<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-11698
KCS ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2889587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
379 Thornall Street, Edison, New Jersey 08837
(Address of principal executive offices) (Zip Code)
(732) 632-1770
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report.)
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 twelve 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.
(1) /X/ Yes (2) / / No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value: 29,255,085 shares outstanding as of
October 31, 1998.
1
<PAGE> 2
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands except September 30, September 30,
per share data) Unaudited 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Oil and gas revenue $ 30,446 $ 30,573 $ 92,309 $ 100,396
Other revenue, net 1,831 1,095 4,940 3,702
--------- --------- --------- ---------
Total revenue 32,277 31,668 97,249 104,098
Operating costs and expenses
Lease operating expenses 8,075 6,771 22,993 20,470
Production taxes 961 1,268 3,019 4,354
General and administrative expenses 2,873 1,964 8,465 7,302
Depreciation, depletion and amortization 15,567 13,921 43,942 42,486
Writedown of oil and gas properties -- -- 57,631 --
--------- --------- --------- ---------
Total operating costs and expenses 27,476 23,924 136,050 74,612
--------- --------- --------- ---------
Operating income (loss) 4,801 7,744 (38,801) 29,486
Interest and other income, net (82) 158 117 388
Interest expense (9,787) (5,348) (26,589) (15,146)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (5,068) 2,554 (65,273) 14,728
Federal and state income taxes (benefit) (1,487) 975 (22,675) 5,452
--------- --------- --------- ---------
Income (loss) from continuing operations (3,581) 1,579 (42,598) 9,276
Discontinued operations
Net loss from operations -- -- -- (72)
Net gain on disposition -- -- -- 5,461
--------- --------- --------- ---------
Net income (loss) $ (3,581) $ 1,579 $ (42,598) $ 14,665
========= ========= ========= =========
Basic earnings (loss) per share
of common stock
Continuing operations $ (0.12) $ 0.05 $ (1.44) $ 0.32
Discontinued operations -- -- -- 0.19
--------- --------- --------- ---------
$ (0.12) $ 0.05 $ (1.44) $ 0.51
========= ========= ========= =========
Diluted earnings (loss) per share
of common stock
Continuing operations $ (0.12) $ 0.05 $ (1.44) $ 0.32
Discontinued operations -- -- -- 0.18
--------- --------- --------- ---------
$ (0.12) $ 0.05 $ (1.44) $ 0.50
========= ========= ========= =========
Average shares outstanding for computation
of earnings per share
Basic 29,537 29,377 29,486 28,670
Diluted 29,537 29,973 29,486 29,177
========= ========= ========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
<PAGE> 3
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands except September 30, December 31,
per share data) Unaudited 1998 1997
--------- ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1,176 $ 4,802
Trade accounts receivable, net 33,396 40,115
Federal income tax receivable 3,248 --
Other current assets 6,488 6,752
--------- ---------
Current assets 44,308 51,669
--------- ---------
Oil and gas properties, full cost method, net 442,231 403,754
Other property, plant and equipment, net 23,040 22,579
--------- ---------
Property, plant and equipment, net 465,271 426,333
--------- ---------
Other assets
Investments and other assets 9,959 7,815
Deferred federal and state income taxes 36,787 16,597
--------- ---------
Other assets 46,746 24,412
--------- ---------
$ 556,325 $ 502,414
========= =========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 18,190 $ 39,500
Accrued liabilities 16,454 24,524
--------- ---------
Current liabilities 34,644 64,024
--------- ---------
Deferred credits and other liabilities 1,449 875
--------- ---------
Long-term debt 420,012 292,445
--------- ---------
Stockholders' equity
Common stock, par value $0.01 per
share - authorized 50,000,000
shares, issued 31,419,440 and
31,229,890, respectively 311 312
Additional paid-in capital 145,002 144,135
Retained earnings (deficit) (40,355) 4,011
Less treasury stock, 2,167,096 shares and
1,801,496 shares, respectively, at cost (4,738) (3,388)
--------- ---------
Total stockholders' equity 100,220 145,070
--------- ---------
$ 556,325 $ 502,414
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
<PAGE> 4
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Dollars in thousands) Unaudited 1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (42,598) $ 14,665
Non-cash charges (credits):
Depreciation, depletion and amortization 43,942 42,486
Writedown of oil and gas properties 57,631 --
Gain on sale of discontinued operations -- (5,461)
Deferred income taxes (20,130) 4,581
Other non-cash charges and credits, net 2,038 1,320
--------- ---------
40,883 57,591
Net changes in assets and liabilities:
Trade accounts receivable 6,718 58,054
Accounts payable and accrued liabilities (29,522) (54,579)
Other, net (2,656) 829
--------- ---------
Net cash provided by operating activities 15,423 61,895
--------- ---------
Cash flows from investing activities:
Investment in oil and gas properties (143,214) (169,773)
Proceeds from the sale of pipeline assets -- 27,907
Proceeds from the sale of oil and gas properties 4,895 3,800
Other capital expenditures, net (2,189) (2,111)
--------- ---------
Net cash used in investing activities (140,508) (140,177)
--------- ---------
Cash flows from financing activities:
Proceeds from debt 255,200 117,300
Repayments of debt (127,700) (151,991)
Proceeds from issuance of common stock 865 113,418
Deferred financing costs (3,787) (213)
Other, net (3,119) (1,474)
--------- ---------
Net cash provided by financing activities 121,459 77,040
--------- ---------
Net decrease in cash and cash equivalents (3,626) (1,242)
Cash and cash equivalents at beginning of period 4,802 5,100
--------- ---------
Cash and cash equivalents at end of period $ 1,176 $ 3,858
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE> 5
KCS ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed interim financial statements included herein have been prepared
by KCS Energy, Inc. (KCS or Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and reflect all
adjustments which are of a normal recurring nature and which, in the opinion of
management, are necessary for a fair statement of the results for interim
periods. Certain information and footnote disclosures have been condensed or
omitted pursuant to such rules and regulations. Although KCS believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company's latest
annual report to stockholders. Certain previously reported amounts have been
reclassified to conform with current year presentations.
2. The Company follows the full cost method of accounting, under which all
productive and nonproductive costs associated with its exploration, development
and production activities are capitalized in a country-wide cost center.
Depreciation, depletion and amortization of evaluated costs is calculated using
the future gross revenue method based on proved reserves valued at end of period
prices. Under accounting procedures prescribed by the SEC, capitalized oil and
gas property costs are limited to the present value of future net revenues from
estimated production of proved oil and gas reserves at end of period prices,
discounted at 10%, plus the lower of cost or fair value of unproved properties
("SEC PV10 value"). To the extent that the capitalized costs exceed the
estimated SEC PV10 value ("ceiling limitation") at the end of any fiscal
quarter, such excess costs are written down with a corresponding charge to
income.
At June 30, 1998, the Company recorded a $57.6 million ($37.5 million
after-tax) non-cash writedown of its oil and gas properties primarily as a
result of significantly lower period end oil and gas prices. The precipitous
decline in natural gas prices continued during the third quarter of 1998 and
based on September 30, 1998 prices, capitalized costs exceeded the estimated SEC
PV10 value by approximately $32.5 million. Natural gas prices then rose
sufficiently in November 1998 to eliminate this deficit. In making the SEC PV10
value assessment referred to above, for the ceiling limitation calculation,
the SEC allows companies to take into consideration changes in prices of its
products subsequent to the end of the period if such prices are appropriate to
determine fair value. Accordingly, the Company did not record a non-cash
writedown of its oil and gas properties for the third quarter of 1998.
3. In January 1998, the Company completed a public offering of $125 million
senior subordinated notes at an interest rate of 8.875% due January 15, 2008.
The net proceeds of approximately $121 million were used to pay down borrowings
under the Company's bank credit facilities and to finance oil and gas
investments.
4. Supplemental cash flow information. The Company considers all highly liquid
debt instruments with a maturity of three months or less when purchased to be
cash equivalents. For the nine months ended September 30, 1998 interest payments
were $27.3 million, compared to $19.9 million for the nine months ended
September 30, 1997. Income tax payments were $0.3 million and $0.5 million for
the nine-month periods ended September 30, 1998 and 1997, respectively.
5. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133
5
<PAGE> 6
KCS ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows for the offset between gains and losses on
derivative contracts and related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting.
SFAS 133 is effective for the Company in the first quarter of 2000. The
Company has not yet quantified the impact of adoption of SFAS 133 in its
financial statements and has not determined the timing of or method of the
adoption. SFAS 133 must be applied to derivative instruments and certain
derivative instruments embedded in hybrid contracts that were issued, acquired
or substantively modified after December 31, 1997.
6. During the first quarter of 1997, the Board of Directors approved a plan to
discontinue the Company's natural gas transportation and third-party gas
marketing operations in order to focus on the core oil and gas exploration and
production operations. As of June 30, 1997, the Company sold its Texas
intrastate natural gas pipeline system, together with related marketing assets
and a joint-venture gathering system, realizing proceeds of approximately $28
million and an after-tax gain of $5.5 million. Accordingly, the results of the
transportation and marketing operations have been classified as discontinued
operations in 1997. The summarized results of these operations for the nine
months ended September 30, 1997 were as follows: revenue of $22.0 million, net
loss from operations of $0.1 million and net gain on disposal of $5.5 million.
The gain on disposal included a $1.1 million pre-tax ($0.7 million after-tax)
provision for estimated losses during the wind-down period. By December 31,
1997, all assets of the discontinued operations were disposed of.
7. Basic earnings per share were computed by dividing net income by the average
number of common shares outstanding during the quarter and nine-month period as
required by FASB Statement No. 128, "Earnings per Share" ("SFAS 128"). Diluted
earnings per share have been computed by dividing net income by the average
number of common shares outstanding plus the incremental shares that would have
been outstanding assuming the exercise of stock options and stock warrants as
applicable. A reconciliation of shares used for basic earnings per share and
those used for diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(amounts in thousands) (amounts in thousands)
<S> <C> <C> <C> <C>
Average common stock outstanding 29,537 29,377 29,486 28,670
Average common stock equivalents 153 596 287 507
------ ------ ------ ------
Average common stock and common
stock equivalents outstanding 29,690 29,973 29,773 29,177
====== ====== ====== ======
</TABLE>
Common stock equivalents are not applicable for 1998 earnings per share as they
would be antidilutive.
6
<PAGE> 7
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion focuses on material changes in results of
operations for the three and nine months ended September 30, 1998, compared to
the three and nine months ended September 30, 1997, and in financial condition
since December 31, 1997. All references in the following discussion related to
earnings per share relate to the Company's diluted earnings per share.
Results of Operations
Net loss for the three months ended September 30, 1998 was $3.6
million, or $0.12 per share, compared to net income of $1.6 million, or $0.05
per share, for the same period last year. While production for the quarter was
up 16%, substantially lower energy prices coupled with higher interest costs and
a higher depletion rate, compared to the same period a year ago, more than
offset the benefits of increased production.
Net loss for the nine months ended September 30, 1998 was $42.6
million, or $1.44 per share, compared to income from continuing operations of
$9.3 million, or $0.32 per share for the same period last year. The current year
nine-month period includes a non-cash writedown of oil and gas properties of
$57.6 million ($37.5 million after-tax). Excluding the effect of this writedown,
the net loss was $5.1 million, or $0.17 per share as the benefits of an 8%
increase in production were more than offset by a 15% decrease in average
prices, higher interest costs and a higher depletion rate. The prior year
nine-month period also included net income of $5.4 million, or $0.18 per share,
from discontinued operations.
While the depressed oil and gas price environment in 1998 impacted all
of the Company's divisions, the Rocky Mountain division was impacted the most.
Realized oil prices in this division during the nine months ended September 30,
1998 were 45% lower than those realized during the same period a year ago. These
lower prices, combined with high unit production costs at the current production
levels, have resulted in operating losses for the Rocky Mountain division of
$1.4 million and $3.8 million for the quarter and nine months ended September
30, 1998, respectively. The Company has curtailed its capital spending program
in this area and implemented a cost-reduction plan which has reduced operating
and administrative expenses and should enable this division to breakeven on a
cash basis. In the meantime, the Company will continue to evaluate how best to
proceed with the development of the Manderson Field and its surrounding acreage.
7
<PAGE> 8
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Production:
Gas (MMcf) 12,728 10,647 36,365 32,806
Oil (Mbbl) 428 413 1,285 1,295
Liquids (Mbbl) 22 30 78 101
Total (MMcfe) 15,430 13,308 44,542 41,180
Average Price:
Gas (per Mcf) $ 2.00 $ 2.17 $ 2.11 $ 2.28
Oil (per bbl) 11.10 17.46 11.60 18.92
Liquids (per bbl) 10.56 9.39 7.85 11.05
Total (per Mcfe) 1.97 2.30 2.07 2.44
Revenue:
Gas $ 25,462 23,075 76,787 74,782
Oil 4,749 7,212 14,910 24,501
Liquids 235 286 612 1,113
-------- -------- -------- --------
Total $ 30,446 $ 30,573 $ 92,309 $100,396
======== ======== ======== ========
</TABLE>
Gas revenue. For the three months ended September 30, 1998, gas revenue
increased $2.4 million to $25.5 million. Of this increase, $4.2 million was due
to a 20% increase in production, partially offset by an 8% decline in average
realized gas prices.
For the nine months ended September 30, 1998, gas revenue increased
$2.0 million to $76.8 million. Of this increase, $7.5 million was due to
increased production, partially offset by a 7% reduction in average realized gas
prices.
Oil and liquids revenue. For the three months ended September 30, 1998,
oil and liquids revenue decreased by $2.5 million to $5.0 million due to a 36%
decline in average realized oil prices.
For the nine months ended September 30, 1998, oil and liquids revenue
decreased $10.1 million to $15.5 million primarily due to a 39% reduction in
average realized oil prices.
Prices for oil and gas are subject to wide fluctuations in response to
relatively minor changes in the supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond the Company's
control. These factors include political conditions in the Middle East and
elsewhere, domestic and foreign supply of oil and gas, the level of consumer
demand, weather conditions and overall economic conditions.
8
<PAGE> 9
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other revenue, net
Other revenue includes $1.4 million for the three months and $3.6
million for the nine months ended September 30, 1998, related to production tax
refunds. In 1997, other revenue included a $1.3 million settlement of a gas
contract dispute recorded in the second quarter. Other revenue also includes
certain marketing and gathering revenue incidental to the Company's oil and gas
exploration and production operations.
Lease operating expenses
For the three months ended September 30, 1998 lease operating expenses
increased $1.3 million to $8.1 million primarily due to increased production
and summer workover activity at the Mid-Continent division in 1998.
For the nine months ended September 30, 1998 lease operating expenses
increased $2.5 million to $23.0 million. Higher production and full-time
operation of the gas treatment plant in the Rocky Mountain division during the
first six months of 1998 compared to the first six months of 1997 and the
increased activity in the Mid-Continent division during the third quarter of
1998 were the primary reasons for the increase.
Production taxes
Production taxes, which are generally levied based upon a percentage of
revenue, decreased $0.3 million to $1.0 million for the third quarter of 1998
and $1.3 million to $3.0 million for the nine months ended September 30, 1998,
compared to the same periods in 1997.
General and administrative expenses
General and administrative expenses ("G&A") increased $0.9 million to
$2.9 million and $1.2 million to $8.5 million for the three and nine months
ended September 30, 1998, respectively, compared to the same periods a year ago.
These increases reflect lower levels of capitalized G&A as a result of the
curtailment of the drilling program in the Rocky Mountain division as well as
higher levels of administrative activity associated with 1998 production
increases.
Depreciation, depletion and amortization
The Company provides for depletion on its oil and gas properties using
the future gross revenue method, whereby the depletion rate is calculated as a
percentage of amortizable oil and gas properties to future gross revenue based
on recoverable reserves valued at end of period prices. During the three months
ended September 30, 1998, depreciation, depletion and amortization ("DD&A") on
the Company's oil and gas properties increased $1.6 million due primarily to a
higher DD&A rate in the 1998 quarter. The DD&A rate increased to 49% of oil and
gas revenue in the current year three-month period, compared to 44% during the
same period a year ago. The increase in the rate reflects the lower energy
prices in 1998.
For the nine months ended September 30, 1998, DD&A on the Company's oil
and gas properties increased $1.3 million, compared to the similar period in
1997. This increase was primarily due to a higher depletion rate in the current
year partially offset by lower oil and gas revenues.
9
<PAGE> 10
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Writedown of oil and gas properties
At June 30, 1998, the Company, in accordance with the full cost
accounting method and procedures prescribed by the SEC, recorded a $57.6 million
($37.5 million after tax) non-cash writedown of its oil and gas properties.
Under the SEC accounting procedures, capitalized oil and gas property costs are
limited to the present value of future net revenues from estimated production of
proved oil and gas reserves at end of period prices, discounted at 10%, plus the
lower of cost or fair value of unproved properties ("SEC PV10 value"). To the
extent that the capitalized costs exceed the estimated SEC PV10 value ("ceiling
limitation") at the end of any fiscal quarter, such excess costs are written
down with a corresponding charge to income. The decrease in the June 30, 1998
SEC PV10 value was primarily attributable to the impact of significantly lower
period end oil and gas prices. Natural gas prices continued to decline in the
third quarter of 1998 and based on September 30, 1998 prices, capitalized costs
exceeded the estimated SEC PV10 value by approximately $32.5 million. Natural
gas prices then rose sufficiently in November 1998 to eliminate this deficit. In
making the SEC PV10 value assessment referred to above, for the ceiling
limitation calculation, the SEC allows companies to take into consideration
changes in prices of its products subsequent to the end of the period if such
prices are appropriate to determine fair value. Accordingly, the Company did
not record a non-cash writedown of its oil and gas properties for the third
quarter of 1998.
Further price declines, if not offset by increases in proved oil and
gas reserves, could result in future ceiling writedowns.
Interest expense
Interest expense was $9.8 million during the third quarter of 1998,
compared to $5.3 million for the same period last year. For the nine months
ended September 30, 1998, interest expense was $26.6 million, compared to $15.1
million. The increases during the 1998 periods reflect higher average borrowings
during the 1998 period due to the expansion of the Company's oil and gas
operations.
Liquidity and Capital Resources
Cash flow from operating activities
Net income adjusted for non-cash charges decreased to $40.9 million for
the nine months ended September 30, 1998, compared to $57.6 million during the
same period in 1997, mainly due to the impact of lower oil and gas prices on oil
and gas revenue and additional interest costs related to incremental borrowings,
partially offset by a $3.2 million federal income tax refund. Net cash provided
by operating activities was $15.4 million during the current year nine-month
period, compared to $61.9 million for the nine months ended September 30, 1997.
In addition to the effect of lower energy prices and interest costs, the 1998
nine-month period was impacted by the timing of cash receipts and payments which
were generally at a lower level in 1998 due to the discontinuation of the
Company's natural gas transportation and marketing operations in 1997. Working
capital at September 30, 1998 increased to $9.7 million.
Investing activities
Capital expenditures on oil and gas properties for the nine months
ended September 30, 1998 were $143.2 million, of which $60.3 million was for
development drilling, $69.9 million for the acquisition of proved reserves
primarily under the Company's VPP program and $13.0 million for
10
<PAGE> 11
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
lease acquisitions, seismic surveys and exploratory drilling. The remainder of
the Company's 1998 capital spending budget of approximately $12 million is
expected to be funded by cash flow from operations and proceeds from pending
assets sales.
Financing activities
On January 15, 1998, the Company completed a public offering of $125
million senior subordinated notes at an interest rate of 8.875% due January 15,
2008. The net proceeds of approximately $121 million were used to pay down
borrowings under the Company's bank credit facilities.
At September 30, 1998, the Company had $29.6 million of availability
under its bank credit facilities which are currently under a semi-annual review.
The borrowing base is a function of the lenders' determination of the loan value
of the underlying oil and gas properties.
Year 2000 Issue
The Year 2000 problem concerns the possible inability of certain
information systems, primarily computer software programs, to properly recognize
date sensitive information beginning January 1, 2000 and the related data
processing errors and resulting business problems that this may cause. The
Company has a Year 2000 program in place to 1) Identify and resolve internal
systems issues, and 2) Identify and plan for potential issues with respect to
external vendors and customers.
Internal Systems
The Company's planning for the internal systems aspects of the Year
2000 problem is focused on five areas: (1) Communications Hardware and Software;
(2) Information Systems Hardware; (3) Operating Systems Software; (4) Back
Office Applications and (5) Core Applications.
Communications Hardware and Software
Communication software upgrades are needed at several of the Company's
offices. This software is readily replaceable with Year 2000 compliant versions.
The Company has plans in place to ensure that these systems are compliant. It is
anticipated that related upgrades will be in place by the end of the second
quarter of 1999.
Information Systems Hardware
Two servers are scheduled for replacement with Year 2000 compliant
models. Certain workstation replacements are needed throughout the Company, but
these replacements are minimal and readily available. It is anticipated that
replacements will be in place by the end of the third quarter of 1999.
Operating Systems Software
The Company presently uses Windows NT4 and Windows 95 operating systems
which are not Year 2000 compliant. The Company's plan is to have all
workstations on a Windows 2000 system, which is a Year 2000 compliant operating
system, in early 1999.
11
<PAGE> 12
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Back Office Applications
The Company's two principal Microsoft desktop productivity
applications are not currently Year 2000 compliant but it is anticipated that
they will be upgraded with the vendor release due in early 1999. Certain server
applications such as SMS, SQL Arcserve and Inoculan, which allow the Company to
manage data as well as maintain network integrity, are also not compliant but
it is anticipated that they will be upgraded to compliant versions by the
spring of 1999.
Core Applications
The Company's principal core applications are for reserve engineering
and analysis, production reporting and financial and accounting systems. The
reserve engineering and production reporting applications are currently not Year
2000 compliant, but are in the process of being upgraded to compliant versions.
It is anticipated that upgrade of the reserve engineering and analysis
application will be completed prior to December 31, 1998 and the production
reporting system will be upgraded in the second quarter of 1999. The Company is
in the process of migrating all of its divisions to a single finance and
accounting solution which is Year 2000 compliant. It is anticipated that
migration will be completed in early 1999.
The Company believes that the program outlined above will mitigate its
internal systems risk related to the Year 2000 problem. The incremental costs of
this program in 1998 and 1999 is currently estimated to be between $400,000 and
$600,000 in the aggregate, most of which would have been spent in any event
within the next 18 to 24 months in the continuing process of upgrading
information systems to the latest technology. These costs are being expensed as
incurred except for any major investments in replacement computer hardware or
new application systems projects that are normally capitalized and amortized
over the life of the asset.
External Vendor and Customer Issues
The Company also relies on the systems capabilities of various vendors
and customers to conduct its business. The Company is presently polling its
major vendors and customers to insure that they will be Year 2000 compliant on a
timely basis and to develop contingency plans for any disruption in their
services or products that could have a significant adverse impact on the
Company's business. These activities are intended to provide a means of managing
risk, but cannot eliminate the potential for disruption due to third party
failure.
The most significant risks of non-compliance by third parties are as
follows:
1) Inability of the operators of certain wells in which the Company owns a
working interest to report production, bill, collect and remit revenues
that are due to the Company.
2) Inability of pipeline companies and others to which the Company sells
natural gas to properly meter production, remarket the gas and pay the
Company as due.
3) Inability of the Company's suppliers to schedule and deliver equipment
to the Company's operated well sites, causing potential delays in
drilling and development activities and, conceivably, other safety and
environmental risks.
12
<PAGE> 13
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Based upon the results of the Company's assessment of third party Year
2000 risks, it is anticipated that appropriate contingency plans will be
developed, including the use of manual systems and alternate vendors. The
methodology used in the development of the contingency plans, which are expected
to be in place by the end of the third quarter of 1999, is largely dependent
upon the responses received from the Company's vendors and customers as to their
Year 2000 compliance.
Forward-looking Statements
The information discussed in this Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included herein regarding
planned capital expenditures, the Company's financial position and future
operations, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
they do involve certain assumptions, risks and uncertainties, and the Company
can give no assurance that such expectations will prove to have been correct.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including the
timing and success of the Company's drilling activities, the volatility of
prices and supply and demand for oil and gas, the numerous uncertainties
inherent in estimating quantities of oil and gas reserves and actual future
production rates and associated costs, the usual hazards associated with the oil
and gas industry (including blowouts, cratering, pipe failure, spills,
explosions and other unforeseen hazards), and increases in regulatory
requirements.
All forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such factors.
13
<PAGE> 14
KCS ENERGY, INC. - FORM 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10(i) Third Amendment to Credit Agreement among KCS Resources,
Inc., KCS Pipeline Systems, Inc., KCS Michigan
Resources, Inc. and KCS Energy Marketing, Inc., Canadian
Imperial Bank of Commerce, New Agency, as Agent, CIBC
Inc., as Collateral Agent, Bank One, Texas, National
Association, as Co-Agent, NationsBank of Texas, N.A., as
Co-Agent dated September 25, 1996.
10(ii) Second Amendment to Guaranty by KCS Energy, Inc. in
Favor of Canadian Imperial Bank of Commerce, New York
Agency, as Agent dated September 25, 1996.
10(iii) Second Amendment to Credit Agreement among KCS Medallion
Resources, Inc., KCS Energy, Inc., KCS Energy Services,
Inc., Medallion Gas Services, Inc., and GED Energy
Services, Inc. and Canadian Imperial Bank of Commerce,
New York Agency, as Agent, CIBC Inc. as Collateral
Agent NationsBank of Texas, N.A. as Co-Agent dated
January 2, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the three
months ended September 30, 1998.
SIGNATURES
Pursuant to the requirements 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.
KCS ENERGY, INC.
November 16, 1998 /S/ PAUL S. SAMETT
-------------------
Paul S. Samett
Senior Vice President and
Chief Financial Officer
November 16, 1998 /S/ FREDERICK DWYER
--------------------
Frederick Dwyer
Vice President, Controller
and Secretary
14
<PAGE> 15
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(i) Third Amendment to Credit Agreement among KCS Resources,
Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources, Inc.
and KCS Energy Marketing, Inc., Canadian Imperial Bank of
Commerce, New Agency, as Agent, CIBC Inc., as Collateral
Agent, Bank One, Texas, National Association, as Co-Agent,
NationsBank of Texas, N.A. as Co-Agent dated September 25,
1996.
10(ii) Second Amendment to Guaranty by KCS Energy, Inc. in Favor of
Canadian Imperial Bank of Commerce, New York Agency, as Agent
dated September 25, 1996.
10(iii) Second Amendment to Credit Agreement among KCS Medallion
Resources, Inc., KCS Energy, Inc., KCS Energy Services, Inc.,
Medallion Gas Services, Inc., and GED Energy Services, Inc.
and Canadian Imperial Bank of Commerce, New York Agency, as
Agent, CIBC Inc., as Collateral Agent, NationsBank of Texas,
N.A. as Co-Agent dated January 2, 1997.
27 Financial Data Schedule.
<PAGE> 16
Exhibit 10(i)
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is made
and entered into on November __, 1998 and effective as of September 30, 1998 by
and among KCS RESOURCES, INC., a Delaware corporation ("KRI") for itself and as
successor by merger to KCS PIPELINE SYSTEMS, INC., a Delaware corporation ("KCS
Pipeline"); KCS MICHIGAN RESOURCES, INC., a Delaware corporation ("KCS
Michigan"); and KCS ENERGY MARKETING, INC., a New Jersey corporation ("KCS
Marketing," and together with KRI and KCS Marketing, each individually, a
"Borrower" and collectively, the "Borrowers"), each lender that is a signatory
hereto or becomes a party hereto as provided in Sections 9.1 or 2.24 of the
Agreement (hereinafter defined) (individually, together with its successors and
assigns, a "Lender" and, collectively, together with their respective successors
and assigns, the "Lenders"), and CANADIAN IMPERIAL BANK OF COMMERCE, acting
through its New York agency (in its individual capacity, "CIBC"), and as agent
for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent"),BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association, as co-agent for the Lenders, and NATIONSBANK OF TEXAS, N.A., a
national banking association, as co-agent for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrowers and the Lenders entered into a Credit Agreement
dated September 25, 1996, a First Amendment to Credit Agreement dated July 1,
1997 and a Second Amendment to Credit Agreement dated March 24, 1998 (as
amended, the "Agreement") whereby, upon the terms and conditions therein stated,
the Lenders agreed to make loans to the Borrowers up to the aggregate amount of
$150,000,000.00 to be used by the Borrowers for the purposes set forth in
Section 2.5 of the Agreement; and
WHEREAS, the Borrowers and the Lenders mutually desire to amend certain
aspects of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this Third Amendment,
except as may otherwise be provided in Section 1.2 hereof, all capitalized terms
which are defined in the Agreement shall have the same meaning herein as
therein, all of
<PAGE> 17
such terms and definitions being incorporated herein by reference.
Section 1.2 Amended Definitions. The following terms which are defined in
Section 1.2 of the Agreement are amended to read as follows:
"Agreement" shall mean this Credit Agreement, as amended by the
First Amendment to Credit Agreement, Second Amendment to Credit Agreement,
and Third Amendment to Credit Agreement, as the same may from time to time
be further amended or supplemented.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the Guarantor and its Subsidiaries
prepared on a consolidated basis and in accordance with GAAP, exclusive of
Intellectual Property, experimental or organization expenses, franchises,
licenses, permits, and other intangible assets, treasury stock, and
goodwill minus (b) total liabilities, as would be reflected on a balance
sheet of the Guarantor and its Subsidiaries prepared on a consolidated
basis and in accordance with GAAP plus (c) the after-tax amounts of any
ceiling limitation write downs (such after-tax amounts added by virtue of
this item (c) not to exceed $40,000,000 in the aggregate on and after
September 30, 1998).
Section 1.3 Additional Definitions. The following terms are hereby added
to Section 1.2 of the Agreement as follows:
"Equity Securities" shall mean any and all certificates, capital
stock, preferred stock, convertible debentures or any other securities
evidencing ownership of equity in the Guarantor or any of its Subsidiaries
issued in any public or private offering.
Section 1.4 Confirmation and Extent of Changes. All terms which are
defined in Section 1.2 of the Agreement shall remain unchanged except as
specifically provided in Section 1.2 of this Third Amendment.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations Repeated. The representations and warranties
of the Borrowers contained in the Agreement and the other Security Instruments
and otherwise made in writing by or on behalf of the Borrowers pursuant to the
Agreement and the other Security Instruments were true and correct when made,
and are true and correct in all material respects at and as of the time of
delivery of this Third Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Agreement, this Third Amendment or the other Security
Instruments.
<PAGE> 18
Section 2.2 Security Instruments. All Security Instruments to which the
Borrowers are parties shall secure the Notes and all of the Obligations of the
Borrowers to the Lenders, whether or not such Security Instruments shall be
expressly amended or supplemented in connection herewith.
Section 2.3 Compliance with Obligations. The Borrowers have performed and
complied in all material respects with all agreements and conditions contained
in the Agreement and the Security Instruments required to be performed or
complied with by the Borrowers prior to or at the time of delivery of this Third
Amendment.
Section 2.4 Defaults. After giving effect to this Third Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Borrowers are parties.
Section 2.5 No Amendments. Nothing in Article 2 of this Third Amendment is
intended to amend any of the representations or warranties contained in the
Agreement.
ARTICLE 3
MISCELLANEOUS
Section 3.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Agreement, the Note, the Security Instruments and the other
instruments and agreements referred to therein are not amended, modified or
affected by this Third Amendment. Except as expressly set forth herein, all of
the terms, conditions, covenants, representations, warranties and all other
provisions of the Agreement are herein ratified and confirmed and shall remain
in full force and effect.
Section 3.2 References. On and after the date on which this Third
Amendment becomes effective, the terms, "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this Third Amendment.
Section 3.3 Counterparts. This Third Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed on this ____ day of November, 1998; provided that this Third
Amendment shall for all purposes be effective as of the 30th day of September,
1998, as if originally signed on that date.
BORROWERS:
KCS RESOURCES, INC.
By:
Name:
Title:
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
KCS MICHIGAN RESOURCES, INC.
By:
Name:
Title:
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
KCS ENERGY MARKETING, INC.
By:
Name:
Title:
<PAGE> 20
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Russell Otts
Telecopy: (713) 650-3727
<PAGE> 21
CO-AGENT AND A LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
910 Travis
Houston, Texas 77002
Attention: Karen Smith
Telecopy: (713) 751-7894
Address for Notices:
910 Travis Street
Houston, Texas 77002
Attention: Stephen M. Shatto
Telecopy: (713) 751-3544
CO-AGENT AND A LENDER:
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Corporate Credit Services
<PAGE> 22
Address for Notices:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Sharon Evans
Telecopy: (214) 508-2020
with copies to:
NATIONSBANK OF TEXAS, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002
Attention: Paul A. Squires
Telecopy: (713) 247-6568
<PAGE> 23
LENDERS:
COMERICA BANK-TEXAS
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
1508 West Mockingbird
Dallas, Texas 75235
Address for Notices:
1601 Elm Street
Second Floor
Dallas, Texas 75202
Attention: Mark Fuqua
Telecopy: (214) 965-8990
with copies to:
COMERICA BANK-TEXAS
One Shell Plaza
910 Louisiana, Suite 410
Houston, Texas 77002
Attention: Daniel G. Steele
Telecopy: (713) 722-6550
<PAGE> 24
DEN NORSKE BANK ASA
By:
Name:
Title:
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Address for Notices:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Attention: Bill Trivedi
Telecopy: (212) 681-4123
with copies to:
DEN NORSKE BANK ASA
333 Clay Street, Suite 4890
Houston, Texas 77002
Attention: William V. Moyer
Telecopy: (713) 757-1167
CIBC, INC.
By:
Marybeth Ross
Authorized Signatory
<PAGE> 25
Address for Notices:
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
<PAGE> 26
Exhibit 10(ii)
SECOND AMENDMENT TO GUARANTY
THIS SECOND AMENDMENT TO GUARANTY (this "Second Amendment")is made and
entered into by KCS Energy, Inc., a Delaware corporation (the "Guarantor") in
favor of the lenders party to the Credit Agreement (as such term is defined
below) from time to time (together with their respective successors and assigns
as permitted pursuant to the Credit Agreement referred to below, the "Lenders"),
and Canadian Imperial Bank of Commerce, a Canadian chartered bank, acting
through its New York Agency, as agent for the Lenders pursuant to the Credit
Agreement (as such term is defined below) (in such capacity, together with its
successors in such capacity pursuant to the terms of the Credit Agreement, the
"Agent").
RECITALS:
WHEREAS, pursuant to the terms and conditions of that certain Credit
Agreement dated September 25, 1996 by and among KCS Resources, Inc., a Delaware
corporation, for itself and as successor by merger to KCS Pipeline Systems,
Inc., a Delaware corporation, KCS Michigan Resources, Inc., a Delaware
corporation, and KCS Energy Marketing, Inc., a New Jersey corporation (each
individually a "Borrower" and collectively, the "Borrowers"), the Agent, CIBC
Inc., as Collateral Agent, and the Lenders (as such agreement may be amended,
restated, or supplemented from time to time, the "Credit Agreement"), the
Lenders agreed to extend credit to or for the benefit of the Borrowers;
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrowers pursuant to the Credit Agreement, the
Guarantor entered into that certain Guaranty dated September 25, 1996 (the
"Guaranty") in favor of the Agent for the benefit of the Lenders;
WHEREAS, the Guaranty was amended by that certain First Amendment to
Guaranty dated March 24, 1998; and
WHEREAS, Guarantor and Agent mutually desire to amend certain aspects of
the Guaranty as herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
<PAGE> 27
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Guaranty. As used in this Second Amendment
all capitalized terms which are defined in the Guaranty or the Credit Agreement,
as applicable, shall have the same meaning herein as therein, all of such terms
and definitions being incorporated herein by reference.
ARTICLE 2
MODIFICATIONS
Section 2.1 Tangible Net Worth. Section 5.4 of the Guaranty is hereby
deleted from the Guaranty in its entirety and shall be substituted with the
following:
"Section 5.4 Tangible Net Worth. Permit Tangible Net Worth as of
September 30, 1998 to be less than $80,000,000 and
thereafter at the close of any fiscal quarter to be less
than $80,000,000 plus 50% of positive Net Income and 75%
of the net proceeds from any offering by Guarantor or
any of its Subsidiaries of capital stock or rights
(other than rights in connection with debt convertible
into Equity Securities) to acquire capital stock in each
such quarter."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations Repeated. The representations and warranties
of the Guarantor contained in the Guaranty and otherwise made in writing by or
on behalf of the Guarantor pursuant to the Guaranty were true and correct when
made, and are true and correct in all material respects at and as of the time of
delivery of this Second Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Guaranty, this Second Amendment or the other Security
Instruments.
Section 3.2 Compliance with Obligations. The Guarantor has performed and
complied in all material respects with all agreements and conditions contained
in the Guaranty required to be performed or complied with by the Guarantor prior
to or at the time of delivery of this Second Amendment.
Section 3.3 Defaults. After giving effect to this Second Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Guarantor is a party.
2
<PAGE> 28
Section 3.4 No Amendments. Nothing in Article 2 of this Second Amendment
is intended to amend any of the representations or warranties contained in the
Guaranty.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Guaranty and the other instruments and agreements referred to
therein are not amended, modified or affected by this Second Amendment. Except
as expressly set forth herein, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Guaranty are herein
ratified and confirmed and shall remain in full force and effect.
Section 4.2 References. On and after the date on which this Second
Amendment becomes effective, the terms, "this Guaranty," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Guaranty shall,
except where the context otherwise requires, refer to the Guaranty, as amended
by this Second Amendment.
Section 4.3 Counterparts. This Second Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed on this ______ day of November, 1998; provided that this
Second Amendment shall for all purposes be effective as of the 30th day of
September, 1998 as if originally signed on that date.
GUARANTOR:
KCS ENERGY, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
3
<PAGE> 29
Principal Place of Business
and Chief Executive Office:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
1600 Smith, Suite 3100
Houston, Texas 77002
Attention: Mark Wolf
Telecopy: (713) 650-7675
with copies to:
CIBC INC.
1600 Smith, Suite 3100
Houston, Texas 77002
Attention: Mark Wolf
Telecopy: (713) 650-7675
4
<PAGE> 30
LENDERS:
Consented to By: BANK ONE, TEXAS NATIONAL
ASSOCIATION, a national banking
association
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: NATIONSBANK OF TEXAS, N.A., a
national banking association
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: COMERICA BANK TEXAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: DEN NORSKE BANK
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
5
<PAGE> 31
Exhibit 10(iii)
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
made and entered into on November ___, 1998 and effective as of September 30,
1998, by and among KCS MEDALLION RESOURCES, INC., a Delaware corporation
(formerly known as InterCoast Oil and Gas Company) ("KCS Medallion"), KCS
ENERGY, INC., a Delaware corporation ("KCS"), KCS ENERGY SERVICES, INC., a
Delaware corporation ("KCS Energy Services"), and MEDALLION GAS SERVICES, INC.,
an Oklahoma corporation (formerly known as InterCoast Gas Services Company)
("Medallion Gas Services," together with KCS Medallion, KCS, and KCS Energy
Services, each individually a "Borrower" and, collectively, the "Borrowers"),
each lender that is a signatory or becomes a party as provided in the Agreement
(individually, together with its successors and such assigns, a "Lender" and,
collectively, together with their respective successors and such assigns, the
"Lenders"), CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank,
acting through its New York Agency (in its individual capacity, "CIBC"), as
agent for the Lenders (in such capacity, together with its successors in such
capacity pursuant to the terms hereof, the "Agent").
W I T N E S S E T H:
WHEREAS, on January 2, 1997, the Borrowers and the Lenders entered into a
Credit Agreement and a First Amendment to Credit Agreement dated March 24, 1998
(as amended, the "Agreement") whereby, upon the terms and conditions therein
stated, the Lenders agreed to make loans to the Borrowers up to the aggregate
amount of $150,000,000.00 to be used by the Borrowers for the purposes set forth
in Section 2.6 of the Agreement; and
WHEREAS, the Borrowers and the Lenders mutually desire to amend certain
aspects of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this Second Amendment,
except as may otherwise be provided in Section 1.2 hereof, all capitalized terms
which are defined in the Agreement shall have the same meaning herein as
therein, all of such terms and definitions being incorporated herein by
reference.
Section 1.2 Amended Definitions. The following terms which are defined in
Section 1.2 of the Agreement are amended to read as follows:
<PAGE> 32
"Agreement" shall mean this Credit Agreement, as amended by the
First Amendment and Second Amendment to the Credit Agreement, as the same
may from time to time be further amended or supplemented.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP, exclusive of Intellectual Property, experimental or
organization expenses, franchises, licenses, permits, and other intangible
assets, treasury stock, and goodwill minus (b) total liabilities, as would
be reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP plus (c) the after-tax amounts of any ceiling
limitation write downs (such after-tax amounts added by virtue of this
item (c) not to exceed (i) in the case of the KCS Medallion Group,
$25,000,000 and (ii) in the case of KCS and its Subsidiaries, $40,000,000,
in the aggregate on and after September 30, 1998).
Section 1.3 Confirmation and Extent of Changes. All terms which are
defined in Section 1.2 of the Agreement shall remain unchanged except as
specifically provided in Section 1.2 of this Second Amendment.
ARTICLE 2
MODIFICATIONS
Section 2.1 Tangible Net Worth of KCS Medallion. Section 6.16 of the
Agreement shall be deleted in its entirety and substituted with the following:
"6.16 Tangible Net Worth of KCS Medallion. Permit Tangible Net Worth of
KCS Medallion Group as of September 30, 1998, to be less than
$12,000,000 and thereafter at the close of any fiscal quarter to be
less than $12,000,000 plus 50% of positive Net Income of KCS
Medallion Group and 75% of the net proceeds from any offering by KCS
Medallion Group or any of their respective Subsidiaries of capital
stock or rights to acquire capital stock in each such quarter."
Section 2.2 Tangible Net Worth of KCS. Section 6.18 of the Agreement shall
be deleted in its entirety and substituted with the following:
"6.18 Tangible Net Worth of KCS. Permit Tangible Net Worth of KCS and its
Subsidiaries on a consolidated basis as of September 30, 1998 to be
less than $80,000,000 and thereafter at the close of any fiscal
quarter to be less than $80,000,000 plus 50% of positive Net Income
of KCS and its Subsidiaries on a consolidated basis and 75% of the
net proceeds from any offering by KCS
2
<PAGE> 33
or any of its Subsidiaries of capital stock or rights (other than
rights in connection with debt convertible into Equity Securities)
to acquire capital stock in each such quarter."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations Repeated. The representations and warranties
of the Borrowers contained in the Agreement and the other Security Instruments
and otherwise made in writing by or on behalf of the Borrowers pursuant to the
Agreement and the other Security Instruments were true and correct when made,
and are true and correct in all material respects at and as of the time of
delivery of this Second Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Agreement, this Second Amendment or the other Security
Instruments.
Section 3.2 Security Instruments. All Security Instruments to which the
Borrowers are parties shall secure the Notes and all of the Obligations of the
Borrowers to the Lenders, whether or not such Security Instruments shall be
expressly amended or supplemented in connection herewith.
Section 3.3 Compliance with Obligations. The Borrowers have performed and
complied in all material respects with all agreements and conditions contained
in the Agreement and the Security Instruments required to be performed or
complied with by the Borrowers prior to or at the time of delivery of this
Second Amendment.
Section 3.4 Defaults. After giving effect to this Second Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Borrowers are parties.
Section 3.5 No Amendments. Nothing in Article 3 of this Second Amendment
is intended to amend any of the representations or warranties contained in the
Agreement.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Agreement, the Note, the Security Instruments and the other
instruments and agreements referred to therein are not amended, modified or
affected by this Second Amendment. Except as expressly set forth herein, all of
the terms, conditions, covenants, representations, warranties and all other
3
<PAGE> 34
provisions of the Agreement are herein ratified and confirmed and shall remain
in full force and effect.
Section 4.2 References. On and after the date on which this Second
Amendment becomes effective, the terms, "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this Second Amendment.
Section 4.3 Counterparts. This Second Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed on this ____ day of November, 1998; provided that this
Second Amendment shall for all purposes be effective as of the 30th day of
September, 1998, as if originally signed on that date.
BORROWERS:
KCS MEDALLION RESOURCES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Ave.
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
4
<PAGE> 35
KCS ENERGY, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
5
<PAGE> 36
KCS ENERGY SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
5555 San Felipe
Suite 1200
Houston, Texas 77056
Attention:
Telecopy:
6
<PAGE> 37
MEDALLION GAS SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Avenue
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
7
<PAGE> 38
LENDERS:
BANK ONE, TEXAS
NATIONAL ASSOCIATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
910 Travis Street
Houston, Texas 77002
Attention: Stephen M. Shatto
COMERICA BANK-TEXAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
910 Louisiana, 4th Floor
Houston, Texas 77210-4167
Attention: Daniel G. Steele
SOCIETE GENERALE, SOUTHWEST AGENCY
By:________________________________________
Name:______________________________________
Title:_____________________________________
8
<PAGE> 39
Address for Notices:
1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mark Cox
DEN NORSKE BANK ASA
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
Three Allen Center
333 Clay Street, Suite 4890
Houston, Texas 77002
Attention: William V. Moyer
BANQUE PARIBAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Douglas R. Lispman
9
<PAGE> 40
CIBC, INC.
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
10
<PAGE> 41
with copies to:
CIBC INC.
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
11
<PAGE> 1
Exhibit 10(i)
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is made
and entered into on November __, 1998 and effective as of September 30, 1998 by
and among KCS RESOURCES, INC., a Delaware corporation ("KRI") for itself and as
successor by merger to KCS PIPELINE SYSTEMS, INC., a Delaware corporation ("KCS
Pipeline"); KCS MICHIGAN RESOURCES, INC., a Delaware corporation ("KCS
Michigan"); and KCS ENERGY MARKETING, INC., a New Jersey corporation ("KCS
Marketing," and together with KRI and KCS Marketing, each individually, a
"Borrower" and collectively, the "Borrowers"), each lender that is a signatory
hereto or becomes a party hereto as provided in Sections 9.1 or 2.24 of the
Agreement (hereinafter defined) (individually, together with its successors and
assigns, a "Lender" and, collectively, together with their respective successors
and assigns, the "Lenders"), and CANADIAN IMPERIAL BANK OF COMMERCE, acting
through its New York agency (in its individual capacity, "CIBC"), and as agent
for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent"),BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association, as co-agent for the Lenders, and NATIONSBANK OF TEXAS, N.A., a
national banking association, as co-agent for the Lenders.
W I T N E S S E T H:
WHEREAS, the Borrowers and the Lenders entered into a Credit Agreement
dated September 25, 1996, a First Amendment to Credit Agreement dated July 1,
1997 and a Second Amendment to Credit Agreement dated March 24, 1998 (as
amended, the "Agreement") whereby, upon the terms and conditions therein stated,
the Lenders agreed to make loans to the Borrowers up to the aggregate amount of
$150,000,000.00 to be used by the Borrowers for the purposes set forth in
Section 2.5 of the Agreement; and
WHEREAS, the Borrowers and the Lenders mutually desire to amend certain
aspects of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this Third Amendment,
except as may otherwise be provided in Section 1.2 hereof, all capitalized terms
which are defined in the Agreement shall have the same meaning herein as
therein, all of
<PAGE> 2
such terms and definitions being incorporated herein by reference.
Section 1.2 Amended Definitions. The following terms which are defined in
Section 1.2 of the Agreement are amended to read as follows:
"Agreement" shall mean this Credit Agreement, as amended by the
First Amendment to Credit Agreement, Second Amendment to Credit Agreement,
and Third Amendment to Credit Agreement, as the same may from time to time
be further amended or supplemented.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the Guarantor and its Subsidiaries
prepared on a consolidated basis and in accordance with GAAP, exclusive of
Intellectual Property, experimental or organization expenses, franchises,
licenses, permits, and other intangible assets, treasury stock, and
goodwill minus (b) total liabilities, as would be reflected on a balance
sheet of the Guarantor and its Subsidiaries prepared on a consolidated
basis and in accordance with GAAP plus (c) the after-tax amounts of any
ceiling limitation write downs (such after-tax amounts added by virtue of
this item (c) not to exceed $40,000,000 in the aggregate on and after
September 30, 1998).
Section 1.3 Additional Definitions. The following terms are hereby added
to Section 1.2 of the Agreement as follows:
"Equity Securities" shall mean any and all certificates, capital
stock, preferred stock, convertible debentures or any other securities
evidencing ownership of equity in the Guarantor or any of its Subsidiaries
issued in any public or private offering.
Section 1.4 Confirmation and Extent of Changes. All terms which are
defined in Section 1.2 of the Agreement shall remain unchanged except as
specifically provided in Section 1.2 of this Third Amendment.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations Repeated. The representations and warranties
of the Borrowers contained in the Agreement and the other Security Instruments
and otherwise made in writing by or on behalf of the Borrowers pursuant to the
Agreement and the other Security Instruments were true and correct when made,
and are true and correct in all material respects at and as of the time of
delivery of this Third Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Agreement, this Third Amendment or the other Security
Instruments.
<PAGE> 3
Section 2.2 Security Instruments. All Security Instruments to which the
Borrowers are parties shall secure the Notes and all of the Obligations of the
Borrowers to the Lenders, whether or not such Security Instruments shall be
expressly amended or supplemented in connection herewith.
Section 2.3 Compliance with Obligations. The Borrowers have performed and
complied in all material respects with all agreements and conditions contained
in the Agreement and the Security Instruments required to be performed or
complied with by the Borrowers prior to or at the time of delivery of this Third
Amendment.
Section 2.4 Defaults. After giving effect to this Third Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Borrowers are parties.
Section 2.5 No Amendments. Nothing in Article 2 of this Third Amendment is
intended to amend any of the representations or warranties contained in the
Agreement.
ARTICLE 3
MISCELLANEOUS
Section 3.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Agreement, the Note, the Security Instruments and the other
instruments and agreements referred to therein are not amended, modified or
affected by this Third Amendment. Except as expressly set forth herein, all of
the terms, conditions, covenants, representations, warranties and all other
provisions of the Agreement are herein ratified and confirmed and shall remain
in full force and effect.
Section 3.2 References. On and after the date on which this Third
Amendment becomes effective, the terms, "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this Third Amendment.
Section 3.3 Counterparts. This Third Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed on this ____ day of November, 1998; provided that this Third
Amendment shall for all purposes be effective as of the 30th day of September,
1998, as if originally signed on that date.
BORROWERS:
KCS RESOURCES, INC.
By:
Name:
Title:
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
KCS MICHIGAN RESOURCES, INC.
By:
Name:
Title:
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
KCS ENERGY MARKETING, INC.
By:
Name:
Title:
<PAGE> 5
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Russell Otts
Telecopy: (713) 650-3727
<PAGE> 6
CO-AGENT AND A LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
910 Travis
Houston, Texas 77002
Attention: Karen Smith
Telecopy: (713) 751-7894
Address for Notices:
910 Travis Street
Houston, Texas 77002
Attention: Stephen M. Shatto
Telecopy: (713) 751-3544
CO-AGENT AND A LENDER:
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Corporate Credit Services
<PAGE> 7
Address for Notices:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Sharon Evans
Telecopy: (214) 508-2020
with copies to:
NATIONSBANK OF TEXAS, N.A.
700 Louisiana, 8th Floor
Houston, Texas 77002
Attention: Paul A. Squires
Telecopy: (713) 247-6568
<PAGE> 8
LENDERS:
COMERICA BANK-TEXAS
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
1508 West Mockingbird
Dallas, Texas 75235
Address for Notices:
1601 Elm Street
Second Floor
Dallas, Texas 75202
Attention: Mark Fuqua
Telecopy: (214) 965-8990
with copies to:
COMERICA BANK-TEXAS
One Shell Plaza
910 Louisiana, Suite 410
Houston, Texas 77002
Attention: Daniel G. Steele
Telecopy: (713) 722-6550
<PAGE> 9
DEN NORSKE BANK ASA
By:
Name:
Title:
By:
Name:
Title:
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Address for Notices:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Attention: Bill Trivedi
Telecopy: (212) 681-4123
with copies to:
DEN NORSKE BANK ASA
333 Clay Street, Suite 4890
Houston, Texas 77002
Attention: William V. Moyer
Telecopy: (713) 757-1167
CIBC, INC.
By:
Marybeth Ross
Authorized Signatory
<PAGE> 10
Address for Notices:
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
<PAGE> 1
Exhibit 10(ii)
SECOND AMENDMENT TO GUARANTY
THIS SECOND AMENDMENT TO GUARANTY (this "Second Amendment")is made and
entered into by KCS Energy, Inc., a Delaware corporation (the "Guarantor") in
favor of the lenders party to the Credit Agreement (as such term is defined
below) from time to time (together with their respective successors and assigns
as permitted pursuant to the Credit Agreement referred to below, the "Lenders"),
and Canadian Imperial Bank of Commerce, a Canadian chartered bank, acting
through its New York Agency, as agent for the Lenders pursuant to the Credit
Agreement (as such term is defined below) (in such capacity, together with its
successors in such capacity pursuant to the terms of the Credit Agreement, the
"Agent").
RECITALS:
WHEREAS, pursuant to the terms and conditions of that certain Credit
Agreement dated September 25, 1996 by and among KCS Resources, Inc., a Delaware
corporation, for itself and as successor by merger to KCS Pipeline Systems,
Inc., a Delaware corporation, KCS Michigan Resources, Inc., a Delaware
corporation, and KCS Energy Marketing, Inc., a New Jersey corporation (each
individually a "Borrower" and collectively, the "Borrowers"), the Agent, CIBC
Inc., as Collateral Agent, and the Lenders (as such agreement may be amended,
restated, or supplemented from time to time, the "Credit Agreement"), the
Lenders agreed to extend credit to or for the benefit of the Borrowers;
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrowers pursuant to the Credit Agreement, the
Guarantor entered into that certain Guaranty dated September 25, 1996 (the
"Guaranty") in favor of the Agent for the benefit of the Lenders;
WHEREAS, the Guaranty was amended by that certain First Amendment to
Guaranty dated March 24, 1998; and
WHEREAS, Guarantor and Agent mutually desire to amend certain aspects of
the Guaranty as herein set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
<PAGE> 2
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Guaranty. As used in this Second Amendment
all capitalized terms which are defined in the Guaranty or the Credit Agreement,
as applicable, shall have the same meaning herein as therein, all of such terms
and definitions being incorporated herein by reference.
ARTICLE 2
MODIFICATIONS
Section 2.1 Tangible Net Worth. Section 5.4 of the Guaranty is hereby
deleted from the Guaranty in its entirety and shall be substituted with the
following:
"Section 5.4 Tangible Net Worth. Permit Tangible Net Worth as of
September 30, 1998 to be less than $80,000,000 and
thereafter at the close of any fiscal quarter to be less
than $80,000,000 plus 50% of positive Net Income and 75%
of the net proceeds from any offering by Guarantor or
any of its Subsidiaries of capital stock or rights
(other than rights in connection with debt convertible
into Equity Securities) to acquire capital stock in each
such quarter."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations Repeated. The representations and warranties
of the Guarantor contained in the Guaranty and otherwise made in writing by or
on behalf of the Guarantor pursuant to the Guaranty were true and correct when
made, and are true and correct in all material respects at and as of the time of
delivery of this Second Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Guaranty, this Second Amendment or the other Security
Instruments.
Section 3.2 Compliance with Obligations. The Guarantor has performed and
complied in all material respects with all agreements and conditions contained
in the Guaranty required to be performed or complied with by the Guarantor prior
to or at the time of delivery of this Second Amendment.
Section 3.3 Defaults. After giving effect to this Second Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Guarantor is a party.
2
<PAGE> 3
Section 3.4 No Amendments. Nothing in Article 2 of this Second Amendment
is intended to amend any of the representations or warranties contained in the
Guaranty.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Guaranty and the other instruments and agreements referred to
therein are not amended, modified or affected by this Second Amendment. Except
as expressly set forth herein, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Guaranty are herein
ratified and confirmed and shall remain in full force and effect.
Section 4.2 References. On and after the date on which this Second
Amendment becomes effective, the terms, "this Guaranty," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Guaranty shall,
except where the context otherwise requires, refer to the Guaranty, as amended
by this Second Amendment.
Section 4.3 Counterparts. This Second Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed on this ______ day of November, 1998; provided that this
Second Amendment shall for all purposes be effective as of the 30th day of
September, 1998 as if originally signed on that date.
GUARANTOR:
KCS ENERGY, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
3
<PAGE> 4
Principal Place of Business
and Chief Executive Office:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
1600 Smith, Suite 3100
Houston, Texas 77002
Attention: Mark Wolf
Telecopy: (713) 650-7675
with copies to:
CIBC INC.
1600 Smith, Suite 3100
Houston, Texas 77002
Attention: Mark Wolf
Telecopy: (713) 650-7675
4
<PAGE> 5
LENDERS:
Consented to By: BANK ONE, TEXAS NATIONAL
ASSOCIATION, a national banking
association
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: NATIONSBANK OF TEXAS, N.A., a
national banking association
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: COMERICA BANK TEXAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
Consented to By: DEN NORSKE BANK
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
5
<PAGE> 1
Exhibit 10(iii)
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
made and entered into on November ___, 1998 and effective as of September 30,
1998, by and among KCS MEDALLION RESOURCES, INC., a Delaware corporation
(formerly known as InterCoast Oil and Gas Company) ("KCS Medallion"), KCS
ENERGY, INC., a Delaware corporation ("KCS"), KCS ENERGY SERVICES, INC., a
Delaware corporation ("KCS Energy Services"), and MEDALLION GAS SERVICES, INC.,
an Oklahoma corporation (formerly known as InterCoast Gas Services Company)
("Medallion Gas Services," together with KCS Medallion, KCS, and KCS Energy
Services, each individually a "Borrower" and, collectively, the "Borrowers"),
each lender that is a signatory or becomes a party as provided in the Agreement
(individually, together with its successors and such assigns, a "Lender" and,
collectively, together with their respective successors and such assigns, the
"Lenders"), CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank,
acting through its New York Agency (in its individual capacity, "CIBC"), as
agent for the Lenders (in such capacity, together with its successors in such
capacity pursuant to the terms hereof, the "Agent").
W I T N E S S E T H:
WHEREAS, on January 2, 1997, the Borrowers and the Lenders entered into a
Credit Agreement and a First Amendment to Credit Agreement dated March 24, 1998
(as amended, the "Agreement") whereby, upon the terms and conditions therein
stated, the Lenders agreed to make loans to the Borrowers up to the aggregate
amount of $150,000,000.00 to be used by the Borrowers for the purposes set forth
in Section 2.6 of the Agreement; and
WHEREAS, the Borrowers and the Lenders mutually desire to amend certain
aspects of the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this Second Amendment,
except as may otherwise be provided in Section 1.2 hereof, all capitalized terms
which are defined in the Agreement shall have the same meaning herein as
therein, all of such terms and definitions being incorporated herein by
reference.
Section 1.2 Amended Definitions. The following terms which are defined in
Section 1.2 of the Agreement are amended to read as follows:
<PAGE> 2
"Agreement" shall mean this Credit Agreement, as amended by the
First Amendment and Second Amendment to the Credit Agreement, as the same
may from time to time be further amended or supplemented.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP, exclusive of Intellectual Property, experimental or
organization expenses, franchises, licenses, permits, and other intangible
assets, treasury stock, and goodwill minus (b) total liabilities, as would
be reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP plus (c) the after-tax amounts of any ceiling
limitation write downs (such after-tax amounts added by virtue of this
item (c) not to exceed (i) in the case of the KCS Medallion Group,
$25,000,000 and (ii) in the case of KCS and its Subsidiaries, $40,000,000,
in the aggregate on and after September 30, 1998).
Section 1.3 Confirmation and Extent of Changes. All terms which are
defined in Section 1.2 of the Agreement shall remain unchanged except as
specifically provided in Section 1.2 of this Second Amendment.
ARTICLE 2
MODIFICATIONS
Section 2.1 Tangible Net Worth of KCS Medallion. Section 6.16 of the
Agreement shall be deleted in its entirety and substituted with the following:
"6.16 Tangible Net Worth of KCS Medallion. Permit Tangible Net Worth of
KCS Medallion Group as of September 30, 1998, to be less than
$12,000,000 and thereafter at the close of any fiscal quarter to be
less than $12,000,000 plus 50% of positive Net Income of KCS
Medallion Group and 75% of the net proceeds from any offering by KCS
Medallion Group or any of their respective Subsidiaries of capital
stock or rights to acquire capital stock in each such quarter."
Section 2.2 Tangible Net Worth of KCS. Section 6.18 of the Agreement shall
be deleted in its entirety and substituted with the following:
"6.18 Tangible Net Worth of KCS. Permit Tangible Net Worth of KCS and its
Subsidiaries on a consolidated basis as of September 30, 1998 to be
less than $80,000,000 and thereafter at the close of any fiscal
quarter to be less than $80,000,000 plus 50% of positive Net Income
of KCS and its Subsidiaries on a consolidated basis and 75% of the
net proceeds from any offering by KCS
2
<PAGE> 3
or any of its Subsidiaries of capital stock or rights (other than
rights in connection with debt convertible into Equity Securities)
to acquire capital stock in each such quarter."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations Repeated. The representations and warranties
of the Borrowers contained in the Agreement and the other Security Instruments
and otherwise made in writing by or on behalf of the Borrowers pursuant to the
Agreement and the other Security Instruments were true and correct when made,
and are true and correct in all material respects at and as of the time of
delivery of this Second Amendment, except for such changes in the facts
represented and warranted of which the Lenders have been made aware or as are
not in violation of the Agreement, this Second Amendment or the other Security
Instruments.
Section 3.2 Security Instruments. All Security Instruments to which the
Borrowers are parties shall secure the Notes and all of the Obligations of the
Borrowers to the Lenders, whether or not such Security Instruments shall be
expressly amended or supplemented in connection herewith.
Section 3.3 Compliance with Obligations. The Borrowers have performed and
complied in all material respects with all agreements and conditions contained
in the Agreement and the Security Instruments required to be performed or
complied with by the Borrowers prior to or at the time of delivery of this
Second Amendment.
Section 3.4 Defaults. After giving effect to this Second Amendment there
will exist, no default or Event of Default, or any condition, or act which
constitutes, or with notice or lapse of time (or both) would constitute an Event
of Default under any loan agreement, note agreement, or trust indenture to which
the Borrowers are parties.
Section 3.5 No Amendments. Nothing in Article 3 of this Second Amendment
is intended to amend any of the representations or warranties contained in the
Agreement.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Extent of Amendments. Except as otherwise expressly provided
herein, the Agreement, the Note, the Security Instruments and the other
instruments and agreements referred to therein are not amended, modified or
affected by this Second Amendment. Except as expressly set forth herein, all of
the terms, conditions, covenants, representations, warranties and all other
3
<PAGE> 4
provisions of the Agreement are herein ratified and confirmed and shall remain
in full force and effect.
Section 4.2 References. On and after the date on which this Second
Amendment becomes effective, the terms, "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this Second Amendment.
Section 4.3 Counterparts. This Second Amendment may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed on this ____ day of November, 1998; provided that this
Second Amendment shall for all purposes be effective as of the 30th day of
September, 1998, as if originally signed on that date.
BORROWERS:
KCS MEDALLION RESOURCES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Ave.
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
4
<PAGE> 5
KCS ENERGY, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
5
<PAGE> 6
KCS ENERGY SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
5555 San Felipe
Suite 1200
Houston, Texas 77056
Attention:
Telecopy:
6
<PAGE> 7
MEDALLION GAS SERVICES, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (732) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Avenue
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
7
<PAGE> 8
LENDERS:
BANK ONE, TEXAS
NATIONAL ASSOCIATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
910 Travis Street
Houston, Texas 77002
Attention: Stephen M. Shatto
COMERICA BANK-TEXAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
910 Louisiana, 4th Floor
Houston, Texas 77210-4167
Attention: Daniel G. Steele
SOCIETE GENERALE, SOUTHWEST AGENCY
By:________________________________________
Name:______________________________________
Title:_____________________________________
8
<PAGE> 9
Address for Notices:
1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mark Cox
DEN NORSKE BANK ASA
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
Three Allen Center
333 Clay Street, Suite 4890
Houston, Texas 77002
Attention: William V. Moyer
BANQUE PARIBAS
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Douglas R. Lispman
9
<PAGE> 10
CIBC, INC.
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By:________________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
10
<PAGE> 11
with copies to:
CIBC INC.
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Mark Wolf
Telecopy: (713) 650-3727
11
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<ARTICLE> 5
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,176
<SECURITIES> 0
<RECEIVABLES> 33,462
<ALLOWANCES> 66
<INVENTORY> 1,738
<CURRENT-ASSETS> 44,308
<PP&E> 927,036
<DEPRECIATION> 461,765
<TOTAL-ASSETS> 556,325
<CURRENT-LIABILITIES> 34,644
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 99,909
<TOTAL-LIABILITY-AND-EQUITY> 556,325
<SALES> 97,249
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 136,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,589
<INCOME-PRETAX> (65,273)
<INCOME-TAX> (22,675)
<INCOME-CONTINUING> (42,598)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,598)
<EPS-PRIMARY> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
