<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-10955
CODA ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1842480
(State of incorporation) (IRS Employer Identification No.)
5735 Pineland Dr., Suite 300, Dallas, Texas 75231
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-1800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 913,611 Shares
Outstanding at November 1, 1996
<PAGE>
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(in thousands)
<TABLE>
<CAPTION>
Pre Merger Post Merger
------------ -------------
September 30,
December 31, 1996
1995 (Unaudited)
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,604 $ 9,134
Accounts receivable - revenue 10,598 11,317
Accounts receivable - joint interest 2,463 2,260
and other 2,206 1,616
-------- --------
Other current assets 19,871 24,327
-------- --------
81 738
Amounts due from stockholders -------- --------
Oil and gas properties (full cost
accounting method):
Proved oil and gas properties 226,650 251,653
Unproved oil and gas properties --- 1,000
Less accumulated depletion, depreciation
and amortization 56,042 15,105
-------- --------
170,608 237,548
-------- --------
Gas plants and gathering systems 38,068 33,838
Less accumulated depreciation 4,082 1,645
-------- --------
33,986 32,193
-------- --------
Other properties, net 2,142 4,140
-------- --------
Other assets 2,376 3,831
-------- --------
$229,064 $302,777
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pre Merger Post Merger
------------ -------------
September 30,
December 31, 1996
1995 (Unaudited)
------------ -------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt
and notes payable $ 453 $ 120
Accounts payable - trade 7,252 7,557
Accounts payable - revenue and other 3,394 4,450
Accrued interest 342 6,387
Income taxes payable 128 384
-------- --------
11,569 18,898
-------- --------
Long-term debt - less current maturities 123,907 68,496
-------- --------
10 1/2% Senior Subordinated Notes --- 110,000
-------- --------
Deferred income taxes 14,400 42,748
-------- --------
Commitments and contingent liabilities
15% cumulative redeemable preferred
stock, 40 shares of $.01 par value
authorized; 20 shares issued and
outstanding at September 30, 1996 --- 20,000
-------- --------
Common shareholders' equity of
management, subject to put and call
rights --- 4,560
Less related notes receivable --- (937)
-------- --------
--- 3,623
-------- --------
Other common shareholders' equity:
Common stock 442 9
Additional paid-in capital 68,671 89,991
Retained earnings (deficit) 10,075 (50,988)
-------- --------
79,188 39,012
-------- --------
$229,064 $302,777
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Pre Merger Post Merger
--------------- ---------------
Three Months Nine Months Three Months Pro Forma Nine
Ended Ended 47 Days Ended Ended 227 Days Ended Months Ended
September 30, September 30, February 16, September 30, September 30, September 30,
1995 1995 1996 1996 1996 1996
--------------- --------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales $14,296 $44,840 $ 8,079 $19,229 $ 47,632 $55,711
Gas gathering and
processing 8,709 25,722 5,322 10,956 26,294 31,616
Other income 287 783 168 718 1,386 1,554
------- ------- ------- ------- -------- -------
23,292 71,345 13,569 30,903 75,312 88,881
------- ------- ------- ------- -------- -------
Costs and expenses:
Oil and gas production 6,665 20,045 3,607 8,080 20,181 23,788
Gas gathering and
processing 7,650 21,935 4,567 9,208 21,836 26,403
Depletion, depreciation
and amortization 4,711 14,555 2,583 6,929 17,439 20,838
General and
administrative 898 2,361 320 437 1,313 1,633
Interest 2,126 6.330 1,102 4,195 10,595 12,808
Stock option
compensation --- --- 3,199 --- --- ---
Writedown of oil and
gas properties --- --- --- --- 83,305 ---
------- ------- ------- ------- -------- -------
22,050 65,226 15,378 28,849 154,669 85,470
------- ------- ------- ------- -------- -------
Income (loss) before
income taxes 1,242 6,119 (1,809) 2,054 (79,357) 3,411
Income tax expense
(benefit) 444 2,202 (511) 853 (28,369) 1,543
------- ------- ------- ------- -------- -------
Net income (loss) 798 3,917 (1,298) 1,201 (50,988) 1,868
Preferred stock dividend
requirements --- --- --- 792 1,898 2,306
------- ------ ------ ------- -------- --------
Net income (loss)
available for common
stockholders $ 798 $3,917 $(1,298) $ 409 $(52,886) $ (438)
======= ====== ======= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Pre Merger Post Merger
------------------ --------------
Nine Months Ended 47 Days Ended 227 Days Ended
September 30, February 16, September 30,
1995 1996 1996
---------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,917 $ (1,298) $ (50,988)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depletion, depreciation and
amortization 14,555 2,583 17,439
Writedown of oil and gas properties --- --- 83,305
Deferred income tax expense
(benefit) 1,930 (511) (28,745)
Stock option compensation --- 3,199 ---
Other 455 6 (284)
Effect of changes in:
Accounts receivable (853) 3,386 (3,902)
Other current assets (553) (63) (171)
Accounts payable and other
current liabilities (755) (4,166) 10,793
---------- ------- ---------
Net cash provided by
operating activities 18,696 3,136 27,447
---------- ------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (19,498) (1,717) (7,697)
Proceeds from sale of assets 4,984 110 1,381
Purchase of Coda by JEDI, net of
$740 cash acquired --- --- (179,373)
Gas plant and gathering systems and
other property additions (8,305) (114) (323)
Investment in marketable equity
securities (573) --- ---
Payments received on amounts due
from stockholders 1,294 130 124
Loan to stockholder --- --- (738)
Other 110 --- (40)
----------- ------- ---------
Net cash used by investing
activities (21,988) (1,591) (186,666)
----------- ------- ---------
Cash flows from financing activities:
Proceeds from bank borrowings 14,400 --- 2,000
Proceeds from issuance of
subordinated debt --- --- 210,000
Proceeds from issuances of common
and preferred stock --- --- 110,000
Repayment of bank borrowings and
subordinated debt (11,521) (5,019) (152,890)
Proceeds from exercise of options
and warrants 674 --- ---
Repurchases of common stock (2,125) --- ---
Financing costs (161) (390) (783)
----------- ------- ---------
Net cash provided (used) by
financing activities 1,267 (5,409) 168,353
----------- ------- ---------
Increase (decrease) in cash (2,025) (3,864) 9,134
Cash at beginning of period 6,474 4,604 ---
---------- ------- ---------
Cash at end of period $ 4,449 $ 740 $ 9,134
========== ======= =========
Supplemental cash flow information:
Interest paid $ 6,812 $ 1,544 $ 5,719
========== ======= =========
Income taxes paid $ 500 $ --- $ 120
========== ======= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited, in thousands)
<TABLE>
<CAPTION>
15% Cumulative Common Stockholders' Other Common
Redeemable Equity of Management, Stockholders'
Preferred Stock Subject to Put and Call Rights Equity
----------------------- --------------------------------- -------------------------
Additional Retained
Notes Par Paid-in Earnings
Shares Amount Shares Amount Receivable Shares Value Capital (Deficit)
------ ------ ------ ------ ---------- ------ ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre Merger:
Balances at December 31,
1995 22,089 $ 442 $ 68,671 $ 10,075
Stock option compensation 3,199
Net loss for the period
January 1, 1996
through February 16, 1996 (1,298)
------ ------ ------ ------ --------- ------ ----- -------- --------
Balances at February 16,
1996 -- -- -- -- -- 22,089 $ 442 $ 71,870 $ 8,777
====== ====== ====== ====== ========= ====== ===== ======== ========
Post Merger:
Transactions related to
the merger:
Common stock issued to
management investors in
exchange for common
stock, options, warrants,
notes receivable and cash 14 $4,560 ($937)
Common stock issued to
JEDI for cash 900 $ 9 $ 89,991
Preferred stock issued to
JEDI for cash 20 $20,000
Net loss for the period
from February 17,
1996 through September 30,
1996 $(50,988)
------ ------- ------ ------ --------- ------ ----- -------- --------
Balances at September 30,
1996 20 $20,000 14 $4,560 $ (937) 900 $ 9 $ 89,991 $(50,988)
====== ======= ====== ====== ========= ====== ===== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CODA ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. 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
Energy, Inc. ("Coda" or together with its subsidiaries the "Company"), 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"), providing for
a continuing role of management in the Company after the Merger. 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%.
The sources and uses of funds related to financing the Merger were as
follows:
SOURCES OF FUNDS
(in millions)
<TABLE>
<CAPTION>
<S> <C>
Credit Agreement $ 95.0
JEDI Debt(l) 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>
<CAPTION>
<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.
The Merger has been accounted for using the purchase method of accounting.
As such, JEDI's cost of acquiring the Company has been 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 reflect a new basis of accounting and are not comparable to prior
periods.
The allocation of JEDI's purchase price to the assets and liabilities of
the Company resulted in a significant increase in the carrying value of the
Company's oil and gas properties. Under the full cost method of accounting, the
carrying value of oil and gas properties (net of related deferred taxes) is
generally not
6
<PAGE>
permitted to exceed the sum of the present value (10% discount rate) of
estimated future net cash flows (after tax) 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 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 would be in excess of the cost center ceiling by approximately $83.3
million ($53.3 million net of related deferred taxes). The resulting writedown
is a non-cash charge and has been included in the results of operations for the
227 days ended September 30, 1996.
2. ACCOUNTING AND REPORTING POLICIES
The consolidated financial statements include the accounts of Coda, its
majority-owned subsidiaries and its pro rata share of the assets, liabilities
and operations of oil and gas partnerships and joint ventures. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior years' amounts to conform to
the current year presentation.
The accompanying consolidated financial statements, which should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1995, reflect all adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary to
present fairly the financial position as of September 30, 1996, and the results
of operations and cash flows for the periods ended September 30, 1995, February
16, 1996 and September 30, 1996. The results for the periods ended September
30, 1996, are not necessarily indicative of results for a full year.
Fees from overhead charges billed to working interest owners, including the
Company, of $4.1 million, $848,000 and $5.7 million for the periods ended
September 30, 1995, February 16, 1996 and September 30, 1996, respectively, have
been classified as a reduction of general and administrative expenses in the
accompanying consolidated statements of operations.
3. PRO FORMA INFORMATION
The pro forma statement of operations information was prepared as if the
Merger and the sale of the Notes (Note 6) had occurred on January 1, 1996. The
pro forma information does not purport to represent the results of operations
which would have occurred had such transactions been consummated on January 1,
1996 or for any future period. The pro forma information was prepared by
combining the two 1996 periods and giving effect to the following adjustments:
(i) To adjust depletion, depreciation, and amortization to reflect JEDI's
purchase price allocated to property and equipment.
(ii) To adjust interest expense to give effect to the net reduction of
approximately $37.0 million under the Company's credit facility and
repayment of a 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%.
(iii) To record interest on the Notes at an interest rate of 10 1/2%.
(iv) To record amortization of the issuance cost of the Notes over the
term such debt is expected to be outstanding (10 years).
(v) To adjust the Writedown of oil and gas properties and stock option
compensation to eliminate these non-recurring charges related to the
Merger.
7
<PAGE>
(vi) To adjust the provision for income taxes for the change in financial
taxable income resulting from the above adjustments.
(vii) To record the cumulative dividend requirements of the redeemable
preferred stock issued to JEDI.
4. CREDIT AGREEMENT
On February 14, 1996, the Company entered into a credit agreement with
NationsBank of Texas, N.A. ("NationsBank"), as lender and as agent, and
additional lenders named therein (the "Credit Agreement"). The Credit Agreement
is guaranteed by all of Coda's subsidiaries and provides for a revolving credit
facility in an amount up to $250.0 million. The borrowing base is subject to
redetermination: (i) semiannually, (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 agreed to waive their right to
redetermine the borrowing base with respect to the issuance of the Notes. The
borrowing base was redetermined effective July 1, 1996 and remained at $115.0
million. At September 30, 1996, $68.0 million was outstanding under the Credit
Agreement and $47.0 million was available for borrowing thereunder.
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 base is not repaid within a 90
day period, (ii) cash collateral securing a hedge transaction exceeds 20% of the
borrowing base 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 or certain affiliates of JEDI must continue to
own a majority of the outstanding equity of Coda 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 Coda and continue
their employment with the Company. The Credit Agreement matures on February 16,
2001.
On August 1, 1996, the Company entered into the First Amendment to Credit
Agreement (the "First Amendment") which in general reduced the Company's
interest rate. The First Amendment provides the Company 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% to 1 1/2% based upon the ratio of outstanding debt to
the available borrowing base and (iii) LIBOR plus 1% to 1 1/2% based upon the
ratio of outstanding debt to the available borrowing base. The Company must
also pay a commitment fee of between 0.30% to 0.425% on the unused portion of
the credit facility.
5. LONG-TERM DEBT
The Company's 12% Senior Subordinated Debentures due 2000 (the
"Debentures") bear interest at 12% per annum, payable semiannually. On March 28,
1996, the Company gave notice of redemption, prior to
8
<PAGE>
maturity, to each of the record holders of the outstanding Debentures. On May 1,
1996, the Company deposited with the trustee of the Debentures funds sufficient
to redeem the Debentures at a redemption price of 100.0% of the principal amount
of the Debentures plus accrued and unpaid interest thereon, and thereafter
interest on the Debentures ceased to accrue.
6. 10 1/2% SENIOR SUBORDINATED NOTES
On March 18, 1996, the Company completed the sale of $110 million principal
amount of 10 1/2% Senior Subordinated Notes due 2006 (the "Notes"). The
proceeds of the Notes were used to fully repay the JEDI debt assumed in the
Merger and to partially repay bank debt. The Notes bear interest at an annual
rate of 10 1/2% payable semiannually in arrears on April 1 and October 1 of each
year. The Notes are general, unsecured obligations of the Company, are
subordinated in right of payment to all Senior Debt (as defined in the Indenture
governing the Notes) of Coda, and are senior in right of payment to all future
subordinated debt of the Company. The claims of the holders of the Notes are
subordinated to Senior Debt, which, as of September 30, 1996, was $68.6 million.
The Notes were issued pursuant to an Indenture, which contains certain
covenants that, among other things, limit the ability of Coda and its Restricted
Subsidiaries (as defined in the Indenture) to incur additional indebtedness and
issue Disqualified Stock (as defined in the Indenture), pay dividends, make
distributions, make investments, make certain other restricted payments, enter
into certain transactions with affiliates, dispose of certain assets, incur
liens securing pari passu or subordinated indebtedness of Coda and engage in
mergers and consolidations.
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 in the Indenture, plus
accrued and unpaid interest thereon to the applicable redemption date. In
addition, until March 12, 1999, up to $27.5 million in aggregate principal
amount of Notes are 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 aggregate principal amount of the Notes, together with
accrued and unpaid interest thereon to the date of the redemption; provided,
however, that at least $82.5 million in aggregate principal amount of Notes must
remain outstanding 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.
In the event of a Change of Control (as defined in the Indenture), 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 requires 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.
Coda's payment obligations under the Notes are fully, unconditionally and
jointly and severally guaranteed on a senior subordinated basis by all of Coda's
current subsidiaries and future Restricted Subsidiaries. Such guarantees are
subordinated to the guarantees of Senior Debt issued by the Guarantors (as
defined in the Indenture) under the Credit Agreement and to other guarantees of
Senior Debt issued in the future. All of Coda's current subsidiaries are wholly
owned. There are currently no contractual restrictions on distributions from
the Guarantors to Coda.
9
<PAGE>
Separate financial statements and other disclosures concerning the
Guarantors are not presented because management has determined they are not
material to investors. The combined condensed financial information of Coda's
current subsidiaries, the Guarantors, is as follows:
<TABLE>
<CAPTION>
September 30,
1996
----------------
<S> <C>
Current assets $ 5,873
Oil and gas properties, net 54,032
Gas plants and gathering systems, net 31,857
Other properties, net, and other assets 1,321
--------
Total assets $ 93,083
========
Current liabilities $ 6,259
Intercompany payables 39,324
Deferred income taxes 17,424
Stockholder's equity 30,076
--------
Total liabilities and stockholder's
equity $ 93,083
========
</TABLE>
<TABLE>
<CAPTION>
Pre Merger Post Merger
--------------- --------------
47 Days Ended 227 Days Ended
February 16, September 30,
1996 1996
--------------- --------------
<S> <C> <C>
Revenues:
Oil and gas sales $2,529 $ 17,443
Gas gathering and processing 5,322 26,294
Other income 2 156
------ --------
7,853 43,893
Costs and expenses:
Oil and gas production 843 4,758
Gas gathering and processing 4,567 21,836
Depletion, depreciation and amortization 1,039 6,924
General and administrative 435 2,229
Interest 460 1,881
Writedown of oil and gas properties --- 19,159
------ --------
7,344 56,787
------ --------
Income (loss) before income taxes 509 (12,894)
Income tax expense (benefit) 277 (4,488)
------ --------
Net income (loss) $ 232 $ (8,406)
====== ========
</TABLE>
10
<PAGE>
7. 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 of September 30, 1996,
the Preferred Stock had accumulated approximately $1.9 million in preferred
dividends which had not been declared by the Board of Directors.
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 Energy Corp. and (ii) a Trigger Event, as
such term is defined in the Stockholders Agreement (Note 9). 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.
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 are not 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
Restated 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.
11
<PAGE>
8. COMMON STOCK
At December 31, 1995, the Company had 40.0 million shares of $.02 par value
common stock authorized with 22.1 million shares issued and outstanding. At
September 30, 1996, the Company had 1.0 million shares of $.01 par value common
stock authorized with 14,000 shares issued to management subject to put and call
rights and 900,000 issued to JEDI for a total of 914,000 shares issued and
outstanding.
9. RELATED PARTY TRANSACTIONS
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 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)
Coda 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 did not have the benefit of any
registration rights, but was subject to the Stockholders Agreement described
below. By virtue of the Merger, each share of CAI common stock was converted
into one share of Coda common stock.
The Promissory Notes are due on February 16, 2001, bear interest at 5.61 %
per annum, are secured by the common stock purchased with the proceeds thereof
and certain rights of the maker under the Stockholders Agreement, 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.
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 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
12
<PAGE>
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.
In connection with the issuance of the Replacement Options, the Company
recognized stock option compensation expense of approximately $3.2 million
representing the total amount of cash the holders of the Specified Options and
Specified Warrants would have received if such options and warrants had been
converted to cash in the Merger.
Stockholders Agreement
CAI, JEDI and the Management Group entered into a Stockholders Agreement
dated as of October 30, 1995, as amended by Amendment No. l 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 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
13
<PAGE>
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 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. 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.
10. NOTE RECEIVABLE FROM STOCKHOLDER
During August 1996, Douglas H. Miller ("Miller"), the Company's Chief
Executive Officer and Chairman of the Board of Directors, received $738,000
pursuant to a Limited Recourse Promissory Note in the original principal amount
of $1,188,000 (the "Miller Note"). The Miller Note bears interest at 6.74% per
annum with final maturity on February 16, 2001, and provides that in no event
will Miller's liability thereunder (after the sale and disposition of all
collateral securing same) exceed 35% of the original principal balance of the
Miller Note. In connection with the execution of the Miller Note, the Company
and Miller entered into an amendment of the agreement governing the Replacement
Options which prohibits the exercise of the option until all amounts due under
the Miller Note have been paid in full.
11. HEDGING TRANSACTIONS
The following table sets forth the barrels and weighted average NYMEX
prices hedged under various swap agreements entered into as of September 30,
1996.
<TABLE>
<CAPTION>
Periods Covered Barrels Hedged Weighted Average Price
--------------- -------------- -----------------------
<S> <C> <C>
Three months ending December 31, 1996 135,000 $18.97
Year ending December 31, 1997 735,000 $19.13
</TABLE>
As of September 30, 1996 the Company has open positions for sold call
options covering 25,000 Bbls of oil per month at an option price of $20.00 per
Bbl for the period from October 1996 to August 1997. During the periods ended
February 16, 1996 and September 30, 1996 the Company's oil revenues were
decreased by $14,000 and approximately $2.0 million, respectively, as a result
of hedging transactions.
14
<PAGE>
In connection with two swaps beginning January 1, 1997 covering 10,000
barrels per month and 15,000 barrels per month at a strike price of $19.41 and
$19.00, respectively, which expire September 30, 1997 and December 31, 1997,
respectively, the Company granted the counterparty a one day option at the
expiration of the swap to extend the swap for an additional twelve months.
12. SALE OF TAURUS
On August 13, 1996, Coda entered into a letter of intent with respect to
the possible sale of all of the issued and outstanding capital stock of its
wholly owned subsidiary, Taurus Energy Corp. ("Taurus"), to EXCO Resources,
Inc. ("EXCO"), a publicly held Texas corporation. The letter of intent is
currently terminable by either party upon written notice to the other party
without further obligation thereunder. There can be no assurance that Coda and
EXCO will reach an agreement regarding the sale of Taurus or that, if such
agreement is reached, the sale will be consummated. Coda is continuing
discussions with EXCO and is studying other alternatives for maximizing the
value of its investment in Taurus.
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS 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 also owns and operates natural gas processing and liquids extraction
facilities and natural gas gathering systems. Coda 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
development of properties.
The Company's principal strategy is to increase oil and natural gas
reserves 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. Coda'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 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 Company's credit facility. The
ability to borrow such funds is dependent upon the Company's borrowing base from
time to time and the effect upon the borrowing base under the Credit Agreement.
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). The Merger has been
accounted for using the purchase method of accounting. As such, JEDI's cost of
acquiring Coda has been 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 are not comparable to prior periods.
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 gas operations and gas gathering and processing operations
for the periods indicated.
16
<PAGE>
<TABLE>
<CAPTION>
Pre Merger Post Merger
------------------ -------------
Three Pro Forma
Nine 47 Days Months 227 Days Nine Months
Three Months Ended Months Ended Ended Ended Ended Ended
September 30, September 30, February 16, September 30, September 30, September 30,
1995 1995 1996 1996 1996 1996
------------------ ------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OIL AND GAS OPERATING DATA:
Net production:
Oil (MBbls)
Gas (MMcf) 768 2,323 408 840 2,147 2,555
907 3,295 500 1,012 2,390 2,890
Average sales price:
Oil (per Bbl) $ 16.83 $ 17.16 $17.57 $ 20.46 $ 19.90 $ 19.53
Gas (per Mcf) $ 1.51 $ 1.51 $ 1.82 $ 2.01 $ 2.05 $ 2.01
Average production cost
per BOE $ 7.25 $ 6.98 $ 7.33 $ 8.01 $ 7.93 $ 7.83
GAS GATHERING AND
PROCESSING OPERATING DATA:
Sales:
Gas sales (MMBTU) 3,238 9,602 1,555 3,154 7,633 9,188
Gas sales average price $ 1.55 $ 1.54 $ 2.24 $ 2.21 $ 2.20 $ 2.21
Natural gas liquids sales
(Mgallons) 13,984 39,947 5,868 10,982 27,844 33,712
Natural gas liquids
average price $ .2635 $ .2745 $.3173 $ .3641 $ .3403 $ .3363
Costs and expenses (in
thousands):
Gas purchases $ 6,595 $18,983 $3,760 $ 8,231 $19,615 $23,675
Plant operating expenses $ 1,055 $ 2,952 $ 506 $ 1,088 $ 2,552 $ 3,058
</TABLE>
Comparison of the nine months ended September 30, 1995 and 1996
The unaudited pro forma combined information was prepared as if the Merger and
the issuance of $110.0 million of 10 1/2% Senior Subordinated Notes (the
"Notes") had occurred on January 1, 1996. The unaudited pro forma information
was prepared by combining the two 1996 periods and giving effect to adjustments
affecting (i) depletion, depreciation and amortization, (ii) interest expense,
(iii) income taxes and (iv) certain other costs resulting from the Merger as
more fully outlined in the Notes to Consolidated Financial Statements. The
comparisons below compare the unaudited pro forma combined information to
historical information for 1995.
Oil and gas sales for the nine months ended September 30, 1996, increased 24%
to approximately $55.7 million from approximately $44.8 million in the
comparable period in 1995 primarily due to a 10% increase in oil production and
an increase of $2.37 per barrel and $.50 per Mcf in the average sales price of
oil and gas, respectively. The increase in production is a result of the
acquisition of producing oil and gas properties in the fourth quarter of 1995,
the Company's development drilling program and favorable responses from certain
of
17
<PAGE>
the Company's waterflood units. This increase was partially offset by a 12%
decrease in gas production due primarily to sales of properties and natural
production declines. During the nine months ended September 30, 1996, 90% of oil
and gas sales was attributable to oil production. Oil and gas prices remain
unpredictable. See "- Changes in Prices and Hedging Activities" below.
Gas gathering and processing revenues for the nine months ended September
30, 1996 increased 23% to approximately $31.6 million from approximately $25.7
million in the comparable period in 1995 primarily due to a 44% and a 23%
increase in the average sales price for natural gas and natural gas liquids,
respectively. This increase was partially offset by a 16% decrease in natural
gas liquids volumes due to reduced plant throughput volumes as a result of the
termination of a gas purchase contract in January 1996 and production declines.
Other income for the nine months ended September 30, 1996 increased 98% to
approximately $1.6 million from approximately $783,000 for the same period in
1995 primarily due to an increase in interest income of $329,000 from the
investment of higher available cash balances and gains on sales of marketable
securities of $255,000.
Oil and gas production expenses (including production taxes) for the nine
months ended September 30, 1996 increased 19% to approximately $23.8 million
from approximately $20.0 million for the same period in 1995, reflecting the
effects of the increased production from the properties acquired in 1995 and
from new wells drilled. Oil and gas production expenses for the nine months
ended September 30, 1996 were $7.83 per Boe and are expected to remain near this
level for the remainder of the year.
Gas gathering and processing expenses for the nine months ended September
30, 1996 increased 20% to approximately $26.4 million from approximately $21.9
million in the comparable period in 1995 due primarily to an increase in the
purchase price paid to producers. Gas gathering and processing purchases usually
fluctuate in ratio with gas gathering and processing revenues.
Pro forma depletion, depreciation and amortization expense for the nine
months ended September 30, 1996, increased 43% to approximately $20.8 million
from approximately $14.6 million for the historical period in 1995 reflecting
the increase in the carrying value of the Company's assets as a result of the
Merger, the increase in oil production from acquisitions in 1995 and property
development. Oil and gas depletion, depreciation and amortization expense
increased from $4.35 per Boe for the nine months ended September 30, 1995, to
$5.94 per Boe on a pro forma basis for the nine months ended September 30, 1996.
The Company anticipates that the depletion, depreciation and amortization rate
per Boe will be approximately $5.94 for 1996 absent significant additional
acquisitions.
General and administrative expenses for the nine months ended September 30,
1996 decreased 31% to approximately $1.6 million from approximately $2.4 million
in the comparable period in 1995. This is primarily due to increased overhead
charges billed to working interest owners on the properties acquired in 1995,
being partially offset by additional employees needed as a result of
acquisitions of oil and gas properties. The Company expects base general and
administrative expenses, net of overhead recoveries, to remain near this level,
absent significant additional acquisitions.
Pro forma interest expense for the nine months ended September 30, 1996
increased 102% to approximately $12.8 million from approximately $6.3 million
for the historical period in 1995, primarily due to increases in outstanding
debt levels as a result of the Merger which reduced the Company's bank debt, but
added $110.0 million of senior subordinated debt bearing interest at 10 1/2% .
Also contributing to the increase were amounts borrowed during 1995 to fund
development drilling and property acquisitions.
18
<PAGE>
The historical results of operations for the period ended February 16,
1996, include approximately $3.2 million of stock option compensation expense as
a result of the replacement of certain outstanding options and warrants with new
options subject to a lower exercise price. The historical results for the period
ended September 30, 1996 include a writedown of oil and gas properties of
approximately $83.3 million to the full cost pool ceiling based on product
prices at the date of the Merger.
Pro forma net income for the nine months ended September 30, 1996, was
approximately $1.9 million compared to approximately $3.9 million for the
historical period in 1995. This decrease resulted primarily from increases in
depletion, depreciation and amortization and interest expense as a result of the
Merger partially offset by an increase in oil production and higher oil and
natural gas prices.
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 nine months ended September 30, 1996, the Company averaged $1.65 per barrel
less (including an oil hedging price decrease of $.78 per barrel) and $.32 per
Mcf less for its oil and natural gas sales, respectively, than the average NYMEX
prices for the same period. On October 31, 1996, the NYMEX closing price for the
near month for oil and natural gas was $23.35 per barrel and $2.73 per Mcf,
respectively.
Pursuant to the loan agreements with Diamond Energy Operating Company's
("Diamond," a subsidiary of Coda) 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 and first nine months of 1996
oil revenues by approximately $642,000 ($.41 per barrel) and $123,000 ($.05 per
barrel), respectively. The commitment under this agreement was fulfilled during
February 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 contract 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 courterparties,
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 September 30, 1996.
<TABLE>
<CAPTION>
Periods Covered Barrels Hedged Weighted Average Price
--------------- --------------- ----------------------
<S> <C> <C>
Three months ending December 31, 1996 135,000 $18.97
Year ending December 31, 1997 735,000 $19.13
</TABLE>
19
<PAGE>
As of September 30, 1996, the Company has open positions for sold call
options covering 25,000 Bbls of oil per month at an option price of $20.00 per
Bbl for the period from October 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 nine months ended September 30, 1995 the Company's
oil revenues were increased by $194,000 as a result of hedging transactions.
During the periods ended February 16, 1996 and September 30, 1996 the Company's
oil revenues were decreased by $14,000 and $2.0 million, respectively, as a
result of hedging transactions.
In connection with two swaps beginning January 1, 1997 covering 10,000
barrels per month and 15,000 barrels per month at a strike price of $19.41 and
$19.00, respectively, which expire September 30, 1997 and December 31, 1997,
respectively, the Company granted the counterparty a one day option at the
expiration of the swap to extend the swap for an additional twelve months.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had cash and cash equivalents
aggregating approximately $9.1 million and working capital of approximately $5.4
million. Cash provided by operating activities for the nine months ended
September 30, 1996 increased to approximately $30.6 million compared to $18.7
million for the comparable period in 1995 due primarily to an increase in oil
production and an oil price increase partially offset by an increase in interest
expense. An increase in accrued interest accounts for $6.0 million of the
increase in cash provided by operating activities. Excluding the impact of the
Merger, cash flows used in investing activities decreased from $22.0 million for
the nine months ended September 30, 1995 to $8.9 million for the comparable
period in 1996, as a result of a higher level of additions to property and
equipment in 1995. Investing activities in 1996 also include the impact of the
purchase of Coda by JEDI. Cash flows provided by financing activities increased
to $162.9 million for the nine months ended September 30, 1996 from $1.3 million
for the comparable period in 1995, primarily due to financing transactions
related to the Merger. See " --The Merger" below.
The Company has two principal operating sources of cash: (i) net oil and
gas sales from its oil and 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 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 from time to time and the effect upon the borrowing base of the
properties to be acquired.
The Company from time to time solicits bids for selected portions of its
existing oil and natural gas properties which it believes are no longer suitable
for its business strategy. Sales of properties in the past three years have not
been material and no substantial sales of oil and gas properties are currently
under consideration.
On August 13, 1996, Coda entered into a letter of intent with respect to
the possible sale of all of the issued and outstanding capital stock of its
wholly owned subsidiary, Taurus Energy Corp. ("Taurus"), to EXCO Resources, Inc.
("EXCO"), a publicly held Texas corporation. The letter of intent is currently
terminable by either party upon written notice to the other party without
further obligation thereunder. There can be no assurance that Coda and EXCO will
reach an agreement regarding the sale of Taurus or that, if such agreement is
reached, the sale will be consummated. Coda is continuing discussions with EXCO
and is studying other alternatives for maximizing the value of its investment in
Taurus.
20
<PAGE>
The Company has development drilling programs designed for all its major
operating areas. The Company has a revised capital spending budget of
approximately $15 million in 1996, excluding property acquisitions, but is not
contractually committed to expend these funds. During the first nine months of
1996, the Company incurred approximately $7.4 million of these costs. 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 Company's credit facility 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 Company's credit facility and the Indenture as more fully described below.
The Merger
On February 16, 1996, the Company completed the Merger. The Merger has been
accounted for using the purchase method of accounting. As such, JEDI's cost of
acquiring Coda was 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 reflect a new basis of
accounting and are not 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>
<CAPTION>
<S> <C>
Credit Agreement $ 95.0
JEDI Debt(l) 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>
<CAPTION>
<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.
The Company incurred substantial indebtedness in connection with the Merger
and is highly leveraged. As of September 30, 1996, the Company had total
indebtedness of approximately $178.6 million and stockholders' equity (including
preferred stock) of approximately $62.6 million. Based upon the Company's
21
<PAGE>
current level of operations and anticipated growth, management of the Company
believes that available cash, together with available borrowings under the
Credit Agreement 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.
Credit Agreement
On February 14, 1996, the Company entered into a credit agreement with
NationsBank of Texas, N.A. ("NationsBank"), as lender and as agent, and
additional lenders named therein (the "Credit Agreement"). The Credit Agreement
is guaranteed by all of Coda's subsidiaries and provides for a revolving credit
facility in an amount up to $250.0 million. The borrowing base is subject to
redetermination: (i) semiannually, (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. The
borrowing base was redetermined effective July 1, 1996 and remained at $115.0
million. At September 30, 1996, $68.0 million was outstanding under the Credit
Agreement and $47.0 million was available for borrowing thereunder.
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 base is not repaid within a 90
day period, (ii) cash collateral securing a hedge transaction exceeds 20% of the
borrowing base 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 or certain affiliates of JEDI must continue to
own a majority of the outstanding equity of Coda 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 Coda and continue
their employment with the Company. The Credit Agreement matures on February 16,
2001.
On August 1, 1996, the Company entered into the First Amendment to Credit
Agreement (the "First Amendment") which in general reduced the Company's
interest rate. The first amendment provides the Company 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% to 1 1/2% based upon the ratio of outstanding debt to the
available borrowing base and (iii) LIBOR plus 1% to 1 1/2%
22
<PAGE>
based upon the ratio of outstanding debt to the available borrowing base. The
Company must also pay a commitment fee of between 0.30% to 0.425% on the unused
portion of the credit facility.
10-1/2% Senior Subordinated Notes
On March 18, 1996, the Company completed the sale of $110 million principal
amount of 10 1/2% Senior Subordinated Notes due 2006 (the "Notes"). The proceeds
of the Notes were used to fully repay the JEDI debt assumed in the Merger and to
partially repay bank debt. The Notes bear interest at an annual rate of 10 1/2%
payable semiannually in arrears on April 1 and October 1 of each year. The Notes
are general, unsecured obligations of the Company, are subordinated in right of
payment to all Senior Debt (as defined in the Indenture governing the Notes) of
Coda, and are senior in right of payment to all future subordinated debt of the
Company. The claims of the holders of the Notes are subordinated to Senior Debt,
which, as of September 30, 1996, was $68.6 million.
Coda's payment obligations under the Notes are fully, unconditionally and
jointly and severally guaranteed on a senior subordinated basis by all of Coda's
current subsidiaries and future Restricted Subsidiaries (as defined in the
Indenture). Such guarantees are 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. All of Coda's current subsidiaries are wholly
owned. There are currently no contractual restrictions on distributions from the
Guarantors to Coda.
The Notes were issued pursuant to an Indenture, which contains certain
covenants that, among other things, limit the ability of Coda and its Restricted
Subsidiaries to incur additional indebtedness and issue Disqualified Stock (as
defined in the Indenture), pay dividends, make distributions, make investments,
make certain other restricted payments, enter into certain transactions with
affiliates, dispose of certain assets, incur liens securing pari passu or
subordinated indebtedness of Coda and engage in mergers and consolidations.
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 in the Indenture, plus
accrued and unpaid interest thereon to the applicable redemption date. In
addition, until March 12, 1999, up to $27.5 million in aggregate principal
amount of Notes are 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 aggregate principal amount of the Notes, together with
accrued and unpaid interest thereon to the date of the redemption; provided,
however, that at least $82.5 million in aggregate principal amount of Notes must
remain outstanding 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.
In the event of a Change of Control (as defined in the Indenture), 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 requires 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.
Other Long-Term Debt
The Company's 12% Senior Subordinated Debentures due 2000 (the
"Debentures") bear interest at 12% per annum, payable semiannually. On March 28,
1996, the Company gave notice of redemption, prior to maturity, to each of the
record holders of the outstanding Debentures. On May 1, 1996, the Company
deposited with
23
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the trustee of the Debentures funds sufficient to redeem the outstanding
Debentures at a redemption price of 100.0% of the principal amount of the
Debentures plus accrued and unpaid interest thereon, and thereafter interest on
the Debentures ceased to accrue.
15% Cumulative Preferred Stock
Coda's Restated Certificate of Incorporation authorizes the issuance of up
to 40,000 shares of Preferred Stock. In conjunction with the Merger, Coda issued
20,000 shares of Preferred Stock to JEDI for $20.0 million in cash. 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. 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. The payment of Preferred Stock dividends in cash is restricted by the
Credit Agreement and the Indenture. As of September 30, 1996, the Preferred
Stock had accumulated approximately $1.9 million in preferred dividends which
had not been declared by the Board of Directors.
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 of Coda 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 Energy Corp. 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.
Enron
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. 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.
24
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
-----------------
Effective July 16, 1996, the Company consummated the exchange of $110
million in aggregate principal amount of its Series B Senior Subordinated Notes
Due 2006 (the "Exchange Notes") for $110 million in aggregate principal amount
of its Series A Senior Subordinated Notes Due 2006 (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 bear the Series B designation,
(ii) the Exchange Notes have been registered under the Securities Act of 1933,
as amended, and, therefore, the Exchange Notes do not bear legends restricting
the transfer thereof, and (iii) holders of the Exchange Notes are not entitled
to certain rights that holders of the Private Notes had under that certain
Registration Rights Agreement. The Exchange Notes evidence the same indebtedness
as the Private Notes (which they replace) and were issued under, and are
entitled to the benefits of, the same indenture.
On August 13, 1996, Coda entered into a letter of intent with respect to
the possible sale of all of the issued and outstanding capital stock of its
wholly owned subsidiary, Taurus Energy Corp. ("Taurus"), to EXCO Resources, Inc.
("EXCO"), a publicly held Texas corporation. The letter of intent is currently
terminable by either party upon written notice to the other party without
further obligation thereunder. There can be no assurance that Coda and EXCO will
reach an agreement regarding the sale of Taurus or that, if such agreement is
reached, the sale will be consummated. Coda is continuing discussions with EXCO
and is studying other alternatives for maximizing the value of its investment in
Taurus.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
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)
25
<PAGE>
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 filed as Exhibit 3.1 to
the Company's Registration Statement on Form S-4 filed April 9, 1996
(Registration No 333-2375, the "1996 Form S-4") and incorporated by
reference herein.
3.2 Amended and Restated Bylaws of Coda filed as Exhibit 3.2 to the 1996
Form S-4 and incorporated by reference herein.
3.3 Certificate of Incorporation of Diamond Energy Operating Company, as
amended, filed as Exhibit 3.3 to the 1996 Form S-4 and incorporated by
reference herein.
3.4 Bylaws of Diamond Energy Operating Company, as amended, filed as
Exhibit 3.4 to the 1996 Form S-4 and incorporated by reference herein.
3.5 Articles of Incorporation of Taurus Energy Corp., as amended, filed as
Exhibit 3.5 to the 1996 Form S-4 and incorporated by reference herein.
3.6 Bylaws of Taurus Energy Corp., as amended, filed as Exhibit 3.6 to the
1996 Form S-4 and incorporated by reference herein.
3.7 Articles of Incorporation of Electra Resources, Inc. filed as Exhibit
3.7 to the 1996 Form S-4 and incorporated by reference herein.
3.8 Bylaws of Electra Resources, Inc. filed as Exhibit 3.8 to the 1996 Form
S-4 and incorporated by reference herein.
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 filed as Exhibit 4.1 to the 1996
Form S-4 and incorporated by reference herein.
4.2 Registration Rights Agreement, dated as of March 18, 1996, among Coda,
the Guarantors and the Initial Purchasers filed as Exhibit 4.2 to the
1996 Form S-4 and incorporated by reference herein.
4.3 Purchase Agreement, dated as of March 12, 1996, among Coda, the
Guarantors and the Initial Purchasers filed as Exhibit 4.3 to the 1996
Form S-4 and incorporated by reference herein.
4.4 Indenture between Coda and Texas American Bank Dallas, as Trustee,
dated September 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 ("NationsBank"),
and additional lenders named therein, filed as Exhibit 4.5 to the 1996
Form S-4 and incorporated by reference herein.
26
<PAGE>
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. filed as Exhibit 4.6 to the 1996 Form S-4 and incorporated
by reference herein.
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. filed as Exhibit 4.7 to the 1996 Form S-4 and incorporated by
reference herein.
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 filed as Exhibit 4.8 to the 1996 Form S-4 and
incorporated by reference herein.
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 filed as Exhibit 4.9 to the 1996 Form S-4 and
incorporated by reference herein.
4.10 Specimen Certificate of Series A 10 1/2% Senior Subordinated Notes due
2006 (the "Private Notes") (included in Exhibit 4.1 hereto), filed as
Exhibit 4.10 to the 1996 Form S-4 and incorporated by reference herein.
4.11 Specimen Certificate of Series B 10 1/2% Senior Subordinated Notes due
2006 (the "Exchange Notes") (included in Exhibit 4.1 hereto), filed as
Exhibit 4.11 to the 1996 Form S-4 and incorporated by reference herein.
4.12 First Supplement to Indenture dated as of April 25, 1996 filed as
Exhibit 4.12 the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 (the "June 1996 10-Q") and
incorporated by reference herein amending the Indenture filed as
Exhibit 4.1 above,
4.13* First Amendment to Credit Agreement, dated August 1, 1996, among the
Company, NationsBank and additional lenders named therein, amending the
Credit Agreement filed as Exhibit 4.5 above.
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 the Company'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 September
14, 1994 and Form 8-K/A No. 2, dated August 17, 1994, and incorporated
by reference herein.
27
<PAGE>
10.4 Agreement and Plan of Merger, dated September 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
September 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 S-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 S-K dated October 30, 1995, and incorporated by reference herein.
28
<PAGE>
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 S-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.
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) filed as Exhibit
10.27 to the 1996 Form S-4 and incorporated by reference herein.
10.28 Non-competition Agreement between Coda and Tommie E. Lohman dated April
29, 1994, filed as Exhibit 10.28 to the 1996 Form S-4 and incorporated
by reference herein.
29
<PAGE>
10.29 First Amendment to Credit Agreement, dated August 1, 1996, among the
Company, NationsBank and additional lenders named therein filed as
Exhibit 4.13 above.
10.30* Limited Recourse Promissory Note dated July 31, 1996, in the original
principal amount of $1,187,500.00 executed by Douglas H. Miller,
payable to the Company.
10.31* Amendment to Nonstatutory Stock Option Agreement dated July 31, 1996
between the Company and Douglas H. Miller amending the Nonstatutory
Stock Option Agreement filed as Exhibit 10.24 above.
27* Financial Data Schedule.
- -------------
* Filed herewith
(B) Reports on Form 8-K
Current Report on Form 8-K dated January 10, 1996.
Item 5. Other Events
-Conditions to the effectiveness of the Merger Agreement have
been satisfied.
-Board of Directors Approves Second Amendment to this Merger
Agreement.
-Special Meeting of Stockholders to be held February 16, 1996.
Item 7. Financial statement and Exhibits.
Exhibit 2.1 Second Amendment to Agreement and Plan of Merger
dated as of January 10, 1996.
Exhibit 99.1 Coda Energy, Inc. Press Release dated January 11,
1996.
Exhibit 99.2 Amendment No. 1 to Subscription Agreement dated as
of January 10, 1996.
Exhibit 99.3 Amendment No. 1 to Stockholders Agreement dated as
of January 10, 1996.
Exhibit 99.4 Agreement of Coda to provide schedules and exhibits
to Second Amendment to Agreement and Plan of Merger
(Exhibit 2.1) and to provide schedules to Amendment
No. 1 to Subscription Agreement (Exhibit 99.2) and
Amendment No. 1 to Stockholders Agreement (Exhibit
99.3).
30
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CODA ENERGY, INC.
(Registrant)
By: \s\ Grant W. Henderson
---------------------------------------
Grant W. Henderson
President and Chief Financial Officer
Date: November 8, 1996
31
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
4.13* First Amendment to Credit Agreement, dated August 1, 1996, among
the Company, NationsBank and additional lenders named therein,
amending the Credit Agreement filed as Exhibit 4.5 above.
10.30* Limited Recourse Promissory Note dated July 31, 1996, in the
original principal amount of $1,187,500.00 executed by Douglas H.
Miller, payable to the Company.
10.31* Amendment to Nonstatutory Stock Option Agreement dated July 31,
1996 between the Company and Douglas H. Miller amending the
Nonstatutory Stock Option Agreement filed as Exhibit 10.24 above.
27.* Financial Data Schedule.
- -------------
* Filed herewith
<PAGE>
EXHIBIT 4.13
First Amendment to Credit Agreement, dated August 1, 1996, among the Company,
NationsBank and additional lenders named therein, amending the Credit Agreement
filed as Exhibit 4.5 above.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This First Amendment to Credit Agreement (this "First Amendment") is entered
---------------
into as of the 1st day of August, 1996, among Coda Energy, Inc., a Delaware
corporation ("Borrower"), NationsBank of Texas, N.A., as Agent ("Agent"),
-------- -----
NationsBank of Texas, N.A., Bank One, Texas, N.A., Texas Commerce Bank National
Association and The First National Bank of Boston, as Banks ("Banks").
-----
W I T N E S S E T H
WHEREAS, Borrower, Agent and Banks entered into that certain Credit Agreement
dated as of February 14, 1996 (as amended, the "Credit Agreement"), pursuant to
----------------
which Banks have provided a revolving credit loan to Borrower (unless otherwise
defined herein, all terms used herein with their initial letter capitalized
shall have the meaning given such terms in the Credit Agreement); and
WHEREAS, Borrower has requested that certain provisions of the Credit
Agreement be amended in certain respects; and
WHEREAS, subject to the terms and conditions set forth herein, Agent and Banks
have agreed to Borrower's request.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrower, Agent and each Bank hereby agree as follows:
SECTION 1. In reliance on the representations, warranties, covenants and
- ---------
agreements contained in this First Amendment, the Credit Agreement shall be
amended effective August 1, 1996 (the "Effective Date") in the manner provided
--------------
in this SECTION 1:
1.1. AMENDMENT TO DEFINITIONS. The definitions of Agreement, Applicable
------------------------
Commitment Fee Percentage, Applicable Margin and Loan Papers contained in
SECTION 1.5 of the Credit Agreement shall be amended to read in full as follows:
AGREEMENT means this Credit Agreement, including the Schedules and Exhibits
hereto, as amended by the First Amendment, as the same may be further 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
fifty percent (50%) of the Borrowing Base, .300%, (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 fifty percent (50%) but less than seventy percent (70%) of
the Borrowing Base, .350%, (c) 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 seventy
percent (70%) but less than ninety percent (90%) of the Borrowing Base, .375%,
and (d) on any date on which the sum
<PAGE>
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 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):
(i) Base Rate 0%
(ii) Eurodollar 1.00%
(iii) CD Rate 1.00%
(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):
(i) Base Rate 0%
(ii) Eurodollar 1.125%
(iii) CD Rate 1.125%
(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):
(i) Base Rate 0%
(ii) Eurodollar 1.250%
(iii) CD Rate 1.250%
(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):
(i) Base Rate 0%
(ii) Eurodollar 1.500%
(iii) CD Rate 1.500%
LOAN PAPERS means (a) this Agreement, (b) the First Amendment, (c) 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 (d) any and all future renewals and extensions or restatements of,
or amendments or supplements to, all or any part of the foregoing.
1.2 ADDITIONAL DEFINITION. SECTION 1.5 of the Credit Agreement shall be
---------------------
amended to add the following definition to such Section:
<PAGE>
FIRST AMENDMENT means that certain First Amendment to Credit Agreement dated
as of August 1, 1996, by and among Agent, Borrower and Banks.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce Banks and
- -----------------------------------------------------
Agent to enter into this First Amendment, Borrower hereby represents and
warrants to Agent as follows:
2.1. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each representation
-----------------------------------------------
and warranty of Borrower contained in (a) the Credit Agreement, and (b) each of
the other Loan Papers is true and correct on the date hereof and will be true
and correct after giving effect to the amendments set forth in SECTION 1 hereof.
2.2. CORPORATE AUTHORITY; NO CONFLICTS. The execution, delivery and
---------------------------------
performance by Borrower of this First Amendment are within the Borrower's
corporate powers, have been duly authorized by necessary action, require no
action by or in respect of, or filing with, any Tribunal and do not violate or
constitute a default under any provision of applicable Law or any Material
Agreement binding upon any Company or result in the creation or imposition of
any Lien upon any of the assets of any Company except Permitted Liens.
2.3. ENFORCEABILITY. This First Amendment constitutes the valid and binding
--------------
obligation of Borrower enforceable in accordance with its terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditor's rights generally, and (ii) the availability of
equitable remedies may be limited by equitable principles of general
application.
2.4. NO DEFENSES. Borrower has no defenses to payment, counterclaims or
-----------
rights of set off with respect to the Obligations.
SECTION 3. MISCELLANEOUS.
- ------------------------
3.1 REAFFIRMATION OF LOAN PAPERS; EXTENSION OF LIENS. Any and all of the
------------------------------------------------
terms and provisions of the Credit Agreement and the Loan Papers shall, except
as amended and modified hereby, remain in full force and effect.
3.2 PARTIES IN INTEREST. All of the terms and provisions of this First
-------------------
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
3.3 LEGAL EXPENSES. Borrower hereby agrees to pay on demand all reasonable
--------------
fees and expenses of counsel to Agent incurred by Agent, in connection with the
preparation, negotiation and execution of this First Amendment and all related
documents.
3.4 COUNTERPARTS. This First Amendment may be executed in counterparts, and
------------
all parties need not execute the same counterpart; however, no party shall be
bound by this First Amendment until all parties have executed a counterpart.
<PAGE>
3.5 COMPLETE AGREEMENT. THIS FIRST AMENDMENT, THE CREDIT AGREEMENT AND THE
------------------
OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
3.6 HEADINGS. The headings, captions and arrangements used in this First
--------
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this First Amendment, nor affect
the meaning thereof.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
duly executed by their respective authorized officers on the date and year first
above written.
BORROWER:
--------
CODA ENERGY, INC.,
a Delaware corporation
By: \s\ Grant W. Henderson
--------------------------------------------
Grant W. Henderson,
President
AGENT:
-----
NATIONSBANK OF TEXAS, N.A.
By: \s\ J. Scott Fowler
--------------------------------------------
J. Scott Fowler,
Vice President
<PAGE>
BANKS:
-----
NATIONSBANK OF TEXAS, N.A.
By: \s\ J. Scott Fowler
-------------------------------------
J. Scott Fowler,
Vice President
BANK ONE, TEXAS, N.A.
By: \s\ Reed V. Thompson
-------------------------------------
Its: Vice President
-------------------------------------
THE FIRST NATIONAL BANK OF
BOSTON
By: \s\ Carol E. Holley
-------------------------------------
Its: Vice President
-------------------------------------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: \s\ Dale S. Hurd
-------------------------------------
Its: Senior Vice President
-------------------------------------
<PAGE>
To induce Agent and each Bank to enter into this First Amendment, the
undersigned, each a Designated Subsidiary of Borrower, jointly and severally (a)
consent and agree to the execution, delivery and effectiveness of this First
Amendment, (b) ratify and confirm that all guaranties and assurances granted,
conveyed or otherwise provided to Agent or any Bank under the Loan Papers -- as
they may have been renewed, increased, extended, restated or replaced -- are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
First Amendment and continue to guarantee and assure the full payment and
performance of all present and future Obligations as renewed, increased,
extended, restated or replaced pursuant to this First Amendment or as the same
may hereafter be renewed, increased, extended, restated or replaced, (c) agree
to perform such acts and duly authorize, execute, acknowledge and deliver such
additional guarantees, assurances and other documents, instruments and
agreements as Agent may reasonably deem necessary or appropriate in order to
create, perfect, preserve and protect those guaranties and assurances, and (d)
waives notice of acceptance of this consent and agreement, which consent and
agreement binds the undersigned and their successors and assigns and inures to
Agent, the Banks, and their respective successors and assigns.
Electra Resources, Inc.
By: \s\ Grant W. Henderson
----------------------------------------
Its: President
----------------------------------------
Diamond Energy Operating Company
By: \s\ Grant W. Henderson
----------------------------------------
Its: Vice President
----------------------------------------
Taurus Energy Corp.
By: \s\ Grant W. Henderson
----------------------------------------
Its: Vice President
----------------------------------------
<PAGE>
EXHIBIT 10.30
Limited Recourse Promissory Note dated July 31, 1996, in the original principal
amount of $1,187,500.00 executed by Douglas H. Miller, payable to the Company.
<PAGE>
LIMITED RECOURSE PROMISSORY NOTE
$1,187,500.00 July 31, 1996
For value received, the undersigned, Douglas H. Miller ("Maker"), promises
and agrees to pay, in the manner hereinafter provided, to the order of Coda
Energy, Inc., a Delaware corporation ("Payee"), at 5735 Pineland Drive, Suite
300, Dallas, Texas 75231 or at such other place as Payee may specify by notice
to Maker, in lawful money of the United States of America, the principal sum of
ONE MILLION ONE HUNDRED EIGHTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS ($1,187,500),
together with interest on the unpaid principal balance from time to time
outstanding hereunder from the date hereof to maturity at a rate of 6.74% per
annum.
Interest on this Promissory Note shall accrue at the rate specified above
(compounded annually) and shall be payable from time to time when Payee, as
employer of Maker, pays to Maker any cash bonus in addition to Maker's base
salary. The amount of such payment shall be equal to the amount of such cash
bonus less (i) the amount of income taxes payable by Maker on such bonus (which
shall be deemed to be the product of the highest marginal rate (expressed as a
fraction) applicable to individuals on the date such bonus is paid under the
Internal Revenue Code of the United States, as amended from time to time,
multiplied by the amount of such bonus), and (ii) other amounts legally required
to be withheld by Payee from such bonus; provided that in no event shall the
amount of such payment exceed the outstanding accrued interest as of the date
the bonus is paid. The unpaid principal amount of this Promissory Note, together
with all accrued and unpaid interest, is payable in full on February 16, 2001
(the "Maturity Date").
This Promissory Note may be prepaid at any time, in whole or in part,
without penalty or premium.
Maker may acquire certain common stock, par value $.01 per share, of Payee
in accordance with the Stockholders Agreement (as hereinafter defined) upon a
Trigger Event (as defined in the Stockholders Agreement). Upon any transfer,
assignment, sale, or other disposition of any of such shares of common stock
(other than a transfer under Section 4.2(b) or the second and third sentences of
Sections 4.3(c) and 4.3(d) of the Stockholders Agreement dated as of October 30,
1995, among Maker, Coda Acquisition, Inc., and certain other stockholders of
Payee (the "Stockholders Agreement")), all proceeds of such transfer,
assignment, sale, or disposition shall be paid to Payee as a mandatory
prepayment on this Promissory Note, and, if Maker sells all or the remaining
portion of such shares held by Maker, the entire outstanding principal amount of
this Promissory Note, together with all accrued and unpaid interest, shall be
immediately and mandatorily payable in full. If Payee is the transferee of such
common stock in accordance with the Stockholders Agreement, the purchase price
payable by Payee for such common stock will be credited against accrued and
unpaid interest and outstanding principal under this Promissory Note.
Each payment made on this Promissory Note will be credited first to payment
of accrued interest and then to reduction of principal.
<PAGE>
If any payment due hereunder is not received by the due date specified
above, the owner and holder of this Promissory Note shall provide written notice
of such nonpayment to Maker by personal delivery, overnight courier, telegram or
telecopy, which shall be addressed, or sent, to the address or telecopy number
as provided on Schedule 1 hereto (or such other address or telecopy number as
Maker may specify in writing). All notices shall be deemed effective, delivered
and received (a) if given by personal delivery, when such notice is actually
received at the address specified on Schedule 1 hereto; (b) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
above and receipt thereof is confirmed; (c) if given by overnight courier, on
the business day immediately following the day on which such notice is delivered
to a reputable overnight courier service; or (d) if given by telegram, when such
notice is actually received at the address specified on Schedule 1 hereto. If
the payment is not received by the owner and holder of this Promissory Note by
the end of the tenth business day following receipt of the notice, the owner and
holder of this Promissory Note may, without any further notice or demand (both
of which are expressly waived by Maker), declare the Promissory Note to be in
default and declare the entire unpaid principal balance hereof and accrued
interest at once due and payable.
Except as otherwise provided herein, Maker and any and each co-maker,
guarantor, accommodation party, endorser or other person liable for the payment
or collection of this Promissory Note expressly waive demand and presentment for
payment, notice of nonpayment, notice of intent to accelerate, notice of
acceleration, protest, notice of protest, notice of dishonor, bringing of suit,
and diligence in taking any action to collect amounts called for hereunder and
in the handling of property at any time existing as security in connection
herewith, and shall be directly and primarily liable for the payment of all sums
owing and to be owing hereon, regardless of and without any notice, diligence,
act or omission as or with respect to the collection of any amount called for
hereunder or in connection with any lien at any time had or existing as security
for any amount called for hereunder.
In the event default is made in the prompt payment of this Promissory Note
when due or declared due, and the same is placed in the hands of an attorney for
collection, or suit is brought on same, or the same is collected through
probate, bankruptcy or other judicial proceedings, then Maker agrees and
promises to pay, in addition to the principal and interest then owing, all costs
of collection, including reasonable attorney's fees.
This is a limited recourse promissory note. Payee shall not be permitted to
make demand upon Maker for the payment of any amounts due under this Promissory
Note or file any claim or petition or otherwise institute any proceeding against
Maker for the collection of any amounts due and owing under this Promissory Note
(whether for the payment of interest or principal or costs of collection and
attorney's fees) until Payee shall have exhausted all remedies available to it
with respect to all collateral securing this Promissory Note pursuant to any
security agreement or otherwise, including the sale or disposition of all such
collateral and the application of the proceeds thereof to amounts due and owing
under this Promissory Note. In no event shall Maker's liability under this
Promissory Note for any deficiency due and owing on this Promissory Note
(whether for the payment of interest or principal or costs of collection and
attorney's fees) after the sale and disposition of all collateral securing this
Promissory Note (pursuant to any such security agreement or otherwise) exceed
thirty-five percent (35%) of the original principal balance of this Promissory
Note.
It is the intention of Maker and Payee to conform strictly to usury laws
applicable to Payee. Accordingly, if the transactions contemplated hereby would
be usurious under applicable state or federal law, then, notwithstanding
anything to the contrary in this Promissory Note or in any other agreement
entered into in connection with or as security for the obligations of Maker
under this Promissory Note or under any such agreement (the "Obligations"), it
is agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to Payee that is contracted for, taken,
<PAGE>
reserved, charged or received under the Obligations, this Promissory Note or
under any of such other agreements or otherwise in connection with the
Obligations shall under no circumstances exceed the maximum amount allowed by
such applicable law, (ii) in the event that the maturity of the Obligations is
accelerated for any reason, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to Payee may never include more than such maximum amount, and (iii)
excess interest, if any, provided for in this Promissory Note or otherwise shall
be canceled automatically and, if theretofore paid, shall be credited by Payee
on the principal amount of the Obligations (or, to the extent that the principal
amount of the Obligations shall have been or would thereby be paid in full,
refunded by Payee to Maker). The right to accelerate the maturity of the
Obligations does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Payee does not intend to
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Payee for the use, forbearance or detention of sums
included in the initial Obligations shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
the Obligations until payment in full so that the rate or amount of interest on
account of the initial Obligations does not exceed the applicable usury ceiling,
if any. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes
is relevant to Payee for the purpose of determining the maximum rate of
nonusurious interest allowed from time to time by applicable law, Payee hereby
elects to determine the applicable rate ceiling under such Article by the
indicated (weekly) rate ceiling from time to time in effect, subject to Payee's
right subsequently to change such method in accordance with applicable law.
This Promissory Note shall inure to the benefit of the successors, personal
representatives, and assigns of Payee and shall be binding upon the successors,
personal representatives, and assigns of Maker.
THE TERMS OF THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE PROVISIONS OF THE LAWS OF THE STATE OF TEXAS.
Any and all claims, demands, causes of action, disputes, controversies and
other matters in question arising out of or relating to this Promissory Note,
the alleged breach thereof, or in any way relating to the subject matter of this
Promissory Note ("Claims"), even though some or all of such Claims allegedly are
extracontractual in nature, whether such Claims sound in contract, tort or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
and decided exclusively by binding arbitration pursuant to the Federal
Arbitration Act in accordance with the Commercial Arbitration Rules then in
effect with the American Arbitration Association. The arbitration proceeding
shall be conducted in Dallas, Texas. The arbitration shall be before a panel of
three arbitrators. Each party to such dispute shall select one arbitrator, with
all Management Investors (as defined in the Stockholders Agreement) party to the
dispute considered to be one party, and the two arbitrators selected by the
parties shall select the third arbitrator. The arbitrators are authorized to
issue subpoenas for depositions and other discovery mechanisms, as well as trial
subpoenas, in accordance with the Federal Rules of Civil Procedure. Either party
may initiate a proceeding in the appropriate United States District Court to
enforce this provision. This agreement to arbitrate shall be enforceable in
either federal or state court. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or state court having
jurisdiction. The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including the construction and
interpretation of this agreement to arbitrate, the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the rules
governing the conduct of the arbitration, shall be governed by and construed
pursuant to the Federal Arbitration Act. The arbitrators shall have no authority
to award punitive (including, without limitation, any exemplary damages, treble
damages or any other penalty or punitive type of damages), consequential,
incidental or indirect damages
<PAGE>
(in tort, contract or otherwise) under any circumstances that exceed, with
respect to any Claim (regardless of the number of Persons asserting such Claim
or the number of Persons against whom such Claim is asserted) the lesser of (i)
the amount equal to the amount of actual damages awarded, if any and (ii)
$500,000, regardless of whether such damages in excess of such amount may be
available under applicable law or otherwise, the parties hereto hereby waiving
their right, if any, to recover such damages in excess of such amount in
connection with any Claims. The arbitrators shall be entitled to award costs of
the arbitration and attorney's fees as they deem appropriate.
This Promissory Note has been executed and delivered as of the date first
written above.
\s\ Douglas H. Miller
-----------------------------------------
Douglas H. Miller
<PAGE>
Schedule 1
Name, Address, Telephone and Fax No. of Maker
- ---------------------------------------------
Douglas H. Miller
7611 Glenshannon Circle
Dallas, Texas 75225
214-692-1800 (Office)
214-265-4777 (FAX)
<PAGE>
EXHIBIT 10.31
Amendment to Nonstatutory Stock Option Agreement dated July 31, 1996 between
the Company and Douglas H. Miller amending the Nonstatutory Stock Option
Agreement filed as Exhibit 10.24 above.
<PAGE>
AMENDMENT TO
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AMENDMENT TO NONSTATUTORY STOCK OPTION AGREEMENT is made as of the
31st day of July, 1996, between Coda Energy, Inc., a Delaware corporation (the
"Company") and Douglas H. Miller ("Employee").
WHEREAS, the Company, Employee and Coda Acquisition, Inc. have entered into
that certain Nonstatutory Stock Option Agreement dated February 16, 1996 (the
"Option Agreement") covering the right and option to purchase shares of common
stock of the Company, par value $.01 per share (the "Stock");
WHEREAS, the Company is the successor by merger to Coda Acquisition, Inc.;
and,
WHEREAS, the Company and Employee desire to amend the Option Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed that Section 3 of the Option Agreement is hereby
amended by adding the following additional paragraph thereto:
"Notwithstanding anything to the contrary contained herein: (i) this
Option shall not be exercisable as to any shares of Stock unless and until
all principal and accrued interest (whether or not then due and payable),
together with any other sums due and payable, under that certain Limited
Recourse Promissory Note dated July 31, 1996, drawn in the amount of
$1,187,500 and payable by Employee to Company, as modified, extended or
renewed, (the "Note") are paid in full; and, (ii) in the event of a default
under the Note, the Company shall have the unilateral right to cancel this
Option, but only as to that number of shares of Stock, rounded to the
nearest whole share, having an aggregate fair market value (determined by
the Company in accordance with Section 4.4(c)(ii) of the Stockholders
Agreement (as defined herein)) equal to the unpaid principal balance plus
accrued interest under the Note, and the Company shall furnish prompt
written notice of such cancellation to Employee."
IN WITNESS WHEREOF, the Company and Employee have executed this instrument
as of the day and year first above written.
CODA ENERGY, INC.
By: /s/ Grant Henderson
--------------------
Grant W. Henderson
President and CFO
\s\ Douglas H. Miller
-----------------------
Douglas H. Miller
<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 227 DAYS ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-17-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,134
<SECURITIES> 0
<RECEIVABLES> 13,557
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,327
<PP&E> 290,631
<DEPRECIATION> 16,750
<TOTAL-ASSETS> 302,777
<CURRENT-LIABILITIES> 18,898
<BONDS> 178,496
0
20,000
<COMMON> 9
<OTHER-SE> 42,626
<TOTAL-LIABILITY-AND-EQUITY> 302,777
<SALES> 73,926
<TOTAL-REVENUES> 75,312
<CGS> 42,017
<TOTAL-COSTS> 42,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,595
<INCOME-PRETAX> (79,357)
<INCOME-TAX> (28,369)
<INCOME-CONTINUING> (50,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,988)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
