------
Papers, the Closing Transaction Documents, Coda Acquisition, the Companies and
the Closing Transactions shall be acceptable to the Agent and each Bank in their
sole discretion, and Borrower shall have delivered to Agent and each Bank such
evidence as they shall request to substantiate any matters related to this
Agreement, the other Loan Papers, the Closing Transaction Documents, the
Companies, Coda Acquisition and the Closing Transactions as the Agent or any
Bank shall request.
7.2 Conditions to Any Advance and Participation in Letter of Credit
---------------------------------------------------------------
Exposure. In addition to the conditions precedent stated elsewhere herein, no
- --------
Bank will be obligated to make any Advance or to issue any Letter of Credit or
to participate in Letter of Credit Exposure hereunder unless:
(a) Representations and Warranties. The representations and
------------------------------
warranties made in SECTION 6 hereof are true and correct at and as of the
time the Advance is to be made or any Letter of Credit is to be issued
(except to the extent any changes therein are either disclosed to Banks in
writing and agreed to by Majority Banks in writing or are permitted by this
Agreement (as amended or modified from time to time), and each request for
an Advance or for issuance of a Letter of Credit shall constitute the
representation and warranty by the Companies that such representations and
warranties are true and correct at such time.
(b) No Default. On the date of the requested Advance or issuance of
----------
such Letter of Credit, no Default or Potential Default has occurred and is
continuing.
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<PAGE>
(c) Notice of Advance. With respect to a requested Advance, at least
-----------------
one (1) Domestic Business Day in the case of a Base Rate Advance or CD Rate
Advance, and at least two (2) Eurodollar Business Days in the case of a
Eurodollar Advance, prior to the Business Day on which Borrower requests
the Advance be made, Borrower shall have delivered to Agent the Notice of
Advance, and each statement or certification made therein shall be true and
correct in all respects on the date the requested Advance is to be made,
and the documents and descriptions (if any) required in the Notice of
Advance are delivered to Agent at least one (1) Domestic Business Day prior
to such Advance.
(d) Request for Letter of Credit. With respect to a requested Letter
----------------------------
of Credit, at least two (2) Domestic Business Days prior to the Business
Day on which Borrower requests that a Letter of Credit be issued, Borrower
shall have delivered to Agent the Request for Letter of Credit, and each
statement or certification made therein shall be true and correct in all
respects on the date the requested Letter of Credit is to be issued, and
the documents and descriptions (if any) required in the Request for Letter
of Credit are delivered to Agent at least one (1) Domestic Business Day
prior to the issuance of such Letter of Credit.
(e) No Material Adverse Change. No material change in the individual
--------------------------
or combined financial conditions or prospects of the Companies shall have
occurred.
(f) No Legal Prohibition. The making of such Advance or the issuance
--------------------
of such Letter of Credit (as applicable) is permitted by Law and shall not
subject Agent nor any Bank to any onerous condition.
(g) Other Matters. All matters related to such Advance or such
-------------
Letter of Credit are satisfactory to Agent and its counsel, and, if
requested by Agent, the Companies shall have delivered to Agent evidence
substantiating any of the matters contained in this Agreement which are
necessary to enable Borrower to qualify for such Advance or such Letter of
Credit.
(h) Availability Under Commitments. The sum of (i) the Principal
------------------------------
Debt outstanding, plus (ii) the Letter of Credit Exposure, plus (iii) the
amount of the requested Advance or the requested Letter of Credit, shall be
equal to or less than the lesser of (a) the Total Commitment or (b) the
Borrowing Base.
(i) Additional Evidence. If requested by Agent, Borrower shall
-------------------
deliver to Agent evidence satisfactory to Agent and its special counsel
substantiating any of the matters contained in SECTIONS 5, 6 or this
SECTION 7 which are necessary to enable Borrower to qualify for such
Advance or such Letter of Credit, including, without limitation, similar
conditions precedent as set forth in SECTIONS 7.1(D) through (H).
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<PAGE>
7.3 Conditions to Increase in Borrowing Base. Without in any way limiting
----------------------------------------
the ability of Banks in their discretion to grant or deny any increase in the
Borrowing Base from time to time (or to condition any such increase on such
matters as Banks shall determine in their sole discretion), Borrower hereby
agrees with Banks and Agent that Banks may condition such increase on the
satisfaction of each of the following:
(a) Mortgage(s). The execution, acknowledgement and delivery by
-----------
Borrower and the applicable Designated Subsidiaries as grantors or
mortgagors to Agent for the ratable benefit of Banks of Mortgages dated not
later than the date of such increase, which, upon the occurrence of a
Mortgage Recordation Event, will, in accordance with SECTION 5.3, create
Bank Liens on all Subject Mineral Interests designated by Majority Banks
not the subject of Mortgages previously delivered to Agent, for the benefit
of Banks;
(b) Title Review. The completion by Agent of a review of title to
------------
all such additional Subject Mineral Interests as Agent or Majority Banks
may have specified, which review shall not reflect that the representation
and warranty contained in SECTION 6.11 hereof is inaccurate or incorrect in
any material respect (such review may include, if requested by Agent or
Majority Banks, the delivery to Agent of an opinion of a law firm or law
firms acceptable to special counsel to Agent with respect to defensible,
record, legal title to such additional Subject Mineral Interests); and
(c) Description of Mineral Interests. The delivery to Agent of a
--------------------------------
Description of Mineral Interests, dated not later than the date of such
increase, describing all such additional Subject Mineral Interests as Agent
may have specified.
7.4 Materiality of Conditions. Each condition precedent herein is
-------------------------
material to the transactions contemplated herein, and time is of the essence in
respect of each thereof.
7.5 Waiver of Conditions. Majority Banks may, at their election, make any
--------------------
Advance or issue a Letter of Credit without all conditions being satisfied, but
this shall not be deemed to be a waiver of the requirement that each such
condition precedent be a prerequisite for any subsequent Advance or issuance of
a Letter of Credit, unless Majority Banks specifically waive each such item in
writing.
SECTION 8. COVENANTS. Commencing on the date hereof and so long thereafter
- --------- ---------
until the Obligation is paid and performed in full, unless Borrower receives a
prior notice from Majority Banks that they do not object to a deviation,
Borrower covenants and agrees with Agent and Banks as follows:
8.1 Use of Proceeds. Borrower shall use the proceeds of Advances only as
---------------
represented herein or as may be otherwise approved by Majority Banks.
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<PAGE>
8.2 Books and Records. Borrower shall keep, and shall cause each Company
-----------------
to keep, in accordance with GAAP, proper and complete books, records, and
accounts and permit each Bank (upon reasonable prior notice) to inspect the same
during reasonable business hours and make and take away copies thereof.
8.3 Items to be Furnished. Borrower shall cause the following to be
---------------------
furnished to each Bank:
(a) Within ninety (90) days after the last day of each fiscal year of
Borrower, Financial Statements showing the consolidated financial condition
and results of operations of Borrower and its Subsidiaries as of, and for
the year ended on, such last day, accompanied by (i) the opinion, without
material qualification, of Ernst & Young, or another firm of independent
certified public accountants acceptable to Majority Banks, based on an
audit using generally accepted auditing standards, that the consolidated
portions of such Financial Statements were prepared in accordance with GAAP
and present fairly the consolidated financial condition and results of
operations of such Companies, and (ii) a Financial Report Certificate with
respect to such Financial Statements;
(b) Within forty-five (45) days after the last day of each fiscal
quarter (i) Financial Statements showing the consolidated financial
conditions and results of operations of Borrower and its Subsidiaries as
of, and for the period from the beginning of the current fiscal year to
such last day, and (ii) a Financial Report Certificate with respect to such
Financial Statements;
(c) Promptly after the preparation thereof, true copies of all
reports, statements, documents, plans, and other written communications
furnished by or on behalf of the Companies to their respective stockholders
or to any Tribunal, including, but not limited to, the Securities and
Exchange Commission and PBGC;
(d) Notice, promptly after any Company knows or has reason to know
of, (i) the existence and changes in the status of any Litigation with
respect to any Company which could cause a Material Adverse Event, (ii) any
change in any material fact or circumstance represented or warranted in any
Loan Paper, (iii) a Default or Potential Default, specifying the nature
thereof and what action the Companies have taken, are taking, or propose to
take with respect thereto, or (iv) the occurrence of a reportable event (as
defined in ERISA) with respect to any employee benefit plan of any Company
subject to ERISA, or the complete or partial withdrawal from participation
in a multiemployer pension plan (as such terms are defined in ERISA) by any
Company (or the intention of any Company to do so), or the initiation (or
intent to initiate) by the PBGC or any Company of proceedings under ERISA
to terminate any such plan, or the occurrence of any event or condition
which might constitute grounds for termination of any such benefit plan
under ERISA;
-49-
<PAGE>
(e) Promptly upon request therefor by any Bank, such information (not
otherwise required to be furnished under the Loan Papers) respecting the
business affairs, assets, and liabilities of any Company, and such
opinions, certifications, and documents, in addition to those mentioned in
this Agreement, as such Bank may reasonably request;
(f) On or before each March 1 (commencing as of March 1, 1996) to be
effective as of the immediately preceding January 1, an Engineering Report
and a Related Asset Report; provided, that, no Related Asset Report with
respect to Related Assets owned by Taurus will be required until June 1,
1996, and then only to the extent that Borrower has requested Banks to take
such Related Assets owned by Taurus into consideration for purposes of the
Borrowing Base redetermination to be made as of July 1, 1996;
(g) On or before each October 1 (commencing as of October 1, 1996), a
certificate of the President or the chief financial officer of Borrower as
to, and accompanied by, (i) a report for the previous fiscal year,
consisting of a production history (including, but not necessarily limited
to, the number of wells operated, drilled, completed, and abandoned, and
the volume and gross revenues from, and prices received for, the sale of
Hydrocarbons) of the production of Hydrocarbons from the Subject Mineral
Interests, and (ii) a description, on a per-lease basis, of operating,
production, drilling, workover, recompletion, and marketing expenses
related to the Subject Mineral Interests; the format of such report and
description shall be provided by Agent to Borrower promptly before each
date such completed report and description are to be delivered to Banks;
(h) (i) on or before ten (10) days following the expiration of each
of Borrower's fiscal quarters, a certificate of an officer of Borrower
containing a description of all Hedge Transactions to which any Company was
a party at the end of such fiscal quarter, including a summary of Cash
Collateral for such Hedge Transactions, and (ii) on or before ten (10) days
after any Company enters into any new Hedge Transaction, a description of
such new Hedge Transaction, including a summary of all Cash Collateral for
such new Hedge Transaction; and
(i) Promptly (but in all events within five (5) days) following any
determination by the senior executive officers of Borrower or Borrower's
Board of Directors that Borrower (i) will not issue the Public Subordinate
Debt, or (ii) will not issue the Public Subordinate Debt prior to July 1,
1996, notice of such determination.
8.4 Inspection. Borrower shall allow, and shall cause each Company to
----------
allow, each Bank to inspect any of the properties of any Company, to review
reports, files, and other records, to conduct soil or other tests or
investigations, and to discuss any of the affairs, conditions, and finances of
the Companies with the creditors of the Companies or with any director, officer,
or employee of any Company, from time to time, during reasonable business hours.
-50-
<PAGE>
8.5 Taxes. Borrower shall promptly pay, and shall cause each Company to
-----
promptly pay, prior to the time when any penalty or fine shall be assessed with
respect thereto, any and all Taxes due by any Company, except Taxes for which
the criteria for Permitted Liens have been satisfied, and Borrower will not, and
will not permit any Company to, directly or indirectly, use any portion of the
proceeds of any Advance to pay the wages of employees unless a timely payment to
or deposit with the United States of America of all amounts of Tax required to
be deducted and withheld with respect to such wages is also made.
8.6 Payment of Obligations. Borrower shall promptly pay (or renew and
----------------------
extend), and shall cause each Company to promptly pay (or renew and extend), all
of their Contractual Obligations as the same become due, and Borrower will not,
and will not permit any Company to, directly or indirectly, (a) make any
voluntary prepayment of the principal of, or retire, repurchase or redeem prior
to scheduled maturity, the JEDI Subordinate Debt (other than as a result of a
refinancing pursuant to the issuance of the Public Subordinate Debt to the
extent Borrower is permitted to issue the Public Subordinate Debt pursuant to
SECTION 8.12 hereof) or the Public Subordinate Debt, (b) at any time when a
Borrowing Base Deficiency exists, make any voluntary prepayment of the principal
of, or retire, repurchase or redeem prior to scheduled maturity, any other Debt
other than the Obligation, whether subordinate to the Obligation or not, or (c)
make any payment of, or retire, repurchase or redeem any of (i) the JEDI
Subordinate Debt, (ii) the Public Subordinate Debt or (iii) any other
Contractual Obligation which is subordinate to the Obligation at any time that
Borrower or such other Company is prohibited from making such payment,
retirement, repurchase or redemption pursuant to the terms of the subordination
provisions applicable to the JEDI Subordinate Debt, the Public Subordinate Debt
or such Contractual Obligations.
8.7 Expenses of Agent. Borrower shall promptly (a) advance to Agent and
-----------------
special counsel to Agent, upon their request, estimated filing and recording
fees and expenses for the Loan Papers creating the Bank Liens, and (b) pay any
and all reasonable costs, fees, and expenses paid or incurred by Agent incident
to any of the Loan Papers (including, but not limited to, any additional filing
or recording fees and the reasonable fees and expenses of counsel to Agent in
connection with the negotiation, preparation, and execution of the Loan Papers
and any amendment, waiver, or consent with respect thereto and in connection
with any proposed Advance, whether any Advance is ever made) or to the
enforcement of the obligations to Agent or any Bank of any of the Companies or
the exercise of any Rights (including, but not limited to, reasonable attorneys'
fees and court costs), all of which shall be a part of the Obligation.
8.8 Maintenance of Corporate Existence, Assets, Business, and Insurance.
-------------------------------------------------------------------
Borrower shall, and shall cause each Company to, at all times: maintain their
respective corporate existences and authorities to transact business and good
standing in their respective jurisdictions of incorporation and all other
jurisdictions where the failure to so maintain might have a Material Adverse
Event; maintain all licenses, permits, and franchises necessary for their
businesses; keep all of their assets which are useful and necessary in their
businesses in good working order and condition; and make all necessary repairs
and replacements thereto; and maintain, or cause to be
-51-
<PAGE>
maintained, insurance with such insurers, in such amounts, and covering such
risks, as shall be satisfactory to Majority Banks.
8.9 Maintenance and Evidence of Priority of Bank Liens. To the extent
--------------------------------------------------
Borrower or any Designated Subsidiary is required pursuant to this Agreement or
any other Loan Paper to execute and deliver to Agent or any Bank, Mortgages,
Pledge Agreements or other Loan Papers evidencing, perfecting or creating (or
which, subject to the occurrence of a Mortgage Recordation Event, will evidence,
create or perfect) Bank Liens, Borrower shall, and shall cause each Designated
Subsidiary to, (a) perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional assignments, security agreements,
deeds of trust, mortgages, and other agreements, documents, instruments, and
certificates as Agent may reasonably deem necessary or appropriate in order to
perfect and maintain such Bank Liens in favor of Agent and preserve and protect
the Rights of Agent and Banks in respect of all Property which, subject to the
occurrence of a Mortgage Recordation Event, is intended to be encumbered by Bank
Liens pursuant to this Agreement and the other Loan Papers, and (b) cause to be
furnished to Agent such opinions of counsel as Agent may reasonably request
regarding the validity, enforceability, perfection and priority of Borrower's
and the Designated Subsidiaries' title to, and, subject to the occurrence of a
Mortgage Recordation Event, the Bank Liens upon, such Property, all of which
opinions shall be prepared by a law firm or firms as may be acceptable to Agent.
8.10 Subject Mineral Interests and Related Assets. Borrower shall, and
--------------------------------------------
shall cause each Designated Subsidiary to, (a) continuously maintain and
perpetuate (or, in respect of any Subject Mineral Interests for which Borrower
or a Designated Subsidiary is not the operator, use its best efforts to cause
the operator in respect thereof to maintain and perpetuate) all Subject Mineral
Interests and all Related Assets now owned or hereafter acquired by Borrower and
the Designated Subsidiaries in accordance with the best usage and custom in the
industry and in compliance with applicable Laws, and (b) not (i) permit the
surrender, abandonment, release, or termination, in whole or in part, of any
Subject Mineral Interests now owned or hereafter acquired by Borrower or any
Designated Subsidiary (A) which is Collateral at such time (or which upon the
occurrence of a Mortgage Recordation Event will become Collateral), or (B) which
is a Proved Producing Mineral Interest if one or more wells thereon are
producing Hydrocarbons in commercially profitable quantities, or (C) which is a
Proved Nonproducing Mineral Interest, Proved Undeveloped Mineral Interest, or
Inventory Mineral Interest unless, in the opinion of Borrower and Majority
Banks, the same has become unprofitable (provided that, Borrower and its
Designated Subsidiaries may, without Majority Banks' prior written consent,
abandon any Subject Mineral Interest if operators operating in a usual and
customary manner would so abandon such Subject Mineral Interest), or (ii) enter
into (or permit the operator with respect thereto, as the case may be, to enter
into) any agreement related to any Subject Mineral Interest or Related Asset now
owned or hereafter acquired by Borrower, or any Designated Subsidiary, including
any operating agreement, unit agreement, gas purchase or sales contract, other
Hydrocarbon sales contract, easement, license, franchise, permit, or other
contract or agreement of any character in respect of title to or operation of
such Subject Mineral Interest or
-52-
<PAGE>
Related Asset or the production therefrom or the sale or transportation of
Hydrocarbons (or any amendments or modifications thereof) other than agreements
which constitute Permitted Contractual Obligations or which are entered into in
the ordinary course of business.
8.11 Employee Benefit Plans. Borrower will not, and will not permit any
----------------------
Company to, directly or indirectly, engage in any prohibited transaction (as
defined in ERISA), permit the funding requirements under ERISA with respect to
any employee benefit plan established or maintained by any Company to ever be
less than the minimum required by ERISA or the regulations thereunder, permit
any employee benefit plan established or maintained by any Company to ever be
subject to involuntary termination proceedings, or fully or partially withdraw
from any multiemployer pension plan (as such terms are defined in ERISA).
8.12 Debt. Borrower will not, and will not permit any Company to,
----
directly or indirectly, create, incur, or suffer to exist any direct, indirect,
fixed, or contingent liability for any Debt, other than Debt which constitutes
Permitted Contractual Obligations. Without limiting the foregoing, (a) Borrower
will not, and will not permit any Company to, enter into any Hedge Transaction
which is not a Permitted Hedge Transaction, and (b) Borrower will not, and will
not permit any other Company to, be a party to or bound by Long Term Hedge
Transactions pursuant to which Borrower and such other Companies hedge the price
to be received for an amount in excess of fifty percent (50%) of the anticipated
future production for the Companies' account of Hydrocarbons from (i) Proved
Mineral Interests owned by the Companies as set forth in the Engineering Report
(or any other engineering report provided to Banks and approved by Majority
Banks), and (ii) the operation of Related Assets owned by the Companies as set
forth in the Related Asset Report (or any other engineering report provided to
Banks and approved by Majority Banks); provided, however, that for purposes of
determining the volume of Hydrocarbons which may be the subject of Long Term
Hedge Transactions, the anticipated future production of Hydrocarbons from the
operation of Related Assets will be excluded to the extent such anticipated
future production is attributable to the transportation, processing or refining
of Hydrocarbons which are not Dedicated at the time such determination is made.
Nothing in this SECTION 8.12 prevents Borrower or any Designated Subsidiary from
guaranteeing any obligation of Borrower or any Designated Subsidiary which is
not otherwise prohibited pursuant to the other terms and provisions of this
Agreement. Notwithstanding the foregoing, the Banks will not unreasonably
withhold their consent to the incurrence by Borrower of the Public Subordinate
Debt; provided that: (s) the proceeds of such Public Subordinate Debt are
applied in part to repay the JEDI Subordinate Debt in its entirety, (t) the
stated principal amount of the Public Subordinate Debt is not greater than
$125,000,000.00; (u) the maturity of the Public Subordinate Debt is not prior to
the tenth (10th) anniversary of the issuance thereof, (v) no amortization of the
principal of Subordinate Debt is required prior to the final maturity thereof
and no sinking fund or comparable payments are required in connection therewith;
(w) the stated interest rate payable prior to default on such Public Subordinate
Debt is not greater than twelve percent (12%); (x) the aggregate amount of all
underwriters commissions, fees and discounts, including, without limitation,
original issue discount (but excluding legal and accounting fees and other
customary out of pocket expenses) payable in connection with the issuance of the
Public
-53-
<PAGE>
Subordinate Debt is not greater than three percent (3%) of the stated principal
amount of such Public Subordinate Debt; (y) the subordination provisions
applicable to the Public Subordinate Debt are acceptable to the Banks in their
sole and absolute discretion, and (z) the other terms and conditions of such
Public Subordinate Debt are acceptable to Majority Banks.
8.13 Lease Obligations. Borrower will not, and will not permit any
-----------------
Company to, directly or indirectly, enter into, assume, or otherwise obligate
itself for the performance of the obligations of the lessee or tenant under any
lease or sublease of any Related Asset or real property, other than those which
constitute Permitted Contractual Obligations.
8.14 Liens. Borrower will not, and will not permit any Company to,
-----
directly or indirectly, (a) create, incur, or suffer or permit to be created or
incurred or to exist any Lien upon any of its assets except Permitted Liens, and
(b) enter into or permit to exist any arrangement or agreement (other than
existing arrangements or agreements described in SCHEDULE 6.14 and the Loan
Papers) which directly or indirectly prohibits any Company from creating or
incurring any Lien on any of its assets.
8.15 Mergers, Consolidations and Dissolutions. Borrower will not, and
----------------------------------------
will not permit any Company to, directly or indirectly, dissolve, merge or
consolidate with any Person other than any merger or consolidation resulting in
Borrower being the surviving corporation (so long as all other terms and
conditions of this Agreement are otherwise complied with) and after giving
effect to such merger or consolidation no Default or Potential Default has
occurred which is continuing. Notwithstanding the foregoing, Banks consent, for
purposes of this Agreement and the Existing Credit Agreement, to the
consummation of the Merger; provided, however, such consent is conditioned upon,
and subject to, the disbursement and application of the proceeds of the
Refinancing Advance and the payment and application of the Closing Repayment in
accordance with the provisions of SECTION 13.18 hereof, and the concomitant
termination of the Existing Credit Agreement. In the event the provisions of
SECTION 13.18 are not satisfied, and the Existing Credit Agreement is not
terminated pursuant to such SECTION 13.18, the consent by Banks contained herein
shall be null and void, and of no force or effect.
8.16 Loans, Advances, and Investments. Borrower will not, and will not
--------------------------------
permit any Company to, directly or indirectly, make any Investment other than
Permitted Investments; provided, that, Borrower shall not make any Permitted
Investments of the type described in clauses (e) and (f) of the definition of
Permitted Investments, unless, at the time each such Investment is made and
immediately after giving effect thereto, (a) each representation and warranty
contained herein and in the other Loan Papers is true and correct in all
material respects, (b) no Default or Potential Default has occurred which is
continuing, and (c) no Borrowing Base Deficiency is in existence.
8.17 Distributions. Borrower will not, and will not permit any Company
-------------
to, directly or indirectly, declare, make, or pay any Distribution; provided
that (a) any Company may make Distributions to Borrower or to any other
Designated Subsidiary, (b) Borrower may issue
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<PAGE>
Preferred Stock evidencing and representing the payment of preferred dividends
pursuant to the rights and preferences of such Preferred Stock set forth in the
Restated Certificate of Incorporation, and (c) provided that (i) no Default or
Potential Default or Borrowing Base Deficiency has occurred and is continuing at
the time of such repurchase, and (ii) the aggregate amount of all expenditures
for such repurchases in any fiscal year of Borrower does not exceed $500,000,
Borrower may (x) repurchase shares of Borrower's common stock and options and
warrants to purchase common stock from Management Investors, other than
Henderson and Miller, upon the termination of their employment with Borrower or
Designated Subsidiaries, and (y) repurchase shares of Borrower's common stock
and options and warrants to purchase common stock from Management Investors,
pursuant to the terms set forth in any separate agreement by and between
Borrower and such Management Investors; provided, that, Borrower may not
repurchase shares of Borrower's common stock and options and warrants to
purchase common stock from Miller and/or Henderson to the extent such repurchase
would result in a Default under SECTION 9.15 or 9.16 hereof. Borrower and Banks
mutually covenant and agree that the letter agreement among Borrower and Banks
dated December 30, 1993, (which permitted Borrower to make Distributions in an
amount up to $5,000,000 to repurchase its common stock) has been rescinded and
is of no further force or effect.
8.18 Issuance of Securities. Other than the issuance of (a) 20,000 shares
----------------------
of Preferred Stock for an aggregate cash consideration of $20,000,000 as part of
the Closing Transactions, and (b) other Preferred Stock evidencing and
representing the payment of preferred dividends pursuant to the rights and
preferences of such Preferred Stock set forth in the Restated Certificate of
Incorporation, Borrower will not, and will not permit any Company to, directly
or indirectly, issue, sell, or otherwise dispose of any of its shares of capital
stock (or other investment securities) bearing fixed or variable payment
obligations, or mandatory redemption obligations (other than the rights of any
Management Investor to require Borrower to repurchase the stock of any such
Management Investor as set forth in any shareholder's or similar agreement
between Borrower and any such Management Investor; provided, that Borrower's
ability to honor any repurchase obligation contained in any such agreement
remains subject to the restrictions set forth in SECTION 8.17 hereof),
including, without limitation, any preferred stock or any securities convertible
into or exchangeable for any such shares, or any warrants, options, or other
Rights to subscribe for or purchase any such shares. Borrower will not permit
any Designated Subsidiary to, directly or indirectly, issue, sell or otherwise
dispose of any of its shares of capital stock or any options, warrants or other
Rights to acquire such capital stock to any Person other than Borrower.
8.19 Transactions with Affiliates. Borrower will not, and will not permit
----------------------------
any Company to, directly or indirectly, enter into any transaction (including,
but not limited to, the sale or exchange of property or the rendering of
service) with any of its Affiliates, other than (a) the transactions described
on SCHEDULE 8.19, (b) transactions entered into in the ordinary course of
business of such Company and upon fair and reasonable terms no less favorable
than such Company could obtain or could become entitled to in an arms'-length
transaction with a Person
-55-
<PAGE>
which was not an Affiliate, and (c) the Closing Transactions and other
transactions expressly provided for in the Closing Transaction Documents.
8.20 Sale of Assets. Borrower will not, and will not permit any Company
--------------
to, directly or indirectly, (a) sell, lease, or otherwise dispose of (by farmout
or otherwise) all or any substantial part of its assets constituting or related
to Mineral Interests or Hydrocarbons (including Related Assets) other than: (i)
sales of non-Mineral Interest inventory and sales of Hydrocarbons in the
ordinary course of business; and (ii) sales of other assets consisting of or
relating to Mineral Interests or Hydrocarbons (including Related Assets) during
any six (6) month period between scheduled redeterminations of the Borrowing
Base not to exceed two percent (2%) of the Borrowing Base in effect at the
commencement of such six (6) month period (for purposes of this clause (ii) the
value of Mineral Interests, Related Assets and other assets sold for cash shall
be the gross sales prices of the properties sold; the value of Mineral
Interests, Related Assets and other assets sold for consideration other than
cash shall be the amount reflected on Borrower's books as "proceeds from the
sale of oil and gas properties" or "proceeds from the sale of properties"), (b)
sell, lease, or otherwise dispose of all or any substantial part of its non-
Mineral Interest assets or non-Hydrocarbon assets, or (c) sell, lease or
otherwise dispose of any portion of the capital stock of any Designated
Subsidiary or any option, warrant or other right to acquire such capital stock.
8.21 Current Ratio. Borrower will not permit the consolidated current
-------------
assets of the Companies ever to be less than one hundred percent (100%) of the
consolidated current liabilities of the Companies; provided that current
maturities of Long Term Debt shall be excluded from the calculations of such
ratio.
8.22 Environmental Compliance. Borrower shall, and shall cause each
------------------------
Company to, comply in all material respects with all Applicable Environmental
Laws, including, without limitation all permitting, storage, remediation and
similar requirements of Applicable Environmental Laws. Without limiting the
foregoing, Borrower shall, and shall cause each Company to, promptly pay and
discharge when due all debts, claims, liabilities and obligations with respect
to any clean up measures necessary to comply with Applicable Environmental Laws,
except for such debts, claims, liabilities and obligations with respect to any
clean up measures which are being contested in good faith and by appropriate and
lawful proceedings and so long as they do not in the aggregate materially
detract from the value of the Property of any Company or materially impair the
use thereof in the operation of its business, and provided further that Borrower
shall promptly notify Agent of any such proceedings and shall establish adequate
reserves for the payment of all such debts, claims and liabilities or the
performance of any such obligations.
8.23 Compliance with Laws and Documents. Borrower will not, and will not
----------------------------------
permit any Company to, directly or indirectly, violate the provisions of any
Laws, its Articles of Incorporation or Certificate of Incorporation or Bylaws or
any Material Agreement of any of the
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Companies if such violation alone, or when aggregated with all other such
violations, could cause a Material Adverse Event.
8.24 New Businesses. Borrower will not, and will not permit any Company
--------------
to, directly or indirectly, engage in any business other than the businesses in
which it is presently engaged and other energy related businesses. The
businesses in which Borrower is presently engaged are described on SCHEDULE 8.24
hereto.
8.25 Fiscal Year and Accounting Methods. Borrower will not, and will not
----------------------------------
permit any Company to, change its fiscal year or method of accounting (other
than immaterial changes in methods and changes required to stay in compliance
with GAAP); provided, that Agent and each Bank acknowledge that Borrower will
change its method of accounting from "full cost" to "successful efforts" on the
Closing Date and that the Pro Forma Balance Sheet was prepared based on a
"successful efforts" method of accounting.
8.26 Assignment. Borrower will not, and will not permit any Company to,
----------
directly or indirectly, assign or transfer, or attempt to assign or transfer,
any of its rights, duties, or obligations under any of the Loan Papers.
8.27 Advance Payment Contracts and Gas Balancing Agreements. Borrower
------------------------------------------------------
will (a) promptly notify each Bank of the terms and conditions of any Advance
Payment Contract at the time each such Advance Payment Contract becomes
effective, and (b) not permit any Gas Balancing Agreements to exist which, taken
in the aggregate, result in net gas imbalances of $1,000,000 or more to all
Companies at any time. The Borrowing Base shall automatically be reduced by an
amount equal to seventy-five percent (75%) of the Cash Proceeds received from
each Advance Payment Contract on the date such Cash Proceeds are received by a
Company.
8.28 Modification of Charter Documents and Closing Transaction Documents.
-------------------------------------------------------------------
Borrower will not enter into or permit, or permit any other Company to enter
into or permit, any amendment, modification, cancellation or termination of its
Certificate of Incorporation or Articles of Incorporation or Bylaws, any of the
Closing Transaction Documents, or any other Material Agreement or waive or fail
to enforce any material right of Borrower or any other Company thereunder to the
extent that any such amendment, modification, cancellation, termination or
waiver could reasonably be anticipated to be materially adverse to any Company,
Agent or any Bank. Borrower will not enter into or grant or permit any other
Company to enter into or permit any amendment, modification, waiver, termination
or cancellation of any of the foregoing which does not require the consent of
Majority Banks under this SECTION 8.28 unless Borrower has provided Agent and
each Bank written notice setting forth the details of such amendment,
modification, waiver, termination or cancellation at least five (5) Domestic
Business Days prior to entering into or granting the same. Notwithstanding the
foregoing, if Borrower does not issue the Public Subordinate Debt and apply the
proceeds thereof to refinance the JEDI Subordinate Debt on or prior to July 1,
1996, or Borrower determines that it does not intend to issue the Public
Subordinate Debt and Borrower provides notice thereof to Agent and required
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Banks (as required by SECTION 8.3(I) hereof) the Banks will not withhold their
consent to the amendment of the JEDI Subordinate Loan Documents to include
affirmative and negative covenants and events of default which are on
commercially reasonable terms for subordinate credit facilities of similar tenor
and credit quality and which are otherwise acceptable to required Banks.
8.29. Closing Repayment. Borrower shall advise Agent prior to 1:00 p.m.
-----------------
(Dallas, Texas time) at least one (1) Domestic Business Day before the Closing
Date of the amount of the Closing Repayment to be made by Borrower on the
Closing Date.
SECTION 9. DEFAULT. The term "Default" as used herein, means the occurrence of
- ---------- -------
any one or more of the following events (including the passage of time, if any,
specified therefor):
9.1 Payment of Principal Debt. The failure or refusal of Borrower to (a)
-------------------------
pay any portion of the Principal Debt, or (b) pay any reimbursement obligation
with respect to any Letter of Credit as the same becomes due in accordance with
the terms of the Loan Papers.
9.2. Payment of Other Obligations. The failure or refusal of Borrower to
----------------------------
pay any portion of the Obligation (other than the Principal Debt), as the same
becomes due in accordance with the terms of the Loan Papers, and such failure
continues for a period of five (5) days after the date due.
9.3 Covenants.
---------
(a) The failure or refusal of Borrower to punctually and properly
perform, observe, and comply with any covenant, agreement, or condition
contained in SECTIONS 8.9 through 8.20 inclusive, and SECTIONS 8.24, 8.25,
8.26, 8.27 AND 8.28.
(b) The failure or refusal of Borrower to punctually and properly
perform, observe, and comply with any covenant, agreement, or condition
contained in SECTIONS 8.21, 8.22, OR 8.23, and such failure or refusal
continues for a period of thirty (30) days after any Company has, or, with
the exercise of reasonable investigation, should have, notice thereof.
(c) The failure or refusal of Borrower or any Designated Subsidiary
to punctually and properly perform, observe, and comply with any covenant,
agreement, or condition contained in any of the Loan Papers, other than
covenants to pay the Obligation and the covenants listed in CLAUSES (A) and
(B) preceding, and such failure or refusal continues for a period of ten
(10) days after any Company has, or, with the exercise of reasonable
investigation, should have, notice thereof.
9.4 Debtor Relief. Any Company shall (a) become insolvent, (b) fail to
-------------
pay its debts generally as they become due, (c) voluntarily seek, consent to, or
acquiesce in the benefit or
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benefits of any Debtor Relief Law, or (d) become a party to (or be made the
subject of) any proceeding provided for by any Debtor Relief Law, other than as
a creditor or claimant, that could suspend or otherwise adversely affect the
Rights of Agent or any Bank granted in the Loan Papers (unless, in the event
such proceeding is involuntary, the petition instituting same is dismissed
within sixty (60) days after its filing).
9.5 Attachment. The failure to have discharged within a period of thirty
----------
(30) days after the commencement thereof any attachment, sequestration, or
similar proceeding against any of the assets of any Company having a value
(individually or in the aggregate) of $750,000 or more.
9.6 Payment of Judgments. Any Company fails to pay any final, non-
--------------------
appealable judgment or order for the payment of money in excess of $750,000
rendered against it or any of its assets.
9.7 Default on Other Debt or Security. Any Company fails or refuses to
---------------------------------
make any payment due on any Debt or security (with respect to which any Company
has redemption, sinking fund, or other purchase obligations) with an aggregate
principal amount equal to or greater than $5,000,000 or any event shall occur or
any condition shall exist in respect of any such Debt or security of any
Company, or under any agreement securing or relating to such Debt or security,
the effect of which is (a) to cause or to permit any holder of such Debt or
security or a trustee to cause (whether or not such holder or trustee elects to
cause) any of such Debt or security to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, or (b) to permit a trustee
or the holder of any security (other than common stock of any Company) to elect
(whether or not such trustee or holder does elect) a majority of the directors
on the board of directors of such Company. As used herein, the term "security"
has the meaning given such term in the Securities Act of 1933, as amended.
9.8 Default under JEDI Subordinate Debt. An Event of Default shall occur
-----------------------------------
under the JEDI Subordinate Debt Documents.
9.9 Default under Public Subordinate Debt. A default or an event of
-------------------------------------
default shall occur under the Public Subordinate Debt Documents or any other
condition or event shall occur which, with the giving of notice, lapse of time
or both (unless cured or waived) will constitute a default or event of default
thereunder.
9.10 Material Agreements. The occurrence of a default under any Material
-------------------
Agreement of any Company, which is not cured within a period of fifteen (15)
days after the occurrence thereof (or within any shorter period provided in such
Material Agreement).
9.11 Antitrust Proceedings. A petition or complaint is filed before or by
---------------------
any Tribunal, including, but not limited to, the Federal Trade Commission or the
United States Justice Department, seeking to cause any Company to divest a
significant portion of its assets or any of
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its Subsidiaries' pursuant to any antitrust, restraint or trade, unfair
competition, or similar Laws, and such petition or complaint is not dismissed or
discharged within sixty (60) days after its filing.
9.12 Misrepresentation. The discovery by any Bank that any statement,
-----------------
representation, or warranty in the Loan Papers or in any writing ever delivered
to Agent or any Bank pursuant to the Loan Papers is false, misleading, or
erroneous in any material respect.
9.13 Change of Control. JEDI, Enron Corp. ("Enron"), the California
-----------------
Public Employees Retirement System ("CPERS"), any wholly owned Subsidiary of
either Enron or CPERS, or any combination of the foregoing entities shall cease
to own (i) greater than fifty percent (50%) of the issued and outstanding
capital stock of Borrower of every class (on either an undiluted or a Fully
Diluted Basis), or (ii) a majority of the outstanding capital stock of Borrower
(on either an undiluted or a Fully Diluted Basis) having ordinary voting rights
for the election of directors.
9.14 Change of Management. Henderson and Miller shall each cease for any
--------------------
reason to be actively engaged in the day to day management of Borrower as senior
executive officers of Borrower.
9.15 Disposition of Stock Ownership (Henderson). Henderson shall cease
------------------------------------------
for any reason to own at least (a) .255% of the issued and outstanding common
equity ownership of Borrower on a Fully Diluted Basis (or such lower percentage
as may result from the issuance by Borrower of shares of its common stock or
rights, options, warrants or similar Rights to acquire common stock or
securities convertible into common stock after the Closing Date), or (b) .1255%
of the issued and outstanding common equity ownership of Borrower (on an
undiluted basis) (or such lower percentage as may result from the issuance by
Borrower of shares of its common stock or rights, options, warrants or similar
Rights to acquire common stock or securities convertible into common stock after
the Closing Date), other than, in the case of both (a) and (b) above, as a
result of a transfer or other disposition of such stock at the time of or
following the termination of Henderson's employment with Borrower.
9.16 Disposition of Stock Ownership (Miller). Miller shall cease for any
---------------------------------------
reason to own at least 1.255% of the issued and outstanding common equity
ownership of Borrower (on an undiluted basis) (or such lower percentage as may
result from the issuance by Borrower of shares of its common stock or rights,
options, warrants or similar Rights to acquire common stock or securities
convertible into common stock after the Closing Date) other than as a result of
a transfer or other disposition of such stock at the time of or following the
termination of Miller's employment with Borrower.
SECTION 10. CERTAIN RIGHTS AND REMEDIES.
- ---------- ---------------------------
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10.1 Remedies Upon Default. Should a Default occur and be continuing,
---------------------
Agent shall, if requested by Majority Banks, do any one or more of the following
as requested by Majority Banks: (a) declare the entire unpaid balance of the
Obligation, or any part thereof, immediately due and payable, whereupon it shall
be due and payable (provided that, upon the occurrence of a Default under
SECTION 9.4, the entire Obligation shall automatically become due and payable
without notice or other action of any kind whatsoever); (b) terminate the
commitment to lend hereunder; (c) reduce any claim to judgment; (d) in
accordance with SECTION 13.16, exercise (or instruct each Bank and each
Participant to exercise) the Rights of offset or banker's Lien against the
interest of each Company in and to every account and other Property of each
Company which are in the possession of any Bank or any Participant to the extent
of the full amount of the Obligation (each Company being deemed directly
obligated to each Bank and each Participant in the full amount of the Obligation
for such purposes); (e) foreclose any or all Bank Liens or otherwise realize
upon any and all of the Rights Agent or any Bank may have in and to any
Collateral, or any part thereof; (f) take such steps (whether before or after
the exercise of other Rights of Agent or any Bank) as may be necessary to
maintain the continued operation and function of any Collateral then securing
the Obligation including any Related Asset constituting Collateral for their
intended purposes, including without limitation, such actions as may be
necessary to enable Agent (or any nominee) to utilize, transfer, and keep any
license, approval, franchise, or permit issued by any Tribunal in full force and
effect, for which purposes (and as further security for the Obligation)
irrevocably appoints Agent (or any nominee) its attorney-in-fact; and (g)
exercise any and all other legal or equitable Rights afforded by the Loan
Papers, the Laws of the State of Texas or any other jurisdiction as Agent shall
deem appropriate, or otherwise, including, but not limited to, the Right to
bring suit or other proceedings before any Tribunal either for specific
performance of any covenant or condition contained in any of the Loan Papers or
in aid of the exercise of any Right granted to Agent in any of the Loan Papers.
10.2 Waivers by Borrower and Others. Borrower and each surety, endorser,
------------------------------
guarantor, and other party ever liable for payment of any of the Obligation
jointly and severally waive presentment and demand for payment, protest, notice
of intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agree that their liability with respect to the Obligation, or
any part thereof, shall not be affected by any renewal or extension in the time
of payment of the Obligation, by any indulgence, or by any release or change in
any security for the payment of the Obligation, and hereby consent to any and
all renewals, extensions, indulgences, releases, or changes, regardless of the
number thereof.
10.3 Performance by Agent. If any covenant, duty, or agreement of any
--------------------
Company is not performed in accordance with the terms of the Loan Papers, Agent
shall, to the extent required by SECTION 11 hereof, if requested by Majority
Banks, at their option, perform, or attempt to perform, such covenant, duty, or
agreement on behalf of such Company. In such event, any amount expended by
Agent in such performance or attempted performance shall be payable by Borrower
to Agent on demand, shall become part of the Obligation, and shall bear interest
at the Default Rate from the date of such expenditure by Agent until paid.
Notwithstanding the foregoing, it is expressly understood that neither Agent nor
any Bank
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assumes or shall ever have, except by express written consent of such party, any
liability or responsibility for the performance of any covenant, duty, or
agreement of any Company.
10.4 Delegation of Duties and Rights. Agent and each Bank may exercise
-------------------------------
any of its duties or exercise any of its Rights under the Loan Papers by or
through its officers, directors, employees, attorneys, agents or other
representatives.
10.5 Banks and Agent Not in Control. None of the covenants or other
------------------------------
provisions contained in this Agreement shall, or shall be deemed to, give Agent
or any Bank the Right or power to exercise control over the affairs or
management of any Company, the power of Agent or any Bank being limited to the
Right to exercise the remedies provided in this SECTION 10.
10.6 Waivers by Agent and Banks. The acceptance by Agent or any Bank at
--------------------------
any time and from time to time of partial payment on the Obligation shall not be
deemed to be a waiver of any Default then existing. No waiver by Agent or any
Bank of any Default shall be deemed to be a waiver of any other then-existing or
subsequent Default. No delay or omission by Agent or any Bank in exercising any
Right under the Loan Papers shall impair such Right or be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise of
any such Right preclude other or further exercise thereof, or the exercise of
any other Right under the Loan Papers or otherwise.
10.7 Cumulative Rights. All Rights available to Agent and Banks under the
-----------------
Loan Papers are cumulative of and in addition to all other Rights granted to
Agent and Banks at law or in equity, whether or not the Obligation is due and
payable and whether or not Agent or any Bank has instituted any suit for
collection or other action in connection with the Loan Papers.
10.8 Expenditures by Agent and Banks. All court costs, reasonable
-------------------------------
attorneys' fees, other reasonable costs of collection, and other reasonable sums
spent by Agent or any Bank pursuant to the exercise of any Right (including,
without limitation, any effort to collect or enforce any Note) provided herein
shall be payable to Agent for the benefit of any such party on demand, shall
become part of the Obligation, and shall bear interest at the Default Rate from
the date spent until the date repaid by Borrower.
10.9 Diminution in Value of Collateral. Neither Agent nor any Bank shall
---------------------------------
have any liability or responsibility whatsoever for any diminution in or loss of
value of any Collateral.
10.10 Indemnification of Agent and Banks. Each Company shall jointly and
----------------------------------
severally indemnify Agent and each Bank and hold Agent and each Bank harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses, and disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against any such party, in any way relating to or arising out of the
Loan Papers, the Closing Transaction Documents, the Closing Transactions or any
other transaction contemplated hereby or by any other Loan Paper or Closing
Transaction Document (including,
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<PAGE>
without limitation, any of the foregoing imposed on, incurred by, or asserted
against any such party by virtue of ownership or operation of any Collateral),
to the extent that any such indemnified liabilities result, directly or
indirectly, from any claims made or actions, suits, or proceedings commenced by
or on behalf of any Person other than such party; provided that neither Agent
nor any Bank shall have the Right to be indemnified hereunder for its own gross
negligence or willful misconduct; IT BEING THE INTENTION OF THE AGENT, EACH BANK
AND EACH COMPANY THAT AGENT AND EACH BANK SHALL BE INDEMNIFIED FOR AND HELD
HARMLESS FROM THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE. The foregoing
agreement constitutes a part of the Obligation, and shall survive the
termination of this Agreement and the exercise of any Rights of Agent or any
Bank with respect to all or any part of the Collateral.
SECTION 11. AGENT.
- ----------- -----
11.1 Appointment and Authorization. Each Bank irrevocably appoints and
-----------------------------
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement, the Notes and the other Loan Papers as are
delegated to Agent by the terms hereof or thereof, together with all such powers
as are reasonably incidental thereto, provided that, as between and among Banks,
Agent will not prosecute, settle or compromise any claim against Borrower or
release or institute enforcement proceedings, except with the consent of the
Majority Banks. Each Bank and Borrower agree that Agent is not a fiduciary for
Banks or for Borrower but simply is acting in the capacity described herein to
alleviate administrative burdens for both Borrower and Banks and that Agent has
no duties or responsibilities to Banks or Borrower except those expressly set
forth herein.
11.2 Agent and Affiliates. NationsBank of Texas, N.A. shall have the same
--------------------
rights and powers under this Agreement as any other Bank and may exercise or
refrain from exercising the same as though it were not Agent, and NationsBank of
Texas, N.A. and its affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with any Company or Affiliate of any
Company as if it were not Agent hereunder.
11.3 Action by Agent. The obligations of Agent hereunder are only those
---------------
expressly set forth herein. Without limiting the generality of the foregoing,
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in SECTION 10. Notwithstanding the administrative
authority delegated to Agent, Agent shall not without the prior written approval
of all Banks cause or permit any modification of the Loan Papers pertaining to
(a) the scheduled payment of principal, interest or fees in respect of the
Principal Debt, including the Termination Date, (b) the rate of interest
applicable to the Principal Debt or the amount of fees payable hereunder, (c)
the release or substitution of collateral for the Obligation other than releases
required pursuant to sales of Collateral which Agent reasonably believes are
permitted pursuant to SECTION 8.20, (d) increasing any Commitment of any Bank,
or (e) SECTION 2.3 or the definitions contained in SECTION 1 applicable thereto.
Further, Agent shall grant such waivers, consents or approvals in favor of
Borrower as (i) Majority Banks shall direct with respect to
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matters which only require the consent or approval of Majority Banks, and (ii)
all Banks shall direct with respect to matters which require the consent or
approval of all Banks. Each Bank hereby authorizes Agent to execute any and all
releases, termination statements, reconveyances and similar documents as may be
necessary to fully and completely release, terminate and discharge of record all
Bank Liens securing the Obligation under and as defined in the Existing Credit
Agreement.
11.4 Consultation with Experts. Agent may consult with legal counsel (who
-------------------------
may be counsel for Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
11.5 Liability of Agent. Neither Agent nor any of its directors,
------------------
officers, agents, or employees shall be liable for any action taken or not taken
by it in connection herewith (a) with the consent or at the request of Majority
Banks or (b) in the absence of its own gross negligence or willful misconduct,
it being the intention of Banks that such parties shall not be liable for the
consequences of their negligence. Neither Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement, warranty or representation
made in connection with this Agreement or any borrowing hereunder, (ii) the
performance or observance of any of the covenants or agreements of Borrower, (c)
the satisfaction of any condition specified in SECTION 7, except receipt of
items required to be delivered to Agent, or (d) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. Agent shall not incur any liability by acting
in reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it to be
genuine or to be signed by the proper party or parties or upon any oral notice
which Agent believes will be confirmed in writing by the proper party or
parties. If Agent fails to take any action required to be taken by it under the
Loan Papers after a Default and within a reasonable time after being requested
to do so by any Bank (after such requesting Bank has obtained the approval of
such other Banks as required), Agent shall not suffer or incur any liability as
a result thereof, but such requesting Bank may request Agent to resign,
whereupon Agent shall so resign pursuant to SECTION 11.9.
11.6 Delegation of Duties. Agent may execute any of its duties hereunder
--------------------
by or through officers, directors, employees, attorneys, or agents.
11.7 Indemnification. Each Bank shall, ratably in accordance with its
---------------
Commitment Percentage, indemnify Agent (to the extent not reimbursed by
Borrower) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from Agent's
gross negligence or willful misconduct) that Agent may suffer or incur in
connection with this Agreement or any action taken or omitted by Agent
hereunder. IT IS THE EXPRESS INTENTION OF BANKS AND AGENT THAT AGENT SHALL BE
INDEMNIFIED FOR THE CONSEQUENCES OF ITS OWN ORDINARY NEGLIGENCE.
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11.8 Credit Decision. Each Bank acknowledges that it has, independently
---------------
and without reliance upon Agent or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it
will, independently and without reliance upon Agent or any other Bank, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking any action
under this Agreement.
11.9 Successor Agent. Agent may resign at any time by giving written
---------------
notice thereof to Banks and Borrower. In addition, Borrower may, prior to a
Default, request the designation by Banks of a successor Agent. Upon any such
request by Borrower or resignation by Agent, Majority Banks shall have the right
to appoint a successor Agent, which shall be one of Banks. If no successor
Agent shall have been so appointed by the Majority Banks and accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation or Borrower's request for a successor Agent, then the retiring
Agent may, on behalf of Banks, appoint a successor Agent, which shall (i) be a
commercial bank organized under the Laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000 and (ii) unless the successor Agent is a Bank, be reasonably
acceptable to Borrower. Upon the acceptance of its appointment as a successor
Agent hereunder, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
Agent's resignation hereunder as Agent, the provisions of this SECTION 11.9
shall continue to inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent. Borrower shall be entitled to recommend a
successor Agent at the time of designation of any successor Agent pursuant to
this SECTION 11.9. Banks shall give due consideration to the successor
nominated by Borrower, but shall have no obligation to approve such nominee.
SECTION 12. PROTECTION OF YIELD; CHANGE IN LAWS.
- ---------- -----------------------------------
12.1 Basis for Determining Interest Rate Applicable to CD Rate Tranches
------------------------------------------------------------------
and Eurodollar Tranches Inadequate. If on or prior to the first day of any
- ----------------------------------
Interest Period:
(a) Agent is advised by any Bank that deposits in dollars (in the
applicable amounts) are not being offered to such Bank(s) in the relevant
market for such Interest Period, or
(b) Banks having fifty percent (50%) or more of the aggregate amount
of the Total Commitment advise Agent that the Adjusted London Interbank
Offered Rate as determined by Agent will not adequately and fairly reflect
the cost to such Banks of funding the Principal Debt which will be subject
to a Eurodollar Tranche for such Interest Period, or
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(c) Banks having fifty percent (50%) or more of the aggregate amount
of the Total Commitment advise Agent that the Adjusted CD Rate as
determined by Agent will not adequately and fairly reflect the cost to such
Bank(s) of funding the Principal Debt which will be subject to a CD Rate
Tranche for such Interest Period;
Agent shall give notice thereof to Borrower and Banks, whereupon the obligations
of Banks to allow interest to be computed by reference to the Adjusted CD Rate
or the Adjusted London Interbank Offered Rate (as applicable) shall be suspended
until Agent notifies Borrower that the circumstances giving rise to such
suspension no longer exist. Unless Borrower notifies Agent at least two (2)
Domestic Business Days before the date of any Eurodollar Advance or CD Rate
Advance for which a Notice of Advance has previously been given that it elects
not to borrow on such date, such Advance shall instead be made as a Base Rate
Loan.
12.2 Illegality of CD Rate Tranche, or Eurodollar Tranche. If, after the
----------------------------------------------------
date of this Agreement, the adoption of any applicable Law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank (or
its Eurodollar Lending Office) with any request or directive (whether or not
having the force of Law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank (or its Eurodollar
Lending Office) to maintain or fund any portion of the Principal Debt subject to
a Eurodollar Tranche and/or CD Rate Tranche and such Bank shall so notify Agent,
Agent shall forthwith give notice thereof to the other Banks and Borrower.
Until such Bank notifies Borrower and Agent that the circumstances giving rise
to such suspension no longer exist, the obligation of such Bank to maintain or
fund any portion of the Principal Debt subject to a Eurodollar Tranche or CD
Rate Tranche (as applicable) shall be suspended. Before giving any notice to
Agent pursuant to this SECTION 12.2, such Bank shall designate a different
Eurodollar Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any portion of the Principal Debt subject
to a Eurodollar Tranche or CD Rate Tranche to maturity and shall so specify in
such notice, Borrower shall immediately convert that portion of the Principal
Debt which is subject to such Eurodollar Tranche or CD Rate Tranche to a Base
Rate Tranche (or a CD Rate Tranche or Eurodollar Tranche if either remains
available) (on which interest and principal shall be payable contemporaneously
with the unaffected Eurodollar Tranches or CD Rate Tranches [as applicable] of
the other Banks).
12.3 Increased Cost of CD Rate Tranches or Eurodollar Tranches. If after
---------------------------------------------------------
the date hereof, the adoption of any applicable Law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Lending Office) with any request or directive (whether or not having the force
of Law) of any such authority, central bank or comparable agency:
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<PAGE>
(a) shall subject any Bank (or its Lending Office) to any Tax, duty
or other charge with respect to maintaining or funding any portion of the
Principal Debt subject to a Eurodollar Tranche or a CD Rate Tranche or its
obligation to allow interest to be computed by reference to the Adjusted
London Interbank Offered Rate or CD Rate or shall change the basis of
taxation of payments to any Bank (or its Lending Office) of any Principal
Debt (or interest which accrues thereon) which is subject to any Eurodollar
Tranche or CD Rate Tranche or any other amounts due under this Agreement in
respect of any Eurodollar Tranche or CD Rate Tranche or its obligation to
allow interest to be computed by reference to the Adjusted London Interbank
Offered Rate or the CD Rate (except for changes in the rate of tax on the
overall net income of such Bank or its Lending Office imposed by the
jurisdiction in which such Bank's principal executive office or Lending
Office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Eurodollar Tranche any such
requirement included in an applicable Eurodollar Reserve Percentage and
excluding with respect to any CD Rate Tranche any such requirement included
in an applicable CD Reserve Percentage) against assets of, deposits with or
for the account of or credit extended by, any Bank's Lending Office or
shall impose on any Bank (or its Lending Office) or the London interbank
market or the applicable certificate of deposit market any other condition
affecting Eurodollar Tranches, CD Rate Tranches or its obligation to allow
interest to be computed by reference to the Adjusted London Interbank
Offered Rate or the CD Rate; and the result of any of the foregoing is to
increase the cost to such Bank (or its Lending Office) of funding or
maintaining any portion of the Principal Debt subject to a Eurodollar
Tranche or CD Rate Tranche, or to reduce the amount of any sum received or
receivable by such Bank (or its Lending Office) under this Agreement or
under its Note with respect thereto, by an amount deemed by such Bank to be
material, then, within five (5) days after demand by such Bank (with a copy
to Agent), Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such increased cost or reduction.
Each Bank will promptly notify Borrower and Agent of any event of which it
has knowledge, occurring after the date hereof, which will entitle such
Bank to compensation pursuant to this SECTION 12.3 and will designate a
different Lending Office if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of
such Bank, be otherwise disadvantageous to such Bank. A certificate of any
Bank claiming compensation under this SECTION 12.3 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive
in the absence of manifest error. In determining such amount, such Bank
may use any reasonable averaging and attribution methods.
12.4 Alternative Tranches Substituted for Affected Eurodollar Tranches or
--------------------------------------------------------------------
CD Rate Tranches. If (a) the obligation of any Bank to fund or maintain any
- ----------------
portion of the Principal Debt
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<PAGE>
subject to a Eurodollar Tranche or CD Rate Tranche or to otherwise allow
interest to be computed by reference to the Adjusted London InterBank offered
Rate or the Adjusted CD Rate, has been suspended pursuant to SECTION 12.2 or (b)
any Bank has demanded compensation under SECTION 12.3 and Borrower shall, by at
least five (5) Eurodollar Business Days (with respect to Eurodollar Tranches) or
five (5) Domestic Business Days (with respect to CD Rate Tranches) prior notice
to such Bank through Agent, have elected that the provisions of this SECTION
12.4 shall apply to such Bank, then, unless and until such Bank notifies
Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer apply:
(a) all Principal Debt which would otherwise be characterized by such
Bank as being subject to a Eurodollar Tranche or a CD Rate Tranche (as
applicable) shall instead be deemed subject to a Base Rate Tranche (or CD
Rate Tranche or Eurodollar Tranche if either remains available) (on which
interest and principal shall be payable contemporaneously with the
unaffected Eurodollar Tranches or CD Rate Tranches [as applicable] of the
other Banks), and
(b) after all of the Principal Debt payable to such Bank which is
subject to a Eurodollar Tranche or a CD Rate Tranche (as applicable) has
been repaid, all payments that would otherwise be applied to the Principal
Debt subject to such Eurodollar Tranche or CD Rate Tranche (as applicable)
shall be applied to repay its Base Rate Tranches or CD Rate Tranches or
Eurodollar Tranches if either remains available instead.
12.5 Discretion of Banks as to Manner of Funding. Notwithstanding any
-------------------------------------------
provisions of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Loan in any manner it
sees fit, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if such Bank had actually funded
and maintained the Principal Debt which is subject to each Eurodollar Tranche
and CD Rate Tranche during the Interest Period for such Eurodollar Tranche or CD
Rate Tranche through the purchase of deposits having a maturity corresponding to
the last day of such Interest Period and bearing an interest rate equal to the
CD Rate or the London InterBank Offered Rate for such Interest Period.
SECTION 13. MISCELLANEOUS.
- ---------- -------------
13.1 Headings. The headings, captions, and arrangements used in any of
--------
the Loan Papers are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify, or modify the terms of the Loan Papers, nor
affect the meaning thereof.
13.2 Exhibits. If any Exhibit, which is to be executed and delivered,
--------
contains blanks, the same shall be completed correctly and in accordance with
the terms and provisions contained and as contemplated herein prior to, at the
time of, or after the execution and delivery thereof.
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<PAGE>
13.3 Communications. Unless specifically otherwise provided, whenever any
--------------
Loan Paper requires or permits any consent, approval, notice, request, or demand
from one party to another, such communication must be in writing (which may be
by facsimile, cable, or tested telex) to be effective and shall be deemed to
have been given on the day actually delivered or, if mailed, on the third
Domestic Business Day after it is enclosed in an envelope, addressed (a) if to
Agent or any Bank, at its address set forth on SCHEDULE 1.1 hereto, or (b) if to
Borrower or any other Company, at the address for Borrower set forth on the
signature pages hereto, in each case properly stamped, sealed, and deposited in
the appropriate official postal service. Until changed by notice pursuant
hereto, the address and telex number for Agent and each Bank for purposes hereof
is as set forth on SCHEDULE 1.1 hereto and for Borrower and each other Company
for purposes hereof is as set forth on the signature pages hereto.
13.4 Form and Number of Documents. Each agreement, document, instrument,
----------------------------
or other writing to be furnished to Agent or any Bank under any provision of
this Agreement must be in form and substance and in such number of counterparts
as may be satisfactory to Agent and Majority Banks and its counsel.
13.5 Exceptions to Covenants. The Companies shall not be deemed to be
-----------------------
permitted to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained in any of the Loan Papers if such
action or omission would result in the breach of any other covenant contained in
any of the Loan Papers.
13.6 Survival. All covenants, agreements, undertakings, representations,
--------
and warranties made in any of the Loan Papers shall survive all closings under
the Loan Papers and, except as otherwise indicated, shall not be affected by any
investigation made by any party. Further, Borrower's obligations and Agent's
and Banks' Rights under the Loan Papers shall continue in full force and effect
until the Obligation is paid and performed in full.
13.7 Governing Law. THE LOAN PAPERS ARE BEING EXECUTED AND DELIVERED, AND
-------------
ARE INTENDED TO BE PERFORMED, IN THE STATE OF TEXAS, AND THE LAWS (OTHER THAN
CONFLICT OF LAWS PROVISIONS THEREOF) OF SUCH STATE AND OF THE UNITED STATES OF
AMERICA SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE
VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THE LOAN PAPERS,
EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN ANY OF THE LOAN PAPERS.
13.8 Venue; Service of Process. Each Company, for itself, its successors
-------------------------
and assigns, hereby (a) irrevocably submits to the nonexclusive jurisdiction of
the state and federal courts of the State of Texas and agrees and consents that
service of process may be made upon it in any legal proceeding arising out of or
in connection with the Loan Papers and the Obligation by service of process as
provided by Texas Law, (b) irrevocably waives, to the fullest extent permitted
by Law, any objection which it may now or hereafter have to the laying of venue
of
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<PAGE>
any Litigation arising out of or in connection with the Loan Papers and the
Obligation brought in district courts of Dallas County, Texas, or in the United
States District Court for the Northern District of Texas, Dallas Division, (c)
irrevocably waives any claims that any Litigation brought in any such court has
been brought in an inconvenient forum, (d) agrees to designate and maintain an
agent for service of process in Dallas, Texas, in connection with any such
Litigation and to deliver to Agent evidence thereof, (e) irrevocably consents to
the service of process out of any of the aforementioned courts in any such
Litigation by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to such Borrower at its address set forth herein,
and (f) irrevocably agrees that any legal proceeding against Agent or any Bank
arising out of or in connection with the Loan Papers or the Obligation shall be
brought in the district courts of Dallas County, Texas, or in the United States
District Court for the Northern District of Texas, Dallas Division. Nothing
herein shall affect the Right of Agent or any Bank to commence legal proceedings
or otherwise proceed against Borrower in any jurisdiction or to serve process in
any manner permitted by applicable Law.
13.9 Waiver of Jury Trial. BORROWER, FOR ITSELF, ITS SUCCESSORS AND
--------------------
ASSIGNS, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS
RIGHT TO A JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH
THE LOAN PAPERS AND THE OBLIGATION.
13.10 Maximum Interest Rate. Regardless of any provision contained in any
---------------------
of the Loan Papers, no Bank shall ever be entitled to contract for, charge,
take, reserve, receive, or apply, as interest on the Obligation, or any part
thereof, any amount in excess of the Highest Lawful Rate, and, in the event any
Bank ever contracts for, charges, takes, reserves, receives, or applies as
interest any such excess, it shall be deemed a partial prepayment of principal
and treated hereunder as such; and, if the Principal Debt is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether or
not the interest paid or payable, under any specific contingency, exceeds the
Highest Lawful Rate, the Companies, Agent and Banks shall, to the maximum extent
permitted under applicable Law, (a) treat all Advances as but a single extension
of credit (and Agent, Banks and Borrower agree that such is the case and that
provision herein for multiple Advances and for one or more Notes is for
convenience only), (b) characterize any nonprincipal payment as an expense, fee,
or premium rather than as interest, (c) exclude voluntary prepayments and the
effects thereof, and (d) "spread" the total amount of interest throughout the
entire contemplated term of the Obligation; provided that, if the Obligation is
paid and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, Banks shall refund such excess, and, in such
event, neither Agent nor Banks shall be subject to any penalties provided by any
Laws for contracting for, charging, taking, reserving, or receiving interest in
excess of the Highest Lawful Rate. To the extent the Laws of the State of Texas
are applicable for purposes of determining the "Highest Lawful Rate," such term
shall mean the "indicated rate ceiling" from time to time in effect under
Article 1.04, Title 79, Revised Civil Statutes of Texas, as amended, or, if
permitted by applicable Law and effective upon the giving of the notices
required by such Article 1.04 (or effective upon any other date otherwise
specified
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<PAGE>
by applicable Law), the "monthly ceiling," the "quarterly ceiling," or
"annualized ceiling" from time to time in effect under such Article 1.04,
whichever that Bank shall elect to substitute for the "indicated rate ceiling,"
and vice versa, each such substitution to have the effect provided in such
Article 1.04; and each Bank shall be entitled to make such election from time to
time and one or more times and, without notice to Borrower, to leave any such
substitute rate in effect for subsequent periods in accordance with subsection
(h)(1) of such Article 1.04. Pursuant to Article 15.10(b) of Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees
that such Chapter 15 shall not govern or in any manner apply to the Obligation.
13.11 Invalid Provisions. If any provision of any of the Loan Papers is
------------------
held to be illegal, invalid, or unenforceable, such provision shall be fully
severable; the appropriate Loan Paper shall be construed and enforced as if such
provision had never comprised a part thereof; and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by such
provision or by its severance therefrom. Furthermore, in lieu of such provision
there shall be added automatically as a part of such Loan Paper a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable.
13.12 Entirety. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE
--------
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IF THERE ARE CONFLICTS
BETWEEN ANY OF THE TERMS OF THE LOAN PAPERS AND THE TERMS OF ANY AGREEMENT OR
DOCUMENT EVIDENCING ANY DEBT DESCRIBED ON PART I.B. OF SCHEDULE 6.13, THEN THE
TERMS AND PROVISIONS OF THE LOAN PAPERS SHALL CONTROL FOR ALL PURPOSES.
13.13 Multiple Counterparts. This Agreement has been executed in a number
---------------------
of identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one Agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
13.14 Assignments and Participations by Banks. Any Bank may from time to
---------------------------------------
time enter into assignments or participations of its rights and obligations
hereunder; provided, that (a) each Bank shall at all times maintain a Commitment
Percentage of not less than ten percent (10%), (b) in the case of a
participation, the participating Bank will not be released from any part of its
Commitment hereunder, (c) in the case of an assignment, the assigning Bank will
not be released from any part of its Commitment unless Borrower and Agent have
expressly consented to such release, (d) no Bank shall enter into any assignment
unless Agent and Borrower have consented to such assignment, such consent not to
be unreasonably withheld if the assignee Bank has combined capital and surplus
of not less than $500,000,000; provided, that, the consent of Borrower will not
be required in the case of any assignment made during the existence of a
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<PAGE>
Default or Potential Default, and (e) no Bank shall, as result of any
assignment, participation or otherwise, assign, delegate, restrict, encumber,
reduce or otherwise limit or impair the right of such Bank to vote with respect
to any matter to be submitted to a vote of Banks hereunder, including, without
limitation, any matter to be decided by "Majority Banks", "all Banks" or "Banks"
hereunder such as, but not by way of limitation, any redetermination of the
Borrowing Base pursuant to SECTION 2.3 hereof or any amendment, modification or
waiver to be entered into pursuant to SECTION 13.17 hereof. In addition to the
foregoing, no Bank shall enter into any assignment or participation of any part
of its rights and obligations hereunder unless, prior to entering into such
assignment or participation such Bank (the "Offering Bank") has offered to sell
such assignment or participation to the other Banks in accordance with the
following procedure: not less than twenty (20) days prior to the date the
Offering Bank intends to enter into an assignment or participation with a third
party, the Offering Bank shall notify (the "Offer Notice") the other Banks of
such intent, which Offer Notice shall include a copy of the proposed assignment
or participation which the Offering Bank intends to enter into. Each other Bank
shall have the right to purchase its Pro Rata Part (as herein defined) of such
assignment or participation interests on the same terms offered to such third
party. Any Bank which accepts such offer (any "Accepting Bank") shall deliver
written notice of such acceptance to the Offering Bank not less that fifteen
(15) days following receipt of the Offer Notice (any Bank which does not deliver
such notice of acceptance will be deemed to have rejected such offer). As early
as reasonably possible after the Accepting Banks have been finally determined,
but in no event later than thirty (30) days after the date of the Offer Notice,
the Offering Bank and the Accepting Banks shall close the purchase and sale of
such assignment or participation. Subject to the other restrictions of this
SECTION 13.14, the Offering Bank shall be permitted to close the purchase and
sale of any portion of such assignment or participation which has not been
purchased by Accepting Banks for a period of sixty (60) days following the date
of the Offer Notice, after which the Offering Bank shall be required to comply
with this procedure again. Furthermore, in the event the terms of such
assignment or participation are modified in any manner favorable to the third
party, the Offering Bank will be required to comply with this procedure with
respect to such revised offer to the same extent as if it were a new offer. As
used herein, "Pro Rata Part" means with respect to an Accepting Bank, the
percentage of an assignment or participation determined by dividing the
Commitment Percentage of such Accepting Bank by the total of the Commitment
Percentages of all Accepting Banks.
13.15 Parties Bound; Assignments by Borrower. This Agreement is binding
--------------------------------------
upon, and inures to the benefit of, Agent, each Bank, Borrower, and each
Company, and the respective successors and assigns of Agent, each Bank and
Borrower, provided that Borrower may not, without the prior written consent of
all Banks, assign any Rights, duties, or obligations hereunder, and any
purported assignment in violation of the foregoing shall be void and
ineffective.
13.16 Right and Sharing of Set-Offs.
-----------------------------
(a) Upon the occurrence and during the continuance of any Default,
each Bank is hereby authorized at any time and from time to time, to the
fullest extent permitted by
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<PAGE>
Law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at
any time owing by such Bank to or for the credit or the account of Borrower
against any and all of the obligations of Borrower now or hereafter
existing under this Agreement and any Note held by such Bank, irrespective
of whether or not such Bank shall have made any demand under this Agreement
or such Note and although such obligations may be unmatured. Each Bank
agrees promptly to notify Borrower after any such setoff and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each
Bank under this SECTION 13.16(A) are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which such
Bank may have.
(b) Each Bank agrees that if it shall, by exercising any right of
setoff or counterclaim or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest due with respect to any Note
held by it which is greater than the proportion received by any other Bank
in respect of the aggregate amount of principal and interest due with
respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the
Notes held by the other Banks, and such other adjustments shall be made, as
may be required so that all such payments of principal and interest with
respect to the Notes held by Banks shall be shared by Banks ratably;
provided that nothing in this SECTION 13.16 shall impair the right of any
Bank to exercise any right of setoff or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of
Borrower other than its indebtedness under the Notes. Borrower agrees, to
the fullest extent it may effectively do so under applicable Law, that any
holder of a participation in a Note may exercise rights of setoff or
counterclaim and other rights with respect to such participation as fully
as if such holder of a participation were a direct creditor of Borrower in
the amount of such participation.
13.17 Amendments and Waivers. Any provision of this Agreement, the Notes
----------------------
or the other Loan Papers may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by Borrower and Majority Banks
(and, if the rights or duties of Agent are affected thereby, by Agent); provided
that no such amendment or waiver shall, unless signed by all Banks, (a) increase
the Commitment of any Bank or subject any Bank to any additional obligation, (b)
forgive any of the principal of or reduce the rate of interest on the Loan or
any fees hereunder, (c) forgive any reimbursement obligations under any
outstanding Letters of Credit, (d) release or substitute any collateral for the
Obligation other than releases required pursuant to a sale of Collateral which
Agent reasonably believes is permitted pursuant to a SECTION 8.20, (e) release
any Person obligated, directly or indirectly, for the payment and performance of
the Obligation, from such Person's obligations with respect to such payment and
performance of the Obligation, (f) postpone the date fixed for any payment of
principal of or interest on any Loan or any reimbursement obligations with
respect to Letters of Credit or any fees hereunder including the Termination
Date, (g) change the percentage of the Commitments
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<PAGE>
or forgive or reduce the Principal Debt owed to any Bank, or the number of Banks
which shall be required for Banks or any of them to take any action under this
SECTION 13.17 or any other provision of this Agreement, (h) permit Borrower to
assign any of its rights hereunder, or (i) modify SECTION 2.3 or the definitions
contained in SECTION 1 applicable thereto.
13.18 Certain Agreements Regarding Existing Credit Agreement. Borrower
------------------------------------------------------
hereby agrees that from and after the date hereof Borrower shall not request any
Advance or request the issuance of any Letter of Credit under the Existing
Credit Agreement. Borrower, Agent and each Bank acknowledge that amounts will
be owing under the Existing Credit Agreement on the Closing Date in respect of
(a) the aggregate outstanding Principal Debt under the Existing Credit
Agreement, (b) the aggregate amount of interest which has accrued under the
Existing Credit Agreement which is unpaid as of the Closing Date, (c) the
aggregate amount of fees which have accrued under SECTIONS 4.2 and 4.3 of the
Existing Credit Agreement which is unpaid as of the Closing Date, and (d) all
losses which are payable by Borrower to any Bank pursuant to SECTION 3.5 of the
Existing Credit Agreement as a result of the prepayment of Fixed Rate Tranches
outstanding under the Existing Credit Agreement prior to the last day of the
Interest Period applicable thereto. In accordance with SECTIONS 2.4(A) and (C)
hereof, Borrower instructs each Bank to fund its Commitment Percentage of the
Refinancing Advance on the Closing Date. Borrower also hereby agrees that it
will make the Closing Repayment on the Closing Date. Borrower hereby instructs
Agent and each Bank to apply the proceeds of the Refinancing Advance and the
Closing Repayment to the Principal Debt, accrued interest, accrued fees and
losses owing pursuant to the Existing Credit Agreement as set forth above.
Immediately upon the disbursement and application of the proceeds of the
Refinancing Advance as required by this SECTION 13.18, and the payment and
application of the Closing Repayment, the Existing Credit Agreement and the
Commitments of each Bank thereunder shall terminate and be of no further force
or effect without the necessity of any further action on the part of Borrower,
Agent or any Bank; provided, that, any provision of the Existing Credit
Agreement which expressly provides that it survives the termination of the
Existing Credit Agreement or the repayment of the Obligation (as therein
defined) shall survive such termination and shall remain in full force and
effect.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
EXECUTED as of the day and year first herein mentioned.
BORROWER:
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
_____________________________________
Grant W. Henderson,
Executive Vice President and
Chief Financial Officer
Address for notice:
------------------
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Fax No. (214) 692-7171
AGENT:
NATIONSBANK OF TEXAS, N.A.
By: /s/ J. SCOTT FOWLER
_____________________________________
J. Scott Fowler,
Vice President
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ J. SCOTT FOWLER
_____________________________________
J. Scott Fowler,
Vice President
BANK ONE, TEXAS, N.A.
By: /s/ REED THOMPSON
_____________________________________
Reed Thompson,
Vice President
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<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ DALE S. HURD
_____________________________________
Dale S. Hurd,
Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ CAROL HOLLEY
_____________________________________
Carol Holley,
Vice President
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<PAGE>
EXHIBIT 4.6
PROMISSORY NOTE
$87,500,000.00 February 14, 1996
FOR VALUE RECEIVED, the undersigned, CODA ENERGY, INC., a Delaware
corporation ("MAKER"), hereby promises to pay to the order of NATIONSBANK OF
-----
TEXAS, N.A., a national banking association ("PAYEE"), at the offices of
-----
NationsBank of Texas, N.A., as Agent, at 901 Main Street, 64th Floor, Dallas,
Dallas County, Texas, the principal sum of Eighty Seven Million Five Hundred
Thousand and No/100 Dollars ($87,500,000.00) or so much thereof as may be
disbursed and outstanding hereunder, together with interest, as hereinafter
described.
This note has been executed and delivered under, and is subject to the
terms of, the Credit Agreement (as hereafter renewed, extended, amended,
restated, or supplemented, the "CREDIT AGREEMENT") dated as of the date hereof,
----------------
among Maker, NationsBank of Texas, N.A., as Agent, Payee and certain other Banks
from time to time parties thereto. This note is a Note referred to therein.
Unless otherwise defined herein or unless the context hereof requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Credit Agreement. Reference is made to the Credit Agreement for
provisions affecting this note regarding the maximum amounts available to be
loaned hereunder, voluntary and mandatory prepayments, acceleration of maturity,
exercise of Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and others now or hereafter obligated for
payment of any sums due hereunder, and security for the payment hereof.
The unpaid principal balance from day to day outstanding hereunder shall
bear interest at the rates provided in Section 3.2 of the Credit Agreement.
The interest which accrues on that portion of the Principal Debt which is
the subject of a Base Rate Tranche shall be payable on March 31, 1996 and on
each June 30, September 30, December 31 and March 31 thereafter. The interest
which accrues on that portion of the Principal Debt which is the subject of a CD
Rate Tranche with an Interest Period of ninety (90) days or less or a Eurodollar
Tranche with an Interest Period of three (3) months or less shall be payable on
the expiration of such Interest Period. Interest which accrues on that portion
of the Principal Debt which is the subject of a CD Rate Tranche with an Interest
Period of greater than ninety (90) days or a Eurodollar Tranche with an Interest
Period of greater than three (3) months shall be payable on the expiration of
such Interest Period and on each March 31, June 30, September 30 and December 31
during the term of such Interest Period. The principal of this note is due and
payable at the times and in the amounts set forth in Sections 2.3, 3.1 and 3.3
of the Credit Agreement. The entire outstanding principal of and accrued
interest on this note shall be due and payable in full on the Termination Date.
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
__________________________________
Grant W. Henderson,
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 4.7
PROMISSORY NOTE
$37,500,000.00 February 14, 1996
FOR VALUE RECEIVED, the undersigned, CODA ENERGY, INC., a Delaware
corporation ("MAKER"), hereby promises to pay to the order of BANK ONE, TEXAS,
-----
N.A., a national banking association ("PAYEE"), at the offices of NationsBank of
-----
Texas, N.A., as Agent, at 901 Main Street, 64th Floor, Dallas, Dallas County,
Texas, the principal sum of Thirty Seven Million Five Hundred Thousand and
No/100 Dollars ($37,500,000.00) or so much thereof as may be disbursed and
outstanding hereunder, together with interest, as hereinafter described.
This note has been executed and delivered under, and is subject to the
terms of, the Credit Agreement (as hereafter renewed, extended, amended,
restated, or supplemented, the "CREDIT AGREEMENT") dated as of the date hereof,
----------------
among Maker, NationsBank of Texas, N.A., as Agent, Payee and certain other Banks
from time to time parties thereto. This note is a Note referred to therein.
Unless otherwise defined herein or unless the context hereof requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Credit Agreement. Reference is made to the Credit Agreement for
provisions affecting this note regarding the maximum amounts available to be
loaned hereunder, voluntary and mandatory prepayments, acceleration of maturity,
exercise of Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and others now or hereafter obligated for
payment of any sums due hereunder, and security for the payment hereof.
The unpaid principal balance from day to day outstanding hereunder shall
bear interest at the rates provided in Section 3.2 of the Credit Agreement.
The interest which accrues on that portion of the Principal Debt which is
the subject of a Base Rate Tranche shall be payable on March 31, 1996 and on
each June 30, September 30, December 31 and March 31 thereafter. The interest
which accrues on that portion of the Principal Debt which is the subject of a CD
Rate Tranche with an Interest Period of ninety (90) days or less or a Eurodollar
Tranche with an Interest Period of three (3) months or less shall be payable on
the expiration of such Interest Period. Interest which accrues on that portion
of the Principal Debt which is the subject of a CD Rate Tranche with an Interest
Period of greater than ninety (90) days or a Eurodollar Tranche with an Interest
Period of greater than three (3) months shall be payable on the expiration of
such Interest Period and on each March 31, June 30, September 30 and December 31
during the term of such Interest Period. The principal of this note is due and
payable at the times and in the amounts set forth in Sections 2.3, 3.1 and 3.3
of the Credit Agreement. The entire outstanding principal of and accrued
interest on this note shall be due and payable in full on the Termination Date.
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
___________________________________
Grant W. Henderson,
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 4.8
PROMISSORY NOTE
$75,000,000.00 February 14, 1996
FOR VALUE RECEIVED, the undersigned, CODA ENERGY, INC., a Delaware
corporation ("MAKER"), hereby promises to pay to the order of TEXAS COMMERCE
-----
BANK NATIONAL ASSOCIATION, a national banking association ("PAYEE"), at the
-----
offices of NationsBank of Texas, N.A., as Agent, at 901 Main Street, 64th Floor,
Dallas, Dallas County, Texas, the principal sum of Seventy Five Million and
No/100 Dollars ($75,000,000.00) or so much thereof as may be disbursed and
outstanding hereunder, together with interest, as hereinafter described.
This note has been executed and delivered under, and is subject to the
terms of, the Credit Agreement (as hereafter renewed, extended, amended,
restated, or supplemented, the "CREDIT AGREEMENT") dated as of the date hereof,
----------------
among Maker, NationsBank of Texas, N.A., as Agent, Payee and certain other Banks
from time to time parties thereto. This note is a Note referred to therein.
Unless otherwise defined herein or unless the context hereof requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Credit Agreement. Reference is made to the Credit Agreement for
provisions affecting this note regarding the maximum amounts available to be
loaned hereunder, voluntary and mandatory prepayments, acceleration of maturity,
exercise of Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and others now or hereafter obligated for
payment of any sums due hereunder, and security for the payment hereof.
The unpaid principal balance from day to day outstanding hereunder shall
bear interest at the rates provided in Section 3.2 of the Credit Agreement.
The interest which accrues on that portion of the Principal Debt which is
the subject of a Base Rate Tranche shall be payable on March 31, 1996 and on
each June 30, September 30, December 31 and March 31 thereafter. The interest
which accrues on that portion of the Principal Debt which is the subject of a CD
Rate Tranche with an Interest Period of ninety (90) days or less or a Eurodollar
Tranche with an Interest Period of three (3) months or less shall be payable on
the expiration of such Interest Period. Interest which accrues on that portion
of the Principal Debt which is the subject of a CD Rate Tranche with an Interest
Period of greater than ninety (90) days or a Eurodollar Tranche with an Interest
Period of greater than three (3) months shall be payable on the expiration of
such Interest Period and on each March 31, June 30, September 30 and December 31
during the term of such Interest Period. The principal of this note is due and
payable at the times and in the amounts set forth in Sections 2.3, 3.1 and 3.3
of the Credit Agreement. The entire outstanding principal of and accrued
interest on this note shall be due and payable in full on the Termination Date.
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
__________________________________
Grant W. Henderson,
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 4.9
PROMISSORY NOTE
$50,000,000.00 February 14, 1996
FOR VALUE RECEIVED, the undersigned, CODA ENERGY, INC., a Delaware
corporation ("MAKER"), hereby promises to pay to the order of THE FIRST NATIONAL
-----
BANK OF BOSTON, a national banking association ("PAYEE"), at the offices of
-----
NationsBank of Texas, N.A., as Agent, at 901 Main Street, 64th Floor, Dallas,
Dallas County, Texas, the principal sum of Fifty Million and No/100 Dollars
($50,000,000.00) or so much thereof as may be disbursed and outstanding
hereunder, together with interest, as hereinafter described.
This note has been executed and delivered under, and is subject to the
terms of, the Credit Agreement (as hereafter renewed, extended, amended,
restated, or supplemented, the "CREDIT AGREEMENT") dated as of the date hereof,
----------------
among Maker, NationsBank of Texas, N.A., as Agent, Payee and certain other Banks
from time to time parties thereto. This note is a Note referred to therein.
Unless otherwise defined herein or unless the context hereof requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Credit Agreement. Reference is made to the Credit Agreement for
provisions affecting this note regarding the maximum amounts available to be
loaned hereunder, voluntary and mandatory prepayments, acceleration of maturity,
exercise of Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and others now or hereafter obligated for
payment of any sums due hereunder, and security for the payment hereof.
The unpaid principal balance from day to day outstanding hereunder shall
bear interest at the rates provided in Section 3.2 of the Credit Agreement.
The interest which accrues on that portion of the Principal Debt which is
the subject of a Base Rate Tranche shall be payable on March 31, 1996 and on
each June 30, September 30, December 31 and March 31 thereafter. The interest
which accrues on that portion of the Principal Debt which is the subject of a CD
Rate Tranche with an Interest Period of ninety (90) days or less or a Eurodollar
Tranche with an Interest Period of three (3) months or less shall be payable on
the expiration of such Interest Period. Interest which accrues on that portion
of the Principal Debt which is the subject of a CD Rate Tranche with an Interest
Period of greater than ninety (90) days or a Eurodollar Tranche with an Interest
Period of greater than three (3) months shall be payable on the expiration of
such Interest Period and on each March 31, June 30, September 30 and December 31
during the term of such Interest Period. The principal of this note is due and
payable at the times and in the amounts set forth in Sections 2.3, 3.1 and 3.3
of the Credit Agreement. The entire outstanding principal of and accrued
interest on this note shall be due and payable in full on the Termination Date.
CODA ENERGY, INC.
By: /s/ GRANT W. HENDERSON
__________________________________
Grant W. Henderson,
Executive Vice President and
Chief Financial Officer
<PAGE>
HAYNES AND BOONE, LLP
[HAYNES AND BOONE LETTERHEAD APPEARS HERE] EXHIBIT 5.1
April 8, 1996
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
5735 Pineland Drive
Suite 300
Dallas, Texas 75231
Re: Registration Statement on Form S-4; File No. 333-_____; $110,000,000
Aggregate Principal Amount of 10 1/2% Series B Senior Subordinated Notes
due 2006 and the Guarantees thereof
Ladies and Gentlemen:
In connection with the registration of $110,000,000 aggregate principal amount
of 10 1/2% Series B Senior Subordinated Notes due 2006 (the "Notes") by Coda
Energy, Inc. (the "Company") and the guarantees thereof (the "Guarantees") by
Diamond Energy Operating Company, Taurus Energy Corp. and Electra Resources,
Inc. (the "Guarantors"), under the Securities Act of 1933, as amended (the
"Act"), on Form S-4 filed with the Securities and Exchange Commission (the
"Commission") on April 9, 1996 (File No. 333-_____; the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below. The Notes will be issued pursuant to an indenture (the
"Indenture"), dated March 18, 1996, among the Company, the Guarantors and Texas
Commerce Bank National Association, as Trustee (the "Trustee").
In our capacity as your special counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
and the Guarantors in connection with the authorization and issuance of the
Notes and the Guarantees and, for the purposes of this opinion, have assumed
such proceedings will be timely completed in the manner presently proposed. In
addition, we have made such legal and factual examinations and inquiries,
including an examination of originals or copies certified or otherwise
identified to our satisfaction of such documents, corporate records and
instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
<PAGE>
HAYNES AND BOONE, LLP
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 2
In our examination, we have assumed the genuineness of all signatures, the
authenticity and accuracy of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only of the
internal laws of the State of Texas. To the extent that the opinion expressed
herein involves considerations of the laws of the State of New York, we have
assumed, with your consent, that the laws of the State of New York are identical
in all respects to the laws of the State of Texas, other than as to usury (as to
which we express no opinion). We express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or as to any matters of municipal law or the laws of any other
local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is our
opinion that, as of the date hereof, when executed and delivered by or on behalf
of the Company and the Guarantors and authenticated by the Trustee in accordance
with the terms of the Indenture and the Registration Rights Agreement related to
the Notes, the Notes and the Guarantees will constitute valid and binding
obligations of the Company and the Guarantors, enforceable against the Company
and the Guarantors in accordance with their terms.
Specific Limitations and Qualifications on
Opinion Regarding Enforceability
--------------------------------------------
In connection with the opinion expressed above, the enforceability of the Notes,
the Guarantees and the Indenture (the "Transaction Documents") is subject to (a)
the effects of (i) applicable bankruptcy, insolvency, reorganization,
moratorium, rearrangement, liquidation, conservatorship or similar laws of
general application now or hereafter in effect relating to or affecting the
rights of creditors generally, (ii) general equity principles, (iii) statutory
provisions of the federal Bankruptcy Code as amended, and the Uniform Fraudulent
Transfer Act as adopted by the State
<PAGE>
HAYNES AND BOONE, LLP
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 3
of Texas (and related court decisions) and (iv) as to rights of indemnification,
to principles of public policy or federal or state securities laws relating
thereto, and (b) the application of a standard of "good faith" such as that
defined in Section 1.203 of the Code (as used herein the term "Code" shall mean
the Uniform Commercial Code as currently in effect in the State of Texas). In
addition, certain other provisions of the Transaction Documents may be
unenforceable in whole or in part under the laws (including judicial decisions)
of the State of Texas or the United States of America; provided, however, that
(i) the inclusion of any such provisions and any limitations referred to in
clauses (a)(ii), (a)(iv) and (b) imposed by such laws on the enforceability of
the Transaction Documents will not affect the validity or enforceability as a
whole of any of the Transaction Documents and will not prevent the Trustee from
the ultimate realization of the practical rights and benefits afforded by such
documents, except for the economic consequences of any judicial, administrative
or other procedural delay which may result from the application of such law.
In rendering the opinion expressed above, we express no opinion as to the
enforceability of provisions of the Transaction Documents, to the extent that
such provisions (i) purport to waive or affect any rights to notices required by
law, (ii) state that the Trustee's failure or delay in exercising rights,
powers, privileges or remedies under the Transaction Documents shall not operate
as a waiver thereof, (iii) purport to sever unenforceable provisions from the
Transaction Documents, to the extent that the enforcement of remaining
provisions would frustrate the fundamental intent of the parties to such
documents, (iv) restrict access to legal or equitable remedies or (v) purport to
waive any rights of the Company or the Guarantors to the benefits or advantages
of any stay or extension law. In addition, we express no opinion as to whether
a court would grant specific performance or any other equitable remedy with
respect to enforcement of any provisions of the Transaction Documents, and with
respect to item (i) of this paragraph, we note that the courts of the State of
Texas have indicated that a guarantor is a "debtor" for the purposes of Article
9 of the Code. We advise you that the inclusion of such provisions in the
Transaction Documents does not render void or invalidate the obligations and
<PAGE>
HAYNES AND BOONE, LLP
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 4
liabilities of the Company and the Guarantors under other provisions of such
documents.
In addition to the limitations specified above, the enforceability of the
Guarantees may be limited by the application of a standard of "good faith" such
as that defined in Section 1.203 of the Code. Additionally, we express no
opinion as to the enforceability of provisions of the Guarantees to the extent
that such provisions state that the failure or delay in exercising rights,
powers, privileges or remedies under the Guarantees shall not operate as a
waiver thereof. Further, in rendering the opinion expressed above, we express
no opinion as to the enforceability of those provisions thereof which (i) state
or mean that the Guarantees shall not be impaired, adversely affected, or
released by a legal determination that the obligations guaranteed are void as a
result of illegality or (ii) provide that the Guarantors have waived notices
which may be required and which are not subject to waiver under applicable law.
Specific Limitations and Qualifications
on Opinion Regarding Choice of Law
------------------------------------
The Transaction Documents provide that the laws of the State of New York shall
govern the interpretation and enforceability thereof. In order to determine the
validity and enforceability of such choice of law under the choice of law
principles of the State of Texas, it is necessary to evaluate certain facts and
assumptions of fact with respect to this transaction in light of the choice of
law principles of the State of Texas.
Section 35.51 of the Texas Business and Commerce Code (the "TBCC") provides that
if parties agree in writing that the law of a particular jurisdiction governs an
issue relating to the transaction (including the validity or enforceability of
an agreement relating to the transaction or a provision of the agreement) and
the transaction bears a "reasonable relation" to that jurisdiction, then the
law, other than conflict of law rules, of that jurisdiction governs the issue
regardless of whether the
<PAGE>
HAYNES AND BOONE, LLP
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 5
application of that law is contrary to a fundamental or public policy of the
State of Texas or of any other jurisdiction. Section 35.51 of the TBCC provides
that a transaction bears a "reasonable relation" to a particular jurisdiction if
the transaction, the subject matter of the transaction, or a party to the
transaction is reasonably related to that jurisdiction. In addition, Section
35.51 of the TBCC contains specific factual criteria, the presence of any one of
which will satisfy the "reasonable relation" test.
Accordingly, for purposes of the opinion set forth above, and in light of the
factual criteria specified in Section 35.51 of the TBCC, we have, with your
consent, assumed the following facts:
(a) the terms of the Transaction Documents were primarily negotiated in
New York;
(b) certain of the Purchasers have their principal place of business in
New York;
(c) the Transaction Documents were delivered in New York and payment for
the Notes was delivered in New York; and
(d) the choice of governing law contained in the Transaction Documents
was willingly and knowingly agreed to by all parties thereto.
We note that the determination of applicable law as to specific issues may vary
from the choice of law expressed in the Transaction Documents where a statute of
the State of Texas or a statute of the United States provides that such issue is
governed by the law of a particular jurisdiction. For example, notwithstanding
the choice of law contained in the Indenture and the Notes, certain matters
pertaining to the power and authority of corporations will be governed by the
law of the jurisdiction of incorporation of each such corporation.
<PAGE>
HAYNES AND BOONE, LLP
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 6
To the extent that the obligations of the Company or the Guarantors under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms; that the Trustee
is in compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
This opinion letter is rendered as of the date hereof and we assume no
obligation to inform you (or any third party) of any changes of law or fact that
occur after the date hereof, even though such change may affect this opinion
letter.
The opinion and beliefs expressed herein are for the sole benefit of, and may
only be relied upon by, you in connection with this transaction. In no manner
is our opinion to be relied upon for any reason other than for the purpose for
which it is being furnished, or is our opinion to be relied upon by any other
person or persons other than to whom it is expressly intended.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained therein under the heading
"Legal Matters."
Very truly yours,
/s/ HAYNES AND BOONE, LLP
Haynes and Boone, LLP
<PAGE>
[HAYNES AND BOONE LETTERHEAD APPEARS HERE]
EXHIBIT 8.1
April 8, 1996
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
5735 Pineland Drive
Suite 300
Dallas, Texas 75231
Re: Offer by Coda Energy, Inc., Diamond Energy Operating Company, Taurus Energy
Corp. and Electra Resources, Inc. to exchange 10 1/2% Series B Senior
Subordinated Notes due 2006 and the Guarantees thereof for any and all of
10 1/2% Series A Senior Subordinated Note Due 2006 and the Guarantees
thereof
Ladies and Gentlemen:
We have acted as special counsel to Coda Energy, Inc. (the "COMPANY") and its
subsidiaires, Diamond Energy Operating Company, Taurus Energy Corp. and Electra
Resources, Inc. (the "GUARANTORS"), in connection with the offer (the "EXCHANGE
OFFER") to exchange the 10 1/2% Series B Senior Subordinated Notes Due 2006 and
the Guarantees thereof (the "EXCHANGE NOTES") for any and all outstanding
10 1/2% Series A Senior Subordinated Notes Due 2006 and the Guarantees thereof
(the "PRIVATE NOTES").
You have requested our opinion as to certain United States federal income tax
consequences of the Exchange Offer. In preparing our opinion, we have reviewed
and relied upon the Company's Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on April 8, 1996 (the "REGISTRATION
STATEMENT"), and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of the
Private Notes for Exchange Notes pursuant to the Exchange Offer will not be
treated as an "exchange" for United States federal income tax purposes and
therefore, is not a taxable transaction for such purposes.
The opinion set forth above is based upon the applicable provisions of the
Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated
or proposed thereunder, current positions of the Internal Revenue Service (the
"IRS") contained in published revenue rulings, revenue procedures, and
announcements,
<PAGE>
Coda Energy, Inc.
Diamond Energy Operating Company
Taurus Energy Corp.
Electra Resources, Inc.
April 8, 1996
Page 2
existing judicial decisions, and other applicable authorities. No tax rulings
have been or will be sought from the IRS with respect to any of the matters
discussed herein. Unlike a ruling from the IRS, opinions of counsel are not
binding on the IRS. Hence, no assurance can be given that the opinion stated in
this letter will not be successfully challenged by the IRS. We express no
opinion concerning any United States federal income tax consequences of the
Exchange Offer except as expressly set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and the summarization
of this opinion under the section titled "Certain Federal Income Tax
Considerations" in the Registration Statement.
Very truly yours,
/s/ HAYNES AND BOONE
Haynes and Boone, LLP
<PAGE>
EXHIBIT 10.27
LIST OF MANAGEMENT INVESTORS WHO ARE PARTIES TO
NONSTATUTORY STOCK OPTION AGREEMENT (EXHIBIT 10.24),
LIMITED RECOURSE PROMISSORY NOTES (EXHIBIT 10.25) OR
SECURITY AGREEMENT (EXHIBIT 10.26).
<TABLE>
<CAPTION>
Number of Shares Principal Amount
Covered by Non- of Number of Shares
statutory Stock Limited Recourse Pledged Under
Name Option Agreement Promissory Note Security Agreement
- ---- ---------------- ---------------- ------------------
<S> <C> <C> <C>
Randell A. Bodenhamer 159 $118,700 1,187
Joe I. Callaway 475 47,500 475
J. David Choisser 360 106,500 1,065
J. W. Freeman 1,188 118,700 1,187
Roy Harney 0 23,700 237
Grant W. Henderson 2,375 237,500 2,375
Jarvis A. Hensley 0 23,700 237
Chris A. Jackson 475 47,500 475
Jarl P. Johnson 1,185 0 0
Douglas H. Miller 23,750 0 0
Gary M. Nelson 238 23,700 237
Gary R. Scoggins 238 23,700 237
Claude A. Seaman 238 23,700 237
J. W. Spencer III 1,070 118,700 1,187
Scott E. Studdard 238 23,700 237
</TABLE>
<PAGE>
EXHIBIT 10.28
NONCOMPETITION AGREEMENT
------------------------
This Noncompetition Agreement (the "Agreement") is entered into and
effective as of April 29, 1994, by and between CODA ENERGY, INC. ("Coda"), a
Delaware corporation, and TOMMIE E. LOHMAN ("Lohman"), a resident of Dallas,
Texas.
R E C I T A L S
WHEREAS, as of April 29, 1994, Coda and its wholly owned subsidiary,
Alliance Natural Gas, Inc., ("Alliance") (Coda and Alliance being collectively
referred to herein as the "Companies") entered into that certain Agreement and
Plan of Merger (the "Merger Agreement") whereby Taurus Energy Corp. ("Taurus"),
a Texas corporation, will merge into Alliance with Alliance being the surviving
corporation;
WHEREAS, Lohman is an officer, director and shareholder of Taurus, and,
subsequent to the merger with Alliance, will continue to be an officer and
director of Alliance;
WHEREAS, as a part of the consideration for the Companies entering into the
Merger Agreement, Lohman has agreed to refrain for a period of time from
engaging in the type of business conducted by Taurus and Alliance; and,
WHEREAS, this Agreement is an integral part of the Merger Agreement and is
entered into in connection with the consummation thereof, pursuant to Section
7.02(f) thereof.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and promises contained in this Agreement and in consideration of the performance
rendered and to be rendered under the Merger Agreement in connection herewith,
the receipt and sufficiency of which is hereby acknowledged, the Companies and
Lohman hereby agree as follows:
1. Covenant Not to Compete. Without the prior written consent of the
-----------------------
Companies and subject to the remaining provisions of this Agreement, Lohman
shall not (either on his own behalf or on behalf of any other person or entity):
(a) invest, participate or engage, directly or indirectly (as owner,
partner, stockholder, director, investor, employee, advisor, consultant or
otherwise) in the gathering, processing and/or marketing of natural gas and
natural gas liquids, including but not limited to the operation of natural gas
processing plants and associated gathering systems, (the "Business") anywhere
within the States of Texas or Oklahoma; provided, however, that Lohman may own
shares of stock in Coda and less than 5% of the common stock of any publicly
owned company and may engage in any activities undertaken at the request of or
on behalf of Coda;
(b) solicit or attempt to solicit or accept business that is competitive
with the Business;
(c) take any action intended to damage or diminish the goodwill or
reputation of the Companies or any affiliate thereof;
(d) solicit or in any manner attempt to influence or induce any employee
employed, now or in the future, by the Companies or any affiliate thereof to
leave such employment.
<PAGE>
2. Termination of Covenant. The covenant not to compete set forth in
-----------------------
paragraph 1 above shall terminate upon the earlier to occur of (i) April 29,
1997, or (ii) the date the Companies (or either of them) elect to cease paying
Lohman the "Minimum Compensation" set forth on Exhibit A attached hereto for any
reason other than the termination of Lohman's employment for cause.
3. Nature of Restrictions. Lohman acknowledges that:
----------------------
(a) (i) the Business is regional in scope and highly competitive, (ii) the
Companies reasonably expect to transact Business in the States of Texas and
Oklahoma, and (iii) the restrictions imposed by this Agreement are legitimate,
reasonable and necessary to protect the Companies investment in the Business and
the goodwill thereof;
(b) the scope and duration of the restrictions contained herein are
reasonable in light of (i) the number of years that Lohman has been employed or
otherwise engaged in the business of gas gathering, processing, and marketing of
natural gas and natural gas liquids, and related endeavors in the oil and gas
industry, (ii) Lohman's reputation and relationship with others in the industry,
and (iii) the consideration paid under the Merger Agreement to the shareholders
of Taurus;
(c) the restrictions hereby imposed on Lohman greatly enhance the value of
the Business to the Companies as reflected in the consideration paid under the
Merger Agreement;
(d) the restrictions contained herein are not burdensome to Lohman in
light of the consideration paid therefor and the opportunities that are
available to Lohman to conduct Business in states other than Texas and Oklahoma;
(e) notwithstanding the termination of the covenant not to compete set
forth in paragraph 2 above, Lohman agrees to (i) use his best efforts to assist
the Companies in extending the terms of that certain Pipeline Lease Agreement
dated July 1, 1989 between Delhi Gas Pipeline Corporation and Taurus, as
modified or amended, and that certain Plant Lease Agreement dated July 1, 1989
between Tonkawa Gas Processing Company and Taurus, as modified or amended, to a
date or dates satisfactory to the Companies, or in acquiring the Shackelford
System and Plant covered by said leases; and (ii) refrain from directly or
indirectly acquiring or attempting to acquire a lease on or ownership interest
in the Shackelford System or Plant, whether for his own account or for the
account of any other parties. The agreement of Lohman set forth in this
subsection (e) shall be in force so long as the subject Pipeline Lease and Plant
Lease are in effect and efforts by the Companies to acquire the Shackelford
System and Plant continue.
4. Remedies. The existence of any claim or cause of action by Lohman
--------
against the Companies whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Companies of the covenants
and agreements of Lohman contained in this Agreement, except as provided in
paragraph 2 of this Agreement. Lohman agrees that the remedy at law for any
breach by him of this Agreement will be inadequate and that the Companies will
be entitled to injunctive relief in case of any such breach, in addition to
other remedies either may have. The term of this Agreement shall be suspended
during the period of any violation by Lohman of this Agreement.
5. Binding Effect. This Agreement shall be binding upon Lohman, the
--------------
Companies, their successors and assigns. This Agreement shall inure to the
benefit of the Companies, their subsidiaries, Affiliates, successors and
assigns. Lohman hereby acknowledges that this Agreement relates to his personal
and business activities and that he shall not be entitled to assign any rights
hereunder.
2
<PAGE>
6. Amendment. This Agreement shall be amended only in writing, signed
---------
by all parties hereto.
7. Contract Terms Exclusive. This Agreement is the sole and entire
------------------------
agreement between the parties regarding the subject matter hereof and shall
supersede any and all other agreements, representations, promises, statements or
contracts between the parties regarding the subject matter hereof and thereof.
8. Waiver. No term or condition of this Agreement shall be deemed to
------
have been waived, nor shall there be any estoppel to enforce any provision of
this Agreement, except by written instrument of the party charged with such
waiver or estoppel.
9. Governing Law. This Agreement shall be interpreted and the rights of
-------------
the parties determined in accordance with the laws of the State of Texas.
10. Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, such provision shall be reformed to the
extent necessary to permit enforcement thereof, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
11. Headings. The headings used in this Agreement are solely for
--------
convenience and are not to be used in construing or interpreting this Agreement.
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
EXECUTED this 29th day of April, 1994.
CODA ENERGY, INC.
By: /s/ DOUGLAS H. MILLER
_______________________________
Douglas H. Miller, Chairman
/s/ TOMMIE E. LOHMAN
___________________________________
Tommie E. Lohman
3
<PAGE>
EXHIBIT A
TO
NONCOMPETITION AGREEMENT
Minimum compensation shall be:
(1) $150,000 per year paid in equal semi-monthly installments PLUS
(2) while an employee of the Companies, the right to participation in all
of the employee benefit plans and programs of the Companies PLUS
(3) while an employee of the Companies, reimbursement of business expenses
in conformity with policies of the Companies, including but not
limited to travel and entertainment, club dues, costs of membership
and attendance in industry organizations and events, and use of
personal automobile, as applicable.
In determining Minimum Compensation, no amount of the following shall be
included:
(1) the consideration received as a result of the Merger Agreement or any
increase in the value of such consideration;
(2) the value, increase in value, or income associated with the ownership
of any of the stock, notes or other securities of the Companies;
(3) the value, increase in value, or income associated with any stock
options, appreciation rights, or other such rights granted as a result
of participation in the benefit plans and programs of the Companies;
(4) any fees, warrants, stock options or other considerations paid as a
result of being member of the Board of Directors of the Companies.
4
<PAGE>
EXHIBIT 12.1
CODA ENERGY, INC.
STATEMENT OF COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
Historical Pro Forma
----------
----------------------------------------------
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Net Income (loss) before income taxes $ 917 $(1,141) $3,652 $ 5,910 $ 8,957 $(6,607)
Interest Expense 2,420 2,752 4,834 5,281 8,676 18,840
------ ------- ------ ------- ------- -------
$3,337 $ 1,611 $8,486 $11,191 $17,633 $12,233
====== ======= ====== ======= ======= =======
Fixed charges:
Interest Expense $2,420 $ 2,752 $4,834 $ 5,281 $ 8,676 $18,840
Rental Expense Internal factor --- --- --- --- --- ---
------ ------- ------ ------- ------- -------
$2,420 $ 2,752 $4,834 $ 5,281 $ 8,676 $18,840
====== ======= ====== ======= ======= =======
Ratio of Earnings to fixed charges
1.4x (/1/) 1.8x 2.1x 2.0x (/1/)
====== ======= ====== ======= ======= =======
</TABLE>
(/1/) For the years ended December 31, 1992 and pro forma 1995, earnings were
inadequate to cover fixed charges by $1.1 million and $6.6 million,
respectively.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANTS
---------------------------
<TABLE>
<CAPTION>
State of
Name Incorporation Ownership %
- ---- ------------- -----------
<S> <C> <C>
Coda Energy Delaware
Taurus Energy Corp. Texas 100%
Diamond Energy Operating Company Oklahoma 100%
Electra Resources, Inc. Texas 100%
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 17, 1996, in the Registration Statement (Form
S-4) and related Prospectus of Coda Energy, Inc., Diamond Energy Operating
Company, Taurus Energy Corp. and Electra Resources, Inc. for the registration of
$110,000,000 of its 10 1/2% Series B Senior Subordinated Notes due 2006.
ERNST & YOUNG LLP
Dallas, Texas
April 8, 1996
<PAGE>
EXHIBIT 23.3
[LEE KEELING AND ASSOCIATES, INC. LETTERHEAD APPEARS HERE]
April 8, 1996
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Attention: Mr. Claude A. Seaman
Re: Evaluation of Proved Oil and Gas Reserves
Coda Energy, Inc.
Effective Dates: January 1, 1994
January 1, 1995
January 1, 1995
Pursuant to the Requirements of the
Securities and Exchange Commission
Gentlemen:
We hereby consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference of information from our reports with effective
dates of January 1, 1994, 1995 and 1996 in the registration Statement on Form
S-4 of Coda Energy, Inc. registering the Notes.
LEE KEELING AND ASSOCIATES, INC.
By: \s\ KENNETH RENBERG
------------------------------
Kenneth Renberg,
Vice President
Tulsa, Oklahoma
April 8, 1996
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
F O R M T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
_________________________
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)____.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
ORGANIZED UNDER THE LAWS OF 75-1992896
THE UNITED STATES OF AMERICA (I.R.S. employer
(State of incorporation identification no.)
if not a National Bank)
P.O. BOX 2320 75221-2320
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
LEE BOOCKER
TEXAS COMMERCE BANK N A
600 TRAVIS
HOUSTON, TEXAS 77002
(713) 216-2448
(Name, address and telephone
number of agent for service)
_________________________
CODA ENERGY, INC.
DIAMOND ENERGY OPERATING COMPANY
TAURUS ENERGY CORP.
ELECTRA RESOURCES, INC.
(Exact name of obligors as specified in their charters)
DELAWARE 75-1842480
OKLAHOMA 73-1366557
TEXAS 75-2322473
TEXAS APPLIED FOR
(States or other jurisdictions of (I.R.S. employer
incorporation or organization) identification nos.)
5735 PINELAND DR.
SUITE 300
DALLAS, TEXAS 75231
(Address of each obligor's principal executive offices) (Zip Code)
10 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
(Title of the indenture securities)
1
<PAGE>
ITEM 1. GENERAL INFORMATION.
-------------------
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
NAME ADDRESS
---- -------
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank Dallas, Texas
Federal Deposit Insurance Corporation Washington, D.C.
National Bank Examiners Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
-----------------------------
If the obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
----------------
List below all exhibits filed as part of this statement of
eligibility:
Exhibit 1. A copy of the Articles of Association of the Trustee as
now in effect.
Exhibit 2. A copy of the certificate of authority of the Trustee to
commence business.
Exhibit 3. A copy of the authorization of the Trustee to exercise
corporate trust powers.
Exhibit 4. A copy of the existing bylaws of the Trustee.
Exhibit 5. Not Applicable.
Exhibit 6. The consents of the United States institutional trustees
required by Section 321(b) of the Trust Indenture Act of
1939.
Exhibit 7. A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not Applicable.
Exhibit 9. Not Applicable.
2
<PAGE>
Exhibit 1. Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-3 File No.
33-56195.
Exhibit 2 Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-3 File No.
33-42814.
Exhibit 3. Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-11 File No.
33-25132.
Exhibit 4. Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-3 File No.
33-65055.
Exhibit 6. Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-11 File No.
33-25132.
Exhibit 7. Incorporated by reference to exhibit bearing the same
designation and previously filed with the Securities and
Exchange Commission as exhibit to the Form S-3 File No.
33-01564.
The answer to Item 2 is based in part on information provided or confirmed
by the obligor. The accuracy and completeness of such information is hereby
disclaimed by the Trustee.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Texas Commerce Bank National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Dallas,
and State of Texas, on the 9th day of April 1996.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
----------------------------------------
Name: John G. Jones
Title: Vice President and Trust Officer
4
<PAGE>
EXHIBIT 6
Texas Commerce Bank National Association, as a condition to
qualification under the Trust Indenture Act of 1939, consents that reports of
examinations by federal, state, territorial, or district authorities may be
furnished by such authorities to the Securities and Exchange Commission of the
United States upon request of said Commission for said reports, as provided in
Section 321 of said Trust Indenture Act of 1939.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
-----------------------------------------
Title: Vice President and Trust Officer
Date: April 9, 1996
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF CODA ENERGY, INC. FOR THE YEAR ENDED DECEMBER 31, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,604
<SECURITIES> 0
<RECEIVABLES> 13,219
<ALLOWANCES> 158
<INVENTORY> 0
<CURRENT-ASSETS> 19,871
<PP&E> 266,860
<DEPRECIATION> 60,124
<TOTAL-ASSETS> 229,064
<CURRENT-LIABILITIES> 11,569
<BONDS> 123,907
0
0
<COMMON> 442
<OTHER-SE> 78,746
<TOTAL-LIABILITY-AND-EQUITY> 229,064
<SALES> 96,631
<TOTAL-REVENUES> 97,838
<CGS> 57,592
<TOTAL-COSTS> 57,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,676
<INCOME-PRETAX> 8,957
<INCOME-TAX> 3,202
<INCOME-CONTINUING> 5,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,755
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
10 1/2% Series A Senior Subordinated Notes due 2006
and the Guarantees thereof
of
CODA ENERGY, INC.
DIAMOND ENERGY OPERATING COMPANY
TAURUS ENERGY CORP.
ELECTRA RESOURCES, INC.
Pursuant to the Prospectus dated , 1996
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1996 (THE "EXPIRATION DATE"). UNLESS
THE EXCHANGE OFFER IS EXTENDED, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL
MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS
MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
The Exchange Agent is:
Texas Commerce Bank National Association
By Registered or Certified Mail: By Overnight or Hand Delivery:
Texas Commerce Bank Texas Commerce Bank
National Association National Association
P.O. Box 660197 2200 Ross Avenue, 5th Floor
Dallas, Texas 75226-0197 Dallas, Texas 75201
Attn: Gary Jones Attn: Gary Jones
By Fascimile: By Telephone:
(214) 965-3577 (214) 965-3510
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus"), of Coda Energy, Inc., Diamond Energy Operating Company,
Taurus Energy Corp. and Electra Resources, Inc. (collectively the "Company"),
and this Letter of Transmittal (the "Letter of Transmittal"), which together
with the Prospectus constitutes the Company's offer (the "Exchange Offer") to
exchange $1,000 principal amount of its 10 1/2% Series B Senior Subordinated
Notes due 2006 and the guarantees thereof (the "Exchange Notes") for each $1,000
principal amount of its outstanding 10 1/2% Series A Senior Subordinated Notes
due 2006 and the guarantees thereof (the "Private Notes"). Recipients of the
Prospectus should read the requirements described in such Prospectus with
respect to eligibility to participate in the Exchange Offer. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the undersigned
represents that it has received from each beneficial owner of Private Notes
("Beneficial Owners") a duly completed and executed form of "Instruction to
Registered Holder from Beneficial Owner" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
This Letter of Transmittal is to be used only by a holder of Private Notes
(i) if certificates representing Private Notes are to be forwarded herewith or
(ii) if delivery of Private Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company (the "Depository"),
pursuant to the procedures set forth in the section of the Prospectus entitled
"The Exchange Offer -- Procedures for Tendering." If delivery of the Private
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at the Depository, this Letter of Transmittal need not be
manually executed; provided, however, that tenders of the Private Notes must be
effected in accordance with the procedures mandated by the Depository's
Automated Tender Offer Program and the procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Book - Entry Transfer."
The undersigned hereby represents and warrants that the information set
forth in the box entitled "Beneficial Owner(s)" is true and correct.
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take considerable
time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private Notes,"
(ii) if appropriate, check and complete the boxes relating to book-entry
transfer, guaranteed delivery, Special Issuance Instructions and Special
Delivery Instructions, (iii) sign the Letter of Transmittal by completing the
box entitled "Sign Here" and (iv) complete the Substitute Form W-9. Each holder
of Private Notes should carefully read the detailed instructions below prior to
completing the Letter of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available, (ii) who
cannot deliver their Private Notes and all other documents required hereby to
the Exchange Agent on or prior to the Expiration Date or (iii) who are unable to
complete the procedure for book-entry transfer on a timely basis, must tender
the Private Notes pursuant to the guaranteed delivery procedures set forth in
the section of the Prospectus
2
<PAGE>
entitled "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction
2 of the Instructions beginning on page 10 hereof.
Holders of Private Notes who wish to tender their Private Notes for
exchange must, at a minimum, complete columns (1), (2), if applicable (see
footnote 1 below), and (3) in the box below entitled "Description of Private
Notes" and sign the box on page 9 under the words "Sign Here." If only those
columns are completed, such holder of Private Notes will have tendered for
exchange all Private Notes listed in column (3) below. If the holder of Private
Notes wishes to tender for exchange less than all of such Private Notes, column
(4) must be completed in full. In such case, such holder of Private Notes
should refer to Instruction 5 on page 11.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
DESCRIPTION OF PRIVATE NOTES
- -----------------------------------------------------------------------------
(1) (2) (3) (4)
<S> <C> <C> <C>
Principal
Amount
Tendered
For
Exchange
(only if
different
Name(s) and Address(es) of amount
Registered from
Holder(s) of Private column
Note(s), exactly as Private Note (3)) (must
name(s) appear(s) on Number(s) be in
Private Note (Attach signed Aggregate integral
Certificate(s) List if Principal multiples
(Please fill in, if blank) necessary) Amount of $1,000)/2/
- -----------------------------------------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
1. Column (2) need not be completed by holders of Private Notes tendering
Private Notes for exchange by book-entry transfer. Please check the
appropriate box on the next page and provide the requested information.
2. Column (4) need not be completed by holders of Private Notes who wish to
tender for exchange the principal amount of Private Notes listed in column
(3). Completion of column (4) will indicate that the holder of Private
Notes wishes to tender for exchange only the principal amount of Private
Notes indicated in column (4).
3
<PAGE>
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY):
Name of Tendering Institution: __________________________________
Account of Number: __________________________________
Transaction Code Number: __________________________________
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): ___________________
Date of Execution of Notice of Guaranteed Delivery: ___________________
Window Ticket Number (if available): ___________________
Name of Institution which Guaranteed Delivery: ___________________
Account Number (if delivered by book-entry transfer): ___________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name: _____________________________________________________________
Address: _____________________________________________________________
_____________________________________________________________
4
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if the Exchange Notes issued in exchange for
Private Notes, certificates for Private Notes in a principal amount not
exchanged for Exchange Notes or Private Notes (if any) not tendered for
exchange, are to be issued in the name of someone other than the undersigned or
(ii) if Private Notes tendered by book-entry transfer which are not exchanged
are to be returned by credit to an account maintained at the Depository.
Issue to:
Name ________________________________________________________________________
(Please Print)
Address _____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Include Zip Code)
_____________________________________________________________________________
(Tax Identification or Social Security No.)
Credit Private Notes not exchanged and delivered by book-entry transfer to
the Depository account set forth below:
_____________________________________________________________________________
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if the Exchange Notes issued in exchange for
Private Notes, certificates for Private Notes in a principal amount not
exchanged for Exchange Notes or Private Notes (if any) not tendered for
exchange, are to be mailed or delivered to someone other than the undersigned,
or (ii) to the undersigned at an address other than the address shown below the
undersigned's signature.
Mail or delivered to:
Name __________________________________________________________________________
(Please Print)
Address _______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
_______________________________________________________________________________
(Tax Identification or Social Security No.)
5
<PAGE>
- --------------------------------------------------------------------------------
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
State of Principal
Residence of Each
Beneficial Owner of Principal Amount of Private Notes Held for Account
Private Notes of Beneficial Owner(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If delivery of Private Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at the Depository, then tenders of
Private Notes must be effected in accordance with the procedures mandated by the
Depository's Automated Tender Offer Program and the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Book-Entry Transfer."
6
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the offer by Coda Energy, Inc., Diamond Energy Operating
Company, Taurus Energy Corp. and Electra Resources, Inc. (collectively, the
"Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated ____________ ___, 1996 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 10 1/2% Series B Senior Subordinated Notes due 2006 and
the guarantees thereof (the "Exchange Notes") for each $1,000 principal amount
of its outstanding 10 1/2% Series A Senior Subordinated Notes due 2006 and the
guarantees thereof (the "Private Notes"). The undersigned hereby tenders to the
Company for exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith, the
undersigned (A) acknowledges and agrees that all of the rights of such
undersigned pursuant to that certain Registration Rights Agreement, dated as of
March 18, 1996, among the Company and the Initial Purchasers (as defined in the
Prospectus), will have been satisfied and extinguished in all respects and (B)
will have irrevocably sold, assigned, transferred and exchanged, to the Company,
all right, title and interest in, to and under all of the Private Notes tendered
for exchange hereby, and hereby appoints the Exchange Agent as the true and
lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent
also acts as agent of the Company) of such holder of Private Notes with respect
to such ownership of such Private Notes on the account books maintained by the
Depositary (together, in any such case, with all accompanying evidences of
transfer and authenticity), to the Company, (ii) present and deliver such
Private Notes for transfer on the books of the Company and (iii) receive all
benefits and otherwise exercise all rights and incidents of beneficial ownership
with respect to such Private Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14c-4 under
the Securities Exchange Act of 1934, as amended ("Rule 14c-4") equal to or
greater than the principal amount of Private Notes tendered hereby; (iii) the
tender of such Private Notes complies with Rule 14c-4 (to the extent that Rule
14c-4 is applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by the Company, the
Company will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claims. The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent aor the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Private Notes
tendered for exchange hereby.
The undersigned hereby further represents to the Company that (i) the
Exchange Notes to be acquired by the undersigned in exchanged for the Private
Notes tendered hereby and any beneficial owner(s) of such Private Notes in
connection with the Exchange Offer will be acquired by the undersigned and such
beneficial owner(s) in the ordinary course of business of the undersigned, (ii)
the undersigned (if not a broker-dealer referred to in the last sentence of this
paragraph) are not engaging and do not intend to engage in the distribution of
the Exchange Notes, (iii) the undersigned have no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes, (iv)
the undersigned and each beneficial owner acknowledge and agree that any person
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the
7
<PAGE>
position of the staff of the Commission set forth in certain no-action letters,
(v) the undersigned and each beneficial owner understand that a secondary resale
transaction described in clause (iv) above should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (vi) neither the undersigned nor any beneficial owner is an
"affiliate" of the Company, as defined under Rule 405 under the Securities Act.
If the undersigned is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Private Notes that were acquired as a result of
market making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes received in respect of such
Private Notes pursuant to the Exchange Offer; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the Exchange
Agent. Tenders of Private Notes for exchange may be withdrawn at any time prior
to 5:00 p.m. New York City time, on the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders" in the Prospectus. Any Private Notes tendered by
the undersigned and not accepted for exchange will be returned to the
undersigned at the address set forth above unless otherwise indicated in the box
above entitled "Special Delivery Instructions."
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described in
the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Private Notes from the name of the holder of Private Note(s) thereof if the
Company does not accept for exchange any of the Private Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Private Note(s).
In order to validly tender Private Notes for exchange, holders of Private
Notes must complete, execute, and deliver this Letter of Transmittal.
Except as stated in the Prospectus, all authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as otherwise stated in the Prospectus,
this tender for exchange of Private Notes is irrevocable.
8
<PAGE>
SIGN HERE
________________________________________________________________________________
(Signature(s) of Owner(s))
Date:________________, 1996
Must be signed by the registered holder(s) of Private Notes exactly as
name(s) appear(s) on certificate(s) representing the Private Notes or on a
security position listing or by person(s) authorized to become registered
Private Note holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or representative
capacity, please provide the following information. (See Instruction 6).
Name(s): _______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No: (____)_____________________________________________
Tax Identification or Social Security Nos: _____________________________________
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by Instruction 1)
Authorized Signature: __________________________________________________________
Dated: _________________________________________________________________________
Name and Title: ________________________________________________________________
(Please Print)
Name of Firm: __________________________________________________________________
9
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934 of 1934, as amended which is a member
of one of the following recognized Signature Guarantee Programs (an "Eligible
Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if
this Letter of Transmittal is signed by the registered holder(s) of the Private
Notes tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Private Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of
Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer of guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered Private
Notes or any confirmation of a book-entry transfer (a "Book-Entry
Confirmation"), as well as properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth on the cover of this Letter of Transmittal prior to 5:00 p.m.,
New York City time, on the Expiration Date. Holders of Private Notes who elect
to tender Private Notes and (i) whose Private Notes are not immediately
available, (ii) who cannot deliver the Private Notes or other required documents
to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date or (iii) who are unable to complete the procedure for an Eligible
Institution; and (b) prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile hereof) and
Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail
or hand delivery) setting forth the name and address of the holder of such
Private Notes, the certificate number(s) of such Private Notes and the principal
amount of Private Notes tendered for exchange, stating that tender is being made
thereby and guaranteeing that, within five New York Stock Exchange trading days
after the Expiration Date, the certificates representing such Private Notes (or
a Book-Entry Confirmation), in proper form for transfer, and any other documents
required by this Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and (c) certificates for all tendered
Private Notes, or a Book-Entry Confirmation, together with a copy of the
previously executed Letter of Transmittal (or a facsimile thereof) and any other
documents required by this Letter of Transmittal are received by the Exchange
Agent within five New York Stock Exchange trading days after the Expiration
Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER OF
PRIVATE NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF DELIVERY
IS MADE BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE
NOTES SHOULD BE SENT TO THE COMPANY OR THE TRUSTEE.
10
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
2. INADEQUATE SPACE. If the space provided in the box entitled
"Description of Private Notes" above is inadequate, the certificate numbers and
principal amounts of the Private Notes being tendered should be listed on a
separate signed schedule affixed hereto.
3. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written notice of withdrawal to the Exchange Agent at the address set forth on
the cover of this Letter of Transmittal. To be effective, a notice of withdrawal
of Private Notes must (i) specify the name of the person who tendered the
Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes
to be withdrawn (including the certificate number or numbers and aggregate
principal amount of such Private Notes), (iii) be signed by the holder of
Private Notes in the same manner as the original signature on the Letter of
Transmittal by which such Private Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the applicable transfer agent register the transfer of such Private Notes
into the name of the person withdrawing the tender. Withdrawals of tenders of
Private Notes may not be rescinded, and any Private Notes withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Private Nots so
withdrawn are validly retendered. Properly withdrawn Private Notes may be
retendered by following one of the procedures described in the section of the
Prospectus entitled "The Exchange Offer -- Procedures for Tendering" at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. (Not applicable to holders of Private Notes who tender
Private Notes by book-entry transfer). Tenders of Private Notes will be accepted
only in integral multiples of $1,000 principal amount. If a tender for exchange
is to be made with respect to less than the entire principal amount of any
Private Notes, fill in the principal amount of Private Notes which are tendered
for exchange in column (4) of the box entitled "Description of Private Notes on
page 3," as more fully described in the footnotes thereto. In case of a partial
tender for exchange, a new certificate, in fully registered form, for the
remainder of the principal amount of the Private Notes, will be sent to the
holders of Private Notes unless otherwise indicated in the appropriate box on
this Letter of Transmittal as promptly as practicable after the expiration or
termination of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND
ENDORSEMENTS.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary or required
documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or
separate powers of attorney are required. If, however, Private Notes not
tendered or not accepted, are to be issued or returned in the name of a person
other than the holder of Private Notes, then the Private Notes transmitted
hereby must endorsed or accompanied by appropriate powers of attorney in a form
satisfactory to the company, in
11
<PAGE>
either case signed exactly as the name(s) of the holder of Private Notes
appear(s) on the Private Notes. Signatures on such Private Notes or powers of
attorney must be guaranteed by an Eligible Institution (unless signed by an
Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Company of their authority so to act must be submitted.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed or
accompanied by appropraite powers of attorney, in either case signed exactly as
the name(s) of the registered holder of Private Notes appear(s) on the
certificates. Signatures on such Private Notes or powers of attorney must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the transfer and exchange of
Private Notes pursuant to the Exchange Offer. If, however, issuance of Exchange
Notes is to be made to, or Private Notes not tendered for exchange are to be
issued or returned in the name of, any person other than the holder of Private
Notes, and satisfactory evidence of payment of such taxes or exemptions from
taxes therefrom is not submitted with this Letter of Transmittal, the amount of
any transfer taxes payable on account of the transfer to such person will be
imposed on and payable by the holder of Private Notes tendering Private Notes
for exchange prior to the issuance of the Exchange Notes.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued or
sent to someone other than the holder of Private Notes or to an address other
than that shown above, the appropriate boxes on this Letter of Transmittal
should be complete. Holders of Private Notes tendering Private Notes by book-
entry transfer may request that Private Notes not accepted be credited to such
account maintained at the Depositary as such holder of Private Notes may
designate.
9. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time of receipt), acceptance and withdrawal of
Private Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders for exchange of any particular Private Notes
that are not in proper form, or the acceptance of which would, in the opinion of
the company (or its counsel, be unlawful. The Company reserves the absolute
right to waive any defect, irregularity or condition of tender for exchange with
regard to any particular Private Notes. The company's interpretation of the term
of, and conditions to, the Exchange Offer (including the instructions herein)
will be final and binding. Unless waived, any defects or irregularities in
connection with the Exchange Offer must be cured within such time as the Company
shall determine. Neither the Company, the exchange Agent nor any other person
shall be under any duty to give notice of any defects or irregularities in
Private Notes tendered for exchange, nor shall any of them incur any liability
for failure to give such notice. A tender of Private Notes will not be deemed to
have been made until all defects and irregularities with respect to such tender
have been cured or waived. Any Private Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in this Letter of Transmittal, as soon as
practicable following the Expiration Date.
10. WAIVER OF CONDITION. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer -- Conditions of the Exchange Offer" in the Prospectus in the
case of any Private Notes tendered (except as otherwise provided in the
Prospectus).
12
<PAGE>
11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. If a holder of
Private Notes desires to tender Private Notes pursuant to the Exchange Offer,
but any of such Private Notes has been mutiliated, lost, stolen or destroyed,
such holder of Private Notes should write to or telephone the Trustee at the
address listed below, concerning the procedures for obtaining replacement
certificates for such private Notes, arranging for indemnification or any other
matter that requires handling by the Trustee:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Attn.: Gary Jones
(214) 965-3510
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for
information or for additional copies of the Prospectus and this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover of this Letter of Transmittal.
IMPORTANT: This Letter of Transmittal (or a facsimile thereof, if
applicable) together with certificates, or confirmation of book-entry or the
Notice of Guaranteed Delivery, and all other required documents must be received
by the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private Notes
is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Private Notes that he or
she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Private Notes is an
individual, the TIN is such holder's social security number. If the Exchange
Agent is not provided with the correct taxpayer identification number, the
holder of Private Notes may be subject to certain penalties imposed by the
Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Private Notes should indicate their
exempt status on Substitute From W-9. A foreign individual may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed
Internal Revenue Service From W-8 (the terms of which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the holder's
exempt status. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "Guidelines") for additional
instructions.
If backup withholding applies, the Company is required to withhold 31%
of any payment made to the holder of private Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the
TIN (e.g., social security number or employer identification number) of the
record owner of the Private Notes. If the
13
<PAGE>
Private Notes are held in more than one name or are not held in the name of the
actual owner, consult the enclosed Guidelines for additional guidance regarding
which number to report.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PAYER'S NAME __________________________
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN ______________________________
IN THE BOX AT RIGHT AND CERTIFY Social Security Number
Form W-9 BY SIGNING AND DATING BELOW
Department of the Treasury OR
Internal Revenue Service
______________________________
Payer's Request for Employer Identification Number
Taxpayer -----------------------------------------------------------------
Identification Number (TIN) Part 2 - Part 3 -
Certification Under Penalties of
Perjury, I certify that:
(1) The number shown on this Awaiting TIN [_]
form is my current taxpayer
identification number (or I am
waiting for a number to be
issued to me)
and
(2) I am not subject to backup
withholding either because I
have not been notified by the
Internal Revenue Service (the
"IRS") that I am subject to
backup withholding as a result
of a failure to report all
interest or dividends, or the
IRS has notified me that I am no
longer subject to backup
withholding.
-----------------------------------------------------------------
Certificate instructions - You must cross out item (2) in Part
2 above if you have been notified by the IRS that you are
subject to backup withhelding because of underreporting
interest or dividends on your tax return. However, if after
being notified by the IRS that you are subject to backup
withholding you receive another notification from the IRS
stating that you are no longer subject to backup withholding,
do not cross out item (2).
SIGNATURE ______________________________ DATE _________________
NAME __________________________________________________________
ADDRESS _______________________________________________________
CITY ______________________ STATE _________ ZIP CODE __________
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
14
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
PAYOR'S NAME:
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver such an application in the near future. I understand
that if I do not provide a taxpayer identification number with sixty (60) days,
31% of all reportable payments made to me thereafter will be withheld until I
provide such a number.
__________________________________________________ ____________________________
Signature Date
15
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
10 1/2% SERIES A SENIOR NOTES DUE 2006 OF CODA ENERGY, INC.
The undersigned hereby acknowledges receipt of the Prospectus
dated , 1996 (the "Prospectus") of Coda Energy, Inc., a Delaware
corporation (the "Company") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be
taken by you relating to the Exchange Offer with respect to the 10 1/2% Series A
Senior Subordinated Notes due 2006 (the "Private Notes") held by you for the
account of the undersigned.
The aggregate face amount of the Private Notes held by you for the
account of the undersigned is (fill in amount):
$_____________ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[_] To TENDER the following Private Notes held by you for the
account of the undersigned (insert principal amount of Private Notes to be
tendered, if any):
$_____________ of the Private Notes.
[_] NOT to TENDER any Private Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Private Notes held by
you for the account of the undersigned, it is understood that you are authorized
(a) to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner of the Private Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) _________________________, (ii) the undersigned is acquiring
the Exchange Notes in the ordinary course of business of the undersigned, (iii)
the undersigned is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the distribution
of Exchange Notes, (iv) the undersigned acknowledges that any person
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended, in connection with any resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in
certain no-action letters (See the section of the Prospectus entitled "The
Exchange Offer - Resales of Exchanges Notes"), (v) the undersigned understands
that a secondary resale transaction described in clause (iv) above should be
covered by an effective registration statement containing the selling
securityholder information required by item 507 or Item 508, if applicable, of
Regulation S-K of the Commission, (vi) the undersigned is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company, (vii) if the
undersigned is not a broker-dealer, that it is not participating in, does not
intend to participate in, and has no arrangement or understanding with any
person to participate in the distribution of Exchange Notes, and (viii) if the
undersigned is a broker-dealer that will receive Exchange Notes for its own
account in exchange for Private Notes that were acquired as a result of market-
making activities, it acknowledges that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes received in respect of such Private Notes pursuant to the
Exchange Offer; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as
set forth in the Letter of Transmittal; and (c) to take such other action as
necessary under the Prospectus of the Letter of Transmittal to effect the valid
tender of Private Notes.
SIGN HERE
Name of Beneficial Owner(s): __________________________________________________
Signature(s): _________________________________________________________________
Name(s) (please print): _______________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer Identification or Social Security Number: ____________________________
Date: _________________________________________________________________________
16
