UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] 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 0-11871
AMERICAN EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-2086890
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 756-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.05 par value American Stock Exchange
Depositary Shares, each representing a American Stock Exchange
1/200 interest in a share of $450
Cumulative Convertible Preferred Stock,
Series C, par value $1.00 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 15, 1995, there were outstanding 118,144,275 shares of the
Company's Common Stock. The aggregate market value of the voting stock held by
non-affiliates of the Company was $99,425,380 based on the closing price on
March 15, 1995 as reported on the American Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the 1995
Annual Meeting of Stockholders of the Company, which will be filed within 120
days of December 31, 1994, are incorporated by reference into Part III of this
Report.
<PAGE>
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business .................................................. 1
Item 2. Properties ................................................ 9
Item 3. Legal Proceedings ......................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....... 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 17
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 23
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 24
Item 11. Executive Compensation...................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 24
Item 13. Certain Relationships and Related Transactions.............. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25
PART I
ITEM 1. BUSINESS
GENERAL
American Exploration Company ("American" or the "Company") is an
independent company engaged in oil and gas development, production and
exploration operations. The Company's operating activities are primarily
concentrated in three geographic areas of the United States: the onshore Gulf
Coast region of Texas and Louisiana; the Permian Basin of West Texas; and
offshore in the Gulf of Mexico.
At December 31, 1994, the Company had proved reserves of 40.8 million
barrels of oil equivalent ("MMBOE"), an increase of 75% over proved reserves at
year-end 1993. On a BOE basis, approximately 76% of the Company's proved
reserves at year-end 1994 were natural gas. All equivalent reserve measures
herein are calculated based on a conversion factor of six thousand cubic feet
(Mcf) of gas to one barrel (Bbl) of oil.
American's growth in reserves during the year reflects the replacement of
approximately 540% of 1994 production. Approximately 22.9 MMBOE of proved
reserves were added through acquisition of interests held by investors in a
series of institutional programs managed by American. An additional 2.3 MMBOE of
proved reserves were added through development, recompletions, workovers and
exploration activities, offset by net downward reserve revisions of 3.9 MMBOE
due to lower gas prices and revised estimates of reserves attributable to
several fields.
At December 31, 1994, American had interests in 1,239 net oil and gas
wells and approximately 284,000 net developed acres. Of the Company's total
proved reserves, 62% are located in the ten largest fields based on proved
reserves, of which seven are operated by American. Overall, American operates
fields which represent 71% of total proved reserves. In addition, the Company
had interests in approximately 170,000 net undeveloped acres under domestic
leases and approximately 75,000 miles of domestic seismic data.
American was incorporated in Delaware in 1980. The Company's principal
executive offices are located at 1331 Lamar, Suite 900, Houston, Texas, 77010,
where its telephone number is (713) 756-6000.
AMERICAN'S GROWTH STRATEGY
American's growth strategy is to increase production, reserves and cash
flow primarily through the development and exploitation of existing properties
and the acquisition of properties in the Company's focus areas where American
can utilize its technical and operating capabilities to add value through lower
operating costs per unit of production and the development of additional
reserves. To complement its development, exploitation and acquisition
activities, American's strategy also includes selective participation in
exploration projects. To enhance operating focus, reduce costs per unit of
production and increase profit margins, American also actively sells marginal
and non-strategic properties.
To implement its growth strategy, American's oil and gas operating and
technical group (geologists, geophysicists, production and reservoir engineers
and land personnel) is organized into three geographic teams, each responsible
for one of the Company's primary operating areas. American believes that an
integrated team approach leads to greater efficiency and long-term performance,
particularly in the area of identifying and pursuing new projects.
During 1994, American's primary emphasis was to (1) increase production
and cash flow through development activities on several fields, (2) develop an
inventory of projects with significant reserve potential and (3) to complete the
acquisition and consolidation of reserve interests held by partners in eight
institutional programs managed by the Company.
1
DEVELOPMENT, EXPLOITATION AND EXPLORATION
The development component of American's strategy involves the drilling of
development wells, recompletions of existing wells into new zones, workovers of
existing wells and facilities work to increase production or reduce costs.
Development projects generally involve low risk activity and relate to enhancing
the value of reserves already classified as proved.
American also has an active exploitation program which includes drilling
projects, workovers and recompletions located primarily in or near oil and gas
fields in the Company's three principal operating areas. Typically, the drilling
projects involve properties in which the Company has an existing lease or
acquires an interest in a lease and with respect to which, in the judgment of
the Company based on its interpretation and evaluation of existing data, the
drilling of a successful well may add significant production and reserves, but
with somewhat greater risk than normal development activities. In identifying
and pursuing such projects, the Company utilizes 3-D seismic data and other
geological and geophysical techniques to reduce the risk of drilling dry holes.
American has also developed expertise in the use of horizontal drilling
technology to enhance reserve recovery from water-drive reservoirs.
During 1994, American drilled 95 gross (33.00 net) development and
exploitation wells, of which 89 gross (31.52 net) were successful. The Company
also performed 70 workovers and recompletions.
During 1994, significant development and exploitation projects were
initiated in the Brazos 440-L block, located offshore in the Gulf of Mexico, the
Sawyer Field in West Texas and the West McAllen Unit in South Texas. At Brazos,
where American has a 46% working interest, development, workovers and
recompletions increased the net production from these blocks to 7.6 MMcf per day
as of year-end 1994 compared to year-end 1993 levels of 1.2 MMcf per day. In
late 1994, American purchased leasehold interests ranging from 50-75% in eight
offshore blocks adjacent to the Company's existing Brazos 440L and 446 blocks.
American plans to participate in an area wide 3-D seismic survey in 1995 which
is expected to lead to further development drilling and the identification of
exploration prospects in and around the Company's leases. In the West McAllen
Field, recompletions of existing wells and the drilling of two development wells
based on 3-D seismic data increased net production from .3 MMcf per day as of
year-end 1993 to approximately 3.2 MMcf per day as of year-end 1994. Since
year-end, one additional development well has been completed. At the Sawyer
Field, which currently represents 27% of American's total proved reserves, 43
development wells and 20 recompletion, workover and facility projects were
completed in 1994. This activity and an increase in working interest ownership
from 12.5% to 56% increased net production from American's leases at the Sawyer
Field from 4.0 MMcf per day at year-end 1993 to 19.8 MMcf per day at year-end
1994. American holds a large inventory of proved undeveloped drilling locations
on its acreage and believes there are a large number of additional potential
in-fill and step-out drilling locations which would be economic at higher gas
prices.
American's exploration strategy is to allocate a relatively small
percentage of its budget to projects where the Company can leverage its
operating experience, leasehold position and seismic database to participate in
projects with significant reserve potential relative to investment. Where
possible, American uses industry partners to reduce risk and leverage returns
through promotes. During 1994, American drilled six gross (1.25 net) exploratory
wells, of which three gross (.14 net) resulted in discoveries.
ACQUISITIONS
Historically, American has been an active acquiror of reserves having made
approximately $930 million in acquisitions between 1983 and 1991, a majority of
which was funded through institutional partnerships. Since 1992, the Company's
acquisition strategy has been to pursue selective acquisitions within the
Company's three domestic operating areas. The Company's approach is to identify
fields in geologically complex areas where it can use 3-D seismic data or
horizontal drilling to attempt to locate, develop and exploit additional
reserves and add value. The Company also seeks acquisitions in fields where it
currently owns an interest to increase its net ownership or gain operating
control. Following this strategy, the Company made six small acquisitions in
1994, including acquiring additional interests of existing fields, for an
aggregate of $3.3 million.
2
The largest of these acquisitions was the purchase of a 30% working interest in
the Provident City Field, located in Lavaca County, Texas, for $1.6 million.
The most significant acquisition for American during 1994 was the
acquisition of 22.9 MMBOE of proved oil and gas reserves held by investors in a
series of institutional programs (the "APPL Consolidation"), which the Company
managed but held a relatively small percentage, typically 13%. The consideration
paid for the acquisition of the APPL interests was a combination of $31.1
million in cash and 42.7 million shares of the Company's common stock. In
addition to the reserves acquired, American eliminated $13.6 million of
nonrecourse debt in conjunction with the repurchases of notes issued by and net
profits interests in the APPL Programs structured as secured debt financings
(the "APPL Debt Programs"). In early 1995, the Company repurchased the remaining
two investors' interests in the APPL Debt Programs for a combination of $1.3
million in cash and the issuance of 3.4 million shares of the Company's common
stock, thereby eliminating the remaining $6.6 million of nonrecourse debt
outstanding at year-end 1994. The APPL Consolidation, in addition to increasing
proved reserves and production, has provided American with the benefit of
increasing its interest in a number of properties that it currently operates,
thereby providing greater control over development and operating activities and
creating cost efficiencies in terms of production and overhead costs per unit of
production.
In addition to the acquisition of its interests in certain APPL Programs
by American, New York Life Insurance Company ("New York Life"), has agreed to
transfer certain of its APPL Program interests not acquired in the APPL
Consolidation to ANCON Partnership Ltd. ("ANCON"), a partnership formed at the
end of 1993 between the Company and a subsidiary of New York Life. The transfer
of New York Life's APPL Program interests to ANCON is expected to occur in early
1995 with the Company acquiring a 1% interest in such properties at that time.
American has the option to acquire up to an additional 19% interest, which
represents approximately 2.0 MMBOE of proved reserves as of December 31, 1994,
within six months of the transfer.
OTHER CURRENT YEAR DEVELOPMENTS
At the Company's annual meeting held in June 1994, stockholders approved
an increase in the number of authorized shares of common stock from 100,000,000
shares to 200,000,000 shares. The increase in authorized shares allowed the
Company to privately issue 1.5 million shares of common stock in August 1994,
resulting in proceeds of $2.1 million. The proceeds were used to fund various
development projects and provide additional working capital. The increased
authorized shares also enabled American to issue the necessary shares of common
stock required to complete the APPL Consolidation, after obtaining stockholder
approval at a special meeting held in November 1994.
In December 1994, the Company entered into a new long-term revolving bank
credit agreement which amended and restated the bank credit agreement previously
in effect. The borrowing base under the new bank credit facility is currently
$65.0 million, up from $30.0 million at year-end 1993. In April 1994, New York
Life extended to the Company a $40.0 million nonrecourse secured credit facility
("bridge facility"), which provided interim financing for the cash portion of
the APPL Consolidation. Subsequent to year-end 1994, the bridge facility was
refinanced with borrowings under the Company's bank credit facility.
REGULATION
The following discussion of the regulation of the oil and gas industry is
necessarily brief and is not intended to constitute a complete discussion of the
various statutes, rules, regulations or governmental orders to which operations
of the Company may be subject.
FEDERAL REGULATION OF NATURAL GAS. The sale and transportation of natural
gas in interstate commerce are regulated under various federal laws including,
but not limited to, the Natural Gas Act of 1938 ("NGA") and the Natural Gas
Policy Act of 1978 ("NGPA"), both of which are administered by the Federal
Energy Regulatory Commission ("FERC"). Under these acts, producers and marketers
have historically been required to obtain from the FERC certificates to make
so-called "first sales" and abandonment authority to discontinue
3
such sales. Additionally, first sales have been subject to maximum lawful price
regulation. However, the NGPA provided for phased-in price deregulation of most
new gas production and, as a result of the enactment of the Natural Gas Wellhead
Decontrol Act of 1989, the remaining regulations imposed by the NGA and the NGPA
with respect to first sales, including price controls and certificate and
abandonment authority regulations, were terminated on January 1, 1993. FERC
jurisdiction over transportation and over sales other than first sales has not
been affected.
Commencing in the mid-1980's, the FERC promulgated several orders designed
to make gas markets more competitive by, among other things, inducing or
requiring interstate natural gas pipeline companies to provide transportation
services on an open and nondiscriminatory basis. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of a large spot market for gas.
In April 1992, the FERC issued the latest in this series of orders, Order
No. 636. Order No. 636 further restructured the sales and transportation
services provided by interstate pipeline companies. The FERC considered these
changes necessary to improve the competitive structure between interstate
pipelines and other gas merchants, including producers, and to create a
regulatory framework that would put gas sellers into more direct contractual
relations with gas buyers than has historically been the case. Order No. 636 was
implemented on a pipeline-by-pipeline basis through negotiated settlements in
individual pipeline service restructuring proceedings, designed specifically to
"unbundle" those services (e.g., transportation, sales and storage) provided by
many interstate pipelines so that producers of natural gas may secure services
from the most economical source, whether interstate pipelines or other parties.
As a result, in many instances, interstate pipelines are no longer wholesalers
of natural gas, but instead, provide only natural gas storage and transportation
services. In response to numerous requests that the FERC grant a rehearing of
Order No. 636, the FERC issued Order Nos. 636-A and 636-B, which largely
confirmed Order No. 636. Numerous petitions seeking judicial review of these
orders have been filed.
Order No. 636 does not regulate gas producers such as the Company. To
date, management of the Company believes Order No. 636 has not had any
significant impact on the Company as a producer or on the Company's gas
marketing efforts. Because the restructuring process is still continuing through
various pipeline rate proceedings, it is not possible to predict what effect, if
any, the final rule resulting from these orders will have on the Company.
REGULATION OF DRILLING AND PRODUCTION. Exploration and production
operations of the Company are subject to various types of regulation at the
federal, state and local levels. Such regulation includes requiring drilling
permits, requiring the maintenance of bonds in order to drill or operate wells,
and regulating the location of wells, the method of drilling and casing wells,
the surface use and restoration of properties upon which wells are drilled and
the plugging and abandoning of wells. The operations of the Company are also
subject to various conservation regulations, including regulation of the size of
drilling and spacing units or proration units, the density of wells that may be
drilled and the unitization or pooling of oil and gas properties. In this
regard, some states, including states in which the Company operates, allow the
forced pooling or integration of lands and leases. In addition, state
conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements
regarding the ratability of production. The effect of these regulations is to
limit the amount of crude oil and natural gas the Company can produce from its
wells and the number of wells or the locations at which the Company can drill.
FUTURE LEGISLATION AND REGULATION. The Company's business is and will
continue to be affected from time to time in varying degrees by political
developments and federal, state and local laws and regulations. The Company is
not able to predict the terms of any future legislation or regulations that
might ultimately be enacted or the effects of any such legislation or
regulations on the Company.
4
ROYALTY MATTERS
By a letter in May 1993 directed to thousands of producers holding
interests in federal leases, the United States Department of the Interior (the
"Department") announced its interpretation of existing federal leases to require
the payment of royalties on past natural gas contract settlements which were
entered into in the 1980s and 1990s to resolve, among other things, take-or-pay
and minimum take claims by producers against pipelines and other buyers. The
Department's letter set forth various theories of liability, all founded on the
Department's interpretation of the term "gross proceeds" as used in federal
leases and pertinent federal regulations. In an effort to ascertain the amount
of such potential royalties, the Department sent a letter to producers in 1993
requiring producers to provide data on natural gas contract settlements, where
gas produced from federal or Indian leases was involved in the settlement. The
Company received a copy of this information demand letter. In response to the
Department's action, various industry associations and others filed suit seeking
an injunction to prevent the collection of royalties on natural gas contract
settlement amounts under the Department's theories. This case is currently
pending in the United States District Court for the District of Columbia. In
partial response to this lawsuit, the Department has filed various "test" cases
to determine if its theories of liabilities are valid. Because of the pending
lawsuit and because of, among other things, the complex nature of the
calculations necessary to determine potential additional royalty liability under
the Department's theories, it is impossible to predict what, if any, additional
or different royalty obligation the Department may assert with respect to the
Company's prior natural gas contract settlements. The Company cannot therefore
predict what effect, if any, the Department's claims will have on the Company.
Furthermore, certain of the Company's natural gas contract settlements provide
for the buyer to reimburse the Company for any excess or additional payments to
royalty owners required as a result of the Company's receipt of the settlement
amounts.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to a number of federal, state
and local laws and regulations governing the discharge of materials into the
environment or otherwise relating to the protection of the environment. These
environmental provisions may, among other things, impose liabilities for the
cost of pollution clean-up resulting from drilling operations, prohibit drilling
on certain lands and impose restrictions on the injection of liquids into
underground water sources that may, in turn, contaminate groundwater.
The Company has conducted a review of its operations with particular
attention to environmental compliance. The Company believes it has acted as a
prudent operator and is in substantial compliance with environmental laws and
regulations. The Company has and will continue to incur costs in its efforts to
comply with these environmental standards. Although the costs incurred by
American to date solely to comply with environmental laws and regulations have
not had a material adverse effect upon capital expenditures, earnings or the
competitive position of the Company, the trend toward stricter environmental
laws and regulations is expected to have an increasingly significant impact on
the conduct of American's business. The cost of expenditures to comply with
evolving regulations and the related future impact on American's business cannot
be predicted at this time because of the uncertainties regarding future
environmental standards, advances in technology, the timing for expending funds
and the availability of insurance and third-party indemnification. However,
American believes that the evolving environmental standards do not affect the
Company in a materially different manner from other similarly situated companies
in the oil and gas industry.
OIL AND GAS MARKETING
The crude oil and condensate produced from the Company's properties are
generally sold to other companies at field prices posted by the principal
purchasers of crude oil in the areas where such properties are located. As is
customary in the industry, this production is generally sold pursuant to
short-term contracts.
5
The natural gas produced from the Company's properties is generally sold
at the wellhead under contracts which provide for market-sensitive pricing. The
price of natural gas is influenced by many factors including the state of the
economy, weather and competition from other fuels, including oil and coal.
The Company's revenues, cash flows and the value of its gas reserves are all
affected by the level of gas prices.
In the year ended December 31, 1994, sales to Enron Corp. accounted for
approximately 20% of the Company's oil and gas revenues. Management does not
believe that the loss of any single customer would adversely affect the
Company's operations.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's operations are subject to all of the risks normally incident
to the exploration for and the development and production of oil and gas,
including blowouts, cratering, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. These hazards could result in
substantial losses to the Company due to injury and loss of life, severe damage
to and destruction of property and equipment, pollution and other environmental
damage and suspension of operations. Although the Company is not fully insured
against certain of these risks, it maintains insurance coverage considered to be
customary in the industry.
PROGRAM LIABILITY
The Company and certain of its subsidiaries act as general partner of a
variety of limited partnerships. In such capacity, the Company and such
subsidiaries are generally liable for the obligations of the partnerships to the
extent that partnership assets are insufficient to discharge liabilities.
Several of the investment programs formed by the Company or its subsidiaries
require certain levels of insurance to cover operating and other risks inherent
in the production of oil and gas. Under the terms of these programs, the Company
would be liable for any costs or damages incurred by a program resulting from
the Company's failure to carry the required insurance. The Company believes that
its insurance coverage is sufficient as required by the program agreements.
COMPETITION
The oil and gas industry is highly competitive. Major oil and gas
companies, independent producers, drilling and production purchase programs and
individual producers and operators are active competitors for desirable oil and
gas properties. Many competitors have financial resources substantially greater
than those of the Company and staffs and facilities substantially larger than
those of the Company. The availability of a ready market for the oil and gas
production of the Company depends in part on the cost and availability of
alternative fuels, the level of consumer demand, the extent of other domestic
production of oil and gas, the extent of imports of foreign oil and gas, the
cost of and proximity to pipelines and other transportation facilities,
regulations by state and federal authorities and the cost of complying with
applicable environmental regulations.
EMPLOYEES
At March 1, 1995, American had 202 employees.
FOREIGN AND DOMESTIC OPERATIONS
The Company's only industry segment is oil and gas exploration and
production. Certain information concerning the Company's operations by
geographic area is set forth in Note 15 to the Consolidated Financial Statements
in Item 8, which information is incorporated herein by reference.
6
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and positions of the executive
officers of the Company. All executive officers are elected for a term of one
year and serve until their successors are elected and have qualified.
NAME OFFICE AGE
---- ------ ---
Mark Andrews Chairman of the Board and 44
Chief Executive Officer
John M. Hogan Senior Vice President and Chief Financial Officer 50
Harold M. Korell Senior Vice President - Operations 50
Harry C. Harper Vice President - Land 56
Robert R. McBride, Jr. Vice President - Production Operations 39
Steven L. Mueller Vice President - Exploitation 42
T. Frank Murphy Vice President - Corporate Finance and Secretary 40
Elliott Pew Vice President - Exploration 40
MARK ANDREWS, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, founded
the Company in 1980. Mr. Andrews is also a director of IVAX Corporation.
JOHN M. HOGAN, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, who
previously was Senior Vice President - Finance of the Company during 1985 and
1986, rejoined the Company in August 1992. From 1987 until 1992, Mr. Hogan
operated a CPA firm that provided tax, accounting, and management services. He
was Vice President and Chief Financial Officer of Ensource, Inc. from 1986 to
1987.
HAROLD M. KORELL, SENIOR VICE PRESIDENT - OPERATIONS, joined the Company
in June 1992. He was Executive Vice President of McCormick Resources, a private
independent oil and gas company, from 1989 until 1992. From 1973 to 1989, Mr.
Korell was with Tenneco Oil Company where he served in various positions and
eventually as Vice President and Manager of Production.
HARRY C. HARPER, VICE PRESIDENT - LAND, joined the Company in 1990 when
it acquired Hershey. He had been Senior Vice President, Secretary and General
Counsel of Hershey since 1973.
ROBERT R. MCBRIDE, JR., VICE PRESIDENT - PRODUCTION OPERATIONS, joined
the Company in August 1992. From 1988 to 1992, he served in various capacities
with British Gas plc, most recently as Exploitation Manager. From 1977 to 1988,
he held various production and management positions with Tenneco Oil Company.
STEVEN L. MUELLER, VICE PRESIDENT - EXPLOITATION, joined the Company in
November 1992. From 1988 to 1992, he was Exploration Manager - South Louisiana
Division at FINA, Inc. Prior to that, he served in a variety of positions at
Tenneco Oil Company.
7
T. FRANK MURPHY, VICE PRESIDENT - CORPORATE FINANCE AND SECRETARY, joined
the Company in 1989. He served in a variety of financial positions until
December 1991 when he was appointed Vice President - Investor Relations. He was
appointed Vice President - Corporate Finance in March 1993 and was appointed
Secretary in October 1993. Mr. Murphy was employed by LCS/Gemisys, a computer
software and services company, from 1983 to 1989, initially as a regional
manager and then as Vice President - Northeast Region.
ELLIOTT PEW, VICE PRESIDENT - EXPLORATION, joined the Company in October
1992 as a senior geophysicist. He was appointed Vice President - Exploration in
July 1993. From 1989 to 1992, he was employed by FINA, Inc. as a division
geologist and then as Exploration Manager - South Texas Division.
8
ITEM 2. PROPERTIES
The Company's producing properties are located principally in three
geographic areas of the United States: the onshore Gulf Coast region, primarily
in Texas and Louisiana; the Permian Basin of West Texas; and offshore in the
Gulf of Mexico.
MAJOR PROPERTIES
Set forth below is information concerning each of the Company's four
largest fields based on the discounted present value of the estimated pre-tax
future net cash flows of $142.1 million at December 31, 1994.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
----------------------------------------------------------------------------------
Percent of
Percent of Percent of Present Value
PROVED RESERVES RESERVES Estimated of Estimated
Oil Gas Future Net Future Net
(MBBLS) (MMCF) OIL GAS CASH FLOWS CASH FLOWS
------- ------- ----- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sawyer Field .............................. 49 65,205 .5% 34.9% 20.4% 20.9%
Bowdoin Field ............................. -- 13,438 -- 7.2 20.6 11.6
Henderson Canyon Area ..................... 64 12,629 .7 6.8 5.3 5.9
Bradshaw Field ............................ -- 28,215 -- 15.1 4.5 4.3
Other fields .............................. 9,547 67,193 98.8 36.0 49.2 57.3
------ ------- ----- ----- ----- -----
Total ................................... 9,660 186,680 100.0% 100.0% 100.0% 100.0%
====== ======= ===== ===== ===== =====
</TABLE>
DESCRIPTION OF FIELDS
SAWYER FIELD. The Sawyer Field is located in Edwards, Sutton and
Schleicher Counties, Texas. The producing trend that encompasses the field
covers approximately 400 square miles. The Company owns interests in 696 gas
wells in the field with an average net working interest of 56%, up from 12.5% in
1993 as a result of the APPL Consolidation. The main producing formation in the
field is the Canyon Sandstone, which is comprised of a series of stacked sands
separated by intervals of shale. Gas and condensate are produced from depths
ranging from 2,500 to 7,000 feet. The low permeability or "tight" character of
the Canyon Sandstone necessitates fracture stimulation of the reservoir when new
wells are drilled. In 1994, the Company completed 43 development wells with a
combined initial gross production rate of 19.3 MMcf per day (9.5 MMcf net to the
Company). Due to weak gas prices in late 1994 and early 1995 and a reduced
capital budget for 1995, American has deferred further development activity in
the Sawyer Field for 1995, except for the drilling of twelve development wells,
of which seven were in progress at year-end 1994.
The gas that American produces from the Sawyer Field is dedicated under a
long-term market sensitive contract through August 2003 to Natural Gas Marketing
and Storage Company, a subsidiary of Enron Corp. Gas produced from all wells
drilled after August 1993 is subject to a price floor of $1.85 per million
British Thermal Unit ("MMBtu") unless the buyer determines that the floor price
is uneconomical and elects not to purchase such gas. The contract also permits
American to sell excess or released gas to third parties under certain
conditions.
BOWDOIN FIELD. The Bowdoin Field, located in Phillips and Valley
Counties, Montana, was discovered in 1913. The field produces gas from
lenticular and shale sandstones at a depth of approximately 1,500 feet. The
reserves being produced from this field are expected to be relatively long-lived
and, due to the shallow nature of the wells, production and operating costs are
relatively low. The Company owns an average net working interest of
approximately 14%, up from 8% in 1993 due to the APPL Consolidation, in 534
wells.
9
Gas produced from the Bowdoin Field is sold under a life of lease
contract to KN Energy, Inc. Pursuant to a 1992 settlement agreement, KN Energy
prepaid the Company approximately $2.0 million, which was used to repay a
long-term production payment that burdened the field and is currently being
recouped without interest by KN Energy out of ongoing gas purchases. American
realized an average of $3.25 per Mcf for gas produced from this field during
1994. In February 1995, the Company was served with a lawsuit requesting a
reduction of the contract price to market levels. See Note 13 to the
Consolidated Financial Statements in Item 8.
HENDERSON CANYON AREA. The Henderson Canyon Area includes the Henderson
Canyon and Angus fields, which are located in Crockett County, Texas. In early
1993, American sold approximately 40% of its interest in the Henderson Canyon
Field to several of the Company's NYLOG Programs. American is the operator of 72
wells in these fields with an average net working interest of 32%. Gas produced
from these fields is sold at market-sensitive prices. Six development wells were
drilled in 1994, with a combined initial gross production rate of 5.0 MMcf per
day (1.5 MMcf net to the Company). The Company has currently suspended drilling
in the Henderson Canyon Area for 1995 because of low gas prices.
BRADSHAW FIELD. The Bradshaw Field encompasses over 250 square miles and
is located on the western edge of the Hugoton Field in southwestern Kansas. The
Company owns interests in 140 gas wells. As a result of the APPL Consolidation,
the Company's average net working interest in these wells has increased to 77%
compared to 25.7% in 1993. Net production in December 1994 averaged 9.1 MMcf of
gas per day. Since assuming operations, the Company has increased daily
production to the point that the field is producing near the capacity of the
gathering and compression system.
TITLE TO PROPERTIES
The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens, including other mineral encumbrances and restrictions. The Company does
not believe that any of these burdens materially interfere with the use of such
properties in the operation of its business. In addition, substantially all of
the properties in which the Company or its subsidiaries own a direct interest
are subject to mortgages granted to secure credit facilities.
A thorough examination of title has been performed with respect to
substantially all of the Company's producing properties, and the Company
believes that it generally holds satisfactory title to such properties. As is
customary in the oil and gas industry, little or no investigation of title is
made at the time of acquisition of undeveloped properties (other than a
preliminary review of local minerals records). Investigations of title are
generally made before commencement of drilling operations and, in most cases,
include the receipt of a title opinion of local counsel.
RESERVES
Although the Company prepares an annual estimate of proved oil and gas
reserves, no estimate of total proved net oil and gas reserves of the Company
has been filed with or included in reports to any federal authority or agency,
other than estimates previously filed with the Securities and Exchange
Commission. The Company is not aware of any major discovery or the occurrence of
any other favorable or adverse event since December 31, 1994 that would cause
material changes in the quantities of proved reserves owned by the Company as of
such date. The information in this section should be read in conjunction with
the Consolidated Financial Statements of the Company, including the Notes
thereto, set forth in a separate section of this Report on Form 10-K.
The tables below set forth certain information concerning the proved oil
and gas reserves owned by the Company at December 31, 1994. The information
contained in the tables is based upon estimates of the proved oil and gas
reserves of the Company and the rates of production therefrom. The estimated
future net cash flows before income taxes of proved reserves were estimated on
the basis of year-end prices, except in those instances where fixed and
determinable gas price escalations are covered by contracts. The prices used
averaged $15.13 per Bbl of oil and $1.69 per Mcf of gas at December 31, 1994.
10
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
future net cash flows. The quantities of oil and gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and gas sales prices may all differ from
those assumed in these estimates. Reserve assessment is a subjective process of
estimating recovery from underground accumulations of oil and gas that cannot be
measured precisely, and estimates of other persons might differ from those of
the Company. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered, which differences may
be significant. Moreover, the discounted present value shown below should not be
construed as the current market value of the estimated oil and gas reserves
attributable to the Company's properties. A market value determination would
take into account additional factors including, but not limited to, the recovery
of reserves not presently classified as proved, anticipated future changes in
prices and costs and a discount factor more representative of the time value of
money and the risks inherent in reserve estimates.
The Company's estimated proved oil and gas reserves at December 31, 1994
are as follows:
Oil Gas
Reserves Reserves
(MBBLS) (MMCF)
----- -------
Proved developed.............. 8,697 127,838
Proved undeveloped............ 963 58,842
----- -------
Total proved ............... 9,660 186,680
===== =======
The Company's estimated future net cash flows from proved and proved
developed oil and gas reserves at December 31, 1994, and the discounted present
value of such cash flows (before income taxes) are as follows (in thousands):
Proved
PROVED DEVELOPED
------- ---------
1995 (a)...................... $22,445 $34,942
1996 (a)...................... 26,511 27,049
1997.......................... 26,781 21,026
Remainder..................... 168,541 112,340
------- -------
Total future net cash flows. $244,278 $195,357
Present value before income
taxes (discounted at 10%) .. $142,080 $122,328
======== ========
(a) For 1995 and 1996, estimated pre-tax future net cash flows from
proved reserves are projected to be lower than estimated pre-tax
future net cash flows from proved developed reserves due to capital
expenditures associated with proved undeveloped reserves during 1995
and 1996 of approximately $17.2 million and $12.6 million,
respectively, which are primarily for new development wells.
11
DRILLING
The following table sets forth the results of drilling activity by the
Company for the last three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1994 1993 1992
------ ----------------------------------- ------------------------------------
OTHER OTHER
U.S. U.S. CANADA FOREIGN TOTAL U.S. CANADA FOREIGN TOTAL
----- ----- ------ ------- ----- ---- ------ ------- -----
<F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEVELOPMENT WELLS
Gross:
Productive ........................... 89 77 3 - 80 80 1 - 81
Dry Holes ............................ 6 5 3 - 8 13 - - 13
----- ----- ---- ---- ----- ---- ---- ---- -----
Total ............................... 95 82 6 - 88 93 1 - 94
===== ===== ==== ==== ===== ==== ==== ==== =====
Net:
Productive ........................... 31.52 10.17 1.44 - 11.61 8.73 0.33 - 9.06
Dry Holes ............................ 1.48 0.42 1.75 - 2.17 1.04 - - 1.04
----- ----- ---- ---- ----- ---- ---- ---- -----
Total ................................ 33.00 10.59 3.19 - 13.78 9.77 0.33 - 10.10
===== ===== ==== ==== ===== ==== ==== ==== =====
EXPLORATORY WELLS
Gross:
Productive ........................... 3 2 - - 2 2 - - 2
Dry Holes ............................ 3 4 - 2 6 10 1 1 12
----- ----- ---- ---- ----- ---- ---- ---- -----
Total ............................... 6 6 - 2 8 12 1 1 14
===== ===== ==== ==== ===== ==== ==== ==== =====
Net:
Productive ........................... 0.14 0.28 - - 0.28 0.91 - - 0.91
Dry Holes ............................ 1.11 1.02 - 0.70 1.72 4.31 0.12 0.40 4.83
----- ----- ---- ---- ----- ---- ---- ---- -----
Total ............................... 1.25 1.30 - 0.70 2.00 5.22 0.12 0.40 5.74
===== ===== ==== ==== ===== ==== ==== ==== =====
<FN>
<F1>As of December 31, 1994, the Company was also drilling twelve (4.11 net)
development wells.
</FN>
</TABLE>
12
PRODUCTION
The following table summarizes the average prices received with respect
to oil and gas produced and sold from, the net volumes of oil and gas produced
and sold from and certain additional information relating to, all properties in
which the Company held an interest during the last three years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1994 1993 1992
------- --------------------------------- ---------------------------------
U.S. U.S. CANADA TOTAL U.S. CANADA TOTAL
------- ------- ------- ------- ------- ------- -------
<F1>
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE SALES PRICE:
Gas ($/Mcf) ........................... $ 1.90 $ 2.13 $ 1.23 $ 1.92 $ 1.88 $ 1.01 $ 1.59
Oil ($/Bbl) ........................... 15.39 16.20 12.79 16.01 18.81 13.46 18.16
BOE ($/Bbl) ........................... 12.67 14.05 7.94 12.99 14.06 7.14 12.23
PRODUCTION DATA:
Gas (MMcf) ............................ 16,241 11,794 3,542 15,336 13,279 6,526 19,805
Oil (MBbls) ........................... 1,241 1,189 72 1,261 1,307 181 1,488
MBOE .................................. 3,948 3,155 662 3,817 3,520 1,269 4,789
ADDITIONAL $/BOE DISCLOSURES:
Production and
operating costs<F2> ................. $ 5.40 $ 4.47 $ 2.89 $ 4.19 $ 4.42 $ 3.03 $ 4.05
Production and
severance taxes ..................... 0.72 0.77 0.06 0.64 0.81 0.05 0.61
Depreciation, depletion and
amortization ........................ 7.50 6.89 2.85 6.19 7.13 4.00 6.30
<FN>
<F1>The Company sold its Canadian properties in mid-1993.
<F2>The amounts for 1993 and 1992 reflect reclassifications of the Company's
share of producing overhead well costs from general and administrative
expense to production and operating costs. These reclassifications conform
with current classifications.
</FN>
</TABLE>
PRODUCTIVE WELLS
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1994. Productive wells are either producing wells or wells capable of production
although currently shut-in. One or more completions in the same well bore are
counted as one well.
GROSS NET
----- -----
United States:
Oil......................... 3,115 476
Gas......................... 2,805 763
----- -----
Total..................... 5,920 1,239
===== =====
13
ACREAGE
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold, mineral or other interest at
December 31, 1994.
Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. Included
in the following table are 311,806 gross (14,148 net) U.S. developed mineral
acres and 811,446 gross (89,994 net) U.S. undeveloped mineral acres. A mineral
acre is an acre in which the Company has a perpetual interest as contrasted to a
leased acre in which the Company's interest is typically limited to the life of
production or otherwise limited in time.
DEVELOPED UNDEVELOPED
--------------------- ---------------------
GROSS NET GROSS NET
--------- ------- --------- -------
United States:
Arkansas ..................... 11,244 2,703 25,099 2,443
Kansas ....................... 157,824 64,948 23,481 5,219
Louisiana .................... 19,584 2,413 3,223 514
Mississippi .................. 26,855 5,044 179,785 43,545
Montana ...................... 257,199 35,045 147,317 42,539
New Mexico ................... 16,967 3,331 6,905 620
North Dakota ................. 21,905 2,347 7,523 1,122
Oklahoma ..................... 159,375 26,830 111,830 12,159
Texas ........................ 471,084 116,394 431,175 34,279
Utah ......................... 5,002 1,808 21,160 6,112
Wyoming ...................... 11,470 2,831 15,446 3,459
Eleven other states .......... 18,985 6,449 60,648 8,754
Gulf of Mexico ............... 61,450 13,819 15,220 8,733
--------- --------- --------- ---------
Total United States ............ 1,238,944 283,962 1,048,812 169,498
--------- --------- --------- ---------
International:
Canada (a) ................... 22,240 112 149,055 658
New Zealand (a) .............. -- -- 725,992 32,307
--------- --------- --------- ---------
Total International ............ 22,240 112 875,047 32,965
--------- --------- --------- ---------
Total .......................... 1,261,184 284,074 1,923,859 202,463
========= ========= ========= =========
(a) Acreage relates to overriding royalty interest.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Company is set forth in Note
13 to the Consolidated Financial Statements in Item 8, which information is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the American Stock Exchange under the
symbol "AX". At March 1, 1995, the Company had 5,272 stockholders of record.
The following table sets forth the high and low sales prices for the
quarters indicated.
PRICE RANGE OF COMMON STOCK
HIGH LOW
-------- --------
YEAR ENDED DECEMBER 31, 1994
First Quarter ............................ $1 7/8 $1 3/8
Second Quarter ........................... 1 1/2 1 1/8
Third Quarter ............................ 1 1/2 1 13/16
Fourth Quarter ........................... 1 3/8 7/8
YEAR ENDED DECEMBER 31, 1993
First Quarter ............................ $1 3/4 $1 1/8
Second Quarter ........................... 1 1/2 1
Third Quarter ............................ 1 11/16 1 1/4
Fourth Quarter ........................... 1 5/8 1 1/8
The Company has not paid any dividends on its common stock and does not
expect to pay dividends on its common stock for the foreseeable future. Payment
of dividends on the Company's common stock is also currently prohibited by the
terms of various agreements relating to outstanding indebtedness of the Company.
15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as
of and for each of the years in the five-year period ended December 31, 1994.
The financial data was derived from the consolidated financial statements of the
Company and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and related Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
(In thousands, except for per share amounts) 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS DATA:
Oil and gas sales ................................................. $ 50,033 $ 49,589 $ 58,560 $ 71,499 $ 51,130
Total revenues .................................................... 51,359 58,158 60,008 70,041 61,862
Costs and expenses ................................................ 102,792 70,176 119,687 83,379 48,302
Income (loss) from operations ..................................... (51,433) (12,018) (59,679) (13,338) 13,560
Income (loss) before extraordinary item ........................... (60,235) (19,186) (68,899) (24,257) 2,822
Net income (loss) ................................................. (54,816) (19,186) (65,799) (24,257) 4,049
Net income (loss) to common stock ................................. (56,616) (19,261) (65,799) (24,371) 3,498
Net income (loss) per common share:
Primary and fully diluted:
Income (loss) before extraordinary item ....................... $ (.77) $ (.28) $ (1.07) $ (.45) $ .07
Net income (loss) ............................................. (.70) (.28) (1.02) (.45) .11
Cash dividends declared per common share .......................... -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF CASH FLOW DATA:
Net cash provided by operating activities ......................... $ 7,747 $ 24,717 $ 14,237 $ 21,505 $ 25,161
Conveyance of oil and gas properties held for resale .............. -- -- 936 6,449 117,072
Total capital expenditures ........................................ 49,889 24,167 22,516 63,636 33,067
Bank debt borrowings (repayments), net ............................ 21,500 (47,500) (20,000) 32,000 26,494
Bridge credit facility borrowings (repayments), net ............... 31,128 -- -- (4,273) (135,291)
Other debt repayments, net ........................................ 8,622 4,001 10,808 4,107 7,092
Issuance of 11% senior subordinated notes ......................... -- -- 10,000 25,000 --
Repayment of 9 1/2% debentures .................................... -- -- -- 33,488 --
Issuance of securities ............................................ 2,100 21,348 28,096 -- 35
-----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF BALANCE SHEET DATA:
Current assets .................................................... $ 26,127 $ 22,229 $ 51,179 $ 35,025 $ 40,795
Current liabilities ............................................... 30,229 32,352 48,457 62,091 40,899
Property, plant and equipment, net ................................ 195,405 160,885 201,915 298,896 174,404
Total assets ...................................................... 223,894 185,598 256,820 336,803 220,453
Long-term obligations and convertible redeemable
preferred stock, excluding current obligations .................. 100,840 62,848 115,256 135,226 79,675
Total stockholders' equity ........................................ 87,710 86,406 85,160 127,433 91,937
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
American has made several significant acquisitions and dispositions of
oil and gas properties and companies during the periods presented in the table
above. The Company acquired Hershey in August 1990 and Conquest in February
1991. American sold approximately 40% of its interest in the Henderson Canyon
Field in March 1993 and sold its Canadian assets in mid-1993. The Company
purchased investors' interests in the APPL Programs in 1994 and early 1995.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company for the periods presented. See Item 2. in Part I for a breakout of
production and prices between U.S. and Canadian operations.
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------- -------
AVERAGE SALES PRICE:
Gas ($/Mcf) .................................... $ 1.90 $ 1.92 $ 1.59
Oil ($/Bbl) .................................... 15.39 16.01 18.16
BOE ($/Bbl) .................................... 12.67 12.99 12.23
PRODUCTION DATA:
Gas (MMcf) ..................................... 16,241 15,336 19,805
Oil (MBbls) .................................... 1,241 1,261 1,488
MBOE ........................................... 3,948 3,817 4,789
ADDITIONAL $/BOE DISCLOSURES:
Production and operating costs ................. $ 5.40 $ 4.19 $ 4.05
Production and severance taxes ................. 0.72 0.64 0.61
Depreciation, depletion and amortization ....... 7.50 6.19 6.30
1994 COMPARED TO 1993
REVENUES. Oil and gas sales in 1994 totaled $50.0 million compared to
$49.6 million in 1993. The increase in sales was due to higher domestic oil and
gas production offset in part by declines in prices and the sales of the
Company's Canadian oil and gas properties in mid-1993. On a net basis, gas
production increased 6% while oil production decreased 2%, resulting in a net
increase to sales of $1.4 million. Excluding the production from the Canadian
properties that were sold, gas production increased 29% and oil production
increased 4%. The increase in gas production was the result of new development
wells drilled, workovers and recompletions of existing wells in the first half
of the year and the acquisition of investors' interests in the APPL Programs
(see "Capital Resources and Liquidity" for discussion), which occurred primarily
during the third and fourth quarters of 1994. These increases more than offset
the loss of production from the sales of the Company's Canadian assets in
mid-1993. As a result of American's 1994 development and acquisition activity,
the Company's gas production has increased to a current average daily level of
approximately 73.8 MMcf, up 134% over the average daily gas production rate at
the end of 1993. For 1994, American's average realized gas price and oil price
were down 1% and 4%, respectively, from 1993, decreasing sales by $1.0 million.
As a result of the Company hedging a portion of its gas and oil production
during 1994, gas sales increased by $1.6 million and oil revenues were reduced
by $44,000.
The Company recorded gas settlement income of $374,000 in 1994 and $15.6
million in 1993. The 1993 income included amounts received in connection with
the settlement of certain litigation with Louisiana Intrastate Gas Corporation
("LIG") and for the renegotiation of American's contract to sell gas from the
Thomasville Field.
The Company recognized a gain on sales of oil and gas properties of $1.1
million in 1994 compared to a loss on sales of oil and gas properties of $6.9
million in 1993. In mid-1993, the Company sold its Canadian assets resulting in
losses totaling $5.8 million, including $1.8 million for the elimination of the
foreign currency translation adjustment balance. The gain for 1994 and the
remaining loss for 1993 resulted from the divestiture of minor properties.
17
COSTS AND EXPENSES. Production and operating expenses were up 33% to $21.3
million in 1994. On a BOE basis, operating costs increased 29% to $5.40 in 1994
compared to $4.19 in 1993. These increases reflect higher U.S. operating costs
which more than offset the decreases associated with the sales of the Company's
Canadian properties in mid-1993. Higher domestic operating expenses are related
to workovers at the Brazos blocks offshore and the Sawyer Field totaling $1.1
million. In addition, American has recorded site remediation costs of $2.4
million in 1994 and anticipates it will incur additional costs from time to time
related to continued assessment, testing, disposal, site restoration and other
activities in connection with the Company's environmental proceedings. Also,
American's operating costs were increased by $3.8 million during the second half
of 1994 due to the acquisition of interests pursuant to the APPL Consolidation.
Depreciation, depletion and amortization ("DD&A"), which totaled $29.6
million in 1994, rose 25% from the prior year due to an increase in the
Company's DD&A per BOE rate and an increase in gas production. Downward reserve
revisions at year-end 1993, including reserve revisions related to low oil
prices at year-end 1993, resulted in a DD&A per BOE rate of $7.50 in 1994
compared to $6.19 in 1993. The higher 1994 rate is also due to the fact that the
Canadian properties sold in mid-1993 had a lower depletion rate than the average
rate for the Company's other properties.
General and administrative expense ("G&A") totaled $10.0 million in 1994,
or 35% above 1993 expense of $7.4 million. The higher G&A expense for 1994
primarily relates to the loss of management and technical fee reimbursements as
a result of the APPL Consolidation with no significant reductions in G&A expense
in 1994. As a result of planned reductions related to the APPL Consolidation,
the Company recorded a $2.0 million severance charge in 1994. These increases
were partially offset by a decrease in salaries and benefits associated with the
reductions in American's work staff in early 1994 and the elimination of
Canadian G&A expense.
Taxes other than income were $1.1 million higher in 1994 compared to 1993.
This increase was due primarily to higher production taxes related to increased
domestic oil and gas sales and higher ad valorem taxes related to an increase in
the Company's oil and gas property base due to the APPL Consolidation.
Exploration expense decreased 66% to $2.6 million in 1994. The decrease in
exploration expense reflects steps taken over the past year by American to
eliminate its international exploration commitments and to emphasize domestic
development and exploitation projects in 1994.
Effective December 31, 1994, the Company elected to change its accounting
policy related to proved oil and gas properties to a policy that is consistent
with the provisions of the Financial Accounting Standards Board exposure draft,
"Accounting for the Impairment of Long-Lived Assets". Under the Company's new
policy, if the book value of an individual proved field is greater than its
undiscounted future net cash flow from proved reserves, then an impairment is
recognized for the difference between the net book value and the fair value.
Management's initiative to change its policy was prompted by the considerable
volatility of oil and gas prices during the past several years, the resulting
economic losses of proved reserves and corresponding increases in the Company's
DD&A rate. This change in accounting policy resulted in an approximate $25.0
million noncash impairment charge for 1994 against the book value of certain of
American's proved oil and gas properties. Reference is hereby made to Note 2 to
the Consolidated Financial Statements in Item 8.
Impairment expense for 1994 also includes a $6.4 million noncash charge
for the write-off of the Company's remaining leasehold interest in Tunisia.
American sold its interest in exchange for the purchaser assuming its remaining
Tunisian commitment. The remaining impairment expense for 1994 primarily
represents the write-off of several domestic prospects on which the Company does
not plan to conduct any further exploratory activity. The impairment charge for
1993 includes $10.2 million associated with the write-offs of the Company's
leasehold interest in Oman and a portion of the leasehold interest in Tunisia.
18
Interest expense decreased 3% in 1994 to $6.6 million due primarily to a
lower average bank debt balance during 1994 and the elimination of $14.1 million
of debt in connection with the Canadian asset sales in mid-1993 offset in part
by a decrease in capitalized interest. Capitalized interest was $1.5 million in
1994 compared to $2.3 million in 1993. The decrease in capitalized interest was
due to a reduction in unproved properties on which interest is capitalized.
Other expense for 1994 and 1993 includes $2.8 million and $739,000,
respectively, of fees incurred by American in conjunction with the Company's
debt instruments. These costs were higher for 1994 due to $2.1 million of fees
paid by American in connection with the new bank credit agreement and the bridge
facility extended to the Company by New York Life for the APPL Consolidation.
EXTRAORDINARY ITEM. The $5.4 million extraordinary gain recorded in 1994
resulted from the elimination of nonrecourse debt in conjunction with the
repurchases of notes issued by and net profits interests in the APPL Debt
Programs. These repurchases were part of the APPL Consolidation. This gain
represents the difference between the outstanding note balances and the actual
purchase price of the notes.
NET LOSS. American experienced a net loss of $54.8 million, or $.70 per
share, in 1994 compared to a net loss of $19.2 million, or $.28 per share, in
1993. The higher net loss for 1994 was primarily due to the impact of the
impairment of proved properties, an increase in operating costs and expenses on
a per unit of production basis and the gas settlements in 1993 offset in part by
lower exploration expense, the extraordinary gain resulting from the APPL
Consolidation and the loss on sales of oil and gas properties recognized in 1993
related to the sales of the Company's Canadian assets.
There can be no assurance that the Company will not continue to record
losses in the future. Based on current prices and operating environment, the
Company expects to record a net loss in 1995.
1993 COMPARED TO 1992
REVENUES. American's revenues were $58.2 million in 1993 compared to $60.0
million in 1992. Oil and gas sales declined $9.0 million to $49.6 million in
1993. The decline in sales was due to a 20% decrease in production and lower oil
prices offset in part by a rise in gas prices. Lower production volumes were
primarily due to the loss of production from properties sold during 1993,
including the sale of approximately 40% of the Company's interest in the
Henderson Canyon Field and the sales of the Company's Canadian assets. The net
effect of the changes in prices was an increase to sales of $2.3 million.
However, gas revenues were reduced by $597,000 for the net cost of certain gas
hedges. The Company did not enter into any hedges in 1992. Gas settlement income
contributed $15.6 million to revenues in 1993 compared to $1.8 million in 1992.
The 1993 income resulted primarily from a litigation settlement with LIG and the
renegotiation of American's gas contract for the Thomasville Field. As a result
of the sales of the Company's Canadian assets in mid-1993, the Company
recognized losses totaling $5.8 million, including $1.8 million for the
elimination of the foreign currency translation adjustment balance. The
remaining loss on sales of oil and gas properties for 1993 and the loss for 1992
resulted from the divestiture of minor properties.
COSTS AND EXPENSES. Operating expenses decreased from 1993 to 1992,
primarily reflecting declines in production. Production and operating costs were
down 18% to $16.0 million. However, on a BOE basis, the Company's rate increased
3% to $4.19 in 1993 compared to $4.05 in 1992 due primarily to the sales of the
Canadian properties which operated at a lower cost. In 1993, DD&A expense
decreased 22% to $23.6 million from the prior year and the DD&A per BOE rate
dropped to $6.19 compared to $6.30 in 1992. In addition to lower production
volumes, the declines in 1993 DD&A reflect a smaller oil and gas property base
due to property sales offset in part by a $600,000 adjustment for downward
reserve revisions caused by low year-end oil prices and the renegotiated
Thomasville Field gas contract. DD&A expense for 1992 included a $1.6 million
adjustment to fully deplete a portion of a field that was plugged and abandoned.
Also, taxes other than income were $1.0 million lower in 1993 compared to 1992.
G&A expense was down 33% in 1993 from the amount incurred in 1992. This
decrease reflects staff reductions in early 1993 and the completion of the
consolidation of American's New York and California operations into its Houston
office. The 1993 G&A amount included $1.0 million for severance costs related
19
to further work staff reductions in early 1994 due to decreased exploration
activities and ongoing efforts to reduce overhead.
Exploration expense for 1993 was comparable to the prior year. In late
1992, the Company initiated a strategy to reduce exploratory drilling which
resulted in lower operating costs in 1993. However, this decline was offset by
charges totaling $2.6 million associated with prior international drilling
commitments.
During 1993, the Company recorded $11.0 million of impairment expense,
which included $10.2 million for the write-offs of the Company's leasehold
interest in Oman and a portion of the leasehold interest in Tunisia. In 1992,
American recorded an impairment charge of $39.3 million for the write-downs of
the Company's Canadian foothill properties and approximately 40% of the
Company's interest in the Henderson Canyon Field since American had begun
negotiations to sell these properties in late 1992. The remaining impairment
charge for 1992 was due primarily to the write-off of the nonproducing leases in
the Gulf of Mexico which were acquired in the Conquest acquisition.
Interest expense declined 28% in 1993 to $6.8 million due to lower debt
levels. Capitalized interest was down $1.0 million from 1992 to 1993 as a result
of a reduction in unproved properties on which interest is capitalized. Other
expense includes bank fees totaling $739,000 in 1993 compared to $1.3 million in
1992.
EXTRAORDINARY ITEM. The $3.1 million extraordinary gain recorded in 1992
resulted from the restructuring of nonrecourse debt of one of the Company's
wholly owned subsidiaries associated with the APPL Debt Programs. The gain
represented the difference between the reduction in debt and the value of the
net profits interests conveyed to the lenders, net of transaction costs.
NET LOSS. American recorded a net loss of $19.2 million, or $.28 per
share, in 1993 compared to a net loss of $65.8 million, or $1.02 per share, in
1992. The lower net loss for 1993 was primarily due to higher gas prices, gas
settlements and the decline in operating costs and expenses offset in part by
lower production volumes. In addition, the 1992 net loss included an
asset-writedown charge and an extraordinary gain.
CAPITAL RESOURCES AND LIQUIDITY
American's principal sources of capital are net cash provided by operating
activities and proceeds from financing activities. During the past three years,
the Company has also generated cash flows from the sales of low-value and
nonstrategic oil and gas properties.
Net cash provided by operating activities totaled $7.7 million in 1994
compared to $24.7 million in 1993 and $14.2 million in 1992. The decrease from
1993 to 1994 was primarily due to higher production costs on a per unit of
production basis. In addition, cash flow for 1993 included $15.6 million of gas
contract settlement proceeds. Although the Company expects the APPL
Consolidation to have a favorable impact on operating cash flow, future cash
flows will also be influenced by oil and gas prices and the results from ongoing
drilling operations, neither of which can be predicted.
Proceeds from the sales of oil and gas properties totaled $2.6 million,
$35.7 million and $2.9 million in 1994, 1993 and 1992, respectively. The cash
received in 1993 included $34.1 million of proceeds from the sales of the
Company's Canadian assets and 40% of the Company's interest in the Henderson
Canyon Field. In 1995, American plans to divest of high-cost, low-value
properties to reduce the Company's operating costs and increase efficiency.
At the Company's annual meeting of stockholders held in June 1994,
American's stockholders authorized an increase in the number of authorized
shares of the Company's common stock to 200,000,000 shares. This increase
allowed American to privately issue 1.5 million shares of common stock in August
1994, resulting in proceeds of $2.1 million. The proceeds were used to fund
various development projects and provide additional working capital. The
increase in authorized shares also enabled American to issue the necessary
shares to complete the APPL Consolidation as described below.
20
Pursuant to the APPL Consolidation, the Company acquired investors'
interests in the APPL Programs during 1994 for a combination of $31.1 million in
cash borrowed under the bridge facility and 42.7 million shares of the Company's
common stock. As part of this transaction, $13.6 million of nonrecourse debt was
eliminated. In early 1995, the Company repurchased the remaining two investors'
interests in the APPL Debt Programs for a combination of $1.3 million in cash
and the issuance of 3.4 million shares of the Company's common stock, thereby
eliminating the remaining $6.6 million of nonrecourse debt outstanding at
year-end 1994. Also, New York Life has agreed to transfer certain of its APPL
Program interests not acquired in the APPL Consolidation to ANCON in early 1995.
The Company will acquire a 1% interest in these properties at the time of the
transfer and has the option to acquire up to an additional 19% interest within
six months.
In December 1994, the Company entered into a new long-term revolving bank
credit agreement which amended and restated the bank credit agreement previously
in effect. The borrowing base, or amount available, under the new bank credit
facility is currently $65.0 million, up from $30.0 million at year-end 1993. The
amount outstanding under this facility was $28.0 million at December 31, 1994,
which represents an increase of $21.5 million from December 31, 1993. The
borrowings during 1994 were used to fund capital projects and reduce existing
liabilities. In February 1995, the Company used excess borrowing capacity under
this facility to refinance the bridge facility, of which $31.1 million was
outstanding at December 31, 1994. The borrowing base under the bank credit
facility is subject to semiannual redetermination by the Company's bank group.
The borrowing base is currently in the process of being redetermined. Management
expects, based on current discussions with its lenders, that the borrowing base
will be at least $65.0 million.
The bank credit agreement and the 11% senior subordinated notes include
covenants requiring net worth of the Company to not be less than $65.0 million
less write-downs plus 50% of any equity issuances. For purposes of this test,
write-downs may not exceed $6.8 million through June 30, 1994 plus any noncash
charges after June 30, 1994 in connection with proposed pronouncements on
accounting for impairments of long-lived assets. At December 31, 1994, the
Company's calculated net worth requirement was $62.4 million and the Company's
stockholders' equity was $87.7 million. Cash dividends are prohibited on the
Company's common stock and preferred dividends are limited to the lesser of 10%
of the preferred stock offering proceeds or $7.5 million in any one year.
Dividends paid on the Company's convertible preferred stock during 1994 totaled
$1.8 million. These agreements also contain cross-default provisions.
The most significant capital expenditure for American during 1994 was the
acquisition of the majority of the APPL Program interests for $87.4 million,
including the value of the shares issued. In addition, the Company acquired $3.3
million of other oil and gas properties, representing purchases of working
interests in the Company's primary domestic operating areas, compared to $4.3
million in 1993 and $3.3 million in 1992. Expenditures for development drilling
increased to $15.3 million in 1994 from $9.2 million in 1993 and $8.1 million in
1992. Exploration expenditures totaled $5.6 million in 1994, $9.5 million in
1993 and $10.5 million in 1992. The increase in development expenditures and the
reduction in exploration costs from 1993 to 1994 reflect the Company's strategy
to allocate more of its capital resources to development and exploitation
projects and the elimination of its remaining international exploration
commitments, which totaled $2.0 million at year-end 1993. During 1994, the
Company participated in 95 development wells with a 94% success ratio and
performed 70 workover and recompletion operations.
For 1995, the Company has budgeted approximately $20.0 million for capital
expenditures, which amount may be increased depending on oil and gas prices and
capital availability. As in 1994, American's capital program will be focused in
the Company's principal operating areas in the United States. American is
allocating approximately 70% of its budget to development and exploitation
projects, approximately 20% to acquisition activities, including lease
acquisitions, and the remaining 10% for exploratory drilling. The Company's
budget also includes approximately $1.0 million for anticipated expenditures
related to environmental matters.
At December 31, 1994, American had capital commitments for 1995 totaling
$4.3 million. These commitments include current debt obligations of $154,000,
operating lease obligations for 1995 of $2.4 million and preferred stock
dividend payments totaling $1.8 million. Over the next several years, the
Company will have additional capital requirements, including annual principal
payments of $5.6 million on its 11% senior
21
subordinated notes beginning in December 1997. The Company is also scheduled to
begin repaying the principal on its bank credit facility over twelve quarterly
installments commencing March 31, 1997.
At December 31, 1994, the Company's ratio of current assets to current
liabilities was .86:1, up from .69:1 at year-end 1993. The improvement in the
Company's working capital position was due to several factors. As a result of
the APPL Consolidation, American's accounts receivable balance increased and the
Company eliminated the majority of its development obligation to net profits
investors. Also, the Company had an increase in partnership receivables and a
decrease in accounts payable due to the timing of cash receipts and payments,
respectively. The Company anticipates that it will operate with a working
capital deficit primarily due to timing differences between the receipt of
reimbursements from other working interest owners in the properties operated by
American and payment of expenses with respect to such properties.
The Company intends to fund its planned capital expenditures, commitments
and working capital requirements through cash flows from operations and
borrowings under its bank credit facility. However, if there are changes in oil
and gas prices, which correspondingly affect cash flows and bank borrowings,
American has the discretion and ability to adjust its capital budget. Other
potential sources of capital for the Company include property sales, financings
through the placement of notes or the sale of equity. Management believes that
the Company will have sufficient capital resources and liquidity to fund its
capital expenditures and meet its financial obligations as they come due.
ENVIRONMENTAL MATTERS
The Company is subject to an increasing number of federal, state and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to the protection of the environment. The Company has
conducted a review of its operations with particular attention to environmental
compliance. The Company believes it has acted as a prudent operator and is in
substantial compliance with environmental laws and regulations. These
environmental provisions are expected to have an increasingly significant impact
on the conduct of American's business. The Company has recorded site remediation
costs of $2.4 million in 1994. Prior to 1994, the Company's cost to comply with
environmental provisions was not material. American can not predict what impact
environmental laws and regulations will have on its future performance. However,
the Company believes that such laws do not affect the Company in a materially
different manner from other similarly situated companies in the oil and gas
industry.
The Company is currently a defendant in five lawsuits, as discussed in
Note 13 to the Consolidated Financial Statements in Item 8, alleging the
presence of naturally occurring radioactive materials ("NORM") and other
hazardous substances as a result of oil and gas operations conducted on
properties operated or owned by the Company and its predecessors in title or
NORM contaminated pipe delivered to a pipe cleaning facility, of which the
Company contributed a minor amount of pipe. American has remediated several of
these properties and believes these remediation efforts will significantly
reduce the basis for the plaintiffs' damage claims. Because of the early stages
of these proceedings, it is not possible to quantify what liabilities, if any,
the Company might incur.
CHANGING OIL AND GAS PRICES
The Company's revenues and cash flows are affected by changes in oil and
gas prices. Moreover, the Company's bank borrowing capacity is largely dependent
upon oil and gas prices. Oil and gas prices are subject to substantial seasonal,
political and other fluctuations that the Company is unable to control or
accurately predict.
During 1994, American's average realized gas price fluctuated from a high
of $2.30 per Mcf in March to a low of $1.63 per Mcf in October. Gas prices have
fallen subsequent to year-end 1994 to a recent price of $1.44 per MMBtu, which
is the quoted price for March 1995 production for Henry Hub. The Company's
average realized oil price ranged from $12.84 to $17.61 per Bbl during 1994. To
help mitigate the impact of oil and gas price declines, the Company has several
swap agreements in place with approximately 41% and
22
23% of the Company's December 1994 average daily oil production and gas
production, respectively, hedged through June 1995 and March 1995, respectively.
POSSIBLE RESTRUCTURING OF THE BOARD OF DIRECTORS
Based on discussions with several of the APPL Program partners who
exchanged their interests for common stock of American, the Company plans to
restructure its Board of Directors to decrease the size of the Board and, among
other things, to increase the number of Board members with senior level oil and
gas operating backgrounds.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in a separate section
of this Report on Form 10-K. See the accompanying "Index of Financial
Statements" at Page F-1. Such information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
The information set forth under the caption "Election of Directors" in the
Company's Proxy Statement for its 1995 Annual Meeting of Stockholders, which is
to be filed with the Securities and Exchange Commission within 120 days of
December 31, 1994 pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Act"), is incorporated herein by reference.
(b) Executive Officers
Information concerning executive officers is set forth in Item 1. of
Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders, which
is to be filed with the Securities and Exchange Commission within 120 days of
December 31, 1994 pursuant to Regulation 14A under the Act, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Principal Security Holders"
and "Security Ownership of Management" in the Company's Proxy Statement for its
1995 Annual Meeting of Stockholders, which is to be filed with the Securities
and Exchange Commission within 120 days of December 31, 1994 pursuant to
Regulation 14A under the Act, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement for its 1995 Annual
Meeting of Stockholders, which is to be filed with the Securities and Exchange
Commission within 120 days of December 31, 1994 pursuant to Regulation 14A under
the Act, is incorporated herein by reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See the accompanying "Index of Financial Statements" at Page F-1.
3. Exhibits
See the accompanying "Index of Exhibits" at Page X-1.
(b) The registrant filed no reports on Form 8-K during the fourth quarter
of 1994.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 30th day of
March, 1995.
AMERICAN EXPLORATION COMPANY
(Registrant)
By: /S/ MARK ANDREWS
Mark Andrews
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 30th day of March, 1995.
SIGNATURE TITLE
--------- -----
/S/ MARK ANDREWS Chairman of the Board
Mark Andrews and Chief Executive Officer
(Principal Executive Officer)
/S/ JOHN M. HOGAN Senior Vice President
John M. Hogan and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/S/ O. DONALDSON CHAPOTON Director
O. Donaldson Chapoton
/S/ HARRY W. COLMERY, JR. Director
Harry W. Colmery, Jr.
/S/ IRVIN K. CULPEPPER, JR. Director
Irvin K. Culpepper, Jr.
/S/ WALTER J.P. CURLEY Director
Walter J.P. Curley
26
/S/ PHILLIP FROST, M.D. Director
Phillip Frost, M.D.
/S/ PETER G. GERRY Director
Peter G. Gerry
/S/ H. PHIPPS HOFFSTOT, III Director
H. Phipps Hoffstot, III
/S/ JOHN E. JUSTICE, III Director
John E. Justice, III
/S/ MARK KAVANAGH Director
Mark Kavanagh
/S/ JOHN H. MOORE Director
John H. Moore
/S/ PETER P. NITZE Director
Peter P. Nitze
27
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS
PAGE
Financial Statements:
Report of Independent Public Accountants ............................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993 ........... F-3
Consolidated Statements of Operations for the Three Years Ended
December 31, 1994 .................................................... F-4
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1994 .................................................... F-5
Consolidated Statements of Stockholders' Equity for the Three
Years Ended December 31, 1994 ........................................ F-6
Notes to Consolidated Financial Statements ............................. F-7
Supplemental Information on Oil and Gas Producing Activities ........... F-29
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American Exploration Company:
We have audited the accompanying consolidated balance sheets of
American Exploration Company (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Exploration Company and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the consolidated financial statements,
effective December 31, 1994, the Company changed its method of accounting for
impairments of proved oil and gas properties.
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1995
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1993
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and temporary cash investments .................................................. $ 9,973 $ 12,236
Accounts receivable .................................................................. 10,652 7,888
Receivables from partnerships ........................................................ 4,488 987
Inventory ............................................................................ 293 352
Other current assets ................................................................. 721 766
--------- ---------
Total current assets ............................................................... 26,127 22,229
--------- ---------
Property, plant and equipment:
Oil and gas properties, based on successful
efforts accounting ................................................................. 318,453 257,953
Other property and equipment ......................................................... 12,530 12,102
--------- ---------
330,983 270,055
Less: Accumulated depreciation, depletion and
amortization ....................................................................... 135,578 109,170
--------- ---------
Property, plant and equipment, net ................................................. 195,405 160,885
--------- ---------
Other assets ........................................................................... 2,362 2,484
--------- ---------
Total assets ..................................................................... $ 223,894 $ 185,598
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................................... $ 154 $ 746
Accounts payable ..................................................................... 14,391 17,721
Accrued liabilities .................................................................. 15,629 11,946
Obligation to net profits investors .................................................. 55 1,939
--------- ---------
Total current liabilities .......................................................... 30,229 32,352
--------- ---------
Long-term debt ......................................................................... 69,712 62,848
--------- ---------
Note payable to related party .......................................................... 31,128 --
--------- ---------
Other liabilities ...................................................................... 4,779 3,161
--------- ---------
Deferred income taxes .................................................................. 336 831
--------- ---------
Commitments and contingencies (Note 13)
Stockholders' equity:
Convertible preferred stock, $1.00 par value, 4,000 shares
issued and outstanding in 1994 and 1993 ............................................ 4 4
Common stock, $.05 par value; issued: 114,775,000 shares (1994)
and 70,605,368 shares (1993); outstanding: 114,683,132 shares
(1994) and 70,513,500 shares (1993) ................................................ 5,739 3,531
Additional paid-in capital ........................................................... 267,652 212,419
Accumulated deficit .................................................................. (184,676) (128,060)
Treasury stock, at cost; 91,868 shares (1994 and 1993) ............................... (342) (342)
Unearned compensation ................................................................ (525) (916)
Notes receivable from officers ....................................................... (142) (230)
--------- ---------
Total stockholders' equity ......................................................... 87,710 86,406
--------- ---------
Total liabilities and stockholders' equity ....................................... $ 223,894 $ 185,598
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
--------- -------- ----------
<S> <C> <C> <C>
REVENUES:
Oil and gas sales .............................................. $ 50,033 $ 49,589 $ 58,560
Gas settlement income .......................................... 374 15,592 1,849
Gain (loss) on sales of oil and gas properties ................. 1,110 (6,894) (1,309)
Other revenues (costs), net .................................... (158) (129) 908
--------- -------- ----------
Total revenues ............................................... 51,359 58,158 60,008
--------- -------- ----------
COSTS AND EXPENSES:
Production and operating ....................................... 21,302 15,998 19,412
Depreciation, depletion and amortization ....................... 29,616 23,635 30,193
General and administrative ..................................... 10,035 7,413 11,047
Taxes other than income ........................................ 5,710 4,601 5,606
Exploration .................................................... 2,559 7,554 7,843
Impairment ..................................................... 33,570 10,975 45,586
--------- -------- ----------
Total costs and expenses ..................................... 102,792 70,176 119,687
--------- -------- ----------
LOSS FROM OPERATIONS ............................................. (51,433) (12,018) (59,679)
--------- -------- ----------
OTHER INCOME (EXPENSE):
Interest expense ............................................... (6,638) (6,847) (9,485)
Other income (expense), net .................................... (2,619) 191 (576)
--------- -------- ----------
Total other expense .......................................... (9,257) (6,656) (10,061)
--------- -------- ----------
LOSS BEFORE INCOME TAXES, MINORITY INTEREST
AND EXTRAORDINARY ITEM ......................................... (60,690) (18,674) (69,740)
Income tax benefit (provision) ................................... 455 (505) (108)
Minority interest in subsidiary .................................. -- (7) 949
--------- -------- ----------
LOSS BEFORE EXTRAORDINARY ITEM ................................... (60,235) (19,186) (68,899)
Extraordinary gain on extinguishment of debt ..................... 5,419 -- 3,100
--------- -------- ----------
NET LOSS ......................................................... (54,816) (19,186) (65,799)
Preferred stock dividends ........................................ (1,800) (75) --
--------- -------- ----------
NET LOSS TO COMMON STOCK ......................................... $ (56,616) $(19,261) $ (65,799)
========= ======== ==========
NET LOSS PER COMMON SHARE:
Primary and fully diluted:
Loss before extraordinary item................................ $ (.77) $ (.28) $ (1.07)
Extraordinary item............................................ .07 -- .05
--------- -------- ----------
NET LOSS PER COMMON SHARE................................... $ (.70) $ (.28) $ (1.02)
========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(54,816) $(19,186) $ (65,799)
Adjustments to arrive at net cash provided by
operating activities:
Depreciation, depletion and amortization ............................. 29,616 23,635 30,193
Loss (gain) on sales of oil and gas properties ....................... (1,110) 6,894 1,309
Exploration expense .................................................. 1,888 4,720 4,600
Impairment expense ................................................... 33,570 10,975 45,586
Extraordinary gain ................................................... (5,419) -- (3,100)
Other, net ........................................................... 2,909 (150) 347
Changes in operating working capital:
Accounts receivable .................................................. (2,899) 411 4,813
Other current assets ................................................. (320) 920 1,224
Accounts payable and accrued liabilities ............................. 1,874 (1,939) (5,144)
Other operating ........................................................ 2,454 (1,563) 208
-------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 7,747 24,717 14,237
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas properties .................................. (28,387) (4,273) (3,283)
Development and exploration expenditures ............................... (20,944) (18,675) (18,555)
Other capital expenditures ............................................. (558) (1,219) (678)
Sales of oil and gas properties ........................................ 2,638 35,666 2,881
Other investing ........................................................ (3,683) (2,488) (989)
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................ (50,934) 9,011 (20,624)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank debt borrowings ................................................... 23,000 12,500 109,650
Bank debt repayments ................................................... (1,500) (60,000) (129,650)
Issuance of 11% senior subordinated notes .............................. -- -- 10,000
Borrowings under bridge credit facility ................................ 32,078 -- --
Repayments under bridge credit facility ................................ (950) -- --
Repayments of other debt ............................................... (8,622) (4,001) (10,808)
Issuance of common stock and warrants .................................. 2,100 1,348 28,096
Issuance of preferred stock ............................................ -- 20,000 --
Preferred stock dividends .............................................. (1,800) (75) --
Debt and equity issuance costs and other ............................... (3,382) (2,152) (4,598)
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................ 40,924 (32,380) 2,690
-------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .................................. -- (9) 166
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS ............................................ (2,263) 1,339 (3,531)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR ................. 12,236 10,897 14,428
-------- -------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR ....................... $ 9,973 $ 12,236 $ 10,897
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CONVERTIBLE ADDITIONAL CURRENCY
PREFERRED COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT STOCK
-------- -------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 ....................... $ -- $2,816 $ 167,844 $ (43,000) $ 102 $(329)
Sale of common stock ........................... -- 660 27,431 -- -- --
Exercise of stock options ...................... -- -- 16 -- -- (13)
Exercise of warrants ........................... -- -- 5 -- -- --
Stock issuance costs ........................... -- -- (2,340) -- -- --
Canadian Conquest debt restructuring costs ..... -- -- (410) -- -- --
Reclassification to assets held for sale<F1> ... -- -- -- -- 4,908 --
Translation adjustment ......................... -- -- -- -- (6,731) --
Net loss ....................................... -- -- -- (65,799) -- --
---- ------ --------- --------- ------- -----
BALANCE, DECEMBER 31, 1992 ....................... -- 3,476 192,546 (108,799) (1,721) (342)
Sale of convertible preferred stock ............ 4 -- 19,996 -- -- --
Sale of common stock ........................... -- 55 1,385 -- -- --
Stock issuance costs ........................... -- -- (1,508) -- -- --
Dividends on preferred stock ($18.75 per share) -- -- -- (75) -- --
Unearned compensation on restricted
common stock ................................ -- -- -- -- -- --
Amortization of unearned compensation .......... -- -- -- -- -- --
Issuance of notes receivable to officers ....... -- -- -- -- -- --
Sale of Canadian companies ..................... -- -- -- -- 1,754 --
Translation adjustment ......................... -- -- -- -- (33) --
Net loss ....................................... -- -- -- (19,186) -- --
---- ------ --------- --------- ------- -----
BALANCE, DECEMBER 31, 1993 ....................... 4 3,531 212,419 (128,060) -- (342)
Issuance of shares in APPL Consolidation ....... -- 2,133 54,097 -- -- --
Sale of common stock ........................... -- 75 2,025 -- -- --
Stock issuance costs ........................... -- -- (889) -- -- --
Dividends on preferred stock ($450.00 per share) -- -- -- (1,800) -- --
Amortization of unearned compensation .......... -- -- -- -- -- --
Repayments of notes receivable to officers ..... -- -- -- -- -- --
Net loss ....................................... -- -- -- (54,816) -- --
---- ------ --------- --------- ------- -----
BALANCE, DECEMBER 31, 1994 ....................... $ 4 $5,739 $ 267,652 $(184,676) $ -- $(342)
==== ====== ========= ========= ======= =====
NOTES
RECEIVABLE
UNEARNED FROM
COMPENSATION OFFICERS
------------ --------
<S> <C> <C>
BALANCE, DECEMBER 31, 1991 ....................... $ -- $ --
Sale of common stock ........................... -- --
Exercise of stock options ...................... -- --
Exercise of warrants ........................... -- --
Stock issuance costs ........................... -- --
Canadian Conquest debt restructuring costs ..... -- --
Reclassification to assets held for sale<F1> ... -- --
Translation adjustment ......................... -- --
Net loss ....................................... -- --
------- -----
BALANCE, DECEMBER 31, 1992 ....................... -- --
Sale of convertible preferred stock ............ -- --
Sale of common stock ........................... -- --
Stock issuance costs ........................... -- --
Dividends on preferred stock ($18.75 per share) -- --
Unearned compensation on restricted
common stock ................................ (1,007) --
Amortization of unearned compensation .......... 91 --
Issuance of notes receivable to officers ....... -- (230)
Sale of Canadian companies ..................... -- --
Translation adjustment ......................... -- --
Net loss ....................................... -- --
------- -----
BALANCE, DECEMBER 31, 1993 ....................... (916) (230)
Issuance of shares in APPL Consolidation ....... -- --
Sale of common stock ........................... -- --
Stock issuance costs ........................... -- --
Dividends on preferred stock ($450.00 per share) -- --
Amortization of unearned compensation .......... 391 --
Repayments of notes receivable to officers ..... -- 88
Net loss ....................................... -- --
------- -----
BALANCE, DECEMBER 31, 1994 ....................... $ (525) $(142)
======= =====
<FN>
<F1> Amount represents the reclassification, to assets held for sale, of the
foreign currency translation adjustment related to the Canadian
foothill properties that the Company sold in mid-1993 (see Note 4).
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of American Exploration Company and its majority-owned subsidiaries
(collectively referred to as "American" or the "Company"). The Company's
investments in associated oil and gas programs are accounted for using the
proportionate consolidation method, whereby the Company's proportionate share of
each program's assets, liabilities, revenues and expenses is included in the
appropriate accounts in the consolidated financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with current classifications.
MINORITY INTEREST
Minority interest in subsidiary represents the minority stockholders'
proportionate share of the net loss of Canadian Conquest Exploration, Inc.
("Canadian Conquest"). The Company held slightly more than a 50% interest in
Canadian Conquest until September 1992 when the Company increased its ownership
to 90% as part of a recapitalization of that entity. In June 1993, American sold
its interest in Canadian Conquest (see Note 4).
INVENTORIES
Inventories are recorded at cost and stated at the lower of cost or
market.
PROPERTY, PLANT AND EQUIPMENT
The Company accounts for its oil and gas exploration and production
activities using the successful efforts method of accounting. Under this method,
acquisition costs for proved and unproved properties are capitalized when
incurred. Exploration costs, including geological and geophysical costs and
costs of carrying and retaining unproved properties, are charged to expense as
incurred. The costs of drilling exploratory wells are capitalized pending
determination of whether each well has discovered proved reserves. If proved
reserves are not discovered, such drilling costs are charged to expense. Costs
incurred to drill and equip development wells, including unsuccessful
development wells, are capitalized. Internal costs related to the acquisition,
development and exploration of oil and gas properties are expensed as incurred.
Interest is capitalized on qualifying assets, primarily unproved and unevaluated
properties. Depreciation, depletion and amortization ("DD&A") of the cost of
producing oil and gas properties is computed on the unit-of-production method.
The Company also accrues for platform abandonment costs related to its offshore
platform facilities on the unit-of-production method. The Company anticipates
total abandonment costs to be approximately $7.2 million. As of December 31,
1994, the Company had accrued $5.1 million, which is included in accumulated
DD&A. Unproved properties are assessed periodically, and any impairment in value
is recognized currently as impairment expense.
Property, plant and equipment other than oil and gas properties are
depreciated by the straight-line method at rates based on the estimated useful
lives of the assets. Repairs and maintenance are charged to expense as incurred;
renewals and betterments are capitalized.
F-7
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
INVESTMENT PROGRAMS
The Company manages various investment programs which were formed
during 1983-1992 to acquire interests in producing oil and gas properties. Costs
associated with the organization of future investment programs were deferred as
other current assets until formation, at which time a reimbursement was received
from program investors (see Note 10). The Company charges each investment
program fees for reimbursement of expenses incurred in managing the program's
operations and certain fees for services provided by technical employees of the
Company. Such fees are recorded as reductions to general and administrative
expense (see Note 10).
DERIVATIVES
The Company periodically enters into swap agreements in order to hedge
against volatility in oil and gas prices. Gains or losses on these transactions
are reported as a component of oil and gas sales as the associated production
occurs.
GAS BALANCING
The Company utilizes the sales method of accounting for natural gas
revenues whereby revenues are recognized based on the amount of gas sold to
purchasers. The amount of gas sold may differ from the amount to which the
Company is entitled based on its working interests in the properties. At
December 31, 1994 and 1993, the Company had recorded a liability of $3.7 million
and $2.5 million, respectively, for properties having insufficient reserves to
offset the gas imbalance. The increase from 1993 to 1994 primarily relates to
imbalances acquired through the Company's acquisition of investors' interests in
a series of institutional investment programs (the "APPL Programs") (see
Note 3).
FOREIGN CURRENCY TRANSLATION
The results of operations attributable to the Company's Canadian
operations, which were sold in mid- 1993, were measured using the local currency
as the functional currency. The adjustments resulting from the translation of
the assets and liabilities and income statement accounts of the Canadian
operations were accumulated in the foreign currency translation adjustment
component of stockholders' equity. In conjunction with the sales of the
Company's Canadian operations, the Company wrote off the foreign currency
translation adjustment balance of approximately $1.8 million to loss on sales of
oil and gas properties (see Note 4). The U.S. dollar has been the functional
currency for the Company's other foreign operations. Foreign currency
transaction gains and losses are recognized currently in other income and were
not material for 1993 or 1992. The Company had no foreign operational activity
during 1994.
INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". SFAS No. 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The adoption of SFAS No. 109 did not have a material impact on the Company's
financial position or results of operations (see Note 11).
F-8
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
NET LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss, after
reductions for certain preferred stock dividends, by the weighted average number
of common shares and common share equivalents outstanding during each year.
Common share equivalents include the average shares issuable upon assumed
exercise of stock options and warrants which would have a dilutive effect in the
respective periods. Any assumed conversions of subordinated convertible notes
payable or assumed exercise of stock options or warrants were antidilutive for
1994, 1993 and 1992. In addition, any assumed conversion of convertible
preferred stock was antidilutive for 1994 and 1993. The weighted average shares
used in the primary earnings per share calculations were 80,608,000 in 1994,
69,616,000 in 1993, and 64,195,000 in 1992.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(2) CHANGE IN METHOD OF ACCOUNTING FOR IMPAIRMENTS OF PROVED OIL AND GAS
PROPERTIES
During 1990 and 1991, the Company acquired significant proved reserves
through the acquisitions of Hershey Oil Corporation and Conquest Exploration
Company. These reserves were acquired with an expectation that oil and gas
prices would trend upward over time. Since these acquisitions were made, oil and
gas prices have been subject to considerable volatility, resulting in economic
losses of proved reserves and corresponding increases in the Company's DD&A rate
per barrel of oil equivalent. Currently, the Securities and Exchange Commission
has required, at a minimum, a company using the successful efforts method of
accounting to recognize an impairment of proved oil and gas property costs if,
on a company-wide basis, those costs exceed the undiscounted after-tax future
net cash flows from proved reserves. The Company has been following that
methodology and has been in compliance with it. Effective December 31, 1994, the
Company changed its accounting policy related to recognizing impairment of
proved oil and gas properties to a policy that is consistent with the provisions
of the Financial Accounting Standards Board ("FASB") exposure draft, "Accounting
for the Impairment of Long-Lived Assets".
Under the Company's new policy, if the book value of an individual
proved field is greater than its undiscounted future net cash flow from proved
reserves, then an impairment is recognized for the difference between the net
book value and the fair value. The Company has recorded a noncash impairment
charge of approximately $25.0 million in 1994. The fair value used to calculate
the impairment for an individual field is equal to the present value of its
future net cash flows.
(3) APPL CONSOLIDATION
During the period 1983-1990, American obtained long-term funding for
many of its oil and gas property acquisitions through the APPL Programs. As of
December 31, 1993, institutional investors had committed $507.7 million to these
programs, while the Company had committed $54.7 million. The APPL Programs
consisted primarily of limited partnerships ("APPL Partnerships") in which the
Company acted as general partner and the institutions invested as limited
partners. To meet the needs of tax-exempt investors, the Company also formed
programs structured as secured debt financings ("APPL Debt Programs") and
programs which invested in net profits interests.
F-9
<PAGE>
(3) APPL CONSOLIDATION (CONTINUED)
During 1994 and January 1995, the Company purchased limited partners'
interests in the APPL Partnerships and net profits interests and debt interests
in the APPL Debt Programs (the "APPL Consolidation"). The consideration paid for
the acquisition of the APPL interests in 1994 was a combination of $31.1 million
in cash and 42.7 million shares of the Company's common stock. In connection
with the transaction, $13.6 million in nonrecourse debt was eliminated,
resulting in an extraordinary gain totaling $5.4 million. In January 1995, the
Company repurchased the remaining two investors' interests in the APPL Debt
Programs for a combination of $1.3 million in cash and the issuance of 3.4
million shares of the Company's common stock, thereby eliminating the remaining
$6.6 million of nonrecourse debt outstanding at year-end 1994. The elimination
of the APPL debt in 1995 resulted in an extraordinary gain of $2.5 million. No
income tax expense has been recognized on the extraordinary gains.
In addition to the acquisition of its interests in certain APPL
Programs by American, New York Life Insurance Company ("New York Life") has
agreed to transfer certain of its interests not acquired in the APPL
Consolidation to ANCON Partnership Ltd. ("ANCON"). ANCON was formed at the end
of 1993 by American and a subsidiary of New York Life to consolidate New York
Life's other oil and gas holdings. The Company serves as general partner of
ANCON and is required to purchase a 1% interest in any properties transferred to
the partnership by New York Life. American has the option to acquire up to an
additional 19% interest within six months of the transfer as allowed under the
partnership agreement. The transfer of New York Life's APPL Program interests to
ANCON is expected to occur in early 1995, with the Company acquiring a 1%
interest in such properties at that time.
The Company financed the cash portion of the APPL Consolidation through
a $40.0 million nonrecourse secured credit facility ("bridge facility") extended
by New York Life (see Note 6).
The following pro forma summary of consolidated results of operations
for the years ended December 31, 1994 and 1993 give effect to the APPL
Consolidation as if it had occurred as of the beginning of 1993.
(in thousands except per share amounts) YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
---------- ----------
Pro forma revenues ............................... $ 75,612 $ 94,937
Pro forma loss before extraordinary item ......... (56,034) (16,465)
Pro forma net loss to common stock ............... (57,834) (8,404)
Pro forma net loss per common share:
Primary and fully diluted:
Loss before extraordinary item ............... $ (.51) $ (.15)
Net loss ..................................... (.51) (.08)
Weighted average shares outstanding:
Primary and fully diluted ...................... 113,783 112,286
The pro forma amounts do not purport to be indicative of the results of
operations of American that may be reported in the future or that would have
been reported had this transaction occurred as of January 1, 1993.
F-10
<PAGE>
(4) DIVESTITURES
The Company received cash proceeds of $2.6 million, $35.7 million and
$2.9 million from the sales of oil and gas properties in 1994, 1993 and 1992,
respectively. These sales resulted in a gain of $1.1 million in 1994 and losses
of $6.9 million in 1993 and $1.3 million in 1992. Property sales in 1994 and
1992 related to the divestiture of low-value properties while the 1993 sales
related primarily to the Company's divestiture of its Canadian operations as
well as the sale of a partial interest in a significant domestic property.
In 1992, the Company decided to sell a portion of its interest in the
Henderson Canyon Field and its Canadian foothill properties. As a result, the
Company wrote these assets down to their estimated current market value and
reported a $39.3 million charge against earnings in 1992. In March 1993,
American sold approximately 40% of its interest in the Henderson Canyon Field to
several of the Company's investment programs for proceeds of approximately $8.7
million. In June and July 1993, the Company sold its Canadian foothill
properties (while retaining a 4% overriding royalty interest in these
properties) and also sold its 90% equity interest in Canadian Conquest and its
wholly owned subsidiary, Conquest Ventures Canada, Inc., for aggregate proceeds
of $26.1 million. The Company recognized losses totaling $4.0 million on the
sales of the Canadian assets. In conjunction with the sales of the Canadian
subsidiaries, the Company also recognized a $1.8 million loss related to the
elimination of the foreign currency translation adjustment balance which was
previously recorded as a component of stockholders' equity. Proceeds from these
sales were primarily used to reduce bank debt. The remaining $1.1 million loss
on sales of oil and gas properties for 1993 related to the sale of minor
properties sold at auction in July 1993.
(5) NYLOG PROGRAMS
From 1985 until early 1992, subsidiaries of the Company and New York
Life formed a series of publicly registered limited partnerships, the New York
Life Oil & Gas Producing Properties Programs ("NYLOG Programs"). The NYLOG
Programs invest in the acquisition and further development of producing oil and
gas properties acquired by the Company. A total of $229.1 million has been
invested by the limited partners in these programs since inception.
New York Life and the Company each pay 5% of property acquisition costs
of the NYLOG Programs and each receives 7.5% of net revenues until payout.
Payout occurs when the limited partners receive distributions equal to their
initial investment. After payout, the Company's and New York Life's interests in
capital costs and net revenues each increase to 12.5%. One of the NYLOG Programs
reached payout during 1992. For the other NYLOG Programs, it is difficult to
predict when or if payout will occur due to the uncertainty of future energy
prices, oil and gas production and operating and administrative costs.
(6) DEBT
The following table details the components of the Company's debt (in
thousands):
DECEMBER 31,
--------------------
1994 1993
------- -------
Bank credit agreement ................... $ 28,000 $ 6,500
Note payable to related party ........... 31,128 --
11% senior subordinated notes ........... 35,000 35,000
APPL Debt promissory notes .............. 6,582 21,674
Other debt .............................. 284 420
------- -------
Total ................................ 100,994 63,594
Less: Current maturities ............... 154 746
------- -------
Total long-term debt ................. $100,840 $62,848
======== =======
F-11
<PAGE>
(6) DEBT - (CONTINUED)
BANK DEBT
In December 1994, the Company entered into a new long-term revolving
bank credit agreement which replaced the bank credit agreement previously in
effect. The borrowing base, or amount available, under the new bank credit
facility is currently $65.0 million, up from $30.0 million at year-end 1993. The
amount outstanding under the facility at December 31, 1994 was $28.0 million,
which was classified as long-term debt. The borrowings under this facility
during 1994 were used to fund capital projects and reduce existing liabilities.
In February 1995, the Company used excess borrowing capacity under this facility
to refinance the bridge facility. The Company also had $806,000 in letters of
credit outstanding at December 31, 1994 which are collateralized by the
Company's borrowing base. The borrowing base under this facility is scheduled to
be redetermined semiannually every March and September. In 1994, American paid
fees of $663,000 relating to the activation of its new bank credit facility. The
borrowing base is currently in the process of being redetermined by the banks.
Management expects, based on current discussions with its lenders, that the
borrowing base will be at least $65.0 million.
Borrowings under this facility are secured by substantially all of the
assets of the Company, excluding the assets of the APPL Debt financing
subsidiaries and the assets acquired through bridge financing, as discussed
below. At the option of the Company, borrowings bear interest at (i) LIBOR plus
1.50% or 1.75% or (ii) the higher of (A) the prime rate plus 0.50% or 0.75% or
(B) the federal funds rate plus 1.00% or 1.25%. If the total amounts outstanding
are less than or equal to 70% of the borrowing base, the lower margins are added
to the respective interest rates and vice versa. The weighted average interest
on the Company's bank debt at December 31, 1994 was 9.0%. The Company is
required to pay quarterly a 0.50% annual commitment fee on the difference
between the aggregate commitment of $90.0 million and the daily average amount
outstanding under this facility, including letters of credit. Principal on the
remaining long-term portion is scheduled to be repaid over twelve quarterly
installments commencing March 31, 1997. Interest is payable quarterly or upon
maturity of the borrowing, if shorter, in the case of Eurodollar loans and
monthly in the case of prime rate or federal funds rate loans.
NOTE PAYABLE TO RELATED PARTY
In April 1994, New York Life extended to the Company a $40.0 million
bridge facility to provide bridge financing for the APPL Consolidation and such
other property acquisitions as New York Life shall approve. The Company paid a
0.50% commitment fee for the one-year facility and is required to pay a 1.25%
financing fee on any amounts borrowed. Borrowings bear interest at the 30-day
A1/P1 commercial paper rate plus 3% to 6% depending upon the time elapsed since
the initial funding date. The weighted average interest on the bridge facility
at December 31, 1994 was 10.01%. Borrowings under this facility are secured by
the interests acquired. At December 31, 1994, the amount outstanding under the
bridge facility was $31.1 million and is classified as long-term debt pursuant
to management's refinancing of such amount as long-term debt under the bank
credit facility in February 1995.
11% SENIOR SUBORDINATED NOTES
In December 1991, the Company privately placed $35.0 million in senior
subordinated notes and immediately exercisable detachable warrants with three
institutional investors. The notes bear interest at 11% payable semiannually
every June and December. The Company is required to begin repaying principal
with annual installments of $5.6 million in December 1997. The final principal
payment of $12.6 million is payable in December 2001. The warrants grant the
holders the right to purchase approximately 11.5 million shares, as adjusted for
issuances of stock and warrants subsequent to 1991, of the Company's common
stock at an exercise price of $2.26 per share, subject to adjustment. In
addition, each holder of the warrants has the option to tender the notes in lieu
of cash as consideration for the exercise price.
F-12
<PAGE>
(6) DEBT - (CONTINUED)
APPL DEBT PROMISSORY NOTES
During 1987 and 1988, wholly owned subsidiaries of the Company financed
90% of the cost of certain property acquisitions by selling promissory notes and
production payments to the investors in the APPL Debt Programs. The Company
eliminated $13.4 million of the APPL debt in 1994 through the APPL
Consolidation. As part of the January 1995 APPL Consolidation transaction, the
Company purchased the interests of the remaining investors in the APPL Debt
Programs, thereby eliminating the $6.6 million outstanding balance at December
31, 1994. The elimination of the APPL debt through the APPL Consolidation
resulted in an extraordinary gain on extinguishment of debt of $5.4 million in
1994 and $2.5 million in January 1995. No income tax expense has been recognized
on the extraordinary gains (see Note 3).
In 1992, the Company restructured the nonrecourse debt of one of the
wholly owned subsidiaries associated with the APPL Debt Programs and recognized
an extraordinary gain on extinguishment of debt of $3.1 million, net of
transaction costs. No income taxes were recognized on this extraordinary gain
since the Company incurred a net loss for 1992.
FEES RELATED TO DEBT INSTRUMENTS
The Company incurs fees related to existing and new credit facilities
which are reported as other expense. During 1994, 1993 and 1992, these fees
totaled $2.8 million, $739,000 and $1.3 million, respectively.
DEBT COVENANTS
The bank credit agreement and the 11% senior subordinated notes require
the Company to comply with certain covenants including, but not limited to,
restrictions on indebtedness, investments, payment of dividends and lease
commitments. Cash dividends are prohibited on the Company's common stock and
preferred dividends are limited to the lesser of 10% of the preferred stock
offering proceeds or $7.5 million in any one year. These agreements also include
net worth covenants which were amended effective July 1994 in conjunction with
the issuance of American common stock related to the APPL Consolidation. Net
worth must not be less than $65.0 million less write-downs plus 50% of any
equity issuances. For purposes of this test, write-downs may not exceed $6.8
million through June 30, 1994 plus any noncash charges after June 30, 1994 in
connection with proposed pronouncements on accounting for impairments of
long-lived assets. At December 31, 1994, the Company's calculated net worth
requirement was $62.4 million and the Company's stockholders' equity was $87.7
million. In addition, these agreements contain cross-default provisions.
ANNUAL MATURITIES
Based on the amounts outstanding at December 31, 1994, the aggregate
maturities of debt for the next five years are as follows: 1995 - $154,000; 1996
- $130,000; 1997 - $25.3 million; 1998 - $25.3 million; 1999 - $25.3 million.
The annual maturities do not include any amounts related to the APPL Debt
promissory notes since the promissory notes outstanding at year-end 1994 were
eliminated in January 1995 in conjunction with the APPL Consolidation.
F-13
<PAGE>
(7) PREFERRED STOCK
The Company has authorized 100,000 shares of preferred stock, par value
$1.00 per share. The Board of Directors has authority to divide such preferred
stock into one or more series and has authority to fix and determine the
relative rights and preferences of each such series. At December 31, 1994,
American had 4,000 shares of convertible preferred stock outstanding and an
additional 85,000 shares of preferred stock reserved under the Company's
Stockholder Rights Plan.
CONVERTIBLE PREFERRED STOCK
In December 1993, the Company privately placed 800,000 depositary
shares, each representing a 1/200 interest in a share of $450 Cumulative
Convertible Preferred Stock, Series C (the "Convertible Preferred Stock"). The
Convertible Preferred Stock has a stated value of $5,000 per share, with
dividends payable quarterly at the annual rate of $450 per share. The
Convertible Preferred Stock is convertible at any time at the option of the
holders into shares of the Company's common stock at a conversion price of $1.50
per share, subject to adjustment in certain circumstances. Beginning December
31, 1997, the Convertible Preferred Stock will be redeemable at the option of
the Company, in whole or in part, at any time. The initial redemption price is
$5,270 per share, declining ratably on December 31 of each year to a redemption
price of $5,000 per share on and after December 31, 2003, plus accrued and
unpaid dividends.
The Convertible Preferred Stock has a special conversion right that
becomes effective upon the occurrence of certain types of significant
transactions affecting ownership or control of the Company. If the special
conversion right becomes effective, the then prevailing conversion price would
be reduced to the market value of the common stock, not to be reduced below a
minimum conversion price of $1.125 per share of common stock.
STOCKHOLDER RIGHTS PLAN
In September 1993, the Board of Directors of the Company declared a
distribution of one right ("Right") for each outstanding share of common stock
to stockholders of record at the close of business on October 8, 1993 and for
each share of common stock issued by the Company thereafter and prior to the
"Distribution Date", as defined. Each Right entitles the registered holder to
purchase one ten-thousandth of a share (a "Unit") of Series B Preferred Stock at
a price of $7.50 per Unit, subject to adjustment.
The Rights are exercisable only upon the occurrence of certain
triggering events, including the acquisition by a person or group of 15% or more
of the Company's outstanding common stock, other than those persons that
acquired common stock through the APPL Consolidation. If a triggering event
occurs, holders of each Right would be entitled to receive, upon exercise, the
Units of Series B Preferred Stock (or stock of the acquiring entity, as the case
may be) having a value equal to two times the exercise price of the Right. Such
Rights do not extend to any holder whose action triggered the Right.
The Rights may be redeemed in whole by American at $0.01 per Right any
time until the 10th business day following public announcement that a person or
group, other than those persons that acquired common stock through the APPL
Consolidation, has acquired, obtained the right to acquire or otherwise obtained
beneficial ownership of 15% or more of the Company's outstanding common stock.
F-14
<PAGE>
(8) COMMON STOCK
The Company has authorized 200,000,000 shares of common stock, of which
114,775,000 shares were issued and 114,683,132 shares were outstanding at
December 31, 1994. A schedule of the changes in the Company's common stock is
provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Outstanding shares at beginning of year ................................ 70,513,500 69,417,231 56,243,947
Issuance of shares in APPL Consolidation ............................... 42,669,632 -- --
Issuance of shares in private offering ................................. 1,500,000 -- --
Issuance of shares in public offering .................................. -- -- 11,170,000
Issuance of shares in Canadian Conquest restructuring .................. -- -- 2,000,000
Issuance of shares to key officers ..................................... -- 1,095,875 --
Exercise of stock options .............................................. -- 200 6,250
Exercise of warrants ................................................... -- -- 2,000
Adjustment of shares issued in Conquest acquisition .................... -- 194 --
Treasury stock transactions ............................................ -- -- (4,966)
----------- ---------- -----------
Outstanding shares at end of year ............................. 114,683,132 70,513,500 69,417,231
=========== ========== ===========
</TABLE>
At the Company's annual meeting held in June 1994, American obtained
stockholder approval to increase the number of authorized shares of common stock
from 100,000,000 shares to 200,000,000 shares. Upon obtaining stockholder
approval, the Company reserved 4,444,444 shares for issuance pursuant to the
special conversion rights of the Convertible Preferred Stock. The increase in
the number of authorized shares also allowed American to privately issue 1.5
million shares of common stock in August 1994, resulting in proceeds of $2.1
million. In addition, the Company was able to issue 46.1 million shares of
common stock at fair market value in the APPL Consolidation, including 3.4
million shares of common stock issued in January 1995 (see Note 3).
At December 31, 1994, the Company had outstanding two series of
warrants to purchase common stock. The first series of warrants was issued in
conjunction with the private placement of 11% senior subordinated notes in 1991
and expire in 2001 (the "2001 Warrants"). At year-end 1994, the 2001 Warrants
were priced at $2.26 per share and are callable by the Company beginning in
December 1996, but only in the event that the Company's common stock has traded
at a specified price above the exercise price for a specified period.
The second series of warrants was issued to an institutional investor
in conjunction with the Canadian Conquest restructuring in 1992 and expire in
1999 (the "1999 Warrants"). At year-end 1994, the 1999 Warrants were exercisable
at a price of $2.32 per share and are callable by the Company at the current
exercise price per warrant, but only in the event that the Company's common
stock has traded at a specified price above the current exercise price for a
specified period.
Both the 2001 Warrants and the 1999 Warrants contain provisions which
would adjust the exercise price and number of warrants under certain
circumstances, most of which have a dilutive effect on equity.
Shares of common stock reserved for future issuance as of December 31,
1994 were as follows:
Exercise of stock options ....................................... 2,896,531
Exercise of 2001 Warrants ....................................... 11,528,254
Exercise of 1999 Warrants ....................................... 3,099,440
Conversion of Convertible Preferred Stock ....................... 13,333,333
Special conversion rights of Convertible Preferred Stock ........ 4,444,444
----------
Total shares reserved ........................................... 35,302,002
==========
F-15
<PAGE>
(9) EMPLOYEE BENEFIT PLANS
STOCK COMPENSATION PLANS
The American Exploration Company Stock Compensation Plan established
in 1983 (the "1983 Plan") provides for the issuance of up to 5,000,000 shares of
the Company's common stock. The 1983 Plan also authorizes the issuance of stock
appreciation rights in conjunction with stock options and the granting of
restricted common stock and performance shares. No restricted common stock was
issued in 1994 or 1992. In 1993, the executive officers of the Company purchased
797,250 shares of restricted common stock for $.05 per share. The difference
between the aggregate fair market value of the restricted shares purchased and
the purchase price is considered unearned compensation at the time of grant and
compensation is earned ratably over the vesting period of 33 1/3% per year
commencing with the first anniversary of grant. No stock appreciation rights or
performance shares were granted under the 1983 Plan during the three-year
reporting period.
The exercise price, term and other conditions applicable to each
option granted under the 1983 Plan are determined at the time of the grant of
each option and may vary with each option granted. No option may be granted at a
price less than the stock's fair market value on the date of grant. The purchase
price of the shares as to which an option is exercised is payable in cash, the
Company's common stock or a combination of cash and stock.
In conjunction with the Hershey acquisition in 1990, the Hershey stock
option plans were amended and restated such that the Company assumed the
obligation for the stock options outstanding under the Hershey plans at the
acquisition date. At December 31, 1994, there were 622,655 options outstanding
under the amended and restated Hershey plans.
Detailed information on stock option transactions is provided below:
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ---------- ----------
Options outstanding at beginning of year 3,742,582 5,624,576 4,756,268
Options granted ........................ -- 10,200 1,275,750
Options terminated ..................... (846,051) (1,891,994) (401,192)
Options exercised ...................... -- (200) (6,250)
----------- ---------- ----------
Options outstanding at end of year ..... 2,896,531 3,742,582 5,624,576
=========== ========== ==========
Options exercisable at end of year ..... 2,424,656 2,711,904 3,447,469
=========== ========== ==========
Option price range:
Options granted ........................ $ -- $1.25-1.44 $1.81-2.88
Options terminated ..................... 1.81-5.00 1.81-5.00 2.50-5.00
Options exercised ...................... -- 1.25-1.44 2.00-2.50
Options outstanding at end of year ..... 1.31-4.75 1.31-5.00 1.81-5.00
In November 1994, the Board of Directors adopted the 1994 American
Exploration Company Stock Compensation Plan (the "1994 Plan"), subject to
approval by stockholders at the 1995 Annual Meeting of Stockholders. The purpose
of the 1994 Plan is to attract and retain key employees of the Company by
providing rewards for past performance and incentives for future service. Under
the 1994 Plan, 9,000,000 shares of the Company's common stock are available for
the granting of stock options, restricted common stock and performance shares.
In addition, performance units may be awarded and stock appreciation rights may
be issued in conjunction with the stock options. All terms and conditions of the
various awards are determined at the time of grant. In November 1994, the
Compensation Committee of the Board of Directors, which administers this plan,
granted 2,968,000 stock options, subject to stockholder approval as discussed
above, at an exercise price equal to the fair market value of the Company's
common stock on the date of
F-16
<PAGE>
(9) EMPLOYEE BENEFIT PLANS - (CONTINUED)
grant. In addition, several executive officers have the right to receive stock
options covering eight shares for each share of common stock they purchase
between November 1994 and two months after the 1994 Plan is approved up to a
total of 1,600,000 stock options.
PHANTOM STOCK PLAN
In September 1993, the Board of Directors of the Company adopted a
Phantom Stock Plan (the "Phantom Stock Plan"). The purpose of the Phantom Stock
Plan is to provide a further means of motivating and retaining key employees of
the Company by providing rewards for past performance and incentives for future
service. These rewards currently include restricted units and option units;
however, if the 1994 Plan is approved by stockholders, participants in the
Phantom Stock Plan have the right to convert their option units to stock
options.
The executive officers of the Company purchased 298,625 shares of
common stock, purchased 797,250 shares of restricted common stock under the 1983
Plan and were awarded 1,594,500 option units under the Phantom Stock Plan. The
remaining key employees were granted 56,500 restricted units and 113,000 option
units in 1994 and 337,906 restricted units and 675,812 option units in 1993. In
each case, the price for the option units equaled the fair market value of the
Company's common stock on the date of the awards. The grant price for the
restricted units to the remaining key employees was below market value.
Consequently, the Company records a noncash charge to operations over the
vesting period of the restricted units and option units for the difference
between the grant price and the then market value of the common stock. These
noncash charges totaled $22,000 and $25,000 in 1994 and 1993, respectively.
The restricted units awarded vest at 33 1/3% per year commencing with
the first anniversary of grant, and option units vest at 25% per year from date
of grant. Upon vesting, a participant receives a cash payment for the difference
between the grant price and the then market value of the common stock for the
restricted units and option units. Such cash payments totaled $24,000 for 1994.
Under the Phantom Stock Plan, participants do not receive shares of the
Company's common stock.
EMPLOYEE STOCK OWNERSHIP PLAN
The employee stock ownership plan is a noncontributory plan to acquire
shares of the Company's common stock for the benefit of all employees. The
amount of Company contributions to the plan is determined at the discretion of
the Compensation Committee of the Board of Directors. There were no Company
contributions in 1994 or 1993. The Company contributed $920,000 to the plan
during 1992 to acquire 392,420 shares. Company contributions are expensed as
incurred.
In September 1994, the Board of Directors voted to terminate the plan.
Upon obtaining a favorable ruling from the Internal Revenue Service on the
plan's termination, distributions to the plan's participants will commence and
are expected to be concluded in 1995.
EXPLORATION GROUP INVESTMENT PLAN
The Exploration Group Investment Plan, established in 1991, enables the
Company to make available up to 10% of the Company's net revenue interest in
certain domestic exploration prospects to certain employees of the Company
involved in its exploratory activities. Electing participants pay their
designated share of the costs associated with such exploratory prospects and
their interests convert into overriding royalties in the successful prospects.
During 1994, there was no activity in this plan.
F-17
<PAGE>
(10) RELATED-PARTY TRANSACTIONS
NOTES RECEIVABLE FROM OFFICERS
At December 31, 1994, the Company held $142,000 of notes receivable
from executive officers of the Company. The Company provided loans to the
executive officers to purchase a portion of the common stock issued in September
1993 in conjunction with the Phantom Stock Plan. The notes bear interest at 3.9%
and are payable in equal installments through October 1996.
NEW YORK LIFE
New York Life is the second largest stockholder of the Company, owning
approximately 9.0% of its voting stock as of December 31, 1994. Since 1983, New
York Life had been a substantial investor in each of the Company's APPL
Programs, providing 35% of the amount committed by co-investors. New York Life
made no investments in the APPL Programs during the past three years. In
conjunction with the APPL Consolidation, New York Life sold certain of its APPL
Program interests to the Company and agreed to transfer its remaining interests
to ANCON (see Note 3). During the period 1985-1992, the Company and a subsidiary
of New York Life, as co-general partners, formed the NYLOG Programs which were
sold to the public by New York Life agents and independent broker-dealers. New
York Life invested $74,000, $1.3 million and $147,000 in the NYLOG Programs for
the years ended December 31, 1994, 1993 and 1992, respectively.
In December 1993, American and a subsidiary of New York Life formed a
new partnership, ANCON (see Note 3). New York Life transferred $9.6 million of
oil and gas properties to the partnership in 1993. American acquired a 20%
interest in these properties for $1.5 million. No properties were contributed to
the partnership in 1994. Capital contributions by New York Life to ANCON for
development activity totaled $813,000 in 1994.
In April 1994, New York Life extended to the Company a $40.0 million
bridge facility (see Note 6). American paid interest, commitment and financing
fees on this facility totaling $1.6 million in 1994. At December 31, 1994, the
Company had outstanding under this facility $31.1 million. In February 1995, the
Company refinanced this amount using excess borrowing capacity under its bank
credit facility.
INVESTMENT PROGRAMS
The Company is the operator on certain properties owned by the NYLOG
Programs, ANCON and joint ventures and accordingly charges these entities and
third party joint interest owners operating fees. The Company is also reimbursed
for costs incurred in managing the operations of the NYLOG Programs and ANCON.
The administrative and technical fees shown below also include amounts related
to the APPL Programs, which were consolidated into American's operations during
1994 and early 1995. The following table summarizes certain fees charged by the
Company to the investment programs and ANCON (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
------ ------ ------
Administrative and technical fees ..... $8,121 $8,190 $8,794
Program formation fees................. -- -- 547
OTHER TRANSACTIONS
Legal fees incurred for services by a law firm in which a partner is a
director of the Company totaled $377,000 in 1994 and $243,000 in 1993. Legal
fees paid to this law firm in 1992 were not material.
F-18
<PAGE>
(11) INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109. The prior
year's financial statements were not adjusted to reflect the new accounting
method, and the cumulative effect related to the adoption of SFAS No. 109 had no
material effect on the Company's financial position or results of operations.
SFAS No. 109 requires the use of an asset and liability approach under which
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
The Company reported a 1994 loss before income taxes and extraordinary
item totaling $60.7 million, of which $54.0 million related to domestic
operations and $6.7 million related to foreign operations. The Company's income
tax provision (benefit) for the years ended December 31, 1994, 1993 and 1992 is
detailed below (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
Current:
Federal ............................... $ -- $ 150 $ --
State ................................. 39 476 118
-------- -------- --------
39 626 118
-------- -------- --------
Deferred:
Federal ............................... -- -- --
State ................................. (494) (121) (10)
-------- -------- --------
(494) (121) (10)
-------- -------- --------
Total ............................... $ (455) $ 505 $ 108
======== ======== ========
The difference between the provision (benefit) for income taxes and the
amount which would be determined by applying the statutory federal income tax
rate to loss before income taxes and extraordinary items for the years ended
December 31, 1994, 1993 and 1992 is analyzed below (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
Loss before income taxes
and extraordinary item ................ $(60,690) $(18,674) $(69,740)
Income tax provision (benefit)
at the statutory rate ................. $(21,242) $ (6,536) $(23,712)
Change in valuation allowance ......... 22,203 (1,133) 18,732
Federal alternative minimum tax ....... -- 150 --
State income tax ...................... 39 476 118
Other ................................. (1,455) 7,548 4,970
-------- -------- --------
Income tax provision (benefit) ..... $ (455) $ 505 $ 108
======== ======== ========
F-19
<PAGE>
(11) INCOME TAXES - (CONTINUED)
The Company's deferred income tax liability at December 31, 1994 and
1993 is comprised of the tax benefit (cost) associated with the following items
(in thousands):
DECEMBER 31,
---------------------------
1994 1993
--------- --------
Deferred tax asset:
Minimum tax carryforwards ............... $ 479 $ 556
Investment tax credit carryforwards ..... 1,873 1,759
State income tax ........................ 3,203 3,238
Net operating loss carryforwards ........ 95,732 90,092
--------- --------
Gross deferred tax asset .............. 101,287 95,645
Valuation allowance ....................... (93,221) (71,018)
--------- --------
8,066 24,627
--------- --------
Deferred tax liability:
State income tax ........................ (336) (831)
Acquisition, exploration and
development costs ...................... (8,066) (24,627)
--------- --------
Gross deferred tax liability .......... (8,402) (25,458)
--------- --------
Net deferred tax liability ................ $ (336) $ (831)
========= ========
The net deferred tax asset valuation allowance of $93.2 million reflects
the amounts for which utilization is not assured due to the expiration of net
operating loss carryforwards and the effects of future drilling costs.
As of December 31, 1994, the Company had cumulative net operating loss
carryforwards ("NOL's") for federal income tax purposes of approximately $274.0
million, of which approximately 20% will expire in the next five years. Included
in the total NOL's are approximately $71.5 million which arose through an
acquisition completed in 1987, and $143.7 million which arose through the
acquisition of Conquest in 1991. These acquired NOL's may be used to offset the
respective subsidiaries' taxable income subject to individual annual and
cumulative limits. In addition to the individual limitations, changes in the
Company's ownership have resulted in an overall limitation on the amount of
benefit to be realized from the NOL carryforwards in the amount of approximately
$13.7 million annually. Any unused portion of the benefit is carried forward.
For 1995, the cumulative limit for utilization of available NOL's is $67.0
million. Unless utilized, the Company's NOL's will begin expiring in 1995. The
Company also has investment tax credit carryforwards of approximately $1.9
million, which begin expiring in 1995. The Company has an alternative minimum
tax credit carryforward of approximately $479,000 which does not expire and is
available to offset regular income taxes in future years, but only to the extent
that regular income taxes exceed the alternative minimum tax in such years.
(12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
DERIVATIVES
The Company has only limited involvement with derivative financial
instruments and does not use or issue them for trading purposes. They are used
to manage the risk associated with oil and gas prices.
At December 31, 1994, the Company had several swap agreements in place
to hedge against a downturn in oil and gas prices over the next six months. For
the period January 1995 through March 1995, American has two swap transactions
covering 15,000 MMBtu of gas per day hedged at a weighted average fixed price of
$2.15 per MMBtu. If the market price is above $2.15, the Company will pay 50% of
the difference between
F-20
<PAGE>
(12) DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
$2.15 and the market price; and if the market price is below $2.15, the Company
will receive 100% of the difference. The market price is defined as the price
quoted in the first publication of INSIDE F.E.R.C.'S GAS MARKET REPORT for the
month of production for Henry Hub or Houston Ship Channel deliveries. For the
period January 1995 through June 1995, the Company has 362,000 barrels of oil
hedged at a floor of $17.96 per Bbl NYMEX WTI Light Crude Oil. There were no
swap agreements in effect at December 31, 1993.
The Company is exposed to credit loss in the event of nonperformance by
the other party to the swap agreements. However, the Company anticipates that
the counterparty will be able to fully satisfy its obligation under the
agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying values and estimated fair
values of the Company's financial instruments at December 31, 1994 (in
thousands):
CARRYING FAIR
VALUE VALUE
-------- -------
Long-term debt (1)................................ $100,994 $98,538
Price swap agreements (2)......................... 57 806
(1) Fair value is carrying value for the Company's long-term debt, other
than the APPL debt promissory notes, based on the fact these financial
instruments are at the current interest rates available for debt with
similar terms and maturities. Fair value for the APPL debt is the
carrying value less the extraordinary gain recognized subsequent to
year-end 1994 for the elimination of this debt through the APPL
Consolidation.
(2) The carrying value represents the unamortized premium paid by the
Company to enter into the swap agreements. The fair value of the swap
agreements is the estimated amount the Company would receive to
terminate the agreements at December 31, 1994, based on the closing
prices for NYMEX futures contracts on the last available trading date
in December.
The carrying amounts of cash and cash equivalents, trade receivables and
trade payables approximate fair value because of the short maturity of these
instruments.
(13) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has operating leases, primarily for office space, which
expire over the next seven years. These operating leases frequently include
renewal options at the then fair rental value and require that the Company pay a
pro rata share of executory costs, including taxes, maintenance and utility
expenses, incurred by the landlord. Future minimum payments under all
noncancelable operating lease obligations, including an estimated pro rata share
of operating expenses, as of December 31, 1994 are as follows (in thousands):
1995......................................................... $ 2,392
1996......................................................... 2,141
1997......................................................... 2,365
1998......................................................... 2,737
1999......................................................... 2,737
Thereafter................................................... 4,334
-----
Total minimum lease payments............................... $ 16,706
==========
F-21
<PAGE>
(13) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
The Company had no minimum rentals under noncancelable subleases as of
December 31, 1994. Rent expense totaled $3.9 million, $4.6 million and $5.2
million in 1994, 1993 and 1992, respectively, which includes the Company's share
of executory costs associated with its office leases. Sublease rentals received
during the past three years were not material.
PARTNERSHIP COMMITMENTS
The Company and certain of its subsidiaries act as general partner of a
number of limited partnerships. In such capacity, the Company and such
subsidiaries are generally liable for the obligations of the partnerships to the
extent that partnership assets are insufficient to discharge liabilities.
Several of the investment programs formed by the Company or its subsidiaries
require certain levels of insurance to cover operating and other risks inherent
in the production of oil and gas. Under the terms of these programs, the Company
would be liable for any costs or damages incurred by a program resulting from
the Company's failure to carry the required insurance. The Company believes its
insurance coverage is sufficient as required by the program agreements.
At December 31, 1994, the Company had remaining capital commitments to
the NYLOG Programs of $87,000. The Company also has commitments to buy back
certain NYLOG partnership units. These annual repurchase commitments are based
on formulas contained in the underlying partnership agreements and totaled
approximately $241,000 as of December 31, 1994. In addition, the Company has a
commitment to purchase a 1% interest in any properties transferred to ANCON by
New York Life.
INTERNATIONAL COMMITMENTS
During 1994, the Company sold its remaining interests in Tunisia and
Oman and its permit in offshore Australia. Consequently, the Company has no
international commitments for 1995 or future years.
CONCENTRATION OF CREDIT RISK
The Company's revenues are derived principally from uncollateralized
sales to customers in the oil and gas industry. The concentration of credit risk
in a single industry affects the Company's overall exposure to credit risk
because customers may be similarly affected by changes in economic and other
conditions. The Company has not experienced significant credit losses on such
receivables.
LEGAL PROCEEDINGS
In addition to certain other legal proceedings arising in the ordinary
course of its oil and gas business, the Company is involved in the following
matters.
LOUISIANA STATEWIDE CONTRACT. In December 1992, a U.S. District Court
ruled that Louisiana Intrastate Gas Corporation ("LIG") had underpaid a
subsidiary of the Company under a statewide gas purchase contract ("Statewide
Contract") for the 1989 contract year. Pursuant to the ruling by the U.S.
District Court, it was also determined through arbitration that the Company's
subsidiary was underpaid for the period January 1990 to October 1992. The
Statewide Contract covered certain properties acquired by the Company's
subsidiary in 1988 with ownership in these properties assigned to several of the
Company's investment programs. In December 1992, the Company's subsidiary agreed
to terminate the Statewide Contract effective October 1, 1992 in exchange for a
cash payment from LIG and a three-year replacement contract providing for
market-based pricing. Upon appeal to the Fifth Circuit Court of Appeals, the
Court of Appeals held in December 1994, in a per curiam opinion, that there was
no reversible error and affirmed the trial court's ruling. Neither party
appealed this ruling and in January 1995, the Company received approximately
$1.0 million, net to its interest, after payment of applicable royalties.
F-22
<PAGE>
(13) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
CEMENT I UNIT - CADDO COUNTY, OKLAHOMA. In 1991, an administrative
hearing was held by the Oklahoma Corporation Commission ("OCC") to establish the
cause of the saltwater contamination of the municipal water supply of the city
of Cyril, Oklahoma and to formulate a plan of abatement of the pollution.
Parties to the hearing included the current and former operators of the Cement,
Cement I and West Cement units. The Company owns a 18.56% interest and controls
an additional 6.42% interest through investment programs in the Cement I Unit.
In August 1992, the administrative law judge granted the Company's motion to
dismiss on the grounds that the Company had not violated any statute, rule or
regulation of the OCC and that the evidence did not establish that the Company
caused any contamination of the aquifer. The ruling was subsequently affirmed by
the OCC in December 1992. In January 1993, the current and former operators
filed Petitions in Error in the Supreme Court of Oklahoma to appeal the OCC's
decision. Matters raised on appeal include the dismissal of the Company. The OCC
is requiring the responsible parties to conduct an investigation and formulate a
plan of remediation during the pendency of the appeal.
It is not presently possible for the Company to determine the extent,
if any, to which it may incur liability for alleged saltwater contamination.
Under the terms of the Company's Purchase and Sale Agreement covering the Cement
I Unit, the predecessor in interest indemnified the Company from and against all
loss, damage, cost and expense relating to ownership for operations of the
purchased properties prior to October 1986.
MIDWAY FIELD - LAFAYETTE COUNTY, ARKANSAS. In 1992, the Company and
certain subsidiaries and affiliates became defendants in a personal injury
lawsuit in the 189th Judicial District court in Harris County, Texas as a result
of a rear-end collision on a county road near the Midway Field between vehicles
operated by a well-service company traveling to perform work for the Company at
the field. The plaintiff is severely injured and alleged that the accident was
the result of directions given by the Company. The plaintiff and his family
sought actual damages of $48 million and four times that amount in punitive
damages, which is in excess of the Company's insurance coverage. In December
1994, this lawsuit was settled within insurance limits.
BOWDOIN FIELD, PHILLIPS AND VALLEY COUNTIES, MONTANA. In February 1995,
two Company affiliates were served with a lawsuit filed by KN Gas Supply
Services, Inc. ("KNGSS") in Federal District Court in Denver, Colorado,
requesting declaratory judgement that KNGSS had the right to reduce the contract
price for gas produced from the Bowdoin Field to market levels from October 1,
1993 forward pursuant to certain pricing provisions in the contract. KNGSS also
requested declaratory judgement that it has a right to relief from the contract
price due to regulatory changes, which it alleges renders the contract
commercially impracticable, and that Federal Energy Regulatory Commission Order
No. 636 is a condition subsequent which excuses performance under the contract.
The Company will vigorously defend its interests in this case and firmly
believes that the Bowdoin Field contract price will be upheld by the Court.
LIMITED PARTNERSHIP LITIGATION. In February 1995, the Company and
American Exploration Production Company, a subsidiary of the Company, were
served with a lawsuit instituted on October 14, 1994 styled RICHARD RILEY AND
FRANCES RILEY V. LEROY WOLF, NEW YORK LIFE INSURANCE COMPANY, NYLIFE EQUITY,
INC., NYLIFE REALTY INCOME PARTNERS I, L.P., NEW YORK LIFE OIL AND GAS PRODUCING
PROPERTIES II-E, L.P., LINCLAY INVESTMENT PROPERTIES, INC., AMERICAN EXPLORATION
PRODUCTION COMPANY, JOHN DOES (1-10) AND A.B.C. CORP. (1-10) Civil Action No.
94.5827 (HAA) presently pending in the United States District Court, District of
New Jersey. The plaintiffs allege various causes of action, including
inefficient and wasteful management of partnership assets, relating to their
investment in real estate and oil and gas limited partnerships. American
Exploration Production Company acts as a co-general partner in the oil and gas
limited partnership. The plaintiffs seek a recision of their investments,
compensatory and punitive damages, and other relief. The Company believes it and
its affiliate have conducted themselves properly with respect to such limited
partnership and will vigorously defend this lawsuit.
F-23
<PAGE>
(13) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
NORM RELATED PROCEEDINGS
The Company and certain subsidiaries, among other operators, have been
named as defendants in three lawsuits in Mississippi and three lawsuits in
Louisiana alleging various causes of action due to the alleged presence of
naturally occurring radioactive materials ("NORM") and other hazardous
substances. The plaintiffs allege that the NORM contamination is a result of oil
and gas operations conducted on properties operated or owned by the Company, its
subsidiaries and their predecessors in title, or NORM contaminated pipe
delivered to a pipe cleaning facility by the Company and subsidiaries.
The Company has conducted a review of its operations with particular
attention to environmental compliance. The Company believes it has acted as a
prudent operator and is in compliance in all material respects with
environmental regulations. As part of the Company's continuing operations, the
Company has recorded site remediation costs of $2.4 million in 1994 and
anticipates it will incur additional costs from time to time related to the
continued assessment, testing, disposal, site restoration and other activities
in connection with the Company's environmental proceedings. The Company will
continue to vigorously contest liability under the pending proceedings and seek
to apportion any resulting liability under such proceedings among the Company,
its predecessor operators and other working interest owners. Because of the
early stages of these proceedings, it is not possible to quantify what
liabilities, if any, the Company might incur.
A brief summary of each of the lawsuits is listed below.
BAY SPRINGS FIELD - JASPER COUNTY, MISSISSIPPI. In May 1994, the
Company was served with a lawsuit (the "Complaint") filed by private landowners
against the Company, and other defendants in the Circuit Court of Jasper County,
Mississippi, First Judicial District based on the presence of NORM on the
plaintiffs' property. The plaintiffs allege that the NORM contamination is a
result of oil and gas operations conducted on properties operated by the Company
and its predecessors in title and on properties in which the Company does not
own an interest. The Complaint seeks compensatory damages of $50 million and
punitive damages of $75 million. It is not known at this time the amount of
damages sought against the Company since the plaintiffs do not specify damages
by individual property.
The Company removed the lawsuit to federal court and obtained a ruling
from the Court that allowed remediation of the property operated by the Company.
The lawsuit has been remanded back to the Circuit Court of Jasper County. The
Company has completed a NORM remediation program on the property and the site
has been restored. It is the Company's belief that the completion of the
remediation effort has significantly reduced the basis for the plaintiffs'
damage claims.
DIAMOND FIELD - WAYNE COUNTY, MISSISSIPPI. The Company and a subsidiary
were served in May 1994 with a lawsuit in the Circuit Court of Wayne County,
Mississippi based on the presence of NORM and other hazardous materials arising
from oil and gas activities on certain tracts in the Diamond Field. Injunctive
relief and monetary and punitive damages are sought; however, the plaintiffs do
not specify the amount of damages being sought. In November 1994, the Court
denied a motion by the plaintiffs to enjoin the Company from remediating the
property without approval by the plaintiffs and issued a ruling that allowed the
Company to remediate the property without interference. The Company completed
remediation in February 1995. It is the Company's belief that the completion of
the remediation effort has significantly reduced the basis for the plaintiffs'
damage claims.
BOYCE FIELD - WAYNE COUNTY, MISSISSIPPI. A Company subsidiary, among
other defendants, was sued in March 1994 by a landowner in the Boyce Field,
Wayne County, Mississippi, in the Circuit Court of Jasper County, Mississippi,
First Judicial District, alleging substantially similar causes of action as in
the Bay Springs Complaint for $3 million in compensatory damages and $6 million
in punitive damages. A NORM remediation program was also undertaken at this
property and the site has been completely restored. On October 5, 1994 the
lawsuit was dismissed upon motion by the plaintiff. No new complaint has been
filed.
F-24
<PAGE>
(13) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
FORDOCHE FIELD, POINT COUPEE PARISH, LOUISIANA. In August 1994, a
Company subsidiary and affiliate were served with a lawsuit in the 18th Judicial
District Court, Point Coupee Parish, Louisiana. The plaintiffs allege they
represent a class of plaintiffs damaged by oil and gas activities, including
damages caused by NORM, elevated levels of chlorides and other hazardous oil
field wastes and substances, in the Fordoche Field and other fields operated by
a third party near Lottie, Louisiana. The class certification has not been
approved by the Court. The plaintiffs seek unspecified compensation for actual
and exemplary damages. The Company owns a minority interest and does not operate
this property. The plaintiffs have granted the Company an indefinite extension
of time to answer the lawsuit. The Company intends to vigorously defend itself
in this matter.
51 OIL CORP. FACILITY. A Company subsidiary has been served with two
lawsuits relating to the 51 Oil Corp. Facility near Lafayette, Louisiana. In 51
OIL CORP. V. ADOBE RESOURCES CORP. ET AL., Civil Action No. 93-08548, filed in
Civil District Court in Orleans Parish, Louisiana, the plaintiff alleges that
the Company's subsidiary, among 65 other defendants, supplied pipe contaminated
with NORM to the plaintiff. The plaintiff alleges that the defendants failed to
warn plaintiff of this condition, among other allegations, and seeks
contribution by the defendants for the cost of remediation of its property as
well as other damages. The plaintiff's records indicate that the Company
subsidiary supplied about one-half of one percent of the pipe to the facility.
An agreement to settle the lawsuit for $25,000 has been executed and the lawsuit
will be dismissed with prejudice as to the Company's subsidiary.
In DANNY BROUSSARD ET AL. V. ADOBE RESOURCES CORP. ET AL., Civil Action
No. 94-8019, filed in July 1994 in Civil District Court in Orleans Parish,
Louisiana, the plaintiffs, an employee of 51 Oil Corp. and his family, allege
that a Company subsidiary delivered pipe contaminated with NORM to 51 Oil Corp.,
as stated in the preceding case, and such actions caused plaintiff to suffer
various personal injuries. The plaintiffs seek compensatory and punitive damages
for both medical expenses and other damages; however, the plaintiffs do not
specify the amount of damages being sought.
The Company does not expect the resolution of the matters discussed
above to have a material adverse effect on its financial position or results of
operations.
F-25
<PAGE>
(14) CASH FLOW INFORMATION
Supplemental cash flow information is presented below (in thousands):
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
------- ------ ------
CASH PAYMENTS:
Interest, net of amounts capitalized (a) ....... $ 6,528 $6,931 $10,470
Income taxes ................................... 39 567 715
NONCASH INVESTING AND FINANCING ACTIVITIES:
APPL Consolidation:
Acquisition of oil and gas properties .......... $ 52,222 $ -- $ --
Other assets acquired .......................... 2,287 -- --
Liabilities assumed ............................ 535 -- --
Debt retired ................................... 1,612 -- --
American common stock issued ................... (56,230) -- --
Gain on extinguishment of debt ................. (426) -- --
Issuance of common stock to officers ........... $ -- $1,237(b) $ --
Restructuring of APPL Debt promissory note:
Net profits interest conveyed .................. $ -- $ -- $ 2,278
Reduction in loan balance ...................... -- -- 5,657
(a) The Company capitalized approximately $1.5 million, $2.3 million and
$3.3 million of interest in 1994, 1993 and 1992, respectively, based on
the Company's weighted average bank borrowing rate for the period.
(b) Amount consists of notes receivable from officers totaling
approximately $230,000 and unearned compensation of approximately $1.0
million, which are both included as reductions in stockholders' equity.
F-26
<PAGE>
(15) INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
The Company's only industry segment is oil and gas exploration and
production. Information regarding the Company's operations by geographic area
for the last three years is presented below (in thousands):
UNITED OTHER
STATES(a) CANADA(b) FOREIGN CONSOLIDATED
--------- --------- -------- ------------
YEAR ENDED DECEMBER 31, 1994
Sales to unaffiliated customers ... $ 50,033 $ -- $ -- $ 50,033
Loss from operations .............. (44,727) -- (6,706) (51,433)
Identifiable assets ............... 223,894 -- -- 223,894
YEAR ENDED DECEMBER 31, 1993
Sales to unaffiliated customers ... $ 44,334 $ 5,255 $ -- $ 49,589
Income (loss) from operations ..... 844 822 (13,684) (12,018)
Identifiable assets ............... 178,642 -- 6,956 185,598
YEAR ENDED DECEMBER 31, 1992
Sales to unaffiliated customers ... $ 49,505 $ 9,055 $ -- $ 58,560
Loss from operations .............. (21,812) (36,558) (1,309) (59,679)
Identifiable assets ............... 195,180 47,015 14,625 256,820
(a) In 1994, the Company reported an impairment charge of approximately
$25.0 million related to the change in accounting policy for impairment
of proved oil and gas properties.
(b) In 1992, the Company reported an impairment charge of $35.1 million
related to the proposed sale of its Canadian foothill properties. In
mid-1993, the Company sold all of its Canadian assets.
In the year ended December 31, 1994, sales to Enron Corp. accounted for
approximately 20% of the Company's oil and gas revenues. Management does not
believe that the loss of any single customer would adversely affect the
Company's operations.
F-27
<PAGE>
(16) QUARTERLY RESULTS - (UNAUDITED)
(In thousands, except for per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
YEAR ENDED DECEMBER 31, 1994 (a)
Oil and gas sales .................. $ 9,366 $ 11,145 $ 13,355 $ 16,167
Total revenues ..................... 9,433 11,442 13,831 16,653
Loss from operations ............... (11,329) (2,413) (4,035) (33,656)
Loss before extraordinary item ..... (12,809) (4,273) (5,608) (37,545)
Net loss ........................... (12,809) (2,231) (2,657) (37,119)
Net loss per common share:
Loss before extraordinary item... $ (.19) $ (.07) $ (.08) $ (.37)
Extraordinary gain on
extinguishment of debt........... -- .03 .04 .01
-------- --------- --------- --------
Net loss per common share....... $ (.19) $ (.04) $ (.04) $ (.36)
======== ========= ========= ========
YEAR ENDED DECEMBER 31, 1993 (b)
Oil and gas sales.................. $14,025 $ 14,096 $ 11,352 $ 10,116
Total revenues..................... 14,014 17,113 17,416 9,615
Income (loss) from operations...... (1,217) 3,138 (1,448) (12,491)
Net income (loss).................. (3,120) 933 (3,183) (13,816)
Net income (loss) per common share $ (.04) $ .01 $ (.05) $ (.20)
(a) In the first quarter of 1994, the Company recorded impairment expense
of $6.4 million for the write-off of American's remaining leasehold
interest in Tunisia. During the fourth quarter, the Company reported an
impairment charge of approximately $25.0 million related to the change
in accounting policy for impairment of proved oil and gas properties.
Also in the fourth quarter, the Company recorded additional impairment
expense of $1.4 million associated with several properties on which no
further exploratory work is planned and a $2.0 million severance charge
as a result of the APPL Consolidation. In the second, third and fourth
quarters of 1994, the Company recorded extraordinary gains of $2.0
million, $3.0 million and $426,000, respectively, which resulted from
the elimination of nonrecourse debt through the APPL consolidation.
(b) In the second quarter of 1993, the Company recorded $9.7 million of gas
settlement income resulting from the litigation settlement with LIG and
recognized a loss of $5.8 million related to the sales of the Company's
Canadian assets. The Company recognized $6.2 million of gas settlement
income in the third quarter related to the Thomasville settlement. In
the third quarter and fourth quarter, American recorded impairment
expense of $4.0 million and $6.2 million, respectively, for the
write-off of leasehold interests associated with the Company's
international properties.
Quarterly earnings per common share are based on the weighted average
number of shares outstanding during the quarter, and the sum of the quarters may
not equal annual earnings per common share.
F-28
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
AMERICAN EXPLORATION COMPANY AND SUBSIDIARIES
CAPITALIZED COSTS
(In thousands)
UNITED OTHER
STATES FOREIGN TOTAL
-------- ------- --------
AS OF DECEMBER 31, 1994
Proved properties ......................... $294,048 $ -- $294,048
Unproved oil and gas interests ............ 24,405 -- 24,405
-------- ------ --------
Total capitalized costs ................... 318,453 -- 318,453
Less: Accumulated depreciation,
depletion and amortization .............. 128,509 -- 128,509
-------- ------ --------
Net capitalized costs ..................... $189,944 $ -- $189,944
======== ====== ========
AS OF DECEMBER 31, 1993
Proved properties ......................... $226,261 $ -- $226,261
Unproved oil and gas interests ............ 24,778 6,914 31,692
-------- ------ --------
Total capitalized costs ................... 251,039 6,914 257,953
Less: Accumulated depreciation,
depletion and amortization .............. 103,555 -- 103,555
-------- ------ --------
Net capitalized costs ..................... $147,484 $6,914 $154,398
======== ====== ========
COSTS INCURRED IN OIL AND GAS ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
UNITED OTHER
STATES CANADA FOREIGN TOTAL
-------- ------ ------ --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Property acquisition costs:
Proved .............................................................. $ 81,385 $ -- $ -- $ 81,385
Unproved<F1> ........................................................ 1,496 -- -- 1,496
Exploration costs ..................................................... 2,583 -- -- 2,583
Development costs ..................................................... 15,804 -- -- 15,804
-------- ------ ------ --------
Total costs incurred ................................................ $101,268 $ -- $ -- $101,268
======== ====== ====== ========
YEAR ENDED DECEMBER 31, 1993
Property acquisition costs:
Proved .............................................................. $ 4,596 $1,011 $ -- $ 5,607
Unproved (a) ........................................................ 1,390 -- 956 2,346
Exploration costs ..................................................... 6,103 79 4,927 11,109
Development costs ..................................................... 8,786 686 -- 9,472
-------- ------ ------ --------
Total costs incurred ................................................ $ 20,875 $1,776 $5,883 $ 28,534
======== ====== ====== ========
YEAR ENDED DECEMBER 31, 1992
Property acquisition costs:
Proved .............................................................. $ 38 $ 230 $ -- $ 268
Unproved (a) ........................................................ 2,274 -- 1,026 3,300
Exploration costs ..................................................... 8,511 277 1,400 10,188
Development costs ..................................................... 6,604 1,767 -- 8,371
-------- ------ ------ --------
Total costs incurred ................................................ $ 17,427 $2,274 $2,426 $ 22,127
======== ====== ====== ========
<FN>
<F1> Amounts represent capitalized interest.
</TABLE>
F-29
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
(In thousands)
<TABLE>
<CAPTION>
UNITED OTHER
STATES CANADA FOREIGN TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Revenues ....................................................... $ 50,033 $ -- $ -- $ 50,033
Production and operating costs ................................. 21,302 -- -- 21,302
Exploration expense ............................................ 2,569 -- (10) 2,559
Depreciation, depletion and amortization ....................... 28,062 -- -- 28,062
Impairment expense ............................................. 27,127 -- 6,443 33,570
Taxes other than income ........................................ 4,630 -- -- 4,630
Income tax benefit ............................................. (455) -- -- (455)
-------- -------- -------- --------
Results of operations for producing activities ................. $(33,202) $ -- $ (6,433) $(39,635)
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1993
Revenues ....................................................... $ 44,334 $ 5,255 $ -- $ 49,589
Production and operating costs ................................. 14,088 1,910 -- 15,998
Exploration expense ............................................ 4,219 80 3,255 7,554
Depreciation, depletion and amortization ....................... 20,192 1,861 -- 22,053
Impairment expense ............................................. 773 -- 10,202 10,975
Taxes other than income ........................................ 3,687 42 -- 3,729
Income tax expense ............................................. 505 -- -- 505
-------- -------- -------- --------
Results of operations for producing activities ................. $ 870 $ 1,362 $(13,457) $(11,225)
======== ======== ======== ========
YEAR ENDED DECEMBER 31, 1992
Revenues ....................................................... $ 49,505 $ 9,055 $ -- $ 58,560
Production and operating costs ................................. 15,567 3,845 -- 19,412
Exploration expense ............................................ 6,666 277 900 7,843
Depreciation, depletion and amortization ....................... 23,482 5,041 -- 28,523
Impairment expense ............................................. 10,491 35,095 -- 45,586
Taxes other than income ........................................ 4,149 242 -- 4,391
Income tax expense ............................................. 108 -- -- 108
-------- -------- -------- --------
Results of operations for producing activities ................. $(10,958) $(35,445) $ (900) $(47,303)
======== ======== ======== ========
</TABLE>
F-30
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
OIL AND GAS RESERVE INFORMATION - (UNAUDITED)
The following summarizes the policies used by the Company in preparing
the accompanying oil and gas reserve disclosures, standardized measure of
discounted future net cash flows relating to proved oil and gas reserves and the
reconciliation of such standardized measure from period to period.
Proved reserves are estimated quantities of crude oil and natural gas
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
The standardized measure of discounted future net cash flows from
production of proved reserves was developed by first estimating the quantities
of proved reserves and the future periods during which they are expected to be
produced based on year-end economic conditions. The estimated future cash flows
from proved reserves were then determined based on year-end prices, except in
those instances where fixed and determinable price escalations are included in
existing contracts. Finally, future cash flows were reduced by estimated
production costs, costs to develop and produce the proved reserves, and certain
abandonment costs, all based on year-end economic conditions and the estimated
effect of future income taxes based on the current tax law.
The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair value of the
Company's oil and gas reserves. An estimate of fair value would also take into
account, among other things, the recovery of reserves not presently classified
as proved, anticipated future changes in prices and costs and a discount factor
more representative of the time value of money and the risks inherent in reserve
estimates.
The information presented on the following pages reflects the sales of
the Company's Canadian properties in mid-1993.
F-31
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES - (UNAUDITED)
(In thousands)
UNITED
STATES CANADA TOTAL
--------- --------- ---------
YEAR ENDED DECEMBER 31, 1994
Future cash inflows ........................ $ 502,989 $ -- $ 502,989
Future production and development costs .... (258,711) -- (258,711)
--------- --------- ---------
Future net cash flows before income taxes .. 244,278 -- 244,278
Future income taxes ........................ (2,109) -- (2,109)
--------- --------- ---------
Future net cash flows after income taxes ... 242,169 -- 242,169
Discount at 10% annual rate ................ (101,463) -- (101,463)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ........................... $ 140,706 $ -- $ 140,706
========= ========= =========
YEAR ENDED DECEMBER 31, 1993
Future cash inflows ........................ $ 326,768 $ -- $ 326,768
Future production and development costs .... (147,481) -- (147,481)
--------- --------- ---------
Future net cash flows before income taxes .. 179,287 -- 179,287
Future income taxes ........................ (4,528) -- (4,528)
--------- --------- ---------
Future net cash flows after income taxes ... 174,759 -- 174,759
Discount at 10% annual rate ................ (71,489) -- (71,489)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ........................... $ 103,270 $ -- $ 103,270
========= ========= =========
YEAR ENDED DECEMBER 31, 1992
Future cash inflows ........................ $ 456,349 $ 181,326 $ 637,675
Future production and development costs .... (187,031) (88,659) (275,690)
--------- --------- ---------
Future net cash flows before income taxes .. 269,318 92,667 361,985
Future income taxes ........................ (3,201) (18,926) (22,127)
--------- --------- ---------
Future net cash flows after income taxes ... 266,117 73,741 339,858
Discount at 10% annual rate ................ (126,374) (32,672) (159,046)
--------- --------- ---------
Standardized measure of discounted future
net cash flows ........................... $ 139,743 $ 41,069 $ 180,812
========= ========= =========
F-32
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS -
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year ...................................................... $ 103,270 $ 180,812 $ 193,419
Sales and transfers of oil and gas produced, net of production costs ............ (24,101) (31,818) (36,817)
Net changes in prices and production costs ...................................... (67,753) (19,870) 7,696
Extensions, discoveries and improved recoveries, net of future
production and development costs .............................................. 3,822 12,780 5,218
Purchases of minerals in place .................................................. 115,379 7,203 1,116
Sales of minerals in place ...................................................... (451) (48,521) (3,801)
Changes in estimated future development costs ................................... 4,997 (5,325) (4,247)
Development costs incurred during the year ...................................... 11,518 7,931 6,520
Revisions of previous quantity estimates ........................................ (7,826) (15,967) 10,510
Accretion of discount ........................................................... 10,476 18,269 19,958
Net change in future income taxes ............................................... 117 386 (1,129)
Changes in production rates (timing) and other .................................. (8,742) (2,610) (17,631)
--------- --------- ---------
Balance, end of year ............................................................ $ 140,706 $ 103,270 $ 180,812
========= ========= =========
</TABLE>
F-33
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES - (CONTINUED)
RESERVE QUANTITY INFORMATION - (UNAUDITED)
<TABLE>
<CAPTION>
UNITED STATES CANADA TOTAL
---------------------- --------------------- ----------------------
OIL GAS OIL GAS OIL GAS
(MBbls) (MMcf) (MBbls) (MMcf) (MBbls) (MMcf)
------- -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Balance at December 31, 1991 ................. 10,070 130,145 1,326 117,145 11,396 247,290
Purchases of minerals in place ............. -- -- 112 758 112 758
Extensions, discoveries and other
additions ................................. 248 2,038 28 190 276 2,228
Revisions of previous estimates ............ (286) 7,606 169 10,329 (117) 17,935
Sales of minerals in place ................. (694) (3,137) (62) (1,183) (756) (4,320)
Production ................................. (1,307) (13,279) (181) (6,526) (1,488) (19,805)
------- -------- ------ -------- ------- --------
Balance at December 31, 1992 ................. 8,031 123,373 1,392 120,713 9,423 244,086
Purchases of minerals in place ............. 107 10,029 51 7,182 158 17,211
Extensions, discoveries and other
additions ................................. 326 10,157 -- 544 326 10,701
Revisions of previous estimates ............ (1,127) (13,642) -- -- (1,127) (13,642)
Sales of minerals in place ................. (253) (13,400) (1,371) (124,897) (1,624) (138,297)
Production ................................. (1,189) (11,794) (72) (3,542) (1,261) (15,336)
------- -------- ------ -------- ------- --------
Balance at December 31, 1993 ................. 5,895 104,723 -- -- 5,895 104,723
Purchases of minerals in place ............. 5,153 108,075 -- -- 5,153 108,075
Extensions, discoveries and other
additions ................................. 128 12,825 -- -- 128 12,825
Revisions of previous estimates ............ (197) (22,467) -- -- (197) (22,467)
Sales of minerals in place ................. (78) (235) -- -- (78) (235)
Production ................................. (1,241) (16,241) -- -- (1,241) (16,241)
------- -------- ------ -------- ------- --------
Balance at December 31, 1994 ................. 9,660 186,680 -- -- 9,660 186,680
======= ======== ====== ======== ======= ========
PROVED DEVELOPED RESERVES
Balance at December 31, 1992 ................. 6,670 88,157 1,361 101,178 8,031 189,335
======= ======== ====== ======== ======= ========
Balance at December 31, 1993 ................. 5,018 71,623 -- -- 5,018 71,623
======= ======== ====== ======== ======= ========
Balance at December 31, 1994 ................. 8,697 127,838 -- -- 8,697 127,838
======= ======== ====== ======== ======= ========
</TABLE>
F-34
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
American Exploration Company Stock Compensation Plan, effective December 9, 1988
(Form S-8, September 21, 1989, Registration No. 31-31202, Exhibit 4(c)).
American Exploration Company Amended and Restated 1978 Hershey Oil Corporation
Non-Qualified Equity Participation Plan (Form S-4, August 8, 1990, Registration
No. 33-36268, Exhibit 10(ccc)).
American Exploration Company Amended and Restated 1983 Stock Option Plan of
Hershey Oil Corporation (Form S-4, August 8, 1990, Registration No. 33-36268,
Exhibit 10(ddd)).
American Exploration Company Amended and Restated 1988 Stock Option Plan of
Hershey Oil Corporation (Form S-4, August 8, 1990, Registration No. 33-36268,
Exhibit 10(eee)).
American Exploration Company Exploration Group Investment Plan (Form 10-K,
December 31, 1991, Exhibit 10(sss)).
Employee Stock Ownership Trust of American Exploration Company, as Amended and
Restated Effective January 1, 1991 (Form 10-Q, June 30, 1992, Exhibit 10(b)).
Employee Stock Ownership Plan of American Exploration Company, as Amended and
Restated Effective January 1, 1991 (Form 10-Q, June 30, 1992, Exhibit 10(c)).
Revised Employment Agreements, dated September 1, 1994, with the executive
officers of American Exploration Company (Form 10-Q, September 30, 1994, Exhibit
10(a)).
Phantom Stock Plan of American Exploration Company, effective September 21, 1993
(Form 10-Q, September 30, 1993, Exhibit 10(b)).
X-1
<PAGE>
INDEX OF EXHIBITS
*3(a) - Restated Certificate of Incorporation of American Exploration
Company (Form S-3, July 13, 1994, Registration No. 33-54561, Exhibit
4.1), as supplemented by Certificate of Amendment to Restated
Certificate of Incorporation of American Exploration Company (Form
S-3, July 13, 1994, Registration No. 33-54561, Exhibit 4.2).
*3(b) - Amended and Restated Bylaws of American Exploration Company (Form
8-A, March 23, 1994, Exhibit 2).
*4(a) - Rights Agreement, dated as of September 28, 1993, between American
Exploration Company and Society National Bank (Form 8-K, September
28, 1993, Exhibit 4), as supplemented by Amendment to Rights
Agreement, dated as of August 3, 1994, between American Exploration
Company and Society National Bank (Form 8-K, August 31, 1994,
Exhibit 4).
*4(b) - Certificate of Designation of the $450 Cumulative Convertible
Preferred Stock, Series C, dated December 14, 1993 (Form S-3,
January 4, 1994, Registration No. 33-51795, Exhibit 4.3), as
supplemented by Certificate of Correction to the Certificate of
Designation of the $450 Cumulative Convertible Preferred Stock,
Series C, dated December 29, 1993 (Form S-3, January 4, 1994,
Registration No. 33-51795, Exhibit 4.4).
*4(c) - Deposit Agreement, dated as of December 10, 1993, by and among
American Exploration Company, Harris Trust and Savings Bank and the
holders from time to time of Depositary Receipts (Form S-3, January
4, 1994, Registration No. 33-51795, Exhibit 4.5).
*4(d) - Purchase Agreement, dated as of December 10, 1993, by and among
American Exploration Company and each of the purchasers referred to
therein (Form S-3, January 4, 1994, Registration No. 33-51795,
Exhibit 4.6).
*4(e) - Registration Rights Agreement, dated as of December 17, 1993, by
and among American Exploration Company and each of the purchasers
referred to therein (Form S-3, January 4, 1994, Registration No.
33-51795, Exhibit 4.7).
*4(f) - Form of Stock Certificate representing shares of Convertible
Preferred Stock (Form 8-A, March 23, 1994, Exhibit 8).
*4(g) - Form of Depositary Receipt representing Depositary Shares (Form
8-A, March 23, 1994, Exhibit 9).
*10(a) - Agreement, dated August 11, 1983, by and between American
Exploration Company, Phillip Frost and the other parties signatory
thereto, to which is attached the related Form of Agreement of
Limited Partnership of South States Development, Ltd. (Form S-14,
October 18, 1983, Registration No. 2-87234, Exhibit 10(a)).
*10(b) - Agreement of Limited Partnership of American Production
Partnership - VII, Ltd., dated May 30, 1989, and related Agreements
by and between American Exploration Company and the Limited Partners
listed therein (Form S-2, October 19, 1989, Registration No. 33-
31646, Exhibit 10(e)).
*10(c) - Conveyance of Net Profits Overriding Royalty Interest, effective
June 1, 1989, from American Exploration Company to Sixty Corp. and
related Purchase and Sale Agreement (Form S-2, October 19, 1989,
Registration No. 33-31646, Exhibit 10(m)).
X-2
<PAGE>
INDEX OF EXHIBITS - (CONTINUED)
*10(d) - Conveyance of Net Profits Overriding Royalty Interest, effective
June 1, 1989, from American Exploration Company to GEAPPL Corp. and
related Purchase and Sale Agreement (Form S-2, October 19, 1989,
Registration No. 33-31646, Exhibit 10(o)).
*10(e) - Forms of New York Life Oil & Gas Production Partnership Agreements
(Amendment No. 4 to Form S-2, January 21, 1988, Registration No.
33-18512, Exhibit 10(gg)).
*10(f) - Agreement of Limited Partnership, dated October 19, 1988, of
American Production Partnership - VI, Ltd., by and between American
Exploration Company and the Limited Partners listed therein (Form
10-K, December 31, 1988, Exhibit 10(x)).
*10(g) - Purchase Agreement, dated March 27, 1987, by and between Ameriplor
Corp. and the Purchasers named in Annex I thereto and related
financing documents (Form 10-K, December 31, 1986, Exhibit 4(m)).
*10(h) - Purchase Agreement, dated October 23, 1987, by and between Ninian
Oil Finance Corp. and the Purchasers named in Annex I thereto and
related financing documents (Amendment No. 2 to Form S-2, December
2, 1987, Registration No. 33-18512, Exhibit 4(q)).
*10(i) - Purchase Agreement, dated October 20, 1988, by and between
American Exploration Acquisition - VI Corp. and the Purchasers named
in Annex I thereto and related financing documents (Form 10-K,
December 31, 1988, Exhibit 4(f)).
*10(j) - Second Amended and Restated Agreement of Limited Partnership of
Amex Production Partnership, Ltd., effective November 30, 1988 (Form
S-2, October 19, 1989, Registration No. 33-31646, Exhibit 10(eee)).
*10(k) - Second Amended and Restated Agreement of Limited Partnership of
American Production Partnership - III, Ltd., effective November 30,
1988 (Form S-2, October 19, 1989, Registration No. 33-31646, Exhibit
10(ggg)).
*10(l) - Amended and Restated Agreement of Limited Partnership of American
Production Partnership - IV, Ltd., effective November 30, 1988 (Form
S-2, October 19, 1989, Registration No. 33-31646, Exhibit 10(hhh)).
*10(m) - Amended and Restated Agreement of Limited Partnership of American
Production Partnership - V, Ltd., effective November 30, 1988 (Form
S-2, October 19, 1989, Registration No. 33-31646, Exhibit 10(iii)).
*10(n) - American Exploration Company Stock Compensation Plan, effective
December 9, 1988 (Form S-8, September 21, 1989, Registration No.
31-31202, Exhibit 4(c)).
*10(o) - Agreement of Limited Partnership of American Production
Partnership-VIII, Ltd., dated May 1, 1990, and related Agreements by
and between American Exploration Company and the Limited Partners
therein (Form 10-Q, March 31, 1990, Exhibit 10(d)).
*10(p) - Conveyance of Net Profits Overriding Royalty Interest, effective
May 1, 1990, from American Exploration Company to GEAPPL Corp. (Form
10-Q, March 31, 1990, Exhibit 10(e)).
X-3
<PAGE>
INDEX OF EXHIBITS - (CONTINUED)
*10(q) - Conveyance of Net Profits Overriding Royalty Interest, effective
May 1, 1990, from American Exploration Company to UNUM Life
Insurance Company (Form 10-Q, March 31, 1990, Exhibit 10(f)).
*10(r) - Conveyance of Net Profits Overriding Royalty Interest, effective
August 22, 1990, from American Exploration Company to The Chase
Manhattan Bank, N.A., as Directed Trustee for the IBM Retirement
Plan Trust (Form 10-Q, September 30, 1990, Exhibit 10(b)).
*10(s) - American Exploration Company Amended and Restated 1978 Hershey Oil
Corporation Non-Qualified Equity Participation Plan (Form S-4,
August 8, 1990, Registration No. 33- 36268, Exhibit 10(ccc)).
*10(t) - American Exploration Company Amended and Restated 1983 Stock
Option Plan of Hershey Oil Corporation (Form S-4, August 8, 1990,
Registration No. 33-36268, Exhibit 10(ddd)).
*10(u) - American Exploration Company Amended and Restated 1988 Stock
Option Plan of Hershey Oil Corporation (Form S-4, August 8, 1990,
Registration No. 33-36268, Exhibit 10(eee)).
*10(v) - Office Lease, dated December 12, 1990, between JMB/Houston Center
Partners Limited Partnership and American Exploration Company (Form
S-4, January 9, 1991, Registration No. 33-38546, Exhibit 10(kkk)).
*10(w) - Master Forward Agreement, dated as of December 18, 1990, between
The Chase Manhattan Bank, N.A. and American Exploration Company and
related Amendment (Form S-4, January 9, 1991, Registration No.
33-38546, Exhibit 10(lll)).
*10(x) - Stock Purchase Agreement by and among American Exploration Company
and The Dyson-Kissner-Moran Corporation, dated October 21, 1990
(Form 8-K, October 25, 1990, Exhibit 28(a)).
*10(y) - Master Exchange Agreement, dated as of February 1, 1991, between
American Exploration Company and Morgan Guaranty Trust Company of
New York (Form 10-Q, March 31, 1991, Exhibit 10(a)).
*10(z) - Note Purchase Agreement, dated as of December 27, 1991, re:
$35,000,000 11% Senior Subordinated Notes due December 30, 2001
(Form 8-K, January 10, 1992, Exhibit 10(a)), as supplemented by the
Amendment to Note Purchase Agreement, dated as of February 16, 1993,
by and among American Exploration Company (the "Company") and the
parties named therein (Form 8-K, February 16, 1993, Exhibit 10(a)),
as supplemented by letter agreement, dated March 22, 1993, by and
among the Company and the parties named therein (Form 10-K, December
31, 1992, Exhibit 10(zz)), as supplemented by Second Amendment to
Note Purchase Agreement, dated as of September 30, 1993, by and
among the Company and the parties named therein (Form 10-Q,
September 30, 1993, Exhibit 10(c)), as supplemented by Third
Amendment to Note Purchase Agreement, dated as of March 18, 1994, by
and among the Company and the parties named therein (Form 10-K,
December 31, 1993, Exhibit 10(tt)), as supplemented by Fourth
Amendment to Note Purchase Agreement, dated as of April 28, 1994, by
and among the Company and the parties named therein (Form 10-Q,
March 31, 1994, Exhibit 10(c)), as supplemented by Fifth Amendment
to Note Purchase Agreement, dated as of July 26, 1994, by and among
X-4
<PAGE>
INDEX OF EXHIBITS - (CONTINUED)
the Company and the parties named therein (Form 10-Q, September 30,
1994, Exhibit 10(c)).
*10(aa) - Warrant Purchase Agreement and Form of Warrants, dated as of
December 27, 1991 (Form 8-K, January 10, 1992, Exhibit 10(b)), as
supplemented by Amendment No. 1 to Warrant Purchase Agreement, dated
as of February 16, 1993, by and among American Exploration Company
and the parties named therein (Form 8-K, February 16, 1993, Exhibit
10(b)).
*10(bb) - American Exploration Company Exploration Group Investment Plan
(Form 10-K, December 31, 1991, Exhibit 10(sss)).
*10(cc) - Employee Stock Ownership Trust of American Exploration Company, as
Amended and Restated Effective January 1, 1991 (Form 10-Q, June 30,
1992, Exhibit 10 (b)).
*10(dd) - Employee Stock Ownership Plan of American Exploration Company, as
Amended and Restated Effective January 1, 1991 (Form 10-Q, June 30,
1992, Exhibit 10 (c)).
*10(ee) - Stock Purchase Agreement, dated as of September 3, 1992, between
American Exploration Company and The Prudential Insurance Company of
America (Form 8-K, September 3, 1992, Exhibit 10(a)).
*10(ff) - Stock Purchase Warrant, dated as of September 3, 1992, between
American Exploration Company and The Prudential Insurance Company of
America (Form 8-K, September 3, 1992, Exhibit 10(b)).
*10(gg) - Registration Rights Agreement, dated as of September 3, 1992,
between American Exploration Company and The Prudential Insurance
Company of America (Form 8-K, September 3, 1992, Exhibit 10(c)).
*10(hh) - Sale of Securities Offer dated June 4, 1993 (Form 8-K, June 14,
1993, Exhibit 10(a)).
*10(ii) - Purchase and Sale Agreement, dated as of March 31, 1993, by and
among Conquest Exploration Company and New York Life Oil & Gas
Operating Production Partnership III-F, New York Life Oil & Gas
Operating Production Partnership III-G and New York Life Oil & Gas
Operating Production Partnership III-H (Form 8-K, June 14, 1993,
Exhibit 10(b)).
*10(jj) - Stock Purchase Agreement, dated July 8, 1993, by and between
Equitable Resources Energy Company and American Exploration Company
(Form 8-K, July 7, 1993, Exhibit 10(a)).
*10(kk) - Purchase and Sale Agreement by and between Conquest Exploration
Company and Canadian Conquest Exploration, Inc. with respect to
Conquest Ventures Canada, Inc. (Form 8-K, July 7, 1993, Exhibit
10(b)).
*10(ll) - Phantom Stock Plan of American Exploration Company, effective
September 21, 1993 (Form 10-Q, September 30, 1993, Exhibit 10(b)).
X-5
<PAGE>
INDEX OF EXHIBITS - (CONTINUED)
*10(mm) - Agreement of Limited Partnership of Ancon Partnership Ltd., dated
December 10, 1993, by and between American Exploration Company and
NYLIFE Resources, Inc. (Form 10-K, December 31, 1993, Exhibit
10(rr)).
*10(nn) - Letter Agreement, dated as of April 1, 1994, re: $40,000,000
Secured Credit Facility between American Exploration Company and New
York Life Insurance Company (Form 10-Q, March 31, 1994, Exhibit
10(b)).
*10(oo) - Revised Employment Agreements, dated September 1, 1994, with the
executive officers of American Exploration Company (Form 10-Q,
September 30, 1994, Exhibit 10(a)).
10(pp) - Amended and Restated Credit Agreement, dated as of December 21,
1994, among American Exploration Company, the banks listed herein
and Morgan Guaranty Trust Company of New York, as agent, and Bank of
Montreal, as co-agent.
10(qq) - Amendment No. 1 to Amended and Restated Credit Agreement, dated as
of February 16, 1995, among American Exploration Company, the banks
listed herein and Morgan Guaranty Trust Company of New York, as
agent, and Bank of Montreal, as co-agent.
12 - Statements Re Computations of Ratios
18 - Letter from Arthur Andersen LLP, dated March 30, 1995, re: Change
in American Exploration Company's Accounting Policy Related to
Recognizing Impairment of Proved Oil and Gas Properties.
21 - Subsidiaries of American Exploration Company
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedule
-------------
* Incorporated herein by reference.
Note: Copies of Exhibits may be obtained for 30 cents per page, prepaid, by
writing to the Investor Relations Department.
X-6
EXHIBIT 10(pp)
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
December 21, 1994
among
American Exploration Company,
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
and
Bank of Montreal,
as Co-Agent
<PAGE>
TABLE OF CONTENTS*
PAGE
----
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.................................... 1
1.02 Accounting Terms and Determinations............ 18
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend............................ 19
2.02 Method of Borrowing............................ 19
2.03 Notes.......................................... 20
2.04 Maturity of Loans; Mandatory
Prepayments.................................. 21
2.05 Interest Rates................................. 21
2.06 Fees........................................... 24
2.07 Optional Termination or
Reduction of Commitments..................... 25
2.08 Method of Electing Interest Rates.............. 25
2.09 Optional Prepayments........................... 26
2.10 Contingent Prepayments......................... 27
2.11 General Provisions as to Payments.............. 27
2.12 Funding Losses................................. 28
2.13 Computation of Interest and Fees............... 28
2.14 Borrowing Base................................. 29
2.15 Letters of Credit.............................. 30
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness.................................. 34
3.02 Transitional Provisions........................ 36
3.03 Existing Liens................................. 36
3.04 Credit Events.................................. 36
--------
*The Table of Contents is not a part of this Agreement.
-i-
PAGE
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Corporate Existence and Power.................. 37
4.02 Corporate and Governmental
Authorization; No Contravention.............. 37
4.03 Binding Effect................................. 37
4.04 Financial Information.......................... 37
4.05 Litigation..................................... 39
4.06 Compliance with ERISA.......................... 39
4.07 Debt Arrangements.............................. 39
4.08 Taxes.......................................... 40
4.09 Subsidiaries and Partnerships;
Partnership Agreements....................... 40
4.10 Regulation..................................... 40
4.11 Full Disclosure................................ 40
4.12 Titles, etc.................................... 41
4.13 Lien Status.................................... 41
4.14 Reserve Data and Projections................... 41
4.15 Location of Business and Offices............... 41
4.16 Gas Imbalances................................. 42
4.17 Rate Filings................................... 42
4.18 Environmental Matters.......................... 42
4.19 Non-Guarantor Subsidiaries..................... 43
ARTICLE V
COVENANTS
SECTION 5.01 Information.................................... 44
5.02 Corporate Existence, Etc....................... 48
5.03 Performance of Partnership
Agreements................................... 49
5.04 Reserve Reports................................ 49
5.05 Title Information.............................. 51
5.06 Collateral Security............................ 52
5.07 Further Assurances............................. 52
5.08 Debt........................................... 53
5.09 Liens.......................................... 54
5.10 Investments, Loans and Advances................ 55
5.11 Dividends, Distributions and
Redemptions.................................. 56
5.12 Sales and Leasebacks........................... 57
5.13 Nature of Business............................. 57
5.14 Limitation on Leases........................... 57
5.15 Mergers, Etc................................... 58
5.16 ERISA Compliance............................... 58
5.17 Sale or discount of Receivables................ 58
5.18 Sale of BB Properties.......................... 59
-ii-
PAGE
----
5.19 Net Worth...................................... 59
5.20 Ratio of Cash flow to Fixed Charges............ 59
5.21 Subsidiaries................................... 60
5.22 Partnerships................................... 61
5.23 Environmental Matters.......................... 61
5.24 Amendments of Partnership
Agreements and Debt Arrangements............. 62
5.25 Payment Restrictions........................... 62
5.26 Non-Guarantor Subsidiaries..................... 62
5.27 Restrictions on Subordinated Debt.............. 63
5.28 Use of Proceeds................................ 63
5.29 Value of Mortgaged Properties.................. 63
5.30 Transactions with Affiliates................... 63
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default.............................. 64
6.02 Notice of Default.............................. 67
6.03 Cash Cover..................................... 67
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization.................. 68
7.02 Agent and Affiliates........................... 68
7.03 Action by Agent................................ 68
7.04 Consultation with Experts...................... 68
7.05 Liability of Agent............................. 68
7.06 Indemnification................................ 69
7.07 Credit Decision................................ 69
7.08 Successor Agent................................ 69
7.09 Co-Agent....................................... 70
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair.................... 70
8.02 Illegality..................................... 70
8.03 Increased Cost and Reduced Return.............. 71
-iii-
PAGE
----
8.04 Taxes.......................................... 72
8.05 Domestic Loans Substituted for
Affected Euro-Dollar Loans................... 74
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices........................................ 75
9.02 No Waivers..................................... 75
9.03 Expenses; Indemnification...................... 76
9.04 Sharing of Set-Offs............................ 76
9.05 Amendments and Waivers......................... 77
9.06 Successors and Assigns......................... 77
9.07 Collateral..................................... 79
9.08 GOVERNING LAW.................................. 79
9.09 Submission to Jurisdiction..................... 79
9.10 Counterparts; Integration...................... 79
9.11 WAIVER OF JURY TRIAL........................... 79
9.12 Interest....................................... 80
9.13 Inconsistent Provisions........................ 81
9.14 Disposition of Proceeds; Use of
Property..................................... 81
Schedule I - Net Profits Interests
Schedule II - Fiduciary Accounts
Schedule III(a) - Security Instruments
Schedule III(b) - Security Amendments
Schedule IV - Letters of Credit
Schedule 4.05 - Litigation
Schedule 4.07 - Debt Arrangements
Schedule 4.09(a) - Subsidiaries
Schedule 4.09(b) - Partnership Interests
Schedule 4.12 - Excepted Properties
Schedule 4.16 - Gas Imbalances
-iv-
Schedule 4.18 - Environmental Matters
Schedule 5.08 - Drilling Obligations
Schedule 5.23 - Additional Environmental Matters
Exhibit A - Note
Exhibit B - Opinion of Counsel for the Company
Exhibit C - Opinion of Special Counsel for the
Agent
Exhibit D - Assignment and Assumption Agreement
Exhibit E - Subsidiary Guaranty Agreement
-v-
AMENDED AND RESTATED
CREDIT AGREEMENT
AGREEMENT dated as of December 21, 1994 among AMERICAN EXPLORATION
COMPANY, the BANKS listed on the signature pages hereof and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Agent, and BANK OF MONTREAL, as Co-Agent.
W I T N E S S E T H:
WHEREAS, the Company has heretofore entered into an Amended and
Restated Credit Agreement dated as of July 29, 1994 with the banks signatory
thereto, Morgan Guaranty Trust Company of New York, as agent and Bank of
Montreal, as co-agent (as amended to the Effective Date, the "Original Credit
Agreement"), which Original Credit Agreement amended and restated that certain
Amended and Restated Credit Agreement dated as of September 9, 1990 among the
Company, The Chase Manhattan Bank, N.A., as agent and the banks signatory
thereto;
WHEREAS, the parties hereto wish to amend and restate the Original
Credit Agreement in its entirety to read as set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Acquisition Subsidiary" means any Subsidiary listed as an
Acquisition Subsidiary on Schedule 4.09(a) and any Subsidiary established by the
Company in accordance with Section 5.21(i).
"Adjusted London Interbank Offered Rate" has the meaning set forth
in Section 2.05(b).
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Agent and submitted to
the Agent (with a copy to the Company) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Company (a "Controlling
Person") or (ii) any Person which is controlled by or is under common control
with a Controlling Person. As used herein, the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks under the Financing Documents, and its
successors in such capacity.
"Agreement" means the Original Credit Agreement, as amended by this
Amended Agreement, and as the same may be further amended from time to time.
"Amended Agreement" means this Amended and Restated Credit Agreement
dated as of December 21, 1994.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors, and shall include, as the context may require, the Issuing Bank in
such capacity.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus Federal
Funds Rate for such day.
"BB Properties" means at any time the Properties of the Company, a
Subsidiary or a Partnership evaluated by the Banks and to which the Banks gave
loan value in determining the most recent Borrowing Base.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrowing" means a borrowing hereunder consisting of Loans made to
the Company at the same time by the Banks pursuant to Article II. A Borrowing is
a "Domestic Borrowing" if such Loans are Domestic Loans or a "Euro-Dollar
Borrowing" if such Loans are Euro-Dollar Loans.
-2-
"Borrowing Base" means at any time the amount determined in
accordance with Section 2.14.
A "Borrowing Base Excession" exists at any date if and to the extent
that the sum of (i) the aggregate outstanding principal amount of the Loans and
(ii) the aggregate amount of the Letter of Credit Liabilities at such date
exceeds the Borrowing Base at such date. It is understood that sales of BB
Properties not exceeding $1,500,000 in the aggregate for the Company, the
Subsidiaries and the Partnerships combined during any six-month period between
regularly scheduled Borrowing Base redetermination dates pursuant to Section
5.18 shall not in and of itself give rise to a Borrowing Base Excession.
"Bridge Assets" has the meaning set forth in the
definition of Bridge Debt.
"Bridge Debt" means the $40 million non-recourse interim credit
facility provided by New York Life Insurance Company ("New York Life"), pursuant
to the letter agreement, dated April 1, 1994 between New York Life and the
Company, including the documents, instruments, agreements, mortgages and
security interests provided pursuant thereto as interim financing for the
acquisition of interests in certain of the Company's APPL Programs as well as
other property acquisitions to be approved by New York Life and any refinancing,
renewal or replacement thereof in an amount not to exceed said principal amount
so long as the Bridge Debt is non-recourse to the Company, its Subsidiaries and
their respective Properties, except that such Bridge Debt may be recourse to (i)
the interests and other property acquired with the proceeds of the Bridge Debt
("Bridge Assets") and/or (ii) special purpose Subsidiaries whose sole activities
are to acquire and/or hold Bridge Assets and/or borrow Bridge Debt ("Bridge
Subsidiaries").
"Bridge Subsidiaries" has the meaning set forth in
the definition of Bridge Debt.
"Capital Costs" means, with respect to any oil and gas property, all
capital expenditures incurred in connection with the conversion or attempted
conversion of such property from "proved undeveloped" to "proved developed" as
classified in accordance with the regulations of the Securities and Exchange
Commission as in effect on the date hereof and the maintenance of such property
as "proved developed" as classified in accordance with the regulations of the
Securities and Exchange Commission as in effect on the date hereof.
"Co-Agent" means Bank of Montreal in its capacity
as Co-Agent hereunder.
-3-
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.07.
"Company" means American Exploration Company, a
Delaware corporation, and its successors.
"Company's 1993 Form 10-K" means the annual report of the Company on
Form 10-K for the fiscal year ended December 31, 1993, as amended by Form
10-K/A.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Company in
its consolidated financial statements if such statements were prepared as of
such date.
"Continuing Bank" means each Bank party to the Original Credit
Agreement other than a New Bank.
"Convertible Preferred Stock" means the shares of $450 Cumulative
Convertible Preferred Stock, Series C of the Company outstanding on the date
hereof.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all non-contingent
obligations (and, for purposes of Section 5.09 and the definitions of Material
Debt and Material Financial Obligations, all contingent obligations) of such
Person to reimburse any bank or other Person in respect of amounts paid under a
letter of credit or similar instrument, (vi) all Debt secured by a Lien on any
asset of such Person, whether or not such Debt is otherwise an obligation of
such Person, and (vii) all Debt of others Guaranteed by such Person.
"Debt Arrangements" has the meaning set forth in
Section 4.07.
"Debt Subsidiary" shall mean any Subsidiary listed as a Debt
Subsidiary on Schedule 4.09(a) and any Subsidiary established by the Company in
accordance with Subsection 5.21(ii).
-4-
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of
such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Determination Date" means each date on which the Agent shall notify
the Company of the amount of the Borrowing Base pursuant to Section 2.14.
"Discounted Present Value of Future Net Revenue" means, with respect
to any BB Property and as of any specified date, an amount equal to the present
value of Future Net Revenue from such BB Property, determined by discounting the
stated amount of such Future Net Revenue from the date on which such amount is
expected to be realized to such specified date at (i) prior to the first
Determination Date, the applicable discount rate used for the purposes of the
computations contained in the Initial Reserve Report covering such BB Property,
computed on a simple interest basis for years of 365 days (or 366 days in a leap
year), and (ii) on or after the first Determination Date, the rate specified by
the Agent pursuant to Section 2.14, computed on a simple interest basis for
years of 365 days (or 366 days in a leap year).
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Company and the Agent.
"Domestic Loan" means (i) a Loan which bears interest at the Base
Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate
Election or Article
-5-
VIII or (ii) an overdue amount which was a Domestic Loan immediately before it
became overdue.
"Effective Date" means the date this Amended Agreement becomes
effective in accordance with Section 3.01.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or final determinations of any Governmental
Authority pertaining to health or the environment in effect in any and all
jurisdictions in which the Company, its Subsidiaries or the Partnerships are
conducting or at any time have conducted business, or where any Property of the
Company, its Subsidiaries or the Partnerships is located, or where any hazardous
substances generated by or disposed of by the Company, its Subsidiaries or the
Partnerships are located, including without limitation, the Canadian
Environmental Protection Act (Canada), the Clean Air Act, as amended, the
Comprehensive Environmental, Response, Compensation, and Liability Act of 1980
("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The terms "hazardous substance,"
"release" and "threatened release" have the meanings specified in CERCLA, and
the terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA; provided, however, in the event either CERCLA or RCRA is
amended so as to modify the meaning of any term defined thereby, such modified
meaning shall apply subsequent to the effective date of such amendment with
respect to all provisions of this Agreement other than Article IV, and provided
further that, to the extent the applicable laws of the state in which any
Property of the Company, its Subsidiaries or the Partnerships is located
establish a meaning for "hazardous substance," "release," "solid waste" or
"disposal" which is broader than that specified in either CERCLA or RCRA, such
broader meaning shall apply.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
"ERISA Group" means the Company, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
-6-
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Company and the Agent.
"Euro-Dollar Loan" means (i) a Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of
Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan
immediately before it became overdue.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.05(b) on the basis of an Adjusted London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" has the meaning
set forth in Section 2.05(b).
"Event of Default" has the meaning set forth in
Section 6.01.
"Excepted Liens" means: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action; (ii) Liens in connection with workmen's
compensation, unemployment insurance or other social security, old age pension
or public liability obligations; (iii) legal or equitable encumbrances deemed to
exist by reason of negative pledge covenants (such as that made in Section 5.09
hereof) and other covenants or undertakings of like nature; (iv) legal or
equitable encumbrances deemed to exist by reason of the existence of any
litigation or other legal proceeding or arising out of a judgment or award with
respect to which an appeal is being prosecuted, PROVIDED that (A) enforcement of
such Lien is effectively stayed pending the outcome of such appeal and (B) the
amount of such judgment or award does not exceed $500,000; (v) landlord's,
vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's,
materialmen's, construction or other like Liens arising by operation of law in
the ordinary course of business or incident to the construction or improvement
of any Property in respect of obligations which are not past due for more than
30 days or which are being contested in good faith by appropriate proceedings;
(vi) Liens arising under operating agreements
-7-
in respect of obligations which are not yet due or which are being contested in
good faith by appropriate proceedings; (vii) Liens and minor irregularities in
or deficiencies of title which do not materially interfere with the occupation,
use and enjoyment by the owner of such Properties in the normal course of
business as presently conducted or materially impair the value thereof for such
business; (viii) Liens reserved in oil, gas and/or mineral leases for bonus or
rental payments and for compliance with the terms of such leases; (ix)
easements, rights-of-way, restrictions and other similar encumbrances which, in
the aggregate, do not materially adversely interfere with the occupation, use
and enjoyment of the Property encumbered thereby; (x) any obligations or duties,
affecting any of the Property, to any municipality or public authority with
respect to any franchise, grant, license or permit which do not materially
impair the use of such Property for the purposes for which it is held; (xi)
zoning laws or ordinances and municipal regulations which do not operate to
materially interfere with the current operations on the Property; (xii)
undetermined or inchoate Liens and charges incurred incidental to maintenance,
development, production or operation of any of the Property; (xiii) defects or
irregularities have been cured by possession under applicable statutes of
limitation which do not materially impair the use of such Property for the
purposes for which its is held; (xiv) deposits or pledges to secure the payment
of workmen's compensation, unemployment insurance or other social security
benefits or obligations, public or statutory obligations, surety or appeal bonds
or other obligations of a like general nature incurred in the ordinary course of
business; and (xv) net profits interests described on Schedule I and such other
Liens that may encumber property purchased by the Company and net profits
interests that may be approved by the Banks in writing from time to time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Agent.
-8-
"Fiduciary Account" means any deposit, savings or other account
maintained by the Company as a fiduciary in which proceeds owned by other
Persons are deposited and designated as a Fiduciary Account by notice to the
Banks by the Company, including, without limitation those accounts described on
Schedule II.
"Financial Statements" means the financial statement or statements
of the Company and its Subsidiaries and of the Partnerships described or
referred to in Section 4.04.
"Financing Documents" means this Agreement, the
Notes and the Security Instruments.
"Future Net Revenue" means, with respect to any BB Property and for
any period, the future gross revenue from such BB Property for such period as
determined in the then most recent Reserve Report less the sum of (i) any
royalties payable in connection with such property during such period, (ii) any
overriding royalties payable in connection with such property during such
period, (iii) all production, ad valorem and severance taxes relating to such
property and payable during such period and (iv) Capital Costs and Production
Expenses during such period necessary to provide such future gross revenue.
"Governmental Authority" includes the United States, Canada, the
state, province, local, county, city and political subdivisions in which any
Property of the Company, the Subsidiaries or the Partnerships is located or
which exercises jurisdiction over any such Property, and any agency, department,
commission, board, bureau or instrumentality or any of them which exercises
jurisdiction over any such Property.
"Governmental Requirement" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other direction or requirement
(including, without limitation, Environmental Laws, energy regulations and
occupational, safety and health standards or controls) of any (domestic or
foreign) federal, state, province, local, county, municipal or other government,
department, commission, board, court, agency or any other instrumentality of any
of them.
"Group of Loans" means at any time a group of Loans consisting of
(i) all Loans which are Domestic Loans at such time or (ii) all Loans which are
Euro-Dollar Loans having the same Interest Period at such time; PROVIDED that,
if Loans of any particular Bank are converted to or made as Domestic Loans
pursuant to Section 8.02 or 8.05, such Loans
-9-
shall be included in the same Group or Groups of Loans from time to time as they
would have been in if they had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part),
PROVIDED that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Guarantor Subsidiary" means any Subsidiary that executes and
delivers to the Agent a guaranty agreement in substantially the form of Exhibit
E guaranteeing the Indebtedness.
"Highest Lawful Rate" means, with respect to each Bank, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on its Note under laws
applicable to such Bank which are presently in effect or, to the extent allowed
by law, under such applicable laws which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable laws now allow.
"Hydrocarbon Interests" mean all rights, titles, interests and
estates in and to oil and gas leases, oil, gas and mineral leases, or other
liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty
and royalty interests, net profit interests and production payment interests,
including any reserved or residual interest of whatever nature.
"Hydrocarbons" mean oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined therefrom and all other minerals.
"Indebtedness" means any and all amounts owing or to be owing by the
Company to the Agent, the Co-Agent or any Bank under or in connection with this
Agreement, the Notes,
-10-
the Letters of Credit or any Security Instrument, and all renewals, extensions
and rearrangements thereof.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Initial Reserve Report" means the report of the Company with
respect to reserves as of January 1, 1994 that is a compilation of reports
prepared by Forrest A. Garb & Associates, Inc. and Netherland, Sewell &
Associates, Inc. with respect to the oil and gas reserves of the Company, its
Subsidiaries and the Partnerships, that reflects the Company's net interest
therein, a copy of which has been delivered to the Agent.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of Borrowing specified in the
applicable Notice of Borrowing or on the date specified in the applicable Notice
of Interest Rate Election and ending one, two, three or six months thereafter,
as the Company may elect in the applicable Notice; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on
the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.04 but does
not end on such date, then (i) the principal amount (if any) of each
Euro-Dollar Loan required to be repaid on such date shall have an Interest
Period ending on such date and (ii) the remainder (if any) of each such
Euro-Dollar Loan shall have an Interest Period determined as set forth
above.
(2) with respect to each Domestic Borrowing, the period commencing
on the date of Borrowing specified in the applicable Notice of Borrowing or on
the date specified in the applicable Notice of Interest Rate Election and ending
30 days thereafter; PROVIDED that:
-11-
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b)(i) below) which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of the Loans is required to be made under Section 2.04 but does
not end on such date, then (i) the principal amount (if any) of each
Domestic Loan required to be repaid on such date shall have an Interest
Period ending on such date and (ii) the remainder (if any) of each such
Domestic Loan shall have an Interest Period determined as set forth above.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Issuing Bank" means Morgan Guaranty Trust Company of New York, as
issuer of a Letter of Credit.
"Letter of Credit" means a letter of credit to be issued hereunder
by the Issuing Bank.
"Letter of Credit Commitment" means the lesser of (x) $3,000,000 and
(y) the aggregate amount of the Commitments.
"Letter of Credit Liabilities" means, for any Bank and at any time,
the sum of (x) the amounts then owing to such Bank (including in its capacity as
the Issuing Bank) under Section 2.15 to reimburse it in respect of amounts drawn
under Letters of Credit and (y) such Bank's ratable participation in the
aggregate amount then available for drawing under all Letters of Credit,
calculated in accordance with Section 2.15.
"Level I Status" exists at any date on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities is less than or equal to 70% of the Borrowing Base then in
effect.
"Level II Status" exists at any date on which the sum of (i) the
aggregate outstanding amount of the Loans and (ii) the aggregate Letter of
Credit Liabilities exceeds 70% of the Borrowing Base then in effect.
"Lien" means any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind including, without limitation, the rights of a
vendor, lessor or similar party under any conditional sale agreement or other
title retention agreement or lease substantially equivalent
-12-
thereto, and the rights of the holder of any production payment, advance
payment or similar interests.
"Loan" means a loan made by a Bank pursuant to Section 2.01;
PROVIDED that if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Loan" shall
refer to the combined principal amount resulting from such combination or to
each of the separate principal amounts resulting from such subdivision, as the
case may be.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Margin" has the meaning set forth in Section 2.05(b).
"Material Adverse Effect" means any material and adverse effect on
(i) the financial condition, business, operations, affairs or circumstances of
the Company and its Subsidiaries on a consolidated basis or the Partnerships in
the aggregate from those reflected in the Financial Statements or from the facts
represented or warranted in this Agreement or any other Security Instrument or
(ii) the ability of the Company and its Subsidiaries on a consolidated basis to
carry out its business as conducted at the date of this Agreement or as proposed
at the date of this Agreement to be conducted or meet its obligations under the
Financing Documents on a timely basis.
"Material Debt" means Debt (other than the Notes) of the Company
and/or one or more of its Subsidiaries and/or one or more Partnerships, arising
in one or more related or unrelated transactions, in an aggregate principal or
face amount exceeding $250,000.
"Material Financial Obligations" means a principal or face amount of
Debt and/or payment obligations in respect of Derivatives Obligations of the
Company and/or one or more of its Subsidiaries and/or one or more Partnerships,
arising in one or more related or unrelated transactions, exceeding in the
aggregate $250,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $1,000,000.
"Maturity Date" means the Quarterly Date falling in December, 1999.
"Mortgaged Property" means the Property owned by or in which the
Company, any Subsidiary or any Partnership owns an undivided interest and which
is subject to the
-13-
Liens, privileges, priorities and security interests created by the Security
Instruments.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"New Bank" means the party listed on the signature pages hereof as a
"New Bank."
"Non-Guarantor Subsidiary" means any Subsidiary that is not a Debt
Subsidiary, an Acquisition Subsidiary, a Bridge Subsidiary or a Guarantor
Subsidiary.
"Notes" means promissory notes of the Company, substantially in the
form of Exhibit A hereto, evidencing the obligation of the Company to repay the
Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02.
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.08.
"Notice of Issuance" has the meaning set forth in Section 2.15.
"Oil and Gas Properties" means Hydrocarbon Interests; the Properties
now or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any governmental body or agency
having jurisdiction) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, contracts and other agreements which relate
to any of the Hydrocarbon Interests or the production, sale, purchase, exchange
or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
income from or attributable to the Hydrocarbon Interests; all tenements,
herediments, appurtenances and Properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon
-14-
Interests, Properties, rights, titles, interests and estates described or
referred to above, including any and all Property, real or personal, now owned
or hereafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such Hydrocarbon
Interests or Property (excluding drilling rigs, automotive equipment or other
personal property which may be on such premises for the purpose of drilling a
well or for other similar temporary uses) and including any and all oil wells,
gas wells, injection wells or other wells, building, structures, fuel
separators, liquid extraction plants, plant compressors, pumps, pumping units,
field gathering systems, tanks and tank batteries, fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and rods, surface
leases, rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.
"Original Credit Agreement" has the meaning set forth in the
recitals hereto.
"Parent" means, with respect to any Bank, any Person controlling
such Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"Partnership" means any partnership evidenced by a written agreement
in which the Company or a Subsidiary is a partner (general or limited),
including, but not limited to, the partnerships listed on Schedule 4.09(b).
"Partnership Agreements" means the partnership agreements for the
Partnerships.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding
-15-
five years been maintained, or contributed to, by any Person which was at such
time a member of the ERISA Group for employees of any Person which was at such
time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Principal Repayment Date" means each Quarterly Date falling after
the Termination Date and on or prior to the Maturity Date.
"Production Expenses" means, with respect to any oil and gas
property, all cash costs and expenses (excluding general and administrative
expenses) incurred for or payable in connection with the lifting, producing,
gathering, separating, treating, compressing, storing, processing, marketing,
transporting or otherwise handling Hydrocarbons from such property, or
developing, equipping, operating or maintaining such property.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Quarterly Date" means the last Euro-Dollar Business Day of each
March, June, September and December.
"Reference Banks" means the principal London offices of Bank of
Montreal and Morgan Guaranty Trust Company of New York.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 66 2/3% of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, having at least 66 2/3% of the sum of (i) the aggregate unpaid
principal amount of the Loans and (ii) the aggregate amount of the Letter of
Credit Liabilities.
"Reserve Report" has the meaning set forth in Section 2.14.
"Reserved LC Agreements" shall mean the letter of credit agreements
corresponding to the outstanding letters of credit listed on Schedule IV.
-16-
"Revolving Credit Period" means the period from and including the
Effective Date to and including the Termination Date.
"Security Amendments" means the agreements or instruments described
or referred to in Schedule III(b).
"Security Instruments" means the agreements or instruments described
or referred to in Schedule III(a), and any and all other agreements or
instruments heretofore, now or hereafter executed and delivered by the Company
or any Subsidiary, in connection with, or as security for the payment or
performance of, the Indebtedness, as such agreements may be amended or
supplemented from time to time.
"Subordinated Debt" means the Company's 11% Senior Subordinated
Notes due December 30, 2001, issued in the original aggregate principal amount
of $35,000,000.
"Subordinated Debt Purchase Agreement" means collectively the
following:
(1) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and Rhode Island Hospital Trust National
Bank, as Trustee, with respect to $14,500,000 of Subordinated Debt;
(2) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and Balboa Life Insurance Company with
respect to $250,000 of Subordinated Debt;
(3) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and Massachusetts Mutual Life Insurance
Company with respect to $5,500,000 of Subordinated Debt;
(4) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and John Hancock Mutual Life Insurance
Company with respect to
$10,000,000 of Subordinated Debt;
(5) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and Balboa Insurance Company with respect to
$250,000 of Subordinated Debt;
(6) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and MassMutual Corporate Investors with
respect to $3,000,000 of Subordinated Debt; and
-17-
(7) that certain Note Purchase Agreement dated as of December 27,
1991, executed by the Company and MassMutual Participation Investors with
respect to $1,500,000 of Subordinated Debt.
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person;
unless otherwise specified, "Subsidiary" means a Subsidiary of the Company.
"Termination Date" means the Quarterly Date falling in December,
1996.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all benefits under such
Plan exceeds (ii) the fair market value of all Plan assets allocable to such
benefits (excluding any accrued but unpaid contributions), all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the ERISA Group to
the PBGC or any other Person under Title IV of ERISA.
"Value" means, with respect to any Oil and Gas Property (including,
without limitation, a Mortgaged Property), the Discounted Present Value of
Future Net Revenue from such BB Property as set forth in the then most recent
Reserve Report.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Company's
independent public accountants) with the most recent audited consolidated
financial statements of the Company and its Consolidated Subsidiaries delivered
to the Banks; PROVIDED that, if the Company notifies the Agent that the Company
wishes to amend any covenant in Article V to eliminate the effect of any change
in generally accepted accounting principles on the operation of such covenant
(or if the Agent notifies the Company that the Required Banks wish to amend
Article V for such purpose), then the Company's compliance with such covenant
shall be determined on the basis of generally accepted accounting principles in
effect immediately before the relevant change in generally
-18-
accepted accounting principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Required Banks.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND. During the Revolving Credit
Period each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to lend to the Company from time to time amounts not to exceed in the
aggregate at any one time outstanding the excess of (i) the amount of its
Commitment over (ii) its Letter of Credit Liabilities at such time; PROVIDED,
that the Company may borrow on any date during the Revolving Credit Period only
an amount which, together with the aggregate principal amount of the outstanding
Loans and the aggregate Letter of Credit Liabilities, does not exceed the
Borrowing Base as of such date. Each Borrowing under this Section shall be in an
aggregate principal amount of $1,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in the aggregate amount of the unused
Commitments) and shall be made from the several Banks ratably in proportion to
their respective Commitments. Within the foregoing limits, the Company may
borrow under this Section, repay, or to the extent permitted by Section 2.09,
prepay Loans and reborrow at any time during the Revolving Credit Period under
this Section. The Commitments shall terminate at the close of business on the
Termination Date.
SECTION 2.02. METHOD OF BORROWING. (a) The Company shall give the
Agent notice (a "Notice of Borrowing") no later than 12:00 Noon (New York City
time) on the date of each Domestic Borrowing and at least three Euro-Dollar
Business Days before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate or the Euro-Dollar Rate, and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable
-19-
thereto, subject to the provisions of the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Bank of the contents thereof and of such Bank's ratable share of
such Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the Company.
(c) Not later than 11:00 A.M. (New York City time) on the date of
each Euro-Dollar Borrowing and not later than 1:00 P.M. (New York City time) on
the date of each Domestic Borrowing, each Bank shall make available its ratable
share of such Borrowing, in Federal or other funds immediately available in New
York City, to the Agent at its address specified in or pursuant to Section 9.01.
Unless the Agent determines that any applicable condition specified in Article
III has not been satisfied, the Agent will make the funds so received from the
Banks available to the Company at the Agent's aforesaid address.
(d) Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank will not make available to the Agent
such Bank's share of such Borrowing, the Agent may assume that such Bank has
made such share available to the Agent on the date of such Borrowing in
accordance with subsection (c) of this Section 2.02 and the Agent may, in
reliance upon such assumption, make available to the Company on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Agent, such Bank and the Company severally agree to
repay to the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Company until the date such amount is repaid to the Agent, at (i) in the
case of the Company, a rate per annum equal to the higher of the Federal Funds
Rate and the interest rate applicable thereto pursuant to Section 2.05 and (ii)
in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to
the Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.03. NOTES. (a) The Loans of each Bank shall be evidenced
by a single Note payable to the order of such Bank for the account of its
Applicable Lending Office in an amount equal to the aggregate unpaid principal
amount of such Bank's Loans.
(b) Each Bank may, by notice to the Company and the Agent, request
that its Domestic Loans and Euro-Dollar Loans be evidenced by separate Notes.
Each such Note shall
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be in substantially the form of Exhibit A hereto with appropriate modifications
to reflect the fact that it evidences solely Domestic Loans or Euro-Dollar
Loans, as the case may be. Each reference in this Agreement to the "Note" of
such Bank shall be deemed to refer to and include either or both of such Notes,
as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.01(b),
the Agent shall forward such Note to such Bank. Each Bank shall record the date,
amount and type of each Loan made by it and the date and amount of each payment
of principal made by the Company with respect thereto, and may, if such Bank so
elects in connection with any transfer or enforcement of its Note, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding; PROVIDED
that the failure of any Bank to make any such recordation or endorsement shall
not affect the obligations of the Company hereunder or under the Notes. Each
Bank is hereby irrevocably authorized by the Company so to endorse its Note and
to attach to and make a part of its Note a continuation of any such schedule as
and when required.
SECTION 2.04. MATURITY OF LOANS; MANDATORY PREPAYMENTS. The Company
shall repay, and there shall become due and payable, on each Principal Repayment
Date, an aggregate principal amount of the Loans equal to one-twelfth (1/12th)
of the aggregate principal amount of the Loans outstanding at the end of the
Revolving Credit Period; PROVIDED that in any event the outstanding Loans shall
be repaid in full not later than the Maturity Date. Each such payment shall be
applied to such Group or Groups of Loans as the Company may designate in the
applicable Notice of Borrowing or Notice of Interest Rate Election (or, failing
such designation, as determined by the Agent), and shall be applied to repay
ratably the Loans of the several Banks included in such Group or Groups. No
optional prepayment made pursuant to Section 2.09 after the end of the Revolving
Credit Period or contingent prepayment made pursuant to Section 2.10 after the
end of the Revolving Credit Period shall reduce the amount of any subsequent
prepayment required by this Section until the Loans have been paid in full.
SECTION 2.05. INTEREST RATES. (a) Each Domestic Loan shall bear
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, as follows:
(1) for any day on which Level I Status exists, at a rate per annum
equal to the lesser of (x) the Highest Lawful Rate applicable to the Bank
making such Loan and
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(y) the sum of .50% plus the Base Rate for such day; and
(2) for any day on which Level II Status exists, at a rate per annum
equal to the lesser of (x) the Highest Lawful Rate applicable to the Bank
making such Loan and (y) the sum of .75% plus the Base Rate for such day.
Such interest shall be payable for each Interest Period on the last day thereof
and on each date a Domestic Loan is converted to a Euro-Dollar Loan. Any overdue
principal of or interest on any Domestic Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the lesser of (x)
the Highest Lawful Rate applicable to the Bank making such Loan and (y) the sum
of 2% plus the rate otherwise applicable to Domestic Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the lesser of (x) the Highest Lawful Rate applicable to the
Bank making such Loan and (y) the sum of the Margin plus the applicable Adjusted
London Interbank Offered Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
"Margin" means (i) for any day on which Level I Status exists, 1
1/2% or (ii) for any day on which Level II Status exists, 1 3/4%.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Reference Bank to which such
Interest Period is to apply and for a period of time comparable to such Interest
Period.
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"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
(c) Any overdue principal of or interest on any Euro-Dollar Loan
shall bear interest, payable on demand, for each day from and including the date
payment thereof was due to but excluding the date of actual payment, at a rate
per annum equal to the lesser of (x) the Highest Lawful Rate applicable to the
Bank making such Loan and (y) the sum of 2% plus the higher of (i) the sum of
the Margin plus the Adjusted London Interbank Offered Rate applicable to such
Loan and (ii) the Margin plus the quotient obtained (rounded upward, if
necessary, to the next higher 1/100 of 1%) by dividing (A) the average (rounded
upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per
annum at which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
six months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Reference Banks
are offered to such Reference Bank in the London interbank market for the
applicable period determined as provided above by (B) 1.00 minus the Euro-Dollar
Reserve Percentage (or, if the circumstances described in clause (a) or (b) of
Section 8.01 shall exist, at a rate per annum equal to the lesser of (x) the
Highest Lawful Rate applicable to the Bank making such Loan and (y) the sum of
2% plus the rate applicable to Domestic Loans for such day).
(d) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Company and the Banks
of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(e) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Agent as contemplated hereby. If any Reference Bank does not
furnish a timely
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quotation, the Agent shall determine the relevant interest rate on the basis of
the quotation or quotations furnished by the remaining Reference Bank or Banks
or, if none of such quotations is available on a timely basis, the provisions of
Section 8.01 shall apply.
SECTION 2.06. FEES. (a) During the Revolving Credit Period, the
Company shall pay to the Agent for the accounts of the Banks ratably in
proportion to their Commitments a commitment fee at the rate of .50% per annum
on the daily average amount by which the aggregate amount of the Commitments
exceeds the sum of (i) the aggregate outstanding principal amount of the Loans
and (ii) the aggregate Letter of Credit Liabilities.
Such commitment fee shall accrue from and including the Effective Date to but
excluding the Termination Date. Accrued commitment fees shall be payable
quarterly on each Quarterly Date and upon the date of termination of the
Commitments in their entirety and, if later, the date the Loans shall be repaid
in their entirety.
(b) The Company shall pay to the Agent a letter of credit fee, as
follows:
(1) for any day on which Level I Status exists, at the rate of 1
1/2% per annum on the aggregate amount available for drawing under any
Letter of Credit from time to time, such fee to be payable for the account
of the Banks ratably in proportion to their participation therein; and
(2) for any day on which Level II Status exists, at the rate of 1
3/4% per annum on the aggregate amount available for drawing under any
Letter of Credit from time to time, such fee to be payable for the account
of the Banks ratably in proportion to their participation therein.
Such fee shall be payable in arrears on each Quarterly Date for so long as such
Letter of Credit is outstanding and on the date of termination thereof. The
Company shall pay to the Issuing Bank a fronting fee at a rate per annum equal
to 1/4 of 1% on the aggregate amount available for drawing under any Letter of
Credit issued from time to time, such fee to be payable in arrears on each
Quarterly Date for so long as such Letter of Credit is outstanding and on the
date of termination thereof. The Company shall also pay to the Issuing Bank
issuance, drawing, amendment and extension charges in the amounts and at the
times as agreed between the Company and the Issuing Bank.
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(c) The Company shall pay to the Agent on the Effective Date for the
account of the Banks in proportion to their respective Commitments,
participation fees in an amount equal to .625% of the aggregate amount of the
Commitments.
SECTION 2.07. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS.
During the Revolving Credit Period, the Company may, upon at least three
Domestic Business Days' notice to the Agent, (i) terminate the Commitments at
any time, if no Loans or Letter of Credit Liabilities are outstanding at such
time or (ii) ratably reduce from time to time by an aggregate amount of
$1,000,000 or any larger multiple thereof, the aggregate amount of the
Commitments in excess of the sum of (i) the aggregate outstanding principal
amount of the Loans, and (ii) the aggregate Letter of Credit Liabilities.
SECTION 2.08. METHOD OF ELECTING INTEREST RATES. (a) The Loans
included in each Borrowing shall bear interest initially at the type of rate
specified by the Company in the applicable Notice of Borrowing. Thereafter, the
Company may from time to time elect to change or continue the type of interest
rate borne by each Group of Loans (subject in each case to the provisions of
Article VIII), as follows:
(i) if such Loans are Domestic Loans, the Company may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business
Day;
(ii) if such Loans are Euro-Dollar Loans, the Company may elect to
convert such Loans to Domestic Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, in each case
effective on the last day of the then current Interest Period applicable
to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent at least three Euro-Dollar Business Days before the
conversion or continuation selected in such notice is to be effective. A Notice
of Interest Rate Election may, if it so specifies, apply to only a portion of
the aggregate principal amount of the relevant Group of Loans; PROVIDED that (i)
such portion is allocated ratably among the Loans comprising such Group and (ii)
the portion to which such Notice applies, and the remaining portion to which it
does not apply, are each $1,000,000 or any larger multiple of $1,000,000.
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(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in such
notice is to be effective, which shall comply with the applicable clause
of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if such new Loans are Euro-Dollar Loans, the duration
of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Company pursuant to subsection (a) above, the Agent shall promptly notify each
Bank of the contents thereof and such notice shall not thereafter be revocable
by the Company. If the Company fails to deliver a timely Notice of Interest Rate
Election to the Agent for any Group of Euro-Dollar Loans, such Loans shall be
converted into Domestic Loans on the last day of the then current Interest
Period applicable thereto.
SECTION 2.09. OPTIONAL PREPAYMENTS. (a) The Company may, upon at
least one Domestic Business Day's notice to the Agent, prepay Domestic Loans in
whole at any time, or from time to time in part in amounts aggregating
$1,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such optional prepayment shall be applied to prepay ratably the Domestic
Loans of the several Banks.
(b) The Company may, upon at least three Euro-Dollar Business Days'
notice to the Agent prepay the Loans comprising a Group of Euro-Dollar Loans on
the last day of any Interest Period applicable to such Group, in whole at any
time, or from time to time in part in amounts aggregating $1,000,000 or any
larger multiple of $1,000,000, by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment. Each
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such optional prepayment shall be applied to prepay ratably the Loans of the
several Banks included in such Group.
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Bank of the contents thereof and of such
Bank's ratable share of such prepayment and such notice shall not thereafter be
revocable by the Company.
SECTION 2.10. CONTINGENT PREPAYMENTS. (a) If at any time the Company
shall determine that a Borrowing Base Excession exists, the Company shall
forthwith notify the Banks. On or before the date falling 30 days after the
inception of a Borrowing Base Excession, the Company shall remedy such Borrowing
Base Excession through (i) prepaying together with accrued interest thereon to
the date of prepayment such principal amount of the Loans as may be necessary to
reduce the outstanding principal amount thereof to the Borrowing Base at the
date of prepayment, (ii) providing cash cover for Letter of Credit Liabilities
in accordance with Section 6.03, (iii) increasing the Borrowing Base through the
addition of incremental BB Properties in accordance with Section 2.14 or (iv) a
combination of (i), (ii) and (iii).
(b) If at any time the Company receives insurance proceeds in an
amount greater than $500,000 pursuant to insurance effected in accordance with
Section 5.02(a), the Company shall forthwith notify the Agent of such receipt.
If within 15 days after receipt the Company shall not have expended such
proceeds or committed to expend an amount equivalent thereto for the restoration
or replacement of the asset in respect of which such payment was made, then the
Company shall forthwith prepay together with accrued interest thereon to the
date of prepayment an aggregate principal amount of the Loans equal to the
amount of such proceeds.
SECTION 2.11. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Company
shall make each payment of principal of, and interest on, the Loans and of
Letter of Credit Liabilities and fees hereunder, not later than 11:00 A.M. (New
York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Agent at its address referred to in Section
9.01. The Agent will promptly distribute to each Bank its ratable share of each
such payment received by the Agent for the account of the Banks. Whenever any
payment of principal of, or interest on, the Domestic Loans or of Letter of
Credit Liabilities or fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the
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Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time.
(b) Unless the Agent shall have received notice from the Company
prior to the date on which any payment is due to the Banks hereunder that the
Company will not make such payment in full, the Agent may assume that the
Company has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that the Company shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.12. FUNDING LOSSES. If the Company makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
converted to a Domestic Loan (pursuant to Article VI or VIII or otherwise) on
any day other than the last day of the Interest Period applicable thereto, or
the end of an applicable period fixed pursuant to Section 2.05(c), or if the
Company fails to borrow or prepay any Euro-Dollar Loans after notice has been
given to any Bank in accordance with Section 2.02(b) or 2.09(c), the Company
shall reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing or prospective Participant in the
related Loan), including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, but excluding loss of
Margin for the period after any such payment or failure to borrow, provided that
such Bank shall have delivered to the Company a certificate as to the amount of
such loss or expense, which certificate shall be conclusive in the absence of
manifest error.
SECTION 2.13. COMPUTATION OF INTEREST AND FEES. Interest based on
Prime Rate hereunder shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year
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of 360 days and paid for the actual number of days elapsed (including the first
day but excluding the last day).
SECTION 2.14. BORROWING BASE. During the period from and after
December 21, 1994 and until the earlier of (A) the receipt by the Agent of the
Security Instruments referred to in the succeeding sentence and (B) the next
redetermination of the Borrowing Base, the amount of the Borrowing Base shall be
$50,000,000. Upon receipt by the Agent of Security Instruments relating to
Properties held by Axcon Corp. and the Debt Subsidiaries, and Security
Instruments relating to additional interests in Ancon Partnership, Ltd. acquired
by the Company, each substantially similar in form and substance to the Security
Instruments of the same type set forth on Schedule III(a) and otherwise in form
and substance satisfactory to the Agent, the Borrowing Base shall be $80,000,000
until a subsequent redetermination of the Borrowing Base. Upon receipt of the
reports delivered pursuant to Section 5.04 and such other reports, data, and
supplemental information as may, from time to time, be reasonably requested by
the Banks (together with the Initial Reserve Report, the "Reserve Reports"),
together with a certificate from the President, Treasurer, Controller or Chief
Financial Officer of the Company that, to the best of his knowledge and in all
material respects, (i) the information contained in such Reserve Report is true
and correct, (ii) except as set forth on an exhibit to the certificate, that
either of the Company, a Subsidiary or a Partnership owns good and marketable
title to the Properties evaluated free of all Liens except for Excepted Liens,
(iii) the Banks have valid first and prior liens pursuant to the Security
Instruments on Mortgaged Properties having an aggregate Value which equals or
exceeds 80% of the Borrowing Base then in effect, (iv) except as set forth on an
exhibit to the certificate, on a net basis there are no gas imbalances, take or
pay or other prepayments with respect to the Company's, any Subsidiary's or any
Partnership's Oil and Gas Properties which would require the Company, any
Subsidiary or any Partnership to deliver Hydrocarbons produced from the
Company's, any Subsidiary's or any Partnership's Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor which
would exceed $300,000 in the aggregate and (v) no other BB Properties have been
sold since the date of the last Borrowing Base determination except as set forth
on an exhibits to the certificate, which certificate shall list all BB
Properties sold in compliance with Section 5.18 and in such detail as reasonably
required by the Banks, the Banks will evaluate such Properties. Based upon such
information and upon such other information as the Banks deem appropriate and
consistent with each Bank's normal oil and gas lending criteria as it exists at
that particular time, the Banks, in their sole discretion,
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will redetermine the Borrowing Base, which redetermination shall be accomplished
not later than and effective as of the fifteenth day of each March and the first
day of each September of each calendar year and 30 days after a Reserve Report
is furnished to the Banks pursuant to Section 5.04(c) (provided that the Company
shall have furnished the related Reserve Report in a timely and complete
manner).
Each redetermination of the Borrowing Base shall be effective and
applicable for all purposes of this Agreement until the effective date of the
next redetermination, except for such redetermination as the Banks may conduct
in good faith and at their sole discretion upon the occurrence of any event or
change having a Material Adverse Effect or a material change in the value or
nature of the Property included in the Borrowing Base. The Agent will promptly
notify the Company of each redetermination of the Borrowing Base made by the
Banks. Until such notification the Borrowing Base established for the directly
preceding period shall remain in effect, and thereafter the new Borrowing Base
as set forth in such notification shall be in effect.
The Borrowing Base shall also be adjusted as provided in Sections
5.05 and 5.18.
SECTION 2.15. LETTERS OF CREDIT. (a) Subject to the terms and
conditions hereof, the Issuing Bank agrees to issue letters of credit hereunder
from time to time before the tenth day before the Termination Date upon the
request of the Company (the "Letters of Credit"); PROVIDED that, immediately
after each Letter of Credit is issued, (i) the aggregate amount of the Letter of
Credit Liabilities shall not exceed the Letter of Credit Commitment and (ii) the
aggregate amount of the Letter of Credit Liabilities plus the aggregate
outstanding amount of all Loans does not exceed the lesser of (x) the aggregate
amount of the Commitments and (y) the Borrowing Base. Upon the date of issuance
by the Issuing Bank of a Letter of Credit, the Issuing Bank shall be deemed,
without further action by any party hereto, to have sold to each Bank, and each
Bank shall be deemed, without further action by any party hereto, to have
purchased from the Issuing Bank, a participation in such Letter of Credit and
the related Letter of Credit Liabilities in the proportion their respective
Commitments bear to the aggregate Commitments.
(b) The Company shall give the Issuing Bank notice at least ten days
prior to the requested issuance of a Letter of Credit specifying the date such
Letter of Credit is to be issued, and describing the terms of such Letter of
Credit and the nature of the transactions to be supported thereby (such notice,
including any such notice given in
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connection with the extension of a Letter of Credit, a "Notice of Issuance").
Upon receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the
Agent, and the Agent shall promptly notify each Bank of the contents thereof and
of the amount of such Bank's participation in such Letter of Credit. The
issuance by the Issuing Bank of each Letter of Credit shall, in addition to the
conditions precedent set forth in Article III, be subject to the conditions
precedent that such Letter of Credit shall be in such form and contain such
terms as shall be satisfactory to the Issuing Bank and that the Company shall
have executed and delivered such other instruments and agreements relating to
such Letter of Credit as the Issuing Bank shall have reasonably requested. The
extension or renewal of any Letter of Credit shall be deemed to be an issuance
of such Letter of Credit, and if any Letter of Credit contains a provision
pursuant to which it is deemed to be extended unless notice of termination is
given by the Issuing Bank, the Issuing Bank shall timely give such notice of
termination unless it has theretofore timely received a Notice of Issuance and
the other conditions to issuance of a Letter of Credit have also theretofore
been met with respect to such extension. No Letter of Credit shall have a term
of more than one year; PROVIDED that a Letter of Credit may contain a provision
pursuant to which it is deemed to be extended on an annual basis unless notice
of termination is given by the Issuing Bank; PROVIDED further that no Letter of
Credit shall have a term extending or be so extendible beyond the Termination
Date.
(c) Upon receipt from the beneficiary of any Letter of Credit of any
notice of a drawing under such Letter of Credit, the Issuing Bank shall notify
the Agent and the Agent shall promptly notify the Company and each other Bank as
to the amount to be paid as a result of such demand or drawing and the payment
date. The Company shall be irrevocably and unconditionally obligated forthwith
to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any
drawing under any Letter of Credit, without presentment, demand, protest or
other formalities of any kind. All such amounts paid by the Issuing Bank and
remaining unpaid by the Company shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the sum of 2% plus the rate
applicable to Base Rate Loans for such day. In addition, each Bank will pay to
the Agent, for the account of the Issuing Bank, immediately upon the Issuing
Bank's demand at any time during the period commencing after such drawing until
reimbursement therefor in full by the Company, an amount equal to such Bank's
ratable share of such drawing (in proportion to its participation therein),
together with interest on such amount for each day from the date of the Issuing
Bank's demand for such payment (or, if such demand is made after
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12:00 Noon (New York City time) on such date, from the next succeeding Domestic
Business Day) to the date of payment by such Bank of such amount at a rate of
interest per annum equal to the rate applicable to Base Rate Loans for such
period. The Issuing Bank will pay to each Bank ratably all amounts received from
the Company for application in payment of its reimbursement obligations in
respect of any Letter of Credit, but only to the extent such Bank has made
payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto.
(d) The obligations of the Company and each Bank under subsection
(c) above shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or
any Letter of Credit or any document related hereto or thereto;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of this Agreement or any Letter of Credit or any
document related hereto or thereto;
(iii) the use which may be made of the Letter of Credit by, or any acts
or omission of, a beneficiary of a Letter of Credit (or any Person for
whom the beneficiary may be acting);
(iv) the existence of any claim, set-off, defense or other rights that
the Company may have at any time against a beneficiary of a Letter of
Credit (or any Person for whom the beneficiary may be acting), the Banks
(including the Issuing Bank) or any other Person, whether in connection
with this Agreement or the Letter of Credit or any document related hereto
or thereto or any unrelated transaction;
(v) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;
(vi) payment under a Letter of Credit against presentation to the
Issuing Bank of a draft or certificate that does not comply with the terms
of the Letter of Credit, PROVIDED that the Issuing Bank's determination
that documents presented under the Letter of Credit comply with the terms
thereof shall not have
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constituted gross negligence or willful misconduct of the Issuing Bank; or
(vii) any other act or omission to act or delay of any kind by any Bank
(including the Issuing Bank), the Agent or any other Person or any other
event or circumstance whatsoever that might, but for the provisions of
this subsection (vii), constitute a legal or equitable discharge of the
Company's or the Bank's obligations hereunder.
(e) The Company hereby indemnifies and holds harmless each Bank
(including the Issuing Bank) and the Agent from and against any and all claims,
damages, losses, liabilities, costs or expenses which such Bank or the Agent may
incur (including, without limitation, any claims, damages, losses, liabilities,
costs or expenses which the Issuing Bank may incur by reason of or in connection
with the failure of any other Bank to fulfill or comply with its obligations to
such Issuing Bank hereunder (but nothing herein contained shall affect any
rights the Company may have against such defaulting Bank)), and none of the
Banks (including the Issuing Bank) nor the Agent nor any of their officers or
directors or employees or agents shall be liable or responsible, by reason of or
in connection with the execution and delivery or transfer of or payment or
failure to pay under any Letter of Credit, including without limitation any of
the circumstances enumerated in subsection (d) above, as well as (i) any error,
omission, interruption or delay in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of
technical terms, (iii) any loss or delay in the transmission of any document
required in order to make a drawing under a Letter of Credit, (iv) any
consequences arising from causes beyond the control of the Issuing Bank,
including without limitation any government acts, or any other circumstances
whatsoever in making or failing to make payment under such Letter of Credit;
PROVIDED that the Company shall not be required to indemnify the Issuing Bank
for any claims, damages, losses, liabilities, costs or expenses, and the Company
shall have a claim for direct (but not consequential) damage suffered by it, to
the extent found by a court of competent jurisdiction to have been caused by (x)
the willful misconduct or gross negligence of the Issuing Bank in determining
whether a request presented under any Letter of Credit complied with the terms
of such Letter of Credit or (y) the Issuing Bank's failure to pay under any
Letter of Credit after the presentation to it of a request strictly complying
with the terms and conditions of the Letter of Credit. Nothing in this
subsection (e) is intended to limit the obligations of the Company under any
other provision of this Agreement.
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ARTICLE III
CONDITIONS
SECTION 3.01. EFFECTIVENESS. This Amended Agreement shall become
effective on the date that each of the following conditions shall have been
satisfied (or waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each of
the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of the New Bank of a duly
executed Note dated on or before the Effective Date complying with the
provisions of Section 2.03;
(c) receipt by the Agent of an opinion of counsel for the Company,
substantially in the form of Exhibit B hereto and covering such additional
matters relating to the transactions contemplated hereby as the Required
Banks may reasonably request;
(d) receipt by the Agent of an opinion of Davis Polk & Wardwell,
special counsel for the Agent, substantially in the form of Exhibit C
hereto and covering such additional matters relating to the transactions
contemplated hereby as the Required Banks may reasonably request;
(e) receipt by the Agent of a duly executed copy
of each of the Security Amendments; and
(f) receipt by the Agent of all documents or opinions it may
reasonably request relating to the existence of the Company, its
Subsidiaries and the Partnerships, the corporate authority for and the
validity of the Financing Documents, title to the Mortgaged Properties,
and any other matters relevant hereto, all in form and substance
satisfactory to the Agent;
PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
December 31, 1994.
On the Effective Date, each Continuing Bank shall assign and sell,
and by its execution and delivery hereof
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each Continuing Bank does, subject to the effectiveness hereof, hereby assign
and sell such portion of the loans and liabilities held by such Continuing Bank
under the Original Credit Agreement and the rights of such Continuing Bank under
the Original Credit Agreement to the New Bank as may be necessary in order that,
after giving effect thereto, the loans and liabilities under the Original Credit
Agreement shall be held by the Banks in proportion to their Commitments set
forth on the signature pages of this Amended Agreement, and the New Bank shall
accept, and by its execution and delivery hereof the New Bank hereby does,
subject to the effectiveness hereof, accept such assignment and in consideration
thereof the New Bank shall pay to the Agent for the account of each Continuing
Bank on the Effective Date an amount equal to the aggregate principal amount of
the loans of such Continuing Bank transferred as aforesaid on the Effective
Date. The foregoing assignment shall be without any representation or warranty
on the part of and without recourse to the Continuing Banks.
On the Effective Date, the following transactions shall occur
simultaneously:
(i) the Original Credit Agreement shall be
automatically amended and restated in its entirety to
read as set forth herein;
(ii) the New Bank shall become a Bank party to this Agreement with a
Commitment as set forth on the signature pages of this Amended Agreement;
(iii) the Commitments of the Continuing Banks
shall be as set forth on the signature pages of this
Amended Agreement; and
(iv) Each Bank shall have a participation in any Letter of Credit
and the related Letter of Credit Liabilities in the proportion its
Commitment bears to the aggregate Commitments as set forth on the
signature pages of this Amended Agreement.
On and after the Effective Date, the rights and obligations of the parties
hereto shall be governed by this Amended Agreement; PROVIDED the rights and
obligations of the parties to the Original Credit Agreement with respect to the
period prior to the Effective Date shall continue to be governed by the
provisions of the Original Credit Agreement. The Agent shall promptly notify the
Company and the Banks of the Effective Date, and such notice shall be conclusive
and binding on all parties hereto.
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SECTION 3.02. TRANSITIONAL PROVISIONS. (a) Each loan outstanding
under the Original Credit Agreement on the Effective Date shall mature and be
payable in accordance with this Amended Agreement.
(b) The interest rates determined in accordance with Section 2.05 of
this Amended Agreement shall be effective on the Effective Date.
SECTION 3.03. EXISTING LIENS. The liens created by the Security
Instruments shall continue in full force and effect for the purpose of securing
the Indebtedness.
SECTION 3.04. CREDIT EVENTS. The obligation of any Bank to make a
Loan on the occasion of any Borrowing or to issue any Letter of Credit is
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing or Notice of
Issuance as required by Section 2.02 or 2.15, as the case may be;
(b) the fact that, immediately after such Borrowing, the sum of (i)
the aggregate outstanding principal amount of the Loans and (ii) the
aggregate Letter of Credit Liabilities will not exceed the aggregate
amount of the Commitments;
(c) the fact that, immediately after such Borrowing, the sum of (i)
the aggregate outstanding principal amount of the Loans and (ii) the
aggregate Letter of Credit Liabilities will not exceed the Borrowing Base
at such time;
(d) the fact that, immediately before and after such Borrowing,
no Default shall have occurred and be continuing; and
(e) the fact that the representations and warranties of the Company
contained in the Financing Documents shall be true on and as of the date
of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Company on the date of such Borrowing as to the facts specified in clauses
(b), (c), (d) and (e) of this Section.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each of the Company and
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted and is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure so
to qualify would have a Material Adverse Effect.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Company and its
Subsidiaries of the respective Financing Documents to which they are parties are
within their respective corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, agency or official (except such filings as may be
necessary to perfect the Liens of the Security Instruments) and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Company or
any Subsidiary or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company, any Subsidiary or any Partnership or result
in the creation or imposition of any Lien on any asset of the Company, any
Subsidiary or any Partnership (other than the Liens created by the Security
Instruments).
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of the Company and each of the other Financing Documents, when
executed and delivered in accordance with this Agreement by the Company or any
Subsidiary, will constitute a valid and binding obligation of such party, in
each case enforceable against such party in accordance with its terms.
SECTION 4.04. FINANCIAL INFORMATION.
(a) The consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of December 31, 1993 and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
then ended, reported on by Arthur Andersen & Co. and set forth in the Company's
1993 Form 10-K, a copy of which has been
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delivered to each of the Banks, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Company and its Consolidated Subsidiaries as of such date and their consolidated
results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of September 30, 1994 and the related unaudited
consolidated statements of earnings and cash flows for the three months then
ended, set forth in the Company's quarterly report for the fiscal quarter ended
September 30, 1994 as filed with the Securities and Exchange Commission on Form
10-Q, a copy of which has been delivered to each of the Banks, fairly present,
in conformity with generally accepted accounting principles, the consolidated
financial position of the Company and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such three
month period (subject to normal year-end adjustments).
(c) The balance sheet of each Partnership as of December 31, 1993,
and the related statements of operations, partners' equity and cash flows for
the fiscal year then ended with the opinion thereon of the accountants,
heretofore delivered to each of the Banks, are complete and correct and fairly
present the financial condition of each Partnership as at such date and the
results of such Partnership's operations for the fiscal year then ended, all in
accordance with generally accepted accounting principles.
(d) The unaudited balance sheet of each Partnership as of June 30,
1994, and the related statements of operations, partners' equity and cash flows
for the three months then ended, heretofore delivered to each of the Banks, are
complete and correct and fairly present the financial condition of each
Partnership as at such date and the results of such Partnership's operations for
the three months then ended, all in accordance with generally accepted
accounting principles.
(e) Neither the Company, any of its Subsidiaries nor any Partnership
had on the respective dates set forth above any material contingent liabilities,
liabilities for tax, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in their respective financial statements as at the
respective dates. Since September 30, 1994 (or June 30, 1994 in the case of the
Partnerships), there has been no change or event having
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a Material Adverse Effect, except as disclosed on Schedule 4.05.
SECTION 4.05. LITIGATION. There are no legal or arbitral proceedings
or any proceedings by or before any governmental or regulatory authority or
agency, now pending or (to the knowledge of the Company) threatened against the
Company, any Subsidiary or any Partnership (i) which, if adversely determined,
could have a Material Adverse Effect, except as disclosed in Schedule 4.05 or
(ii) which in any manner draw into question the validity of any of the Financing
Documents.
SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group
has fulfilled its obligations under the minimum funding standards of ERISA and
the Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. DEBT ARRANGEMENTS. Schedule 4.07 is a complete and
correct list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, purchase agreement, guarantee or other arrangement for or
related to borrowed money (other than this Agreement) providing for or otherwise
relating to any Debt of the Company, any Subsidiary or any Partnership ("Debt
Arrangements") and the aggregate principal or face amount outstanding or which
may become outstanding under each such Debt Arrangement is correctly described
in said Schedule 4.07 as of the date indicated (but if the date indicated is not
the date of this Agreement, then such principal outstanding has not increased
since the date indicated). The Company has provided a true and complete copy of
each Debt Arrangement to the Agent. Except for any guaranty agreements of the
Company described on Schedule 4.07 or the Debt of any Subsidiary under the
agreements described in Schedule III(a), only the Person listed on Schedule 4.07
beside each Debt Arrangement is liable for such Debt, and the Company, the other
Subsidiaries and the Partnerships and their respective Properties are not liable
directly, contingently or otherwise for such Debt unless
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such entity is listed beside a Debt Arrangement as an obligor. In addition to
the Debt Arrangements, the Company has entered into several performance
guaranties guaranteeing the performance of certain covenants of the Subsidiaries
in the connection with prior acquisitions. The Company is not in default of
these performance guaranties and no claim has been asserted under any
performance guaranty.
SECTION 4.08. TAXES. The Company and its Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any
Subsidiary. The charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Company, adequate.
SECTION 4.09. SUBSIDIARIES AND PARTNERSHIPS; PARTNERSHIP AGREEMENTS.
(a) The Company has no Subsidiaries except those shown in Schedule 4.09(a),
which Schedule is complete and accurate.
(b) None of the Company, the Subsidiaries or the Partnerships owns
an interest in any partnerships except those shown in Schedule 4.09(b), which
Schedule is complete and accurate. The Company has delivered to the Agent true
and correct copies of the Partnership Agreements. Such Partnership Agreements
have not been modified or terminated, and they are in full force and effect as
of the date hereof and no default has occurred and is in continuance thereunder
which would have a Material Adverse Effect, except as disclosed to the Banks in
Schedule 4.09(b).
SECTION 4.10. REGULATION. Neither the Company nor any Subsidiary is
subject to regulation under the Public Utility Holding Company Act of 1935, as
amended, the Investment Company Act of 1940, as amended, or any other law or
regulation that limits the incurrence by the Company or any Subsidiary of Debt,
including, without limitation, laws relating to common or contract carriers or
the sale of electricity, gas, steam or other public utility services.
SECTION 4.11. FULL DISCLOSURE. All information heretofore furnished
by the Company to the Agent or any Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Company to the Agent or any Bank will be,
true and accurate in all material respects on the date as of which such
information is stated or certified. The Company has disclosed to the Banks in
writing any and all facts which have or may have a Material Adverse Effect.
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SECTION 4.12. TITLES, ETC. Except as set forth on Schedule 4.12 and
as contemplated by Section 5.05, the Company and each of its Subsidiaries and
Partnerships has good and defensible title to its respective BB Properties and
all other material (individually or in the aggregate) Properties, free and clear
of all Liens except Liens permitted by Section 5.09. Except as the same may be
affected by acquisitions or dispositions of Hydrocarbon Interests expressly
permitted under this Agreement subsequent to the date of the most recent Reserve
Report, after giving full effect to the Excepted Liens, the Company, the
Subsidiaries and the Partnerships, in all material respects, own the net
interests in production attributable to the wells and units evaluated in the
Initial Reserve Report or the most recent Reserve Report furnished to the Banks
pursuant to Section 5.04 and the ownership of such Properties shall not in any
material respect obligate the Company, the Subsidiaries or the Partnerships to
bear the costs and expenses relating to the maintenance, development and
operations of each such Property in an amount in excess of the working interest
of each Property set forth in the Initial Reserve Report or the most recent
Reserve Report furnished to the Banks pursuant to Section 5.04.
SECTION 4.13. LIEN STATUS. The Security Instruments create valid and
perfected Liens against the Mortgaged Properties purported to be subjected
thereto securing the payment of the obligations of the Company under the
Financing Documents and all other obligations purported to be secured thereby
subject to no prior or equal Liens except Liens permitted under Section 5.09.
SECTION 4.14. RESERVE DATA AND PROJECTIONS. The statements and
conclusions as to oil and gas reserves and forecast results included in the
Initial Reserve Reports are, and all such information included in any future
Reserve Report will be, based upon the best information available to the Company
at the time such statements were or are made and take or will take into
consideration all information which, in the reasonable judgment of the Company,
was or is believed to be material at the time (determined in accordance with
standards customarily applicable to professionals in the oil and gas industry),
it being understood that such statements and conclusions are necessarily based
upon professional opinions, estimates and projections, and the Company does not
warrant that such opinions, estimates and projections will ultimately prove to
have been accurate.
SECTION 4.15. LOCATION OF BUSINESS AND OFFICES. The Company's and
each Subsidiary's principal place of business and chief executive offices are
located at the
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address of the Company stated on the signature page of this Agreement unless
otherwise noted in Schedule 4.09(a).
SECTION 4.16. GAS IMBALANCES. Except as set forth on Schedule 4.16,
on a net basis there are no gas imbalances, take or pay or other prepayments
with respect to the BB Properties which would require the Company, any
Subsidiary or any Partnership to deliver Hydrocarbons produced from the BB
Properties at some future time without then or thereafter receiving full payment
therefor which would exceed $300,000 in the aggregate.
SECTION 4.17. RATE FILINGS. To the best of the Company's knowledge,
none of the Company, any Subsidiary or any Partnership has violated any
provisions of The Natural Gas Act or The Natural Gas Policy Act of 1978 or any
other Federal or State law or any of the regulations thereunder (including those
of the respective Conservation Commissions and Land Offices of the various
jurisdictions having authority over the BB Properties) with respect to the BB
Properties which would have a Material Adverse Effect, and the Company, the
Subsidiaries and the Partnerships have made all necessary rate filings,
certificate applications, well category filings, interim collection filings and
notices, and any other filings or certifications, and have received all
necessary regulatory authorizations (including without limitation necessary
authorizations, if any, with respect to any processing arrangements conducted by
any one of them or others respecting any BB Property or production therefrom)
required under said laws and regulations with respect to all of the BB
Properties or production therefrom so as not to have a Material Adverse Effect.
Such material rate filings, certificate applications, well category filings,
interim collection filings and notices, and other filings and certifications
contain no untrue statements of material facts nor do they omit any statements
of material facts necessary in such filings.
SECTION 4.18. ENVIRONMENTAL MATTERS. Except as
would not cause a Material Adverse Effect (whether
individually or in the aggregate) and except as disclosed in
Schedule 4.18:
(a) Neither any Property of the Company, its Subsidiaries or the
Partnerships nor the operations conducted thereon violate any
Environmental Laws or order of any court or Governmental Authority with
respect to Environmental Laws;
(b) Without limitation of clause (a) above, no Property of the
Company, its Subsidiaries or the Partnerships nor the operations currently
conducted thereon or by any prior owner or operators of such
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Property or operation, are in violation of or subject to any existing,
pending or threatened action, suit, investigation, inquiry or proceeding
by or before any court or Governmental Authority with respect to
Environmental Laws or to any remedial obligations under Environmental
Laws;
(c) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation or
use of any and all Property of the Company, its Subsidiaries and the
Partnerships, including without limitation past or present treatment,
storage, disposal or release of a hazardous substance or solid waste into
the environment, have been duly obtained or filed;
(d) All hazardous substances generated at any and all Property of
the Company, its Subsidiaries and the Partnerships have in the past been
transported, treated and disposed of only by carriers maintaining valid
permits under RCRA and any other Environmental Law and only at treatment,
storage and disposal facilities maintaining valid permits under RCRA and
any other Environmental Law;
(e) The Company, its Subsidiaries and the Partnerships have taken
all reasonable steps to determine and have determined that no hazardous
substances or solid waste have been disposed of or otherwise released and
there has been no threatened release of any hazardous substances on or to
any Property of the Company, its Subsidiaries or the Partnerships except
in compliance with Environmental Laws; and
(f) The Company, its Subsidiaries and the Partnerships have no
material contingent liability in connection with any release or threatened
release of any hazardous substance or solid waste into the environment.
SECTION 4.19. NON-GUARANTOR SUBSIDIARIES. The total assets of all
the Non-Guarantor Subsidiaries valued at book value does not exceed in the
aggregate the lesser of (a) $3,000,000 or (b) three percent (3%) of the
consolidated net worth of the Company, as reflected in the Company's most recent
financial statements delivered to the Banks.
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ARTICLE V
COVENANTS
The Company agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note or any Letter of Credit Liability
remains unpaid:
SECTION 5.01. INFORMATION. The Company will deliver to each of the
Banks:
(a) as soon as available and in any event within 95 days after the
end of each fiscal year, a consolidated balance sheet of the Company and
its Consolidated Subsidiaries as of the end of such fiscal year and the
related consolidated statements of income, shareholders' equity and cash
flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, all reported on in a manner
acceptable to the Securities and Exchange Commission by Arthur Andersen &
Co. or other independent public accountants of nationally recognized
standing;
(b) as soon as available and in any event within 50 days after the
end of each of the first three quarters of each fiscal year, a
consolidated balance sheet of the Company and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for such quarter and for the portion
of the fiscal year ended at the end of such quarter, setting forth in each
case in comparative form the figures for the corresponding quarter and the
corresponding portion of the previous fiscal year, all certified (subject
to normal year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by the chief financial
officer or the chief accounting officer of the Company;
(c) Unless no longer required or waived pursuant to the applicable
Partnership Agreement, as soon as available and in any event within 95
days after the end of each fiscal year of a Partnership, the respective
statements of operations, partners' equity and cash flows of each such
Partnership for such year and the related balance sheets as at the end of
such year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, if one was performed as of December 31, 1993 for
Partnerships then in existence and if one is
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required by the Partnership Agreement for those Partnerships formed
subsequently, which opinion shall state that said financial statements
present fairly, in all material respects, the respective financial
position and results of operations of such Partnership as at the end of,
and for, such fiscal year;
(d) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Company (i)
setting forth in reasonable detail the calculations required to establish
whether the Company was in compliance with the requirements of Sections
5.19 and 5.20 on the date of such financial statements and (ii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action
which it is taking or proposes to take with respect thereto;
(e) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i)
whether anything has come to their attention to cause them to believe that
any Default existed on the date of such statements and (ii) confirming the
calculations set forth in the officer's certificate delivered
simultaneously therewith pursuant to clause (d) above;
(f) within five days after any officer of the Company or the Company
obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer
of the Company setting forth the details thereof and the action which it
is taking or proposes to take with respect thereto;
(g) as soon as available after the end of each quarterly period of
each fiscal year of the Company, copies of all financial statements,
reports and proxy statements mailed to the shareholders of the Company and
to the partners of any Partnership generally;
(h) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q
and 8-K (or their equivalents) which the Company shall have filed with the
Securities and Exchange Commission;
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(i) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as defined
in Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA
or notice that any Multiemployer Plan is in reorganization, is insolvent
or has been terminated, a copy of such notice; (iii) receives notice from
the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect
of, or appoint a trustee to administer any Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under Section
412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a
copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to
any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement which has resulted
or could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the chief
accounting officer of the Company setting forth details as to such
occurrence and action, if any, which the Company or applicable member of
the ERISA Group is required or proposes to take;
(j) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Company
detailing all assets of the Company, its Subsidiaries and the Partnerships
which are subject to Liens (other than (i) Liens created by the Security
Instruments and (ii) Excepted Liens) securing Debt or other obligations,
and in the case of Oil and Gas Properties, setting forth the Value thereof
as reflected in the most recent Reserve Report;
(k) simultaneously with the delivery of the Reserve Reports pursuant
to Section 5.04, a list of all Persons disbursing proceeds to the Company,
any Subsidiary or any Partnership from the sale of the oil, gas and
minerals produced from the Mortgaged Property;
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(l) promptly after the Company knows of any event or condition
having a Material Adverse Effect, a notice of such event or condition
describing the same in reasonable detail;
(m) prior to January 31 of each year, projections of the Company's
consolidated operations and annual budget for that year setting forth in
reasonable detail all major assumptions used in preparing such projections
and budget;
(n) simultaneously with the delivery to registered holders of
Subordinated Debt, any notices, reports or statements required by the
Subordinated Debt Purchase Agreements to be delivered to such registered
holders of Subordinated Debt, but only if such notices, reports or
statements are in addition to those notices, reports or statements
required by this Section 5.01 to be delivered by the Company to each of
the Banks;
(o) promptly, notice of all legal or arbitral proceedings, and of
all proceedings before any Governmental Authority affecting the Company,
any Subsidiary or any Partnership except proceedings which, if adversely
determined, would not have a Material Adverse Effect;
(p) within thirty days after the Effective Date, opinions of local
counsel of Arkansas, Colorado, Kansas, Louisiana, Mississippi, Montana,
New Mexico, Oklahoma, Texas, Utah, each substantially similar in form and
substance to the respective form of local counsel opinion set forth in the
exhibits to the Original Credit Agreement and otherwise in form and
substance satisfactory to the Agent;
(q) within thirty days after the Effective Date, a certificate of an
officer of the Company, stating that each of the Security Amendments (if
appropriate under applicable law) has been duly filed under the laws of
each State in which the Mortgaged Properties described in Exhibit A to
such Security Instrument are situated; and
(r) from time to time such other information regarding the business,
affairs or financial condition of the Company, any of the Subsidiaries or
any Partnership as any Bank or the Agent may reasonably request.
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SECTION 5.02. CORPORATE EXISTENCE, ETC.
(a) Except as otherwise allowed by Section 5.15, the Company will,
and will cause each Subsidiary (except those Acquisition Subsidiaries, Bridge
Subsidiaries and Debt Subsidiaries that do not own any BB Properties) and each
Partnership to: preserve and maintain its corporate or partnership existence and
all of its material rights, privileges and franchises; comply with the
requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements could have a Material Adverse Effect; pay and discharge all taxes,
assessments and governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; maintain all of its Properties
used or useful in its business in good working order and condition, ordinary
wear and tear excepted; permit representatives of any Bank or the Agent, during
normal business hours, to examine, copy and make extracts from its books and
records, to inspect its Properties, and to discuss its business and affairs with
its officers, petroleum engineers and independent petroleum consultants and
public accountants, all to the extent reasonably requested by such Bank or the
Agent (as the case may be); and keep insured by financially sound and reputable
insurers all property of a character usually insured by corporations engaged in
the same or similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such corporations and
carry such other insurance as is usually carried by such corporations.
(b) The Company will at its own expense do or cause to be done all
things reasonably necessary to preserve and keep in good repair, working order
and efficiency in accordance with good industry practices all of the Oil and Gas
Properties owned by the Company, any Subsidiary (except those Acquisition
Subsidiaries, Bridge Subsidiaries and Debt Subsidiaries that do not own any BB
Properties) and any Partnership including, without limitation, all equipment,
machinery and facilities, and from time to time will make all the reasonably
necessary repairs, renewals and replacements so that at all times the state and
condition of the Oil and Gas Properties owned by the Company, any Subsidiary
(except those Acquisition Subsidiaries, Bridge Subsidiaries and Debt
Subsidiaries that do not own any BB Properties) and any Partnership will be
fully preserved and maintained, except to the extent a portion of such Oil and
Gas Properties is no longer capable of producing
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Hydrocarbons in economically reasonable amounts. The Company will promptly pay
and discharge or cause to be paid and discharged all delay rentals, royalties,
expenses and indebtedness accruing under, and perform or cause to be performed
each and every act, matter or thing required by, each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting the
Company's, a Subsidiary's (except those Acquisition Subsidiaries, Bridge
Subsidiaries and Debt Subsidiaries that do not own any BB Properties) or a
Partnership's interests in their Oil and Gas Properties and will do all other
things necessary to keep unimpaired the Company's, a Subsidiary's (except those
Acquisition Subsidiaries, Bridge Subsidiaries and Debt Subsidiaries that do not
own any BB Properties) or a Partnership's rights with respect thereto and
prevent any forfeiture thereof or a default thereunder, except to the extent a
portion of such Oil and Gas Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts. The Company will operate the
Oil and Gas Properties owned by the Company, any Subsidiary (except those
Acquisition Subsidiaries, Bridge Subsidiaries and Debt Subsidiaries that do not
own any BB Properties) and any Partnership or cause such Oil and Gas Properties
to be operated in a careful and efficient manner in accordance with the
practices of the industry and in compliance with all applicable contracts and
agreements and in compliance in all material respects with all Governmental
Requirements.
SECTION 5.03. PERFORMANCE OF PARTNERSHIP AGREEMENTS. The Company
will and will cause each Subsidiary (other than Bridge Subsidiaries) to perform
and observe in all material respects each of the provisions of the Partnership
Agreements to which it is a party on its part to be performed or observed prior
to the termination thereof, where such performance or observance has not been
waived pursuant to the applicable Partnership Agreement, unless and to the
extent only that the same shall be contested in good faith by appropriate action
by or on behalf of the Company or such Subsidiary.
SECTION 5.04. RESERVE REPORTS.
(a) By February 15 of each year commencing February 15, 1995, the
Company will furnish to the Banks reports in form and substance reasonably
satisfactory to the Banks prepared by Williamson Petroleum Consultants, Inc.,
Forrest A. Garb & Associates, Inc., and Netherland, Sewell & Associates, Inc. or
any of them or independent petroleum consultants acceptable to the Banks, which
report shall evaluate the oil and gas Property of the Company, the Subsidiaries
(except those Bridge Subsidiaries, Acquisition Subsidiaries and Debt
Subsidiaries that do not hold any BB Properties) and the Partnerships as of the
immediately
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preceding December 31 or January 1 and which shall, together with any other
information reasonably requested by the Banks, set forth the proven producing
and proven non-producing oil and gas reserves attributable to such Property
together with a projection of the rate of production and future net income with
respect thereto as of such date.
(b) Unless waived by the Required Banks, by August 1 of each year
commencing August 1, 1995, the Company will furnish to the Banks reports in form
and substance reasonably satisfactory to the Banks which may be prepared by
Williamson Petroleum Consultants, Inc., Forrest A. Garb & Associates, Inc., and
Netherland, Sewell & Associates, Inc. or any of them or independent petroleum
consultants acceptable to the Banks or by or under the supervision of a
petroleum engineer who may be an employee of the Company, certified by the chief
engineer of the Company as to its truth and accuracy, and audited by independent
petroleum consultants acceptable to the Banks, which shall further evaluate the
Property evaluated in the immediately preceding Reserve Report, and which shall,
together with any other information reasonably requested by the Banks, set forth
the proven producing and the proven non-producing oil and gas reserves
attributable to such Property as of the immediately preceding June 30, together
with a projection of the rate of production and net income with respect thereto
as of such date.
(c) In addition to the delivery of reports required in subsections
(a) and (b) above, from time to time, the Company will, at its election or if so
requested in writing by the Required Banks (but not more frequently than once
each year), furnish to the Banks within 30 days of such election or request
reports in form and substance reasonably satisfactory to the Banks which may be
prepared by Williamson Petroleum Consultants, Inc., Forrest A. Garb &
Associates, Inc., and Netherland, Sewell & Associates, Inc. or any of them or
independent petroleum consultants acceptable to the Banks or (in the case of
such a report at the election of the Company or otherwise with the written
consent of the Required Banks) by or under the supervision of a petroleum
engineer who may be an employee of the Company and certified by the chief
engineer of the Company as to its truth and accuracy, which shall further
evaluate the Property evaluated in the immediately preceding Reserve Report, and
which shall, together with any other information reasonably requested by the
Banks, set forth the proven producing and the proven non-producing oil and gas
reserves attributable to such Property as of the date of such election or
request, together with a projection of the rate of production and net income
with respect thereto as of such date.
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(d) With the delivery of the reports required in subsections (a),
(b) and (c) above, the Company shall provide to the Banks a schedule comparing
the net revenue interest of each well or lease as reflected in the Security
Instruments (if actually reflected therein) after giving effect to all
encumbrances listed therein to the net revenue interests as reflected in such
report, along with an explanation as to any material discrepancies between the
two net revenue interest disclosures, and a list of the Properties added to and
deleted from the immediately prior Reserve Report.
SECTION 5.05. TITLE INFORMATION.
(a) By February 15 and August 1 of each year, in respect of any new
BB Properties being added to the Borrowing Base for such period the Company will
deliver acquisition summaries, title opinions and due diligence reports prepared
in connection with the acquisition and the financing of the acquisition of such
property prepared for the Company or the Person financing such acquisition and
such additional title information in form and substance acceptable to the Banks
as is requested so that the Banks shall have received, together with the title
information previously received by the Banks, satisfactory title information
covering Property representing eighty percent (80%) of the Value of such new BB
Properties as set forth in such Reserve Report, as such Value is set forth
therein.
(b) The Company shall cure any title defects or exceptions which are
not Excepted Liens raised by any title information, within 90 days after a
request by the Required Banks to cure such defects or exceptions.
(c) If the Company is unable to cure any title defects requested by
the Required Banks to be cured within the 90-day period or the Company does not
comply with the requirements to provide acceptable title information covering
eighty percent (80%) of the present worth of such new BB Properties evaluated in
the most recent Reserve Reports, such default shall not be a Default, but
instead the Banks shall have the right to exercise the following remedy in their
sole discretion from time to time, and any failure to so exercise this remedy at
any time is not a waiver as to future exercise of the remedy by the Banks. To
the extent that the Banks are not satisfied with a title to any Property after
the time period in Section 5.05(b) has elapsed, the Agent shall, if so requested
by the Required Banks, send a notice to the Company that the then outstanding
Borrowing Base shall be reduced by an amount equal to the loan value attributed
to such unacceptable Property by the Banks in the latest Borrowing Base. This
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new Borrowing Base shall become effective upon receipt of such notice.
SECTION 5.06. COLLATERAL SECURITY. (a) At any time the Company or a
Subsidiary acquires a new Subsidiary or Partnership, or the Company or any
Subsidiary acquires additional Oil and Gas Properties with an aggregate value
over $200,000, except for Property subject to nonrecourse financing arrangements
allowed by Sections 5.08 (b), (c) and (j), the Company will, or will cause its
Subsidiary to, (i) so notify the Banks and (ii) promptly (but only if so
requested by the Required Banks) grant to the Banks a first and prior Lien
(subject only to Excepted Liens) on its interest in the cash flow and
distribution from the Partnership in the case of a new Partnership, and on the
Oil and Gas Property in the case of Oil and Gas Property which is acquired and
still owned by the Company or a Subsidiary. Neither the Company nor any
Subsidiary will need to grant to the Banks a Lien on any Property subject to a
net profits interest that is an Excepted Lien. The Liens will be created and
perfected pursuant to Security Instruments in form and substance satisfactory to
the Required Banks in sufficient executed and acknowledged counterparts for
recording purposes. This Section shall not be construed to allow any action
otherwise prohibited by any other section of this Agreement.
(b) On or before September 30, 1995 and at all times thereafter, the
aggregate Value of the Properties on which the Banks have valid first and prior
mortgage liens shall be at least 80% of the aggregate Value of the Mortgaged
Properties.
SECTION 5.07. FURTHER ASSURANCES. The Company will and will cause
each Subsidiary and each Partnership to promptly cure any defects in the
creation and issuance of the Notes and the execution and delivery of the
Financing Documents. The Company at its expense will promptly execute and
deliver to the Agent upon request all such other and further documents,
agreements and instruments or cause any Subsidiary or any Partnership to take
such action in compliance with or accomplishment of the covenants and agreements
of the Company, any Subsidiary or any Partnership in the Financing Documents, or
to further evidence and more fully describe the collateral intended as security
for the Indebtedness, or to correct any omissions in the Financing Documents, or
to more fully state the obligations set out herein or in any of the Financing
Documents, or to perfect, protect or preserve any Liens created pursuant to any
of the Security Instruments, or to make any recordings, to file any notices, or
obtain any consents, all as may be necessary or appropriate in connection
therewith.
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SECTION 5.08. DEBT. None of the Company, any Subsidiary or any
Partnership will incur, create, assume or suffer to exist any Debt, except:
(a) Debt under the Financing Documents;
(b) Until such date when the Banks shall have valid first and prior
liens pursuant to Security Instruments on the Properties held by Axcon
Corp., loans outstanding on the date of this Agreement in respect of
Bridge Debt which are reflected in the Financial Statements or are
disclosed to the Banks in Schedule 4.07;
(c) Debt of an Acquisition Subsidiary or a Debt Subsidiary for which
the Company, the other Subsidiaries and the Partnerships and their
respective Properties are not liable directly, contingently or otherwise
(except as allowed under subsection (g)) on terms and conditions not
materially different from Debt Arrangements existing on the date of this
Agreement or reasonably acceptable to the Banks and all renewals and
extensions in connection therewith;
(d) Debt of the Company and its Subsidiaries or Partnerships
existing on the date of this Agreement which is reflected in the Financial
Statements or is disclosed to the Banks in Schedule 4.07 or Schedule
III(a), but not any renewals and extensions thereof;
(e) Debt created under leases which, in accordance with generally
accepted accounting principles in effect on the date of this Agreement,
have been recorded or should have been recorded on the books of the
Company or its Subsidiary or any Partnership as capital leases, in an
aggregate amount not to exceed $3,000,000;
(f) 95% of the total outstanding accounts payable (for the deferred
purchase price of Property or services) from time to time incurred in the
ordinary course of business and which are not in excess of 61 days past
the invoice or billing date, or, if greater than 61 days, are being
contested in good faith by the Company or a Subsidiary or Partnership, as
the case may be, and against which the Company has established adequate
reserves, and the remaining 5% of such accounts payable may be outstanding
for longer periods provided the Company has established adequate reserves;
(g) Debt of a Debt Subsidiary or Partnership owing to the Company or
to any of the Banks provided that such Debt in combination with advances
permitted
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by Section 5.10(k) will not exceed $5,000,000 in the aggregate, provided
the total outstanding Debt of any such Partnership to such Bank or Banks
shall not exceed the amount allowed pursuant to its Partnership Agreement.
The Company will obtain prior approval from the Required Banks before the
creation of any such Debt to any Bank or Banks. The Company will disclose
the details of such Debt on a quarterly basis at the time it delivers
financial information pursuant to Section 5.01(a) and (b);
(h) Debt resulting from the Company's obligations relating to
development and exploratory drilling as described in Schedule 5.08, in an
aggregate amount not to exceed at any time the lesser of (A) $4,000,000
and (B) the sum of available cash and amounts available to be borrowed
hereunder at such time;
(i) other Debt, not described above, which in the aggregate for
the Company and its Subsidiaries does not exceed $250,000 at any one time
outstanding; and
(j) Debt arising from the Company's obligations under the Reserved
LC Agreements.
SECTION 5.09. LIENS. None of the Company, any Subsidiary or any
Partnership will create, incur, assume or suffer to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:
(a) Liens created by the Security Instruments and Liens securing
indebtedness under the Original Credit Agreement;
(b) Excepted Liens;
(c) Liens securing Debt permitted by section 5.08(c) provided such
Liens cover only Property or the capital stock of the Acquisition
Subsidiary or Debt Subsidiary liable for such Debt;
(d) Liens existing on Property owned by the Company or any
Subsidiary or any Partnership on the date of this Agreement which have
been disclosed to the Banks in Schedule 4.07, and any renewals and
extensions thereof;
(e) Liens securing Debt permitted by Section
5.08(e), but covering only the Property subject to such
leases;
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(f) Liens on Property of a Debt Subsidiary or Partnership securing
Debt of such Debt Subsidiaries or Partnerships permitted by Section
5.08(h);
(g) Liens on Bridge Assets and/or capital stock of a Bridge
Subsidiary securing related Bridge Debt; and
(h) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $3,000,000.
SECTION 5.10. INVESTMENTS, LOANS AND ADVANCES. None of the Company,
any Subsidiary or any Partnership will make or permit to remain outstanding any
loans or advances to or investments in any Person, except that the foregoing
restriction shall not apply to:
(a) investments, loans or advances the material details of which
have been set forth in the Financial Statements or are disclosed to the
Banks in Schedule 4.07;
(b) investments in additional oil and gas Properties in the
ordinary course of its business, including additional investments in the
Company's APPL Programs interests;
(c) investments in obligations of the United States of America or
any agency thereof (either directly or through investments in investment
funds holding only such obligations);
(d) investments in certificates of deposit of maturities less than
one year, issued by commercial banks in the United States having capital
and surplus in excess of $50,000,000;
(e) investments in commercial paper of maturities less than one year
if at the time of purchase such paper is rated in either of the two
highest rating categories of Standard & Poor's Corporation, Moody's
Investors Service, Inc., or any other rating agency satisfactory to the
Agent;
(f) routine loans or advances to employees made in the ordinary
course of business not to exceed the aggregate amount, for the Company and
all Subsidiaries and Partnerships combined, of $200,000 at any one time
outstanding and loans to employees to purchase common stock of the Company
not to exceed the aggregate amount, for the Company and all Subsidiaries
and
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Partnerships combined, of $750,000 at any one time outstanding;
(g) investments in or advances to Partnerships required by the terms
of the Partnership Agreements and investments in Ancon Partnership Ltd.
pursuant to the Company's right to acquire interests therein in connection
with additional properties contributed to, or acquired by, such limited
partnership;
(h) investments, loans or advances to Subsidiaries allowed
pursuant to Section 5.21;
(i) investment of funds of investors in Partnerships which have not
yet been fully funded held in trust by the Company in accordance with
instructions from such investors;
(j) down payments not to exceed the aggregate amount, for the
Company and all Subsidiaries and Partnerships combined, of $5,000,000 for
the purchase of Oil and Gas Properties made by any Acquisition Subsidiary
with the proceeds of Debt allowed by Section 5.08(c) as well as the
payment of interest (provided that the maximum amount of interest that may
be paid for the benefit of any Acquisition Subsidiary by the Company, the
other Subsidiaries and the Partnerships in the aggregate may not exceed an
amount equal to the interest accrued by such Acquisition Subsidiary on its
Debt allowed by Section 5.08(c) for the first six months after the initial
funding of such Debt) and related fees to the extent the Acquisition
Subsidiary is unable to pay such fees out of its own funds;
(k) advances to Partnerships or Debt Subsidiaries made by the
Company provided that such advances in combination with Debt permitted by
Section 5.08(g) will not exceed $5,000,000 in the aggregate. The Company
will disclose the details of such advances on a quarterly basis at the
time it delivers financial information pursuant to Section 5.01;
(l) investments in addition to proceeds of Bridge Debt in Bridge
Subsidiaries in conjunction with the incurrence of Bridge Debt not to
exceed at any time $250,000 in aggregate unrecovered amount; and
(m) other investments not to exceed $250,000 outstanding in the
aggregate at any one time.
SECTION 5.11. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. The Company
will not declare or pay any dividend, purchase, redeem or otherwise acquire for
value
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any of its stock now or hereafter outstanding, return any capital to its
stockholders, or make any distribution of its assets to its stockholders as
such, or permit any of its Subsidiaries to purchase or otherwise acquire for
value any stock of the Company, except that the Company may, provided no Default
has occurred and is continuing and such action or payment shall not cause a
Default, (i) declare and deliver stock dividends, (ii) redeem stock with the
proceeds received from the issue of new shares, (iii) pay regular quarterly
dividends on the Convertible Preferred Stock, (iv) purchase equity securities of
the Company in connection with any employee stock ownership, stock option or
other benefit plan not to exceed in any fiscal year 12% of base compensation
paid to eligible employees of the Company for such year, (v) pay cash dividends
to its holders of common stock equal to 5% of the market value, provided that
during any fiscal quarter of the Company the dividends paid do not exceed
consolidated net income of the Company for such fiscal quarter less preferred
dividends paid during such fiscal quarter and (vi) cancel up to 3,000,000
warrants in consideration of reducing the exercise price on the remaining
warrants outstanding.
SECTION 5.12. SALES AND LEASEBACKS. None of the Company, any
Subsidiary or any Partnership will enter into any arrangement, directly or
indirectly, with any Person whereby the Company or any Subsidiary or any
Partnership shall sell or transfer any Property, whether now owned or hereafter
acquired, and whereby the Company or any Subsidiary or any Partnership shall
then or thereafter rent or lease as lessee such Property or any part thereof or
other Property which the Company or any subsidiary or any Partnership intends to
use for substantially the same purpose or purposes as the Property sold or
transferred; PROVIDED, HOWEVER, the Company may enter into sale and leaseback
arrangements for equipment not related to the Oil and Gas Properties in amounts
not to exceed $3,000,000 in the aggregate.
SECTION 5.13. NATURE OF BUSINESS. None of the
Company, any Subsidiary or any Partnership will permit any
material change to be made in the character of its business
as carried on at the date hereof.
SECTION 5.14. LIMITATION ON LEASES. None of the Company, any
Subsidiary (except those Bridge Subsidiaries, Acquisition Subsidiaries and Debt
Subsidiaries that do not own any BB Properties) or any Partnership will create,
incur, assume or suffer to exist any obligation for the payment of rent or hire
of Property of any kind whatsoever (real or personal), under leases or lease
agreements (other than leases or lease agreements which constitute Debt or oil
and gas leases or leases of oil field equipment under leases
-57-
that may be terminated at will by the lessee with no more than one month's
notice) which would cause the aggregate amount of all payments made by the
Company and its Subsidiaries or Partnerships (determined on a consolidated
basis) pursuant to such leases or lease agreements to exceed $6,000,000 in any
period of twelve consecutive calendar months.
SECTION 5.15. MERGERS, ETC. The Company will not merge or
consolidate with, or sell, assign, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
Properties (whether now owned or hereafter acquired) to any Person, or permit
any Subsidiary or any Partnership to do so, except that (i) Wholly-Owned
Subsidiaries, other than Acquisition Subsidiaries or Bridge Subsidiaries with
outstanding Debt and Debt Subsidiaries, may merge with each other or with the
Company, (ii) an Acquisition Subsidiary or Bridge Subsidiary may merge with a
non-affiliated corporation to acquire Hydrocarbon Interests, (iii) an
Acquisition Subsidiary or Bridge Subsidiary may sell, assign, lease or dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its Properties (whether now owned or hereafter acquired) to
any Person, (iv) the Company may sell or assign directly owned Oil and Gas
Properties that are not BB Properties, and (v) the Company may issue or sell net
profits interests in directly owned Oil and Gas Properties, provided such net
profits interests have been approved as an Excepted Lien by the Banks.
SECTION 5.16. ERISA COMPLIANCE. The Company will not at any time
permit any Plan maintained by it or any Subsidiary or any Partnership to:
(a) engage in any "prohibited transaction" as such term is defined
in Section 4975 of the Code;
(b) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA;
(c) terminate any such Plan in a manner which could result in the
imposition of a Lien on the Property of the Company or any Subsidiary or
any Partnership pursuant to Section 4068 of ERISA; or
(d) contribute to or assume an obligation to contribute to, or
permit any member of the ERISA Group to contribute to or assume an
obligation to contribute to, any Multiemployer Plan.
SECTION 5.17. SALE OR DISCOUNT OF RECEIVABLES. None of the Company,
any Subsidiary or any Partnership will,
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except to minimize losses on bona fide debts previously contracted, discount or
sell with recourse, or sell for less than the greater of the face or market
value thereof, any of its notes receivable or accounts receivable.
SECTION 5.18. SALE OF BB PROPERTIES. None of the Company, any
Subsidiary or any Partnership will sell or otherwise transfer any BB Property
(except as provided in the next sentence) unless the Borrowing Base is reduced
by an amount to be agreed upon by the Banks, in their sole discretion, and the
Loans or Letter of Credit Liabilities prepaid in accordance with Section 2.10,
if necessary. Without immediately reducing the Borrowing Base, the Company, any
Subsidiary or any Partnership may sell or otherwise transfer BB Properties
during any six-month period between regularly scheduled Borrowing Base
redetermination dates not exceeding $1,500,000 in the aggregate for the Company,
the Subsidiaries and the Partnerships combined based on values contained in the
latest Reserve Report. The Company shall report all such sales or transfers
allowed by the immediately preceding sentence to the Banks at the time it
provides the Reserve Reports to the Banks.
SECTION 5.19. NET WORTH. The Company will not permit its
consolidated net worth to be less than $65,000,000 less Writedowns plus fifty
percent (50%) of any equity issuances. "Writedowns" shall mean non-cash charges
taken to consolidated income from operations and retained earnings in connection
with the Company's Properties (i) between December 31, 1993 and June 30, 1994
not to exceed $6,764,000 and (ii) after June 30, 1994 in connection with
Financial Accounting Standards Board Exposure Draft on Accounting for Long-Lived
Assets and the Statement of Financial Accounting Standards adopted in connection
therewith, and (iii) other non-cash charges not to exceed $20,000,000 incurred
between September 30, 1994 and July 1, 1995 related to impairments of oil and
gas properties in connection with divestitures thereof and restructuring costs
in respect to office space and facilities in connection with liquidation or
consolidation of the Partnerships; as used in this Section, "consolidated net
worth" means the sum of preferred stock (if any), par value of common stock,
capital in excess of par value of common stock, and retained earnings less
treasury stock (if any), less goodwill, cost in excess of net assets acquired
and all other assets as are properly classified as intangible assets, all
determined on a consolidated basis.
SECTION 5.20. RATIO OF CASH FLOW TO FIXED CHARGES. The Company will
not permit its ratio of (i) consolidated cash flow plus interest expense plus
capitalized interest costs for the immediately prior four fiscal quarters of the
Company to (ii) consolidated current
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maturities to be less than 1.5 to 1 at any time. As used in this Section,
"consolidated cash flow" means net income after taxes but before dividends on
preferred stock (excluding non-cash income), plus depreciation, depletion and
amortization and non-cash losses including, but not limited to, restructuring
costs not to exceed $10,000,000 in respect of office space and facilities in
connection with liquidation or consolidation of the Partnerships incurred
between September 30, 1994 and July 1, 1995 and cash amounts received by the
Company and its Subsidiaries as capital contributions, all as determined on a
consolidated basis (excluding consolidated cash flow of Bridge Subsidiaries and
Debt Subsidiaries). As used in this Section, "current maturities" means the sum
of (i) that portion of the Debt of the Company and its Consolidated Subsidiaries
that will become due and payable by its scheduled maturity during the next
twelve-month period from the time such calculation is being made plus (ii) the
dividends on any preferred stock of the Company that will become due during the
next twelve-month period from the time such calculation is being made plus (iii)
interest expense and capitalized interest costs for the immediately prior four
fiscal quarters of the Company (excluding Debt of Debt Subsidiaries and Bridge
Subsidiaries).
SECTION 5.21. SUBSIDIARIES. The Company will not organize any new
Subsidiary in addition to the ones described on Schedule 4.09(a) other than (i)
for the purpose of acquiring Oil and Gas Properties utilizing the facilities as
approved by the Banks in writing (an "Acquisition Subsidiary"), (ii) for the
purpose of acquiring Oil and Gas Properties with the proceeds of non-recourse
debt issued by such Subsidiary upon terms of the Debt not materially different
from such Debt Arrangements existing on the date of this Agreement and
acceptable to the Banks ("Debt Subsidiaries") or (iii) for the purpose of
acquiring assets with the proceeds of Bridge Debt. The Company will not loan,
advance or invest any more than $50,000 in the aggregate in any Acquisition
Subsidiary or Debt Subsidiary or more than $500,000 in the aggregate in all
Acquisition Subsidiaries and Debt Subsidiaries except for (w) intercompany
advances to pay accounts payable including interest and fees permitted by
Section 5.10(k) in the ordinary course of business, (x) investments in a Debt
Subsidiary proportionate to the Company's stock ownership in such Debt
Subsidiary in connection with the acquisition of BB Properties, (y) Debt
permitted by Section 5.08(g) and advances permitted by Section 5.10(k) and (z)
equity contributions to each Acquisition Subsidiary of up to 30% of the
acquisition costs. The Company will not contract or otherwise be obligated to
pay the Debts of any Acquisition Subsidiary or Debt Subsidiary, except for (A)
intercompany advances to pay accounts payable in the ordinary course of
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business, (B) investments in a Debt Subsidiary proportionate to the Company's
stock ownership in such Debt Subsidiary in connection with the acquisition of BB
Properties, (C) Debt allowed by Section 5.08(g) and (D) equity contributions to
each Acquisition Subsidiary of up to 30% of the acquisition costs. The Company
shall not make the payments permitted by clauses (w), (x), (y), (z), (A), (B),
(C) and (D) above if an Event of Default has occurred and is continuing or such
payment would create an Event of Default. Except as permitted by Section
5.09(g), the Company will not sell, assign or transfer or permit any of its
Subsidiaries to sell, assign or transfer any stock or other equity in any
Subsidiary.
SECTION 5.22. PARTNERSHIPS. Except in respect of partnership
interests constituting Bridge Assets, neither the Company nor any Subsidiary
will form or become a partner in any Partnership in addition to the ones
described on Schedule 4.09(b) unless each such Partnership does not prohibit the
Company or such Subsidiary from granting to the Banks a first-priority Lien on
the Company's or such Subsidiary's rights to receive income and distributions
from such Partnership and the Company will not sell, assign or transfer or
permit any of its Subsidiaries to sell, assign or transfer any partnership
interest in the Partnerships.
SECTION 5.23. ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
5.23, the Company will not cause or permit, or permit any Subsidiary or
Partnership to cause or permit, any Property of any such party to be in
violation of, or do anything or permit anything to be done which will subject
any such Property to any remedial obligations under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property, and
the Company will and will cause each Subsidiary and Partnership to promptly
notify the Agent of any existing, pending or threatened (of which the Company
has knowledge) action or investigation by any Governmental Authority in
connection with any Environmental Laws, except for any such violations or
remedial obligations which would not have a Material Adverse Effect
(individually or in the aggregate). The Company will and will cause each
Subsidiary and Partnership to establish and implement such reasonable procedures
as may be necessary to determine and assure that (i) no solid wastes are
disposed of on any Property owned by any such party in quantities or locations
that would require remedial action under any Environmental Laws, (ii) no
hazardous substance will be released on or to any such Property in a quantity
equal to or exceeding that quantity which requires reporting pursuant to Section
103 of CERCLA and (iii) no hazardous substance is released on or to any such
Property so as to pose an imminent and substantial
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endangerment to public health or welfare or the environment. The Company will
not and will not permit any Subsidiary or Partnership to use any Property owned
by any such party in a manner which will result in (i) the disposal of any solid
waste on or to any such Property in quantities or locations that would require
remedial action under any Environmental Laws and which individually or in the
aggregate would have a Material Adverse Effect, (ii) a release of a hazardous
substance on or to any such Property in a quantity equal to or exceeding that
quantity which requires reporting pursuant to Section 103 of CERCLA and which
individually or in the aggregate would have a Material Adverse Effect or (iii)
the release of any hazardous substance on or to any such Property so as to pose
an imminent and substantial endangerment to public health or welfare or the
environment. The Company covenants and agrees to keep or cause all Property
owned by itself or any Subsidiary or Partnership to be kept free of any
hazardous waste or contaminants and to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) promptly upon
discovery at its sole expense.
SECTION 5.24. AMENDMENTS OF PARTNERSHIP AGREEMENTS AND DEBT
ARRANGEMENTS. The Company will not amend, modify or terminate (or consent to
amend, modify or terminate), or permit any of its Subsidiaries to amend, modify,
or terminate (or consent to amend, modify or terminate) any Partnership
Agreement or Debt Arrangement in any manner which would have a Material Adverse
Effect.
SECTION 5.25. PAYMENT RESTRICTIONS. The Company will not enter into
or permit any of its Subsidiaries or the Partnerships to enter into any
agreements which would restrict payments from the Subsidiaries or the
Partnerships to the Company, directly or indirectly. Notwithstanding the
foregoing, (a) Acquisition Subsidiaries and Debt Subsidiaries may enter into
such agreements existing on the date of this Agreement entered into by the
Acquisition Subsidiaries and Debt Subsidiaries set forth on Schedule 4.07, (b)
Partnerships may enter into Partnership Agreements provided that they are no
more restrictive than those entered into by the Partnerships set forth on
Schedule 4.09(b) and in existence on the date of this Agreement and (c) a Bridge
Subsidiary may enter into such an agreement with the related Bridge Debt lender.
SECTION 5.26. NON-GUARANTOR SUBSIDIARIES. The Company will not allow
the total assets of all of the Non-Guarantor Subsidiaries valued at book value
to ever exceed in the aggregate the lesser of (a) $3,000,000 or (b) three
percent (3%) of the consolidated net worth of the Company, as reflected in the
Company's most recent financial statements delivered to the Banks.
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SECTION 5.27. RESTRICTIONS ON SUBORDINATED DEBT. The Company will
not amend any provisions of the Subordinated Debt or the Subordinated Debt
Purchase Agreement, without the prior written consent of the Required Banks. The
Company will not repay any interest on, or principal of, the Subordinated Debt
except for the prepayment amounts expressly set forth in Section 5.4 of each
Subordinated Debt Purchase Agreement as originally executed, and will not pay
any Subordinated Debt upon the exercise of the purchaser's put option set forth
in Section 4.1 of the Subordinated Debt Purchase Agreement except in compliance
with Section 10.1(b) of the Subordinated Debt Purchase Agreement after payment
in full of the Senior Indebtedness (as defined in the Subordinated Debt Purchase
Agreement).
SECTION 5.28. USE OF PROCEEDS. The proceeds of the Loans made under
this Agreement will be used by the Company for its general corporate purposes.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
SECTION 5.29. VALUE OF MORTGAGED PROPERTIES. If the aggregate Value
of the Mortgaged Properties at any time is less than 80% of the aggregate Value
of the BB Properties, the Company shall forthwith notify the Agent. On or before
the date falling 30 days after the date on which the Company delivers (or is
required to deliver) a Reserve Report indicating the aggregate Value of the
Mortgaged Properties has fallen below 80% of the aggregate Value of the BB
Properties, the Company shall execute such further Security Instruments as are
necessary to ensure that the aggregate Value of the Mortgaged Properties at all
times is greater than or equal to 80% of the aggregate Value of the BB
Properties except for (A) such Properties as are owned by any Partnership, any
Debt Subsidiary or any Acquisition Subsidiary, (B) for so long as the related
Debt remains outstanding, Bridge Assets and (C) directly owned Oil and Gas
Properties of the Company subject to net profits interest which are Excepted
Liens.
SECTION 5.30. TRANSACTIONS WITH AFFILIATES. The Company will not,
and will not permit any Subsidiary or Partnership to, directly or indirectly,
pay any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect
any transaction in connection with any joint
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enterprise or other joint arrangement with, any Affiliate; PROVIDED, HOWEVER,
that the foregoing provisions of this Section shall not prohibit (a) the Company
from declaring or paying any lawful dividend so long as, after giving effect
thereto, no Default shall have occurred and be continuing, (b) the Company or
any Subsidiary or Partnership from making sales to or purchases from any
Affiliate and, in connection therewith, extending credit or making payments, or
from making payments for services rendered by any Affiliate, if such sales or
purchases are made or such services are rendered in the ordinary course of
business, including additional purchases of interests in the Company's APPL
Programs and on terms and conditions at least as favorable to the Company or
such Subsidiary or Partnership as the terms and conditions which would apply in
a similar transaction with a Person not an Affiliate, (c) the Company or any
Subsidiary or Partnership from making payments of principal, interest and
premium on any Debt held by an Affiliate if the terms of such Debt are
substantially as favorable to the Company or such Subsidiary or Partnership as
the terms which could have been obtained at the time of the creation of such
Debt from a lender which was not an Affiliate, (d) the Company or any Subsidiary
or Partnership from participating in, or effecting any transaction in connection
with, any joint enterprise or other joint arrangement with any Affiliate if the
Company or such Subsidiary or Partnership participates in the ordinary course of
its business and on a basis no less advantageous than the basis on which such
Affiliate participates or (e) the Company or any Subsidiary or Partnership from
making or permitting to remain outstanding any loans or advances to or
investments in any Person specified as unrestricted pursuant to Section 5.10.
ARTICLE VI
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) the Company shall fail to pay when due any principal of any Loan
or any Letter of Credit Liability, or shall fail to pay within two days of
the due date thereof any interest, any fees or any other amount payable
hereunder;
(b) the Company shall fail to observe or perform any covenant
contained in Sections 5.08 to 5.30, inclusive;
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(c) the Company or any Subsidiary shall fail to observe or perform
any covenant or agreement contained (i) in this Agreement (other than
those covered by clause (a) or (b) above) for 30 days after written notice
thereof has been given to it by the Agent at the request of any Bank, or
(ii) in any Security Instrument for 10 days after written notice thereof
has been given to it by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Company or any Subsidiary in any Financing Document or in any
certificate, financial statement or other document delivered pursuant to
any Financing Document shall prove to have been incorrect in any material
respect when made (or deemed made);
(e) the Company, any Subsidiary (except Bridge Subsidiaries) or any
Partnership shall fail to make any payment in respect of any Material
Financial Obligations when due or within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with the
giving of notice or lapse of time or both, would enable) the holder of
such Debt or any Person acting on such holder's behalf to accelerate the
maturity thereof; PROVIDED, HOWEVER, that it shall not constitute a
Default or Event of Default if an event or condition occurs which results
in the acceleration of the maturity of any Material Debt of any Bridge
Subsidiary or which enables any Person to accelerate the maturity of such
Debt of any Bridge Subsidiary;
(g) the Company, any Subsidiary (except Bridge Subsidiaries) or any
Partnership shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to
authorize any of the foregoing;
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(h) an involuntary case or other proceeding shall be commenced
against the Company, any Subsidiary (except Bridge Subsidiaries) or any
Partnership seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Company, any
Subsidiary (except Bridge Subsidiaries) or any Partnership under the
federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an
amount or amounts aggregating in excess of $250,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there shall occur a complete
or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $1,000,000;
(j) a judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered against the Company, any
Subsidiary (except Bridge Subsidiaries) or any Partnership and such
judgment or judgments shall continue unsatisfied and unstayed for a period
of 30 days;
(k) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act) of
25% or more of the outstanding shares of common stock of the Company; or,
during any period of 12 consecutive calendar months, individuals who were
directors of the Company on the first day of such
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period shall cease to constitute a majority of the board of directors of
the Company; or
(l) the Liens on the Mortgaged Properties shall at any time and for
any reason not constitute valid and perfected Liens subject to no prior or
equal Liens (other than Liens permitted under Section 5.09);
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Company
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate principal
amount of the Loans, by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company; PROVIDED that in the
case of any of the Events of Default specified in clause (g) or (h) above with
respect to the Company, without any notice to the Company or any other act by
the Agent or the Banks, the Commitments shall thereupon terminate and the Notes
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Company.
SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to the
Company under Section 6.01(c) promptly upon being requested to do so by any Bank
and shall thereupon notify all the Banks thereof.
SECTION 6.03. CASH COVER. The Company agrees, in addition to the
provisions of Section 6.01 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Agent upon
the instruction of the Banks having more than 50% in aggregate amount of the
Commitments (or, if the Commitments shall have been terminated, having more than
50% of the Letter of Credit Liabilities), pay to the Agent an amount in
immediately available funds (which funds shall be held as collateral pursuant to
arrangements satisfactory to the Agent) equal to the aggregate amount available
for drawing under all Letters of Credit then outstanding at such time, PROVIDED
that, upon the occurrence of any Event of Default specified in clause (g) or (h)
of Section 6.01 with respect to the Company, the Company shall pay such amount
forthwith without any notice or demand or any other act by the Agent or any
Bank.
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ARTICLE VII
THE AGENT
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under the Financing Documents as are delegated to the
Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of
New York shall have the same rights and powers under the Financing Documents as
any other Bank and may exercise or refrain from exercising the same as though it
were not the Agent, and Morgan Guaranty Trust Company of New York and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Company or any Subsidiary or Affiliate as if it were
not the Agent under the Financing Documents.
SECTION 7.03. ACTION BY AGENT. The obligations of the Agent under
the Financing Documents are only those expressly set forth therein. Without
limiting the generality of the foregoing, the Agent shall not be required to
take any action with respect to any Default, except as expressly provided in the
Financing Documents.
SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with
legal counsel (who may be counsel for the Company), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF AGENT. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection with the
Financing Documents (i) with the consent or at the request of the Required Banks
or (ii) in the absence of its own gross negligence or willful misconduct.
Neither the Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with the Financing Documents or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Company or any Subsidiary; (iii) the satisfaction of any
condition specified in Article III, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or genuineness of
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the Financing Documents or any other instrument or writing furnished in
connection therewith. The Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, telecopy or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Company) against any cost, expense (including counsel fees and
disbursements), claim, demand, action, loss or liability (except such as result
from such indemnitee's gross negligence or willful misconduct) that such
indemnitee may suffer or incur in connection with any of the Financing Documents
or any action taken or omitted by such indemnitee thereunder.
SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement or any other Financing Document.
SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by
giving notice thereof to the Banks and the Company. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as Agent under the Financing Documents by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Financing
Documents. After any retiring Agent's resignation under the Financing Documents
as Agent, the provisions of this Article shall inure to its benefit as to
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any actions taken or omitted to be taken by it while it was Agent.
SECTION 7.09. CO-AGENT. Nothing in the Financing
Documents shall impose upon the Co-Agent, in such capacity,
any liability or obligation whatsoever.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR
UNFAIR. If on or prior to the first day of any Interest Period for any
Euro-Dollar Borrowing:
(a) the Agent is advised by the Reference Banks that deposits in
dollars (in the applicable amounts) are not being offered to the Reference
Banks in the relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the
Commitments advise the Agent that the Adjusted London Interbank Offered
Rate as determined by the Agent will not adequately and fairly reflect the
cost to such Banks of funding their Euro-Dollar Loans for such Interest
Period,
the Agent shall forthwith give notice thereof to the Company and the Banks,
whereupon until the Agent notifies the Company that the circumstances giving
rise to such suspension no longer exist, (i) the obligations of the Banks to
make Euro-Dollar Loans or to convert outstanding Domestic Loans into Euro-Dollar
Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be
converted into a Domestic Loan on the last day of the then current Interest
Period applicable thereto. Unless the Company notifies the Agent at least two
Domestic Business Days before the date of any Euro-Dollar Borrowing for which a
Notice of Borrowing has previously been given that it elects not to borrow on
such date, such Borrowing shall instead be made as a Domestic Borrowing.
SECTION 8.02. ILLEGALITY. If on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for
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any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Company, whereupon
until such Bank notifies the Company and the Agent that the circumstances giving
rise to such suspension no longer exist, the obligation of such Bank to make
Euro-Dollar Loans, or to convert outstanding Domestic Loans into Euro-Dollar
Loans, shall be suspended. Before giving any notice to the Agent pursuant to
this Section, such Bank shall designate a different Euro-Dollar Lending Office
if such designation will avoid the need for giving such notice and will not, in
the judgment of such Bank, be otherwise disadvantageous to such Bank. If such
notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be
converted to a Domestic Loan either (a) on the last day of the then current
Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully
continue to maintain and fund such Loan to such day or (b) immediately if such
Bank shall determine that it may not lawfully continue to maintain and fund such
Loan to such day.
SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after
the date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
any such requirement included in an applicable Euro-Dollar Reserve Percentage),
special deposit, insurance assessment or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Bank (or its
Applicable Lending Office) or shall impose on any Bank (or its Applicable
Lending Office) or on the London interbank market any other condition affecting
its Euro-Dollar Loans, its Note or any Letter of Credit or its obligation to
make Euro-Dollar Loans or to issue or participate in any Letter of Credit and
the result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Euro-Dollar Loan or of
issuing or participating in any Letter of Credit, or to reduce the amount of any
sum received or receivable by such Bank (or its Applicable Lending Office) under
this Agreement or under its Note with respect thereto, by an amount deemed by
such Bank to be material, then, within 15 days after demand by such Bank
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(with a copy to the Agent), the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction.
(b) If any Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or its Parent)
could have achieved but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital adequacy) by an amount
deemed by such Bank to be material, then from time to time, within 15 days after
demand by such Bank (with a copy to the Agent), the Company shall pay to such
Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
(c) Each Bank will promptly notify the Company and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
SECTION 8.04. TAXES. (a) For purposes of this Section 8.04, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Company pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, EXCLUDING (i) in the case of each Bank and the Agent, taxes
imposed on its income, and franchise or similar taxes imposed on it, by a
jurisdiction under the laws of which such Bank or the Agent (as the case may be)
is
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organized or in which its principal executive office is located or, in the case
of each Bank, in which its Applicable Lending Office is located and (ii) in the
case of each Bank, any United States withholding tax imposed on such payments
but only to the extent that such Bank is subject to United States withholding
tax at the time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any Note or from
the execution or delivery of, or otherwise with respect to, this Agreement or
any Note.
(b) Any and all payments by the Company to or for the account of any
Bank or the Agent hereunder or under any Note shall be made without deduction
for any Taxes or Other Taxes; PROVIDED that, if the Company shall be required by
law to deduct any Taxes or Other Taxes from any such payments, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 8.04) such Bank or the Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Company shall make such deductions, (iii) the Company shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent,
at its address referred to in Section 9.01, the original or a certified copy of
a receipt evidencing payment thereof.
(c) The Company agrees to indemnify each Bank and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 8.04) paid by such Bank or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be paid within 15 days after such
Bank or the Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Company (but
only so long as such Bank remains lawfully able to do so), shall provide the
Company with Internal Revenue Service form 1001 or 4224, as
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appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts the Bank from United States
withholding tax or reduces the rate of withholding tax on payments of interest
for the account of such Bank or certifying that the income receivable pursuant
to this Agreement is effectively connected with the conduct of a trade or
business in the United States.
(e) For any period with respect to which a Bank has failed to
provide the Company with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which such form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
8.04(b) or (c) with respect to Taxes imposed by the United States; PROVIDED that
if a Bank, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver a
form required hereunder, the Company shall take such steps as such Bank shall
reasonably request to assist such Bank to recover such Taxes.
(f) If the Company is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.04, then such Bank will
change the jurisdiction of its Applicable Lending Office if, in the judgment of
such Bank, such change (i) will eliminate or reduce any such additional payment
which may thereafter accrue and (ii) is not otherwise disadvantageous to such
Bank.
SECTION 8.05. DOMESTIC LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR
LOANS. If (i) the obligation of any Bank to make or maintain Euro-Dollar Loans
has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded
compensation under Section 8.03(a) or 8.04 with respect to its Euro-Dollar Loans
and the Company shall, by at least five Euro-Dollar Business Days prior notice
to such Bank through the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank notifies the Company
that the circumstances giving rise to such suspension or demand for compensation
no longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued or converted into) Euro-Dollar Loans shall be made instead as
Domestic Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks),
and
-74-
(b) after each of its Euro-Dollar Loans has been repaid (or
converted to a Domestic Loan), all payments of principal which would
otherwise be applied to repay such Euro-Dollar Loans shall be applied to
repay its Domestic Loans instead.
If such Bank notifies the Company that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Domestic Loan shall be
converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other Banks.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, telecopy or similar writing) and shall be given to such party: (x) in the
case of the Company or the Agent, at its address, telex or telecopy number set
forth on the signature pages hereof, (y) in the case of any Bank, at its
address, telex or telecopy number set forth in its Administrative Questionnaire
or (z) in the case of any party, such other address or telex or telecopy number
as such party may hereafter specify for the purpose by notice to the Agent and
the Company. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is received, (ii) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and telephonic confirmation of receipt thereof is
received, (iii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (iv) if
given by any other means, when delivered at the address specified in this
Section; provided that notices to the Agent or the Issuing Bank under Article II
or Article VIII shall not be effective until received.
SECTION 9.02. NO WAIVERS. No failure or delay by the Agent or any
Bank in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
-75-
SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Company shall pay
(i) all out-of-pocket expenses of the Agent, including fees and disbursements of
special counsel for the Agent, in connection with the preparation of the
Financing Documents, any waiver or consent thereunder or any amendment thereof
or any Default or alleged Default thereunder or any release pursuant to Section
5.15(b) and (ii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Agent and each Bank, including fees and disbursements of
counsel, in connection with such Event of Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Company agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of (i) any actual or proposed use of proceeds of Loans hereunder, (ii) the
breach by the Company of any covenant in this Agreement or the untruth or
inaccuracy of any representation or warranty made by the Company in this
Agreement or (iii) a transaction which is (or may be) subject to the provisions
of Section 6.01(k); PROVIDED that no Indemnitee shall have the right to be
indemnified hereunder for its own gross negligence or willful misconduct as
determined by a court of competent jurisdiction.
SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note or Letter of Credit Liability held by it which is
greater than the proportion received by any other Bank in respect of the
aggregate amount of principal and interest due with respect to any Note or
Letter of Credit Liability held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
and Letter of Credit Liabilities held by the other Banks, and such other
adjustments shall be made, as may be required so that all such payments of
principal and interest with respect to the Notes and Letter of Credit
Liabilities held by the Banks shall be shared by the Banks pro rata; PROVIDED
that nothing in this Section shall impair the right of any Bank to exercise any
right of set-off or counterclaim it may have and to apply the amount subject to
such exercise to the
-76-
payment of indebtedness of the Company other than its indebtedness hereunder and
under the Notes. The Company agrees, to the fullest extent it may effectively do
so under applicable law, that any holder of a participation in a Note or Letter
of Credit Liability, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Company in the amount of such participation.
SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of the Financing
Documents may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Company and the Required Banks (and, if the
rights or duties of the Agent or the Issuing Bank are affected thereby, by it);
PROVIDED that no such amendment or waiver shall, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank (except for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or
Letter of Credit Liability or any fees hereunder, (iii) postpone the date fixed
for any payment of principal of or interest on any Loan or Letter of Credit
Liability or any fees hereunder or for any reduction or termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes and Letter of Credit Liabilities, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of the Financing Documents.
SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Company may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Company and the Agent, such Bank shall remain responsible for the performance of
its obligations hereunder, and the Company and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the
-77-
obligations of the Company hereunder including, without limitation, the right to
approve any amendment, modification or waiver of any provision of this
Agreement; PROVIDED that such participation agreement may provide that such Bank
will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent
of the Participant. The Company agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Article VIII with respect to its participating interest. An assignment or other
transfer which is not permitted by subsection (c) or (d) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all of its rights and obligations under this
Agreement and the Notes in respect of a portion of its Commitment or its
outstanding Loans or both in an amount not less than $5,000,000, and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit D hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Company, the Issuing Bank and the Agent; PROVIDED that if an
Assignee is a Bank prior to giving effect to such assignment or is an affiliate
of such transferor Bank or another Bank, no such consent shall be required. Upon
execution and delivery of such instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, the Agent and the Company shall make appropriate arrangements so that, if
required, a new Note is issued to the Assignee. In connection with any such
assignment, the transferor Bank shall pay to the Agent an administrative fee for
processing such assignment in the amount of $2,000. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to the Company and the Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04.
-78-
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.03 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Company's prior written
consent or by reason of the provisions of Section 8.02 or 8.03 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.07. COLLATERAL. Each of the Banks represents to the Agent
and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.08. GOVERNING LAW. THIS AGREEMENT AND EACH NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK.
SECTION 9.09. SUBMISSION TO JURISDICTION. The Company hereby submits
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 9.10. COUNTERPARTS; INTEGRATION. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
-79-
SECTION 9.12. INTEREST. It is the intention of the parties hereto
that each Bank shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Bank under laws applicable to it (including the laws of the United States of
America and the State of New York or any other jurisdiction whose laws may be
mandatorily applicable to such Bank notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in the
Notes, this Agreement or in any Security Instrument or other agreement entered
into in connection with or as security for the Notes, it is agreed as follows:
(i) the aggregate of all consideration which constitutes interest under law
applicable to any Bank that is contracted for, taken, reserved, charged or
received by such Bank under the Notes, this Agreement or under any of the
Security Instruments or otherwise in connection with the Indebtedness shall
under no circumstances exceed the maximum amount allowed by such applicable law,
and any excess shall be cancelled automatically and if theretofore paid shall be
credited by such Bank on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have or would thereby
be paid in full, refunded by such Bank to the Company); and (ii) in the event
that the maturity of the Notes is accelerated by reason of an election of the
holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Bank may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Bank as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Bank on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Bank to the Company). All sums paid or agreed to be paid to any
Bank for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by law applicable to such Bank, be amortized, prorated,
allocated and spread in equal parts throughout the full term of the Loans
evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Bank on any date shall be computed at the
Highest Lawful Rate applicable to such Bank pursuant to this Section 9.12 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Bank would be less than the amount of
interest payable to such Bank computed at the Highest Lawful Rate
-80-
applicable to such Bank, then the amount of interest payable to such Bank in
respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to such Bank until the total
amount of interest payable to such Bank shall equal the total amount of interest
which would have been payable to such Bank if the total amount of interest had
been computed without giving effect to this Section.
To the extent that Article 5069-1.04 of the Texas Revised Civil
Statutes is relevant to any Bank for the purpose of determining the Highest
Lawful Rate, each such Bank hereby elects to determine the applicable rate
ceiling under such Article by the indicated (weekly) rate ceiling from time to
time in effect.
SECTION 9.13. INCONSISTENT PROVISIONS. In the event of any
inconsistencies between the representations, warranties, covenants and
undertakings of the Company in the Security Instruments and those set out in
this Agreement, the relevant provisions of this Agreement shall control.
SECTION 9.14. DISPOSITION OF PROCEEDS; USE OF PROPERTY. Certain of
the Security Instruments contain an assignment to the Agent for the benefit of
the Banks by the mortgagor thereunder of all production and all proceeds
attributable thereto, which may be produced from and allocated to the Mortgaged
Property, and the Security Instruments further provide in general for the
application of such proceeds to the satisfaction of the indebtedness described
therein and secured thereby. Notwithstanding such assignments contained in such
Security Instruments, the Banks agree that until the occurrence of an Event of
Default the Agent will not notify the purchasers of such production nor will the
Agent take any other action to cause the proceeds of such production to be
remitted to the Agent or the Banks, but the Banks will instead permit such
proceeds to be paid to the mortgagor until the occurrence of an Event of
Default. Further, until the occurrence of an Event of Default, such assignment
contained in any Security Instrument shall not, in and of itself, restrict the
mortgagor's use of the Mortgaged Property.
-81-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
AMERICAN EXPLORATION COMPANY
By /S/ JOHN M. HOGAN
---------------------------------------------
Title: Sr. Vice President and
Chief Financial Officer
1331 Lamar, Suite 900
Houston, Texas 77010
Telecopier No.: (713) 756-6007
-82-
COMMITMENTS
$35,000,000
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /S/ VERNON M. FORD, JR.
----------------------------------------------
Title: Vice President
$35,000,000 BANK OF MONTREAL, as a Bank and
as a Co-Agent
By /S/ ROBERT L. ROBERTS
----------------------------------------------
Title: Director, U.S. Corporate
Banking
NEW BANK
$20,000,000 BANQUE PARIBAS
By /S/ BART SCHOUEST
----------------------------------------------
Title: Group Vice President
By /S/ PATRICK MILON
---------------------------------------------
Title: Regional General Manager
-----------------
Total Commitments
$90,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /S/ VERNON M. FORD, JR.
---------------------------------------------
Title:
60 Wall Street
New York, New York 10260-0060
Telex number: 177615
Telecopy number: (212) 837-5335
-83-
EXHIBIT 10(qq)
AMENDMENT NO. 1 TO AMENDED
AND RESTATED CREDIT AGREEMENT
AMENDMENT dated as of February 16, 1995 among AMERICAN EXPLORATION
COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the
"Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"), and
BANK OF MONTREAL, as Co-Agent (the "Co-Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent have
heretofore entered into an Amended and Restated Credit Agreement dated as of
December 21, 1994 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions of
the Agreement in the manner set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. AMENDMENT OF SECTION 2.14 OF THE AGREEMENT. The first
paragraph of Section 2.14 of the Agreement is amended to delete the second
sentence in its entirety. In addition, the first sentence of Section 2.14 of the
Agreement is amended to read as follows:
During the period from and after February 16, 1995 and until the
next redetermination of the Borrowing
1
Base, the amount of the Borrowing Base shall be $65,000,000.
SECTION 3. GOVERNING LAW. This Amendment shall be governed
by and construed in accordance with the laws of the State of New
York.
SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Amendment shall become effective when the Agent shall have received duly
executed counterparts hereof signed by the Borrower, each of the Banks and each
of the Co-Agents (or, in the case of any party as to which an executed
counterpart shall not have been received, the Agent shall have received
telegraphic, telex or other written confirmation from such party of execution of
a counterpart hereof by such party).
2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
AMERICAN EXPLORATION COMPANY
By /S/ JOHN M. HOGAN
Title: Senior Vice President &
Chief Financial Officer
1331 Lamar, Suite 900
Houston, Texas 77010
Telecopy number: (713) 756-6007
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /S/ PHILIP W. MCNEAL
Title: Vice President
BANK OF MONTREAL, as a Bank and
as a Co-Agent
By /S/ ROBERT L. ROBERTS
Title: Director, U.S. Corporate
Banking
BANQUE PARIBAS
By /S/ BRIAN MALONE
Title: Vice President
By /S/ MEI WAN TONG
Title: Group Vice President
3
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /S/ PHILIP W. MCNEAL
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Telex number: 177615
Telecopy number: (212) 837-5335
4
EXHIBIT 12
AMERICAN EXPLORATION COMPANY
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(In thousands, except for ratio amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
EARNINGS:
(+) Pretax income from continuing
operations $(60,690) $(18,681) $(68,791) $(24,006) $ 4,298
(+) Interest expense<F1> 6,638 6,847 9,485 13,609 10,322
(+) Amort. of debt expense 2,779 739 1,292 - -
(+) Rent representative of int. factor 1,284 1,533 1,726 1,697 1,245
-------- -------- -------- -------- -------
(49,989) (9,562) (56,288) (8,700) 15,865
-------- -------- -------- -------- -------
FIXED CHARGES:
(+) Int. expensed or capitalized<F1> 8,134 9,193 12,786 17,081 10,322
(+) Amort. of debt expense 2,779 739 1,292 - -
(+) Rent representative of int. factor 1,284 1,533 1,726 1,697 1,245
-------- -------- -------- -------- -------
12,197 11,465 15,804 18,778 11,567
-------- -------- -------- -------- -------
PREF. STOCK DIV. REQUIREMENTS<F2> 1,800 75 - 65 244
-------- -------- -------- -------- -------
COVERAGE EXCESS (DEFICIENCY) $(63,986) $(21,102) $(72,092) $(27,543) $ 4,054
-------- -------- -------- -------- -------
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS (3.57) (0.83) (3.56) (0.46) 1.34
-------- -------- -------- -------- -------
<FN>
<F1>Amortization of deferred financing costs is included in interest expense.
<F2>There was no preferred stock outstanding during 1992.
</FN>
</TABLE>
EXHIBIT 18
March 30, 1995
American Exploration Company
1331 Lamar, Suite 900
Houston, Texas 77010-3088
Re: Form 10-K Report for the Year Ended December 31, 1994
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
Effective December 31, 1994, the Company changed its accounting policy related
to recognizing impairments of proved oil and gas properties to a policy that is
consistent with the provisions of the Financial Accounting Standards Board
(FASB) exposure draft, "Accounting for the Impairment of Long-Lived Assets."
According to the management of the Company, this change was made in response to
the volatility of oil and gas prices, the resulting economic losses of proved
reserves and corresponding increases in the Company's depreciation, depletion
and amortization rate. Although no impairment of proved oil and gas properties
is required under existing regulations, management concluded that it would be
more appropriate to evaluate properties at the field level rather than at the
Company level. Accordingly, the Company has adopted a policy to assess
recoverability of its proved properties by field utilizing estimates of
undiscounted future net revenues attributable to proved reserves. If the book
value of an individual proved field is greater than its undiscounted future net
revenues, an impairment is recognized for the difference between the net book
value and the fair value.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
ARTHUR ANDERSEN LLP
EXHIBIT 21
PRINCIPAL SUBSIDIARIES OF AMERICAN EXPLORATION COMPANY
STATE OR OTHER
JURISDICTION
COMPANY OF INCORPORATION
Ameriplor Corp.* Delaware
Ninian Oil Finance Corp.* Delaware
American Exploration Acquisition - VI Corp.* Delaware
Austral Oil Company Incorporated Delaware
Conquest Exploration Company Delaware
Conquest Texas, Inc. Delaware
3300 Corp. Nevada
Axcon Corp.* Delaware
All of the Company's other subsidiaries are omitted because together
they would not constitute a significant subsidiary as defined by the Securities
and Exchange Commission.
* Merged into American Exploration Company subsequent to year-end 1994.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Form S-2 Registration Statement (File No. 33-18512), Form S-8
Registration Statement (File No. 33-36634), Form S-8 Registration Statement
(File No. 33-36953), Form S-8 Registration Statement (File No. 33-36955), Form
S-8 Registration Statement (File No. 33-36956), Form S-3 Registration Statement
(File No. 33-46558), Form S-3 Registration Statement (File No. 33-51795) and
Form S-3 Registration Statement (File No. 33-54561).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Company's
consolidated financial statements for the 12 months ended December 31, 1994 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9,973
<SECURITIES> 0
<RECEIVABLES> 15,140
<ALLOWANCES> 0
<INVENTORY> 293
<CURRENT-ASSETS> 26,127
<PP&E> 330,983
<DEPRECIATION> 135,578
<TOTAL-ASSETS> 223,894
<CURRENT-LIABILITIES> 30,229
<BONDS> 100,840
<COMMON> 5,739
0
4
<OTHER-SE> 81,967
<TOTAL-LIABILITY-AND-EQUITY> 223,894
<SALES> 50,033
<TOTAL-REVENUES> 51,359
<CGS> 0
<TOTAL-COSTS> 102,792
<OTHER-EXPENSES> 2,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,638
<INCOME-PRETAX> (60,690)
<INCOME-TAX> 455
<INCOME-CONTINUING> (60,235)
<DISCONTINUED> 0
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