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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to________.
Commission file number 0-22576
COHO ENERGY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2488635
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
14785 Preston Road, Suite 860
Dallas, Texas 75240
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 774-8300
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 23, 1998, 25,603,512 shares of the registrant's Common
Stock were outstanding and the aggregate market value of all voting stock held
by non-affiliates was $178.9 million based upon the closing price on the Nasdaq
Stock Market on such date. The officers and directors of the registrant are
considered affiliates for purposes of this calculation.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on
Form 10-K certain information contained under the headings "Directors and
Executive Officers of the Registrant", "Executive Compensation", "Certain
Relationships and Related Transactions" and "Security Ownership of Certain
Beneficial Owners and Management" in the registrant's Proxy Statement for the
Company's Annual Meeting of Shareholders proposed to be held May 12, 1998 which
Proxy Statement shall be filed within 120 days of the end of the Registrant's
fiscal year.
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TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business .................................................................................. 3
Item 2. Properties ................................................................................ 18
Item 3. Legal Proceedings ......................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ..................... 20
Item 6. Selected Financial Data ................................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................. 22
Item 8. Consolidated Financial Statements ......................................................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................................. 53
PART III
Item 10. Directors and Executive Officers of the Registrant ........................................ 53
Item 11. Executive Compensation .................................................................... 53
Item 12. Security Ownership and Certain Beneficial Owners and Management ........................... 53
Item 13. Certain Relationships and Related Transactions ............................................ 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................... 54
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FORWARD-LOOKING STATEMENTS
This Form 10-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-K that address
activities, events or developments that the Company expects, projects, believes
or anticipates will or may occur in the future, including such matters as crude
oil and natural gas reserves, future acquisitions, future drilling and
operations, future capital expenditures, future production of crude oil and
natural gas and future net cash flow are forward-looking statements. These
statements are based on certain assumptions and analyses made by management of
the Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including those related to competition,
general economic and business conditions, prices of crude oil and natural gas,
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company, changes in laws or regulations and other factors, many
of which are beyond the control of the Company.
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PART I
ITEM 1. BUSINESS AND PROPERTIES
GENERAL
Coho Energy, Inc. (the "Company") is an independent energy company
engaged, through its wholly owned subsidiaries, in the development and
production of, and exploration for, crude oil and natural gas. The Company's
crude oil activities are concentrated principally in Mississippi and Oklahoma,
where, to the Company's knowledge, it is each state's largest producer of crude
oil. The Company's natural gas activities are concentrated principally in
Louisiana, where it has a stable reserve base and production that should be
sustainable with minimal incremental capital expenditures. At December 31, 1997,
the Company's total proved reserves were 119.7 MMBOE with a Present Value of
Proved Reserves of $526.3 million, approximately 65% of which were proved
developed reserves. At December 31, 1997, approximately 79% of Coho's total
proved reserves were comprised of crude oil. At December 31, 1997, the Company
owned an average working interest of 85% in and operated over 90% of its
producing properties.
The Company commenced operations in Mississippi in the early 1980s and
to date has focused most of its development efforts in that area. Coho believes
that the salt basin in central Mississippi offers significant long-term
potential due to the basin's large number of mature fields with multiple
hydrocarbon bearing horizons. The application of proven technology to these
underexploited and underexplored fields yields attractive, lower-risk
exploitation and exploration opportunities. As a result of the attractive
geology and the Company's experience in exploiting fields in the area, Coho has
accumulated a large inventory of potential development drilling, secondary
recovery and exploration projects in this basin.
In December 1997, the Company acquired interests in 14 principal
producing fields located primarily in southern Oklahoma. These properties are
very similar to the Company's Mississippi properties and the Company believes
that it will be able to apply its proven knowledge base and experience in the
development of these properties. The Company believes that its concentration in
the onshore Gulf Coast region provides it with important competitive advantages
such as its extensive databases, operational infrastructure and economies of
scale.
The Company's focus in the onshore Gulf Coast region has resulted in
significant production, reserve and EBITDA growth. The Company's average net
daily production has increased in each of the last five years from 4,819 BOE in
1992 to 11,227 BOE in 1997, representing a compound annual growth rate of 18.4%.
Over the five-year period ended December 31, 1997, the Company discovered or
acquired approximately 102.3 MMBOE of proved reserves at an average finding cost
of $5.07 per BOE. Over the same period, the Company has replaced over 500% of
its production. This increase in reserves from 32.4 MMBOE at year end 1992 to
119.7 MMBOE at year-end 1997 represents a five-year compound annual growth rate
of 30%. Concurrent with the increase in production, EBITDA has increased from
$16.9 million in 1992 to $40.0 million in 1997.
BUSINESS STRATEGY
The Company pursues a multifaceted growth strategy, as follows:
Relatively Low-Risk Field Development. The Company intends to maximize
production and continue to increase reserves through relatively low-risk
activities such as development/delineation drilling, including high-angle and
horizontal drilling, multi-zone completions, recompletions, enhancement of
production facilities and secondary recovery projects. Since 1994, the Company
has drilled 62 development wells, of which 90% were completed successfully. The
Company anticipates that approximately 74% of its total 1998 capital expenditure
budget will be allocated to such relatively low-risk, high-return projects,
including secondary recovery projects which will comprise approximately 35% of
the total 1998 capital expenditure budget.
Use of Technology. The Company intends to identify exploration
prospects and develop reserves in the vicinity of its existing fields using
technologies that include 3-D seismic technology. The Company first began using
3-D seismic technology in the Laurel field in Mississippi in 1983, and has
recently shot two large 3-D seismic programs in
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and around its existing properties. These programs have produced an attractive
inventory of exploration projects that the Company plans to pursue.
Acquire Properties with Underdeveloped Reserves. The Company acquires
underdeveloped crude oil and natural gas properties which have geological
complexity and multiple producing horizons. Management believes that the
Company's extensive experience in Mississippi developed over the past 14 years
should enable it to efficiently increase reserves and improve production rates
in similar geologically complex environments. Additionally, management believes
that this experience gives the Company a competitive advantage in evaluating
similarly situated acquisition prospects. See "Oil and Gas Operations -
Principal Areas of Activity - Oklahoma".
Significant Control of Operations. Coho's strategy of increasing
production and reserves through acquiring and developing multiple-zone fields
requires the Company to develop a thorough understanding of the complex
geological structures and maintain operational control of field development.
Therefore, the Company strives to operate and obtain high working interests in
all its properties. As of December 31, 1997, Coho operated over 90% and had an
average working interest of 85% in its producing properties. Operating
Control, combined with the Company's significant technical and geological
expertise, enables the Company to control the magnitude and timing of capital
expenditures and field development.
Geographic Focus. The Company has been able to maintain a low cost
structure through asset concentration. At December 31, 1997, approximately 94%
of the Company's Mississippi reserves were concentrated in five fields, and 76%
of the Company's Oklahoma reserves were concentrated in six fields. Asset
concentration permits operating economies of scale and leverages operational,
technical and marketing capabilities. As a result, the Company has been able to
achieve favorable average production costs of $3.90 per BOE and favorable cash
margins of $9.81 per BOE for 1997.
OTHER ACTIVITIES. Effective December 31, 1997, the Company acquired
approximately 50 MMBbls of crude oil and natural gas liquid reserves and
approximately 33 BCF of natural gas reserves as well as interests in more than
25,000 gross acres concentrated primarily in southern Oklahoma, including 14
principal producing fields, from Amoco Production Company. Daily net production
from the properties during December 1997 was approximately 7,300 BOE.
Consideration paid by the Company for the acquisition of these properties was
$257.5 million cash and warrants to purchase one million common shares of the
Company at $10.425 per share for a period of five years.
On April 3, 1996, Interstate Natural Gas Company ("ING"), a wholly
owned subsidiary of the Company, sold all of the stock of three wholly-owned
subsidiaries that comprised its natural gas marketing and transportation segment
to an unrelated third party for cash of $19.5 million, the assumption of net
liabilities of approximately $2.3 million and the payment of taxes of $1.2
million generated as a result of the tax treatment of the transaction.
Accordingly, the marketing and transportation segment is accounted for as
discontinued operations herein.
THE COMPANY. The Company was incorporated in June 1993 under the laws
of the State of Texas and conducts a majority of its operations through its
subsidiary Coho Resources, Inc. ("CRI"). Prior to September 29, 1993, CRI was a
publicly held company of which Coho Resources Limited, a publicly held Alberta,
Canada company ("CRL"), held a 68% ownership interest. As a result of a
reorganization of the Company effective on September 29, 1993, CRI and CRL
became wholly-owned subsidiaries of Coho Energy, Inc.
References herein to "Coho" or the "Company", except as otherwise
indicated, refer to Coho Energy, Inc. and its subsidiaries, including CRI, CRL
and ING. The Company's principal executive office is located at 14785 Preston
Road, Suite 860, Dallas, Texas 75240, and its telephone number is (972)
774-8300.
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DEFINITIONS
Unless otherwise indicated, natural gas volumes are stated at the legal
pressure base of the State or area in which the reserves are located at 60
degrees Fahrenheit. The following definitions shall apply to the technical terms
used herein:
"Bbls" means barrels of crude oil, condensate or natural gas liquids,
42 U.S. gallons.
"Bcf" means billions of cubic feet.
"BOE" means barrel of oil equivalent, assuming a ratio of six Mcf to
one Bbl.
"BOPD" means Bbls per day.
"Developed acreage" means acreage which consists of acres spaced or
assignable to productive wells.
"Dry hole" means a well found to be incapable of producing either crude
oil or natural gas in sufficient quantities to justify completion as a crude oil
or natural gas well.
"Gravity" means the Standard American Petroleum Institute method for
specifying the density of crude petroleum.
"Gross" means the number of wells or acres in which the Company has an
interest.
"MBbls" means thousands of Bbls.
"MBOE" means thousands of BOE.
"Mcf" means thousands of cubic feet.
"MMBbls" means millions of Bbls.
"MMBOE" means millions of BOE.
"MMbtu" means millions of British Thermal Units.
"MMcf" means millions of cubic feet.
"Net" is determined by multiplying gross wells or acres by the
Company's working interest in such wells or acres.
"Present Value of Proved Reserves" means the present value (discounted
at 10%) of estimated future net cash flows (before income taxes) of proved crude
oil and natural gas reserves.
"Productive well" means a well that is not a dry hole.
"Proved developed reserves" means only those proved reserves expected
to be recovered from existing completion intervals in existing wells and those
reserves that exist behind the casing of existing wells when the cost of making
such reserves available for production is relatively small relative to the cost
of a new well.
"Proved reserves or reserves" means natural gas, crude oil, condensate
and natural gas liquids on a net revenue interest basis, found to be
commercially recoverable.
"Proved undeveloped reserves" means those reserves expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
"Secondary recovery" means a method of oil and natural gas extraction
in which energy sources extrinsic to the reservoir are utilized.
"Undeveloped acreage" means leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of crude oil and natural gas, regardless of whether or not such
acreage contains proved reserves.
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OIL AND GAS OPERATIONS
Coho has focused its operations on three main activities: conventional
exploitation, secondary recovery and exploration. Each of these interrelated
activities plays an important role in the Company's continuing production and
reserve growth. Coho's 1997 operations have been conducted primarily in the
Brookhaven, Laurel, Martinville, Soso and Summerland fields in Mississippi, and
the Monroe field in Louisiana. In addition, in December 1997, the Company
acquired interests in 14 producing fields located primarily in southern
Oklahoma.
Conventional Exploitation. The Mississippi salt basin is characterized
by the large number of formations that have been productive, as well as by the
large number of wells that have been drilled over the past 50 years. These well
histories provide considerable geological and reservoir information for use in
further exploration and exploitation. In 1997, Coho spent approximately $53
million of its total capital expenditures of $73 million, excluding the Oklahoma
property acquisition, on exploitation projects. At December 31, 1997, Coho had
ongoing exploitation projects in the Brookhaven, Laurel, Martinville, Soso and
Summerland fields in Mississippi. Coho has been able to achieve significant
production and reserve increases in these fields as a result of these efforts.
Acquisition of mature underdeveloped and underexplored fields has been
one of the key elements to the Company's strategy of building reserves and
creating shareholder value. By capitalizing on its operating knowledge and
technical expertise, the Company has been able to acquire properties and develop
substantial additional low-cost reserves through conventional development
drilling and exploration opportunities. This strategy is illustrated in the
Company's 1995 acquisition of the Brookhaven field in Mississippi. Since
acquiring this property, the Company has increased total daily field production
from successful exploitation and exploration to approximately 1,100 net BOE at
December 31, 1997, from approximately 230 net BOE at the time of acquisition.
The Company believes it will be able to apply its experience in the Mississippi
salt basin to the newly acquired properties in Oklahoma and significantly
increase production and reserves from these properties.
Secondary Recovery. Over the last four years, Coho has evaluated 20
secondary recovery projects in the Mississippi salt basin. Six of these projects
have been successfully developed and 14 are undergoing further evaluation or are
in the pilot phase. In 1997, Coho spent approximately $21 million of its total
capital expenditure budget on secondary recovery projects. These projects have
demonstrated strong production response and meaningful reserve additions. In
addition, these projects incur low production costs due to existing field
infrastructures and the ability to reinject produced water from current
operations. Coho's secondary recovery projects in general produce higher gravity
crude oil which is then blended with heavier crude oils from other reservoirs to
yield higher price realizations. The Company believes opportunities exist for
adding secondary recovery projects throughout the Company's current field
inventory.
Exploration. Because of the many productive formations in the
Mississippi salt basin, dry hole risks are substantially reduced, improving
exploration economics. The Company has drilled several successful exploration
wells in the currently defined Brookhaven, Laurel and Martinville fields. Coho
has recently expanded its exploration program and plans to allocate 25% of its
1998 capital budget to exploration. In 1995, Coho completed a 24-square mile 3-D
seismic survey on the Martinville field. Based on this data, two successful
exploratory wells were completed, one in 1996 and one in 1997. Two additional
exploration wells are planned for Martinville in 1998. In 1996, Coho completed a
37-square mile 3-D seismic survey encompassing the Laurel field, Coho's largest
crude oil producing field, which currently has producing properties covering
less than one-square mile within the survey area. Based on initial
interpretations, several exploration wells are planned for 1998, and a
"look-alike" prospect west of the Laurel field has been identified. The Company
recognizes deep exploration potential in the Smackover formation at the Soso
field and is currently permitting for a 2-D seismic program in the second
quarter of 1998. In addition to the exploratory success in Brookhaven mentioned
above, the Company believes each of these fields has significant exploration
reserve potential relative to the Company's reserve base.
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Principal Areas of Activity
The following table sets forth, for Coho's major producing fields,
average net daily production of crude oil and natural gas on a BOE basis for
each of the years in the three-year period ended December 31, 1997, and the
number of productive wells producing at December 31, 1997, all of which are
crude oil wells unless otherwise indicated:
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Year Ended December 31, At December 31, 1997
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1995 1996 1997
---- ---- ---- Net Average
BOE/ BOE/ BOE/ Productive Percentage Working
Field day day day Wells Operated Interest
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Brookhaven, Mississippi ... 130(a) 416 952 21 100% 94%
Laurel, Mississippi ....... 3,470 3,317 3,248 36 100 92
Martinville, Mississippi .. 343 580 1,349 23 100 94
Monroe, Louisiana (b) ..... 3,097 2,892 2,848 2,670 100 98
Soso, Mississippi ......... 470 772 1,197 25 100 93
Summerland, Mississippi ... 1,242 1,451 1,125 20 100 90
Oklahoma properties (c) ... -- -- -- 545 69 58
Other (d) ................. 453 341 508 10 42 53
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Total ........... 9,205 9,769 11,227 3,350 92 85
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(a) Calculated as a 365 day average, although the effective acquisition date was
July 1, 1995.
(b) All gross and net wells located in Monroe, Louisiana, are productive natural
gas wells.
(c) These properties were acquired effective December 31, 1997. No production
was recorded in 1997.
(d) Of the wells indicated, two wells are productive natural gas wells.
Brookhaven Field, Mississippi. In 1995, the Company purchased a 93%
working interest in the unitized Brookhaven field covering more than 13,000
acres. At the time of acquisition, there were 11 active wells and 159 inactive
wells. Proved reserves were 1.2 MMBOE and net production averaged approximately
230 BOE per day, producing only from the Tuscaloosa formation at 10,500 feet.
Like other fields, Coho made the acquisition anticipating additional
field-wide recoveries through development drilling, recompletions, secondary
recovery and exploration. During its first year of ownership, the Company
focused its efforts on expanding its understanding of the Tuscaloosa reservoir.
Company mapping suggested less than 25% of the oil in place from the Tuscaloosa
reservoir had been recovered. As a result of its study, the Company identified
and drilled six new Tuscaloosa well bores in the field in 1996 and 1997. The six
penetrations found unswept crude oil reserves associated with structural and
stratigraphic complexity. Four of these penetrations were completed as
commercial producers and two wells will be used as injectors to aid the
secondary recovery operations.
In addition to its exploitation success, the Company has had
significant exploration success. In June 1997, the Company announced successful
deep exploratory test results in the Washita Fredricksburg at 11,500 feet, the
Paluxy at 12,500 feet and the Rodessa at 15,000 feet. Delineation drilling for
the Washita Fredricksburg and Paluxy continued during the second half of 1997,
and current production from these horizons is in excess of 1,200 gross BOPD. A
delineation well to the discovery Rodessa well is currently drilling.
Delineation drilling on this 23-square mile structure will continue throughout
1998.
As a result of the exploration success at Brookhaven, the Company has
leased approximately 6,500 net acres on a similar geologic structure near the
Brookhaven field. Exploration drilling will commence on this structure during
1998. Production in Brookhaven in 1997 averaged 952 BOE per day and proved
reserves at December 31, 1997 were 5.6 MMBOE, a 96% increase over 1996.
Laurel Field, Mississippi. The Laurel field is a multi-pay geological
setting with producing horizons from the Eutaw formation (approximately 7,500
feet) to the Hosston formation (approximately 13,500 feet). It is the Company's
largest oil producing property and represented approximately 29% of Coho's total
production on a BOE basis during
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1997. At December 31, 1997, the field contained 39 wells producing from the
Stanley, Christmas, Tuscaloosa, Washita Fredricksburg, Paluxy, Mooringsport,
Rodessa, Sligo and Hosston reservoirs. Proved reserves at Laurel totaled 15.3
MMBbls at December 31, 1997.
The Company considers the Laurel field both an exploration and
exploitation success. In 1983, at the time of the initial acquisition, the only
then existing well in what is now the Laurel field had been operating for 24
years and was only producing 47 BOPD. Coho then proceeded to employ 3-D seismic
technology to assist in defining the multi-pay zones in the field and commenced
an extensive drilling program to increase primary production, utilizing a
combination of vertical, high-angle and horizontal drilling techniques.
The Company has also implemented a successful secondary recovery
program in a number of Laurel's producing reservoirs. In recent years, secondary
recovery programs were started in the Mooringsport, Rodessa, Sligo and
Tuscaloosa Stringer reservoirs. The response from the secondary recovery
projects has been strong.
In addition to the continued exploitation program, the Company is
continuing an active exploration program at Laurel. In 1996 and 1997, much of
the Company's focus at Laurel was directed toward a mineral leasing program,
permitting and surveying associated with shooting a 37-square mile 3-D seismic
program. The results from this study will allow the Company to better evaluate
the exploration potential within the Laurel field as it is currently defined, as
well as to define exploration possibilities in the acreage surrounding the
field. The Company plans to drill several exploration wells at Laurel in 1998.
The average net daily production for 1997 from Laurel was 3,248 BOE,
which was down approximately 2% compared to 1996 net daily production, as a
result of the Company's redirection of water injection activity to optimize
ultimate recoverable reserves from the multiple sands of the Rodessa reservoir.
It is expected that production will continue to fluctuate as water breakthrough
occurs in one sand layer and another sand layer is pressurized. Coho's average
working interest is 92% in the 39 producing wells it operated in the Laurel
field at December 31, 1997.
Martinville Field, Mississippi. The Martinville field was originally
discovered in 1957, and was acquired by Coho in April 1989. At the time of
acquisition, Martinville was only producing 80 BOEPD, while the average
production in 1997 was 1,349 BOEPD. The field covers more than 7,400 acres, and
currently has 24 producing wellbores. Like Laurel, the field is characterized by
highly complex faulting and produces from multiple horizons. Coho currently has
an average 94% working interest in the field.
In late 1995, the Company conducted a 3-D seismic shoot over a
24-square mile area to enhance the Company's ability to exploit primary reserves
through continued reservoir delineation and to develop secondary recovery
projects in the Mooringsport, Rodessa and Sligo formations. In 1996, drilling
commenced in the Rodessa and Sligo reservoirs and a full scale secondary
recovery project was initiated in the Rodessa formation. A successful Hosston
exploratory well was drilled in late 1996.
In 1997, the Company continued the development of secondary recovery
projects in the Mooringsport, Rodessa and Sligo formation. One successful
Mooringsport response well was drilled and is currently producing 500 gross BOPD
and one successful Rodessa response well was drilled and is currently producing
250 gross BOPD. In addition, a successful Washita Fredricksburg exploratory well
was drilled in late 1997. This well produces 250 gross BOPD from 8,500 feet.
Four development wells from this Washita Fredricksburg discovery are planned for
1998. Following up on the 1996 and 1997 exploratory success, the Company plans
to drill at least two exploratory tests at Martinville in 1998. Reserves at the
end of 1997 totaled 6.9 MMBOE, a 49% increase over proved reserves in 1996, and
average daily production during 1997 showed a 133% increase from 1996 average
daily production.
Monroe Field, Louisiana. The Monroe field was discovered in 1916, and
encompasses 25 townships, covering approximately 105,000 acres of fee mineral
and leasehold acreage. The primary producing horizon is at a depth of
approximately 2,900 feet. Average daily production during 1997 was 2,848 BOE,
down slightly from 1996 average daily production primarily due to operational
problems associated with seasonal but unusually high levels of flooding. In
1997, the Company continued its shallow Sparta sand natural gas drilling program
initiated in 1996, and drilled 9 new shallow natural gas wells at a depth of 250
to 900 feet each. This Sparta program, coupled with continued operating
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efficiencies, resulted in December 31, 1997 net proved reserves of 99.5 Bcf of
natural gas in the Monroe field, a 2% increase over December 31, 1996 proved
reserves. Plans in 1998 include continuation of the Sparta drilling program.
In addition to production from the Monroe field, the Company also
operates a natural gas gathering system located in the Monroe field in
Louisiana, as well as certain other natural gas gathering systems in the Gulf
Coast region. These gathering systems, which are all Company-operated, consist
of over 1,000 miles of varying diameter pipe. In 1997, these systems gathered
approximately 26.4 MMcf per day of Company-owned and third party natural gas.
These gathering systems are operated through the Company's wholly owned
subsidiaries, Coho Louisiana Gathering Company ("CLGC") and Coho Fairbanks
Gathering Company ("CFGC").
Soso Field, Mississippi. In mid-1990, the Company acquired a 90%
working interest in the Soso field, which was originally discovered in 1945, and
covers approximately 6,461 acres. At the time of acquisition by the Company, the
field produced 225 BOPD. In 1997, the average daily production was 1,197 BOE, an
increase of 55% over 1996 average daily production. Reserves at December 31,
1997 totaled 6.1 MMBOE, an 8% increase over year-end 1996.
Soso is a large, geologically complex field which had already produced
over 75 MMBOE at the time Coho acquired it. Also, like Brookhaven, Coho's
detailed mapping of the field suggested that less than 25% of the total in-place
crude oil had been recovered. Soso was acquired primarily for the opportunity to
increase total recoverable reserves by another 5% to 15% through recompletions
in existing wellbores, development drilling and secondary recovery projects.
Most of the Company's early production growth at Soso was associated
with workovers and recompletions on existing wells, and some development
drilling; however, with the success of secondary recovery projects at Laurel and
Martinville, the Company took a fresh look at the field, and since then,
secondary recovery projects have been initiated in the Cotton Valley, Sligo and
Rodessa formations. These projects have played a significant role in the
fivefold increase in daily production since 1990.
Coho believes many more exploitation opportunities exist for primary as
well as secondary reserves in this multi-reservoir field. Since the Soso field
is associated with a deep salt feature like Laurel, Martinville and Brookhaven,
deep exploration potential exists at the Smackover and Haynesville levels. The
Company is currently permitting for an exploratory seismic program in the second
quarter of 1998.
Summerland Field, Mississippi. The Summerland field, discovered in
1959, is a broad, elongated, fault bounded anticline with productive intervals
from the Tuscaloosa formation at approximately 6,000 feet to the Mooringsport
formation at 12,500 feet. At December 31, 1997, the Company operated 22
producing wells and has an average working interest of 90% in this unitized
field.
The Company assumed operating control in November 1989. Recompletions,
development drilling and the installation of higher volume artificial lift
equipment increased net daily crude oil production from 415 BOEPD (of which only
200 BOEPD were economic) in 1989 at the date of acquisition, to 1,125 BOEPD in
1997. Average daily production during 1997 was down 22% from 1996 average daily
production as a result of the natural decline of the reservoirs and low capital
expenditures during the year. Due to recent horizontal drilling success, the
Company expects 1998 production levels to be at least equal to 1996 production
levels.
At December 31, 1997, the Summerland field had proved reserves of 7.0
MMBOE reflecting a 20% increase in reserves from year-end 1996. This reserve
growth is primarily associated with the application of horizontal drilling in
the Tuscaloosa formation in late 1997. The Company believes Summerland has some
additional exploration possibilities from deep drilling in the Cotton Valley and
Smackover formations.
Oklahoma. Effective December 31, 1997, the Company acquired from Amoco
Production Company interests in more than 25,000 gross acres concentrated in
southern Oklahoma, including 14 principal producing fields. The Company will
operate all but two of these fields and currently has an average working
interest in these fields of approximately 66%.
9
<PAGE> 10
These properties are very similar to the Company's Mississippi salt
basin operations and the Company believes that the application of its
substantial knowledge base should benefit in the development of these
properties. The Company anticipates adding substantially to its reserves and
production from these properties through an active operations and exploitation
program beginning in 1998. At December 31, 1997, net production from the more
than 1,700 producing wells located on these properties was approximately 7,300
BOE per day and proved reserves totaled 58.8 MMBOE, of which 91% was oil. Of the
reserves at December 31, 1997, 76% were accounted for by only six fields: East
Fitts, East Velma Middle Block, North Alma Deese, Sholem Alechem, Bumpass and
Tatums, all of which will be operated by the Company.
Other Domestic Properties. The Company also has working interests in
other producing properties in Mississippi and Texas. Coho operates the Bentonia
and Frio properties in Mississippi and owns non-operated working interests in
the Glazier property in Mississippi, and a field in state waters offshore North
Padre Island, Texas. As of December 31, 1997, these fields had combined net
proved reserves of 3.4 MMBOE.
Tunisia, North Africa. Coho has a 50% interest in a permit covering 1.4
million gross acres in Tunisia, North Africa that it acquired from its former
Canadian parent company. During 1994, Coho and its joint interest partners
conducted a seismic survey on the Anaguid permit in Tunisia. In October 1995,
Coho and its partners drilled an unsuccessful, exploratory well on its Anaguid
permit in southern Tunisia. In early 1997, the Company and its partners
conducted a 465 kilometer 2-D seismic program in a new area of the Anaguid
permit. Coho is currently evaluating potential opportunities in the permit area
and intends to drill a well in 1998. Coho's estimated net cost to drill this
well is approximately $1.8 million.
Production
The following table sets forth certain information regarding Coho's
production volumes, average prices received and average production costs
associated with its sales of crude oil and natural gas for each of the years in
the three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CRUDE OIL:
Volumes (MBbls) ..................... 2,178 2,468 2,820
Average sales price (per Bbl) (a) ... $ 13.62 $ 16.42 $ 16.31
NATURAL GAS:
Volumes (MMcf) ...................... 7,092 6,646 7,666
Average sales price (per Mcf) (b) ... $ 1.59 $ 2.07 $ 2.23
AVERAGE PRODUCTION COST (PER BOE) (c) .. $ 3.71 $ 3.88 $ 3.90
</TABLE>
- --------------
(a) Includes the effects of crude oil price hedging contracts. Price per
Bbl before the effect of hedging was $13.89, $18.34 and $16.42 for the
years ended December 31, 1995, 1996 and 1997, respectively.
(b) Includes the effects of natural gas price hedging contracts. Price per
Mcf before the effect of hedging was $1.44, $2.24 and $2.22 for the
years ended December 31, 1995, 1996 and 1997, respectively.
(c) Includes lease operating expenses and production taxes.
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<PAGE> 11
Drilling Activities
During the periods indicated, the Company drilled or participated in
the drilling of the following wells, all of which were in the United States,
except as otherwise indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997
----------- ------------ ----------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY:
Crude oil ...... -- -- 1 1.0 3 2.8
Natural gas .... -- -- -- -- 1 .8
Dry holes ...... 1* .5* 1 1.0 1 1.0
DEVELOPMENT:
Crude oil ...... 6 5.4 13 12.0 10 9.3
Natural gas .... 1 1.0 6 6.0 11 9.8
Dry holes ...... -- -- 4 3.7 2 2.0
Service wells .. 1 .9 8 7.5 -- --
--- --- --- ---- --- ----
Total ............. 9 7.8 33 31.2 28 25.7
=== === === ==== === ====
</TABLE>
- --------
* Well drilled in Tunisia
At December 31, 1997, the Company was participating in 6 gross wells
(5.6 net) that were in various stages of drilling or completion.
Reserves
The following table summarizes the Company's net proved crude oil and
natural gas reserves as of December 31, 1997, which have been reviewed by Ryder
Scott with regard to the Company's Mississippi and Louisiana properties and
Sproule Associates, Inc. with regard to the Company's Oklahoma properties.
<TABLE>
<CAPTION>
Crude Natural Net Proved
Oil Gas Reserves
(MBbls) (MMcf) (MBOE)
------- -------- ----------
<S> <C> <C> <C>
Mississippi ............... 41,624 1,807 41,925
Oklahoma .................. 53,358 32,616 58,794
Louisiana ................. -- 99,475 16,579
Other ..................... 102 13,607 2,370
------ ------- -------
Total ................. 95,084 147,505 119,668
====== ======= =======
</TABLE>
At December 31, 1997, the Company had net proved developed reserves of
84,228 MBOE and net proved undeveloped reserves of 35,440 MBOE. The Present
Value of Proved Reserves was $526.3 million, which represented $386.4 million
for the proved developed and $139.9 million for the proved undeveloped reserves.
At December 31, 1996, the Company reported total proved reserves of 53,678 MBOE
and the Present Value of Proved Reserves was $417.1 million. This total
represents an increase of 65,990 MBOE and $109.2 million in reserves and Present
Value of Proved Reserves, respectively, at December 31, 1997. The increase was
attributable to extensions and discoveries associated with the Company's efforts
in Mississippi, as well as the recent Oklahoma property acquisition.
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves, including many factors beyond the control
of the Company. The estimates of the reserve engineers are based on several
assumptions, all of which are to some degree speculative. Actual future
production, revenues, taxes, production costs, development expenditures and
quantities of recoverable crude oil and natural gas reserves might vary
substantially from those assumed in the estimates. Any significant variance in
these assumptions could materially affect the estimated
11
<PAGE> 12
quantity and value of reserves set forth herein. In addition, the Company's
reserves might be subject to revision based upon actual production, results of
future development, prevailing crude oil and natural gas prices and other
factors.
In general, the volumes of production from crude oil and natural gas
properties declines as reserves are depleted. Except to the extent Coho acquires
additional properties containing proved reserves or conducts successful
exploration and development activities, or both, the proved reserves of Coho
will decline as reserves are produced. Future crude oil and natural gas
production is, therefore, highly dependent upon the level of success in
acquiring or finding additional reserves.
For further information on reserves, costs relating to crude oil and
natural gas activities and results in operations from producing activities, see
"Supplementary Information Related to Oil and Gas Activities" appearing in note
15 to the Consolidated Financial Statements of the Company included elsewhere
herein.
Acreage
The following table summarizes the developed and undeveloped acreage
owned or leased by Coho at December 31, 1997:
<TABLE>
<CAPTION>
Developed Undeveloped
------------------- ------------------
Gross Net Gross Net
------- ------- ------ ------
<S> <C> <C> <C> <C>
Mississippi .............. 24,851 23,122 22,821 20,274
Louisiana ................ 125,770 105,496 1,598 1,419
Oklahoma (a) ............. 40,830 25,969 -- --
Texas .................... 2,796 2,796 1,626 1,626
Offshore Gulf of Mexico .. 5,760 2,269 -- --
------- ------- ------ ------
Total ................ 200,007 159,652 26,045 23,319
======= ======= ====== ======
</TABLE>
At December 31, 1997, the Company also held a 50% working interest in
an exploratory permit in Tunisia, North Africa, covering 1,412,000 gross acres.
Additionally, the Company held a 100% working interest in an offshore permit in
Tunisia covering approximately 115,000 gross acres, which the Company has
subsequently released.
(a) The Company is currently conducting due-diligence on the acreage
acquired and is unable to determine the undeveloped acreage at this
time. The Company does not believe a significant amount of acreage will
be considered undeveloped.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, in certain circumstances,
the Company makes only a limited review of title to undeveloped crude oil and
natural gas leases at the time they are acquired by Coho. However, before the
Company acquires crude oil and natural gas properties, and before drilling
commences on any leases, the Company causes a thorough title search to be
conducted, and any material defects in title are remedied to the extent
possible. To the extent title opinions or other investigations reflect title
defects, the Company, rather than the seller of the undeveloped property, is
typically obligated to cure any such title defects at its expense. If Coho were
unable to remedy or cure any title defect of a nature such that it would be
prudent to commence drilling operations on the property, the Company could
suffer a loss of its entire investment in the property. The Company believes
that it has good title to its crude oil and natural gas properties, some of
which are subject to immaterial encumbrances, easements and restrictions. The
crude oil and natural gas properties owned by the Company are also typically
subject to royalty and other similar non-cost bearing interests customary in the
industry. The Company does not believe that any of these encumbrances or burdens
will materially affect Coho's ownership or use of its properties.
COMPETITION
The crude oil and natural gas industry is highly competitive. A large
number of companies and individuals engage in drilling for crude oil and natural
gas, and there is a high degree of competition for desirable crude oil and
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<PAGE> 13
natural gas properties suitable for drilling, for materials and third-party
services essential for their exploration and development and for attracting and
retaining quality personnel. The principal competitive factors in the
acquisition of crude oil and natural gas properties include the staff and data
necessary to identify, investigate and purchase such properties and the
financial resources necessary to acquire and develop them. Many of Coho's
competitors are substantially larger and have greater financial and other
resources than does Coho.
The principal resources necessary for the exploration for, and the
acquisition, exploitation, production and sale of, crude oil and natural gas are
leasehold or freehold prospects under which crude oil and natural gas reserves
may be discovered, drilling rigs and related equipment to explore for and
develop such reserves and capital assets required for the exploitation and
production of the reserves and knowledgeable personnel to conduct all phases of
crude oil and natural gas operations. Coho must compete for such resources with
both major oil companies and independent operators and also with other
industries for certain personnel and materials. Although Coho believes its
current resources are adequate to preclude any significant disruption of
operations in the immediate future, the continued availability of such materials
and resources to Coho cannot be assured.
CUSTOMERS AND MARKETS
Substantially all of Coho's crude oil is sold at the wellhead at posted
prices, as is customary in the industry. In certain circumstances, natural gas
liquids are removed from the natural gas produced by Coho and are sold by Coho
at posted prices. During 1997, two purchasers of Coho's crude oil and natural
gas, EOTT Energy Corp. ("EOTT") and Mid Louisiana Marketing Company, accounted
for 75% and 21%, respectively, of Coho's receipt of operating revenues. In 1995,
Amerada Hess Corporation ("Amerada") accounted for 66% of Coho's receipt of
operating revenues. Subsequent to December 31, 1995, Amerada sold its
Mississippi pipeline transportation and marketing assets to EOTT. Coho consented
to Amerada's assignment of its short-term contract to EOTT and entered into a
new three-year crude oil purchase agreement with EOTT effective March 1, 1996.
Under the crude oil purchase agreement, Coho has committed the majority of its
crude oil production in Mississippi to EOTT for a period of three years on a
pricing basis of posting plus a premium.
The majority of crude oil production in Oklahoma will be sold to Amoco
Production Company, initially for a one year term beginning January 1, 1998 on a
pricing basis of posting plus a premium. Subsequent to the first year and for a
nine year period thereafter, Amoco will have a right of first refusal to match,
in all respects, a competitive bid. The crude contract was a component of the
purchase and sale agreement and provides for a competitive annual review of the
pricing mechanism.
The natural gas produced in the Monroe field (approximately 17.1 MMcf
per day in 1997) is sold either to industrial or jurisdictional customers along
the interstate pipeline formerly owned by the Company or to industrial customers
in the field that are connected to the gathering system. Generally, the Company
sells its natural gas at prices based on regional price indices, set on a
month-to-month basis. Effective with the sale of the natural gas marketing and
transportation companies in 1996, the Company entered into a long-term natural
gas sales contract for its Monroe field natural gas to Mid Louisiana Marketing
Company based on regional price indices set on a month-to-month basis,
consistent with past operations.
The price received by the Company for crude oil and natural gas may
vary significantly during certain times of the year due to the volatility of the
crude oil and natural gas market, particularly during the cold winter and hot
summer months. As a result, the Company periodically enters into forward sale
agreements or other arrangements for a portion of its crude oil and natural gas
production to hedge its exposure to price fluctuations. Gains and losses on
these forward sale agreements are reflected in crude oil and natural gas
revenues at the time of sale of the related hedged production. While intended to
reduce the effects of the volatility of the prices received for crude oil and
natural gas, such hedging transactions may limit potential gains by the Company
if crude oil and natural gas prices were to rise substantially over the price
established by the hedge. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and Note 1 to the Consolidated
Financial Statements included elsewhere herein.
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<PAGE> 14
OFFICE AND FIELD FACILITIES
The Company currently leases its executive and administrative offices
in Dallas, Texas, consisting of 47,942 square feet, under a lease that continues
through October 2000. The Company also leases field offices in Laurel,
Mississippi, covering approximately 5,000 square feet under a non-cancelable
lease extending through June 2000, and Ratliff City, Oklahoma, covering
approximately 10,000 square feet through January 2003. The field office
facilities in Fairbanks, Louisiana and Brookhaven, Mississippi are owned by the
Company.
GOVERNMENTAL REGULATION
Regulation of Crude Oil and Natural Gas Exploration and Production.
Crude oil and natural gas exploration, development and production are subject to
various types of regulation by local, state and federal agencies. Such
regulations include requiring permits for the drilling of wells, maintaining
bonding requirements in order to drill or operate wells, and regulating the
location of wells, the method of drilling and casing wells, the surface use and
restoration of properties upon which wells are drilled, and the plugging and
abandonment of wells. The Company's operations are also subject to various
conservation laws and regulations, including those of Mississippi, Louisiana,
Oklahoma and Texas wherein the Company's properties are located. These laws and
regulations include the regulation of the size of drilling and spacing units or
proration units, the density of wells that may be drilled, and unitization or
pooling of crude oil and natural gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration
while other states rely on voluntary pooling of land and leases. In addition,
state conservation laws establish maximum rates of production from crude oil and
natural gas wells, generally restrict the venting or flaring of natural gas, and
impose certain requirements regarding the ratability of production. The effect
of these regulations is to limit the amount of crude oil and natural gas the
Company can produce from its wells and to limit the number of wells or the
locations at which the Company can drill. Each state generally imposes a
production or severance tax with respect to production and sale of crude oil,
natural gas and natural gas liquids within their respective jurisdictions. For
the most part, state production taxes are applied as a percentage of production
or sales. Currently, the Company is subject to production tax rates of up to 6%
in Mississippi, $.02 per Mcf in Louisiana, and 7% in Oklahoma. In addition, the
Company has been active in the adoption of legislation dealing with production
and severance tax relief in Mississippi.
Legislation affecting the crude oil and natural gas industry is under
constant review for amendment and expansion. Also, numerous departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations binding on the crude oil and natural gas industry
and its individual members, some of which carry substantial penalties for
failure to comply. The regulatory burden on the crude oil and natural gas
industry increases the Company's cost of doing business and, consequently,
affects its profitability.
Offshore Leasing. Certain of the Company's operations are located on
federal crude oil and natural gas leases, which are administered by the United
States Minerals Management Service (the "MMS"). Such leases are issued through
competitive bidding, contain relatively standardized terms and require
compliance with detailed MMS regulations and orders (which are subject to change
by the MMS). For offshore operations, lessees must obtain MMS approval for
exploration plans and development and production plans prior to the commencement
of such operations. In addition to permits required from other agencies (such as
the Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement of
drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the Outer Continental Shelf ("OCS") to meet stringent
engineering and construction specifications. Similarly, the MMS has promulgated
other regulations governing the plugging and abandonment of wells located
offshore and the removal of all production facilities. Under certain
circumstances, the MMS may require any Company operations of federal leases to
be suspended or terminated. To cover the various obligations of lessees on the
OCS, the MMS generally requires that lessees or operators post substantial bonds
or other acceptable assurances that such obligations will be met. The cost of
such bonds or other surety can be substantial and there is no assurance that the
Company can obtain bonds or other surety in all cases.
Gas Royalty Valuation Regulations. In December 1997, the MMS published
a final rule amending its regulations governing valuation for royalty purposes
of gas produced from federal and Indian leases. The rule primarily addresses
allowances for transportation of gas and purports to clarify the methods by
which gas royalties and deductions
14
<PAGE> 15
for gas transportation are calculated. The final rule became effective February
1, 1998. The rule purports to continue the commitment of the MMS to assure that
lessees deduct only the actual, reasonable costs of transportation and not any
costs of marketing. The rule identifies certain specifically allowable and
certain specifically nonallowable costs of transportation.
Crude Oil Sales and Transportation Rates. Sales of crude oil and
condensate can be made by Coho at market prices not subject at this time to
price controls. In January 1997, the MMS published a proposed rulemaking to
amend the current federal crude oil royalty valuation regulations. In July 1997,
the MMS published a supplementary proposed rulemaking concerning such
regulations. In February 1998, the MMS published another supplementary proposed
rulemaking. The intent of the rule is to decrease reliance on posted prices and
assign a value to crude oil that better reflects market value. In general, the
rule, as proposed, would base royalties on gross proceeds when the oil is sold
under an arm's length contract by either the producer or the producer's
marketing affiliate. Index pricing or other benchmarks would be used when oil is
not sold under an arm's length contract. Comments on the second supplementary
proposed rule are due on March 23, 1998. In February 1998, the MMS also
published a notice of proposed rulemaking to amend the current regulations
establishing a value for royalty purposes of oil produced from Indian leases.
The proposed changes would decrease reliance on oil posted prices and use more
publicly available information for oil royalty calculation purposes under Indian
leases. Comments on the proposed rulemaking are due on April 13, 1998. The
Company cannot predict what action the MMS will take on these matters, nor can
it predict at this stage of the rulemaking proceedings how the Company might be
affected by amendments to these regulations.
The price that the Company receives from the sale of these products is
affected by the cost of transporting the products to market. The Energy Policy
Act of 1992 directed the FERC to establish a "simplified and generally
applicable" rate making methodology for crude oil pipeline rates. Effective as
of January 1, 1995, the FERC implemented regulations establishing an indexing
system for transportation rates for crude oil pipelines, which would generally
index such rates to inflation, subject to certain conditions and limitations.
The Company is not able to predict with certainty what effect, if any, these
regulations will have on it, but other factors being equal under certain
conditions, the regulations may tend to increase transportation costs or reduce
wellhead prices for such commodities.
Gathering Regulation. Under the Natural Gas Act (the "NGA"), facilities
used for and operations involving the production and gathering of natural gas
are exempt from FERC jurisdiction, while facilities used for and operations
involving interstate transmission are not. The FERC's determination of what
constitutes exempt gathering facilities, as opposed to jurisdictional
transmission facilities, has evolved over time. Under current law even
facilities which otherwise would have been classified as gathering may be
subject to the FERC's rates and service jurisdiction when owned by an interstate
pipeline company and when such regulation is necessary in order to effectuate
FERC's Order No. 636 open-access initiatives. Respecting facilities owned by
noninterstate pipeline companies, such as Coho Fairbanks Gathering Company
("CFGC") and Coho Louisiana Gathering Company ("CLGC"), the Company's gathering
facilities, the FERC has historically distinguished between these types of
activities on a very fact-specific basis which makes it difficult to predict
with certainty the status of gathering facilities. On November 1, 1993, in
Docket No. CP93-79-000, this uncertainty was settled by FERC with respect to the
gathering facilities transferred from Mid Louisiana Gas Company , the Company's
former interstate pipeline, to CFGC effective January 1, 1994, when FERC issued
an order declaring the facilities to be nonjurisdictional gathering. On May 27,
1994, FERC affirmed its November 1, 1993 order in all material respects. On June
27, 1994, the Producer-Marketer Transportation Group Gathering Coalition and the
Independent Petroleum Association of America (IPAA) filed a request for a
rehearing of the May 27, 1994 order. On December 6, 1994, FERC issued a final
order disallowing IPAA's request for rehearing. On December 9, 1994, IPAA filed
a petition for review of the FERC orders in the U.S. Court of Appeals for the
D.C. Circuit. This case is one in a series of cases that has delineated the
FERC's gathering policy. Among other matters, the FERC slightly narrowed its
statutory tests for establishing gathering status and reaffirmed that it does
not have jurisdiction over natural gas gathering facilities and services and
that such facilities and services are properly regulated by state authorities.
As a result, natural gas gathering may receive greater regulatory scrutiny by
state agencies. In addition, the FERC has approved several transfers by
interstate pipelines of gathering facilities to unregulated gathering companies,
including affiliates. This could allow such companies to compete more
effectively with independent gatherers. Although the FERC orders delineating its
new gathering policy are subject to court appeals, there has been only one
definitive court decision to date. The U.S. Court of Appeals for the D.C.
Circuit upheld the FERC's decision to not regulate gathering rates but found
that its "default" contract requirement was unlawful as outside the FERC's
jurisdiction. The U.S. Supreme Court declined to review the D.C. Circuit's
decision. On remand from the D.C. Circuit's decision, the FERC found that the
15
<PAGE> 16
issue concerning its jurisdiction to require default contracts was effectively
moot. The FERC stated, however, that it would consider what, if any,
transitional protection it might provide, consistent with the D.C. Circuit's
decision, if the issue arises in future cases. Management does not believe the
ultimate resolution of these proceedings will have a material adverse effect on
the financial condition of the Company.
State regulation of gathering facilities generally includes various
safety, environmental and, in some circumstances, nondiscriminatory take
requirements. While some states provide for the rate regulation of pipelines
engaged in the intrastate transportation of natural gas, such regulation has not
generally been applied against gatherers of natural gas. For historical reasons,
however, certain of the gathering facilities owned by CLGC are subject to the
jurisdiction of the Louisiana Department of Natural Resources ("LDNR") pursuant
to its authority to regulate intrastate pipelines. Further, natural gas
gathering may receive greater regulatory scrutiny following the pipeline
industry restructuring under Order No. 636. Thus the Company's gathering
operations could be adversely affected should they be subject in the future to
the application of state or federal regulation of rates and services.
Future Legislation and Regulation. The Company's operations will be
affected from time to time in varying degrees by political developments and
federal and state laws and regulations. In particular, crude oil and natural gas
production operations and economics are affected by tax and other laws relating
to the petroleum industry, by changes in such laws and by constantly changing
administrative regulations. For example, the price at which natural gas may
lawfully be sold has historically been regulated under the NGA. Only recently,
with the deregulation of the last regulated price categories of natural gas on
January 1, 1993, have free market forces been allowed to control the sales price
of natural gas. Given the right set of circumstances, there is no guarantee that
new regulations, similar or otherwise, would not be imposed on the production of
sale of crude oil, condensate or natural gas. It is impossible to predict the
terms of any future legislation or regulations that might ultimately be enacted
or the effects of any such legislation or regulations on the Company.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wildlife
refuges or preserves, wetlands and other protected areas, and impose substantial
liabilities for pollution resulting from the Company's operations. Changes in
environmental laws and regulations occur frequently, and any changes that result
in more stringent and costly waste handling, disposal and clean-up requirements
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. Management believes that the Company is
in substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on the Company.
The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of regulations on "responsible parties" related to the
prevention of crude oil spills and liability for damages resulting from such
spills into or upon navigable waters, adjoining shorelines or in the exclusive
economic zone of the United States. A "responsible party" includes the owner or
operator of an onshore facility or a vessel, or the lessee or permittee of the
area in which an offshore facility is located. The OPA, as recently amended,
requires the lessee or permittee of the offshore area in which a covered
offshore facility is located to establish and maintain evidence of financial
responsibility in the amount of $35.0 million to cover liabilities related to a
crude oil spill for which such person is statutorily responsible. Prior to the
amendment, the OPA required such lessee or permittee to maintain evidence of
financial responsibility in the amount of $150.0 million, and the amended
statute authorizes the President of the United States to increase the amount of
financial responsibility to $150.0 million depending on the risks posed by the
quantity of crude oil that is handled by the facility. On March 25, 1997, the
MMS proposed regulations to implement the financial responsibility requirements
under the OPA. The proposed regulations would use an offshore facility's worst
case oil-spill discharge volume to determine if the responsible party must
demonstrate increased financial responsibility. Because the Company's only
offshore well is a natural gas well, it does not believe that it will be subject
to the financial responsibility requirements, if such requirements are
implemented in the manner proposed by the MMS. The Company cannot predict the
final form
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<PAGE> 17
of any financial responsibility regulations that will be adopted by the MMS, but
the impact of any such regulations should not be any more adverse to the Company
that it will be to other similarly situated companies.
The OPA subjects responsible parties to strict, joint and several and
potentially unlimited liability for removal costs and certain other damages
caused by an oil spill covered by the statute. It also imposes other
requirements on responsible parties, such as the preparation of a crude oil
spill contingency plan. The Company has such a plan in place. Failure to comply
with the OPA's ongoing requirements or inadequate cooperation during a spill
event may subject a responsible party to civil or criminal enforcement actions.
As of this date, the Company is not the subject of any civil or criminal
enforcement actions under the OPA.
The Federal Water Pollution Control Act of 1972, as amended (the
"FWPCA"), imposes restrictions and strict controls regarding the discharge of
produced waters and other oil and gas wastes into navigable waters. These
controls have become more stringent over the years, and it is probable that
additional restrictions will be imposed in the future. Permits must be obtained
to discharge pollutants into state and federal waters. Certain state discharge
regulations and the Federal National Pollutant Discharge Elimination System
general permits prohibit the discharge of produced water and sand, drilling
fluids, drill cuttings and certain other substances related to the oil and gas
industry into coastal waters. The FWPCA provides for civil, criminal and
administrative penalties for any unauthorized discharges of oil and other
hazardous substances in reportable quantities and, along with the OPA, imposes
substantial potential liability for the costs of removal, remediation and
damages. State laws for the control of water pollution also provide varying
civil, criminal and administrative penalties and impose liabilities in the case
of a discharge of petroleum or its derivatives, or other hazardous substances,
into state waters.
The Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substance
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances and for damages to natural resources. In
addition, it is not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly caused by the
hazardous substances released into the environment.
Currently, the Company does not own or operate CERCLA identified sites.
The Resource Conservation and Recovery Act ("RCRA") is the principal
federal statute governing the treatment, storage and disposal of hazardous
wastes. RCRA imposes stringent operating requirements (and liability for failure
to meet such requirements) on a person who is either a "generator" or
"transporter" of hazardous waste or an "owner" or "operator" of a hazardous
waste treatment, storage or disposal facility. At present, RCRA includes a
statutory exemption that allows most crude oil and natural gas exploration and
production wastes to be classified as non-hazardous waste. A similar exemption
is contained in many of the state counterparts to RCRA. At various times in the
past, proposals have been made to amend RCRA and various state statutes to
rescind the exemption that excludes crude oil and natural gas exploration and
production wastes from regulation as hazardous waste under such statutes. Repeal
or modification of this exemption by administrative, legislative or judicial
process, or through changes in applicable state statutes, would increase the
volume of hazardous waste to be managed and disposed of by the Company.
Hazardous wastes are subject to more rigorous and costly disposal requirements
than are non-hazardous wastes. Any such change in the applicable statutes may
require the Company to make additional capital expenditures or incur increased
operating expenses.
A sizable portion of the Company's operations in Mississippi is
conducted within city limits. On an annual basis in order to obtain permits to
conduct new drilling operations, the Company is required to meet certain tests
of financial responsibility. The Company is conducting a voluntary program to
remove inactive aboveground storage tanks from its well sites. Inactive tanks
are replaced, as necessary, with newer aboveground storage tanks.
Some states have enacted statutes governing the handling, treatment,
storage and disposal of naturally occurring radioactive material ("NORM"). NORM
is present in varying concentrations in subsurface and hydrocarbon reservoirs
around the world and may be concentrated in scale, film and sludge in equipment
that comes in contact with crude oil
17
<PAGE> 18
and natural gas production and processing streams. Mississippi legislation
prohibits the transfer of property for residential or other unrestricted use if
the property contains NORM above prescribed levels. The Company is voluntarily
remediating NORM concentrations identified at the Brookhaven field in
Mississippi. In addition, the Company is a defendant in several lawsuits brought
in 1994 and 1996 by landowners alleging personal injury and property damage from
NORM at various wellsite locations.
Certain governmental agencies are presently studying whether the crude
oil and natural gas industry's practice of utilizing mercury meters poses any
potential problems that require more stringent regulation. Operators in the
Monroe field have been asked to monitor their operations and assist in gathering
data. During 1995, the Company voluntarily negotiated a remediation plan with
the governmental agencies responsible for the two wildlife refuges in the Monroe
field. Under the plan, the company began removal of the mercury meters within
the wildlife refugees in 1996. The Company continues to cooperate with the other
various agencies in their studies. At this time, the Company believes that such
spillages and leaks may have occurred in the past. However, the Company believes
that such spillage and leaks are less than the amounts reportable under prior or
existing statutes and laws.
Because the Company's strategy is to acquire interests in
underdeveloped crude oil and natural gas properties many of which have been
operated by others for many year, the Company may be liable for damage or
pollution caused by the former operators of such crude oil and natural gas
properties. The Company makes a provision for future site restoration charges on
a unit-of-production basis which is included in depletion and depreciation
expense. The Company's operations are also subject to all the risks normally
incident to the operation and development of crude oil and natural gas
properties and the drilling of crude oil and natural gas wells, including
encountering unexpected formations or pressures, blowouts, cratering and fires,
which could result in personal injuries, loss of life, pollution damage and
other damage to the properties of the Company and others. Moreover, offshore
operations are subject to a variety of operating risks peculiar to the marine
environment, such as hurricanes or other adverse weather conditions, to more
extensive governmental regulation, including regulations that may, in certain
circumstances, impose strict liability for pollution damage, and to interruption
or termination of operations by governmental authorities based on environmental
or other considerations. The Company maintains insurance against certain losses
or liabilities arising from its operations in accordance with customary industry
practices and in amounts that management believes to be reasonable. However,
insurance is either not available to the Company against all operational risks
or is not economically feasible for the Company to obtain. The occurrence of a
significant event that would impose liability on the Company that is either not
insured or not fully insured could have a material adverse effect on the
Company's financial condition and results of operations.
EMPLOYEES
At February 15, 1998, Coho had 166 employees associated with its
operations, including 26 field personnel in Mississippi, 26 field personnel in
Oklahoma and 39 field personnel in Louisiana. None of the Company's employees is
represented by a union. The Company considers its employee relations to be
satisfactory.
ITEM 2. PROPERTIES
For information with respect to the Company's properties, see "Business
and Properties".
ITEM 3. LEGAL PROCEEDINGS
In July 1994, the Company, together with several other companies, was
named as a defendant in a lawsuit filed in Jones County, Mississippi. The
lawsuit involves claims by a landowner for purported damages caused by naturally
occurring radioactive materials at various wellsite locations on land leased by
the Company in Mississippi. The plaintiff is seeking significant compensatory
and punitive damages, including damages for "emotional distress". This lawsuit
has been dormant for two years and the land involved has been remediated.
Additionally, in 1996 and 1997, the Company, together with several
other companies, was named as a defendant in a number of lawsuits of the same
nature as the July 1994 lawsuit. All of the suits are principally identical and
seek damages for land damage, health hazard, mental and emotional distress, etc.
None of the suits seek specific award amounts, but all seek punitive damages.
18
<PAGE> 19
While the Company is not able to determine its exposure in the
remaining suits at this time, the Company believes that the claims will have no
material adverse effect on its financial position or results of operations.
The Company is involved in various other legal actions arising in the
ordinary course of business. While it is not feasible to predict the ultimate
outcome of these actions or those listed above, management believes that the
resolution of these matters will not have a material adverse effect, either
individually or in aggregate, on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
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<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "COHO". The following table sets forth the range of high and low sale
prices for the Common Stock as reported on the Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
1st Quarter .................................. $ 6 5/8 $ 4 5/8
2nd Quarter .................................. 7 1/8 5 15/16
3rd Quarter .................................. 7 1/2 6 1/8
4th Quarter .................................. 8 1/4 6 3/4
1997
1st Quarter .................................. $ 9 1/4 $ 6 7/8
2nd Quarter .................................. 11 1/2 6 7/8
3rd Quarter .................................. 11 5/8 9
4th Quarter .................................. 13 8 1/4
</TABLE>
The last reported sale price of the Common Stock as reported on the
Nasdaq Stock Market on March 23, 1998 was $7 3/4 per share. At March 23, 1998,
there were 196 holders of record of the Common Stock. The Company believes it
has in excess of 35 beneficial holders of its Common Stock.
The Company has never paid cash dividends on its Common Stock and does
not intend to pay cash dividends on its Common Stock in the foreseeable future.
In the past, the Company has used its available cash flow to conduct exploration
and development activities or to make acquisitions, and expects to continue to
do so in the future. In addition, the terms of the Company's revolving credit
facility and Senior Notes indenture restrict the payment of dividends by the
Company and CRI. Coho Energy, Inc. currently is a holding company with no
independent operations. Accordingly, any amounts available for dividends will be
dependent on the prior declaration of dividends by CRI or CRL to Coho Energy,
Inc. Any declaration of dividends by CRI or CRL would be subject to Canadian or
U.S. withholding tax at applicable tax rates.
On December 9, 1996, the Company issued 100,000 shares of Common Stock to
Churchill Resource Investments, Inc., a Colorado corporation, in consideration
for certain oil and gas properties and interests in the Laurel and Glazier,
Mississippi fields. The shares were issued without registration under the
Securities Act in reliance on the exemption therefrom set forth in Section 4(2)
of the Securities Act.
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<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1997 are derived from, and qualified by
reference to, the Company's audited consolidated financial statements included
at Item 8 hereof. The information presented below should be read in conjunction
with Coho's Consolidated Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The selected consolidated financial data
presented below are not necessarily indicative of the future results of
operations or financial performance of the Company.
<TABLE>
<CAPTION>
1993 1994(1) 1995 1996 1997
---- ------- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA: (2)
Operating revenues ........................... $ 28,263 $ 26,464 $ 40,903 $ 54,272 $ 63,130
Operating costs .............................. 8,773 9,372 12,457 13,875 15,970
General and administrative expenses .......... 2,997 3,435 5,400 7,264 7,163
Depletion and depreciation ................... 10,677 9,989 14,717 16,280 19,214
Net interest expense ......................... 3,484 3,972 8,048 7,464 10,474
Other expense(3) ............................. 21,000 973 -- -- --
Income tax expense (benefit) ................. (5,219) (303) 112 3,483 4,020
Earnings (loss) from continuing operations ... (13,449) (974) 169 5,906 6,288
Net earnings (loss) .......................... (13,449) (1,654) 1,780 5,906 6,288
Basic earnings (loss) from continuing
operations per common share(4) ......... $ (1.12) $ (0.07) $ (0.02) $ 0.29 $ 0.29
Diluted earnings (loss) from continuing
operations per common share(5) ......... $ (1.12) $ (0.07) $ (0.02) $ 0.29 $ 0.28
Basic earnings (loss) per common share(4) .... $ (1.12) $ (0.12) $ 0.05 $ 0.29 $ 0.29
Diluted earnings (loss) per common share(5) .. $ (1.12) $ (0.12) $ 0.05 $ 0.29 $ 0.28
OTHER FINANCIAL DATA:
Capital expenditures ......................... $ 24,122 $ 19,503 $ 29,970 $ 52,384 $ 72,667
BALANCE SHEET DATA: (2)
Working capital (deficit)(6) ................. $ 871 $ (2,379) $ 14,433 $ 6,662 $ (2,021)
Net property and equipment ................... 96,871 171,524 175,899 210,212 531,409
Total assets ................................. 104,286 196,970 204,042 230,041 555,128
Long-term debt, excluding current portion .... 54,000 86,311 107,403 122,777 369,924
Redeemable preferred stock ................... -- 16,125 -- -- --
Total shareholders' equity ................... 44,279 56,416 74,321 81,466 142,103
</TABLE>
(1) In December 1994, the Company acquired all of the outstanding common
stock of ING.
(2) Amounts for 1994 and 1995 exclude discontinued operations representing
the Company's natural gas marketing and transportation segment.
(3) Amount for 1993 reflects the writedown in carrying value of crude oil
and natural gas properties ($20,000) and reorganization costs ($1,000).
(4) Basic per share amounts have been computed by dividing net earnings after
preferred dividends by the weighted average number of shares outstanding:
12,013 in 1993; 14,190 in 1994; 17,932 in 1995; 20,179 in 1996; and
21,693 in 1997, respectively.
(5) Diluted per share amounts have been computed by dividing net earnings
after preferred dividends by the weighted average number of shares
outstanding including common stock equivalents, consisting of stock
options and warrants, when their effect is dilutive: 12,013 in 1993;
14,190 in 1994; 17,932 in 1995; 20,342 in 1996; and 22,334 in 1997,
respectively.
(6) Amount for 1995 includes $17,421 related to net assets of discontinued
operations.
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements included elsewhere herein. Certain information
contained herein, including information with respect to the Company's plans and
strategy for its business, are forward-looking statements. These statements are
based on certain assumptions and analyses made by management of the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, general economic and business conditions, prices of crude oil and
natural gas, the business opportunities (or lack thereof) that may be presented
to and pursued by the Company, changes in laws or regulations and other factors,
many of which are beyond the control of the Company. Such statements are not
guarantees of future performance and actual results or developments may differ
materially from those projected in the forward-looking statements.
COMPANY HISTORY
The Company was incorporated in June 1993 under the laws of the State of
Texas and conducts a majority of its operations through CRI. Prior to September
29, 1993, CRI was a publicly held company of which CRL, a publicly held Alberta,
Canada company, held a 68% ownership interest. As a result of a reorganization
of the Company effective on September 29, 1993, CRI and CRL became wholly owned
subsidiaries of Coho Energy, Inc.
In December 1994, the Company acquired all of the capital stock of
Interstate Natural Gas Company ("ING"). ING, through its subsidiaries, was a
privately held natural gas producer, gatherer and pipeline company operating in
Louisiana and Mississippi. As a result of the acquisition of ING, Coho acquired
approximately 86 Bcf of natural gas reserves, with natural gas production in
December 1994 of 20 Mmcf per day primarily from the Monroe field in north
Louisiana. Additionally, the ING acquisition included approximately 1,000 miles
of gathering systems in the Monroe field and a 167 mile long interstate pipeline
(operating as the Mid Louisiana Gas Company) and certain intrastate pipeline
facilities. Consideration paid by the Company for the acquisition of ING was $20
million cash, the assumption of net liabilities of $3.3 million (excluding
deferred taxes), 2,775,000 shares of the Common Stock and 161,250 shares of
redeemable preferred stock (which preferred shares were exchanged on August 30,
1995 for 3,225,000 shares of Common Stock), having an aggregate stated value of
$16.1 million. The acquisition of ING was accounted for using the purchase
method.
In April 1996, ING sold all of the stock of three wholly owned
subsidiaries that comprised its natural gas marketing and transportation segment
to an unrelated third party for cash of $19.5 million, the assumption of net
liabilities of approximately $2.3 million and the payment of taxes of up to $1.2
million generated as a result of the tax treatment of the transaction. The
marketing and transportation segment is accounted for as discontinued operations
herein.
Effective December 31, 1997, the Company acquired from Amoco Production
Company ("Amoco") interests in certain crude oil and natural gas properties
("Amoco Properties") located primarily in southern Oklahoma for cash
consideration of approximately $257.5 million and warrants to purchase one
million shares of common stock at $10.425 per share for a period of five years
valued at $3.4 million. The Amoco Properties are in more than 25,000 gross acres
concentrated in southern Oklahoma, including 14 major producing oil fields. As a
result of the acquisition, the Company's total proved reserves increased 103%
and daily net production is expected to increase 63%. The Company will operate
all but two of these fields and have an average working interest in these fields
of approximately 66%.
GENERAL
The Company seeks to acquire controlling interests in underdeveloped
crude oil and natural gas properties and attempts to maximize reserves and
production from such properties through relatively low-risk activities such as
development drilling, multiple completions, recompletions, workovers,
enhancement of production facilities and secondary recovery projects. The
Company's only operating revenues are crude oil and natural gas sales with crude
oil sales representing approximately 75% of production revenues and natural gas
sales representing approximately 25% of production revenues during 1995, 1996
and 1997. Operating revenues increased from $26.9 million in 1992 to $63.1
22
<PAGE> 23
million in 1997 primarily due to an increase in production volumes from
successful development and exploration activities in the Company's existing
Mississippi fields and due to the December 1994 acquisition of the Monroe
natural gas field and the August 1995 acquisition of the Brookhaven field. The
Company has a two year inventory of lower risk exploitation projects including
development drilling, recompletions and secondary recovery projects identified
for its Mississippi properties. This exploitation inventory coupled with the
Company's recent exploration success in the Brookhaven field and the exploration
opportunities identified at Laurel, Martinville and Soso fields should provide
development and exploration opportunities and continued growth in production and
reserves.
The Company also strives to maintain a low cost structure through asset
concentration, such as in the interior salt basin of Mississippi. Asset
concentration permits operating economies of scale and leverages operational,
technical and marketing capabilities. Production costs (including lease
operating expenses and production taxes) per BOE have decreased from $4.11 in
1992 to $3.90 in 1997.
The price received by the Company for crude oil and natural gas may vary
significantly during certain times of the year due to the volatility of the
crude oil and natural gas market, particularly during the cold winter and hot
summer months. As a result, the Company has entered, and expects to continue to
enter, into forward sale agreements or other arrangements for a portion of its
crude oil and natural gas production to hedge its exposure to price
fluctuations. While the Company's hedging program is intended to stabilize cash
flow and thus allow the Company to plan its capital expenditure program with
greater certainty, such hedging transactions may limit potential gains by the
Company if crude oil and natural gas prices were to rise substantially over the
price established by the hedge. Because all hedging transactions are tied
directly to the Company's crude oil and natural gas production and natural gas
marketing operations, the Company does not believe that such transactions are of
a speculative nature. Gains and losses on these hedging transactions are
reflected in crude oil and natural gas revenues at the time of sale of the
hedged production. Any gain or loss on the Company's crude oil hedging
transactions is determined as the difference between the contract price and the
average closing price for West Texas Intermediate ("WTI") crude oil on the New
York Mercantile Exchange ("NYMEX") for the contract period. Any gain or loss on
the Company's natural gas hedging transactions is generally determined as the
difference between the contract price and the average settlement price on NYMEX
for the last three days during the month in which the hedge is in place.
Consequently, hedging activities do not affect the actual price received for the
Company's crude oil and natural gas.
The Company also controls the magnitude and timing of its capital
expenditures by obtaining high working interests in and operating its
properties. At December 31, 1997, the Company owned an average working interest
of 85% in and operated over 90% of its producing properties.
23
<PAGE> 24
RESULTS OF OPERATIONS
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
PRODUCTION:
Crude oil (Bbl/day) ............... 5,966 6,742 7,726
Natural gas (Mcf/day) ............. 19,431 18,160 21,003
BOE (Bbl/day) ................ 9,205 9,769 11,227
AVERAGE SALES PRICES:
Crude oil (per Bbl) ............... $ 13.62 $ 16.42 $ 16.31
Natural gas (per Mcf) (a) ......... 1.59 2.07 2.23
PER BOE DATA:
Production costs (b) .............. $ 3.71 $ 3.88 $ 3.90
Depletion ......................... 4.38 4.55 4.69
PRODUCTION REVENUES (IN THOUSANDS):
Crude oil ......................... $29,654 $40,527 $45,991
Natural gas ....................... 11,249 13,745 17,139
------- ------- -------
Total production revenues .... $40,903 $54,272 $63,130
======= ======= =======
</TABLE>
- --------------
(a) Natural gas prices are net of fuel costs used in gas gathering.
(b) Includes lease operating expenses and production taxes, exclusive of general
and administrative costs.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Operating Revenues. During 1997, production revenues increased 16% to
$63.1 million as compared to $54.3 million in 1996. This increase was
principally due to a 15% increase in crude oil production, a 16% increase in
natural gas production and an increase in the price received for natural gas
(including hedging gains and losses discussed below) of 8%.
The 16% increase in daily natural gas production is primarily a result of
the continued positive response from the Company's development efforts in the
North Padre, Martinville and Brookhaven fields. The 15% increase in daily crude
oil production during 1997 is due to significant production increases made in
the Martinville, Soso and Brookhaven fields, with production increasing by 125%,
51% and 87%, respectively, in such fields. These production increases were
partially offset by a production decrease in the Summerland field due to the
unusually high frequency of weather-related power outages and mechanical
problems during the first quarter of 1997 and normal production declines due to
the maturity of the field.
Average crude oil prices realized in 1997, including hedging gains and
losses discussed below, remained comparable to 1996. Even though posted crude
oil prices received in 1997 declined from 1996 prices, the average prices
realized in 1996 and 1997 were comparable due to crude oil hedging losses
experienced in 1996. The posted price for the Company's crude oil averaged
$18.34 per Bbl in 1997, a 9% decrease over the average posted price of $20.23
per Bbl experienced in 1996. The price per Bbl received by the Company is
adjusted for the quality and gravity of the crude oil and is generally lower
than the posted price.
The realized price for the Company's natural gas, including hedging gains
and losses discussed below, increased 8% from $2.07 per Mcf in 1996 to $2.23 per
Mcf in 1997. Although the average natural gas prices received, net of fuel used
in gathering, in 1996 and 1997 were comparable at $2.25 per Mcf and $2.22 per
Mcf, respectively, the natural gas hedging losses in 1996 reduced the realized
price in 1996 by $.18 per Mcf while 1997 hedging gains increased the realized
price in 1997 by $.01 per Mcf.
24
<PAGE> 25
Production revenues for 1997 included crude oil hedging losses of $.3
million ($.11 per Bbl) compared to crude oil hedging losses of $4.7 million
($1.92 per Bbl) in 1996. Production revenues in 1997 also included natural gas
hedging gains of $.1 million ($.01 per Mcf) compared with natural gas hedging
losses of $1.2 million ($.18 per Mcf) for 1996. The Company has 10,000 Mmbtu of
natural gas production per day hedged from January through March 1998 at a
minimum price of $2.70 per Mmbtu and a maximum price of $3.28 per Mmbtu. In
March 1998, the Company hedged an additional 15,000 Mmbtu per day of natural gas
production over the period from April to August 1998, at a minimum price of
$2.00 per Mmbtu and a maximum price of $2.54 per Mmbtu.
Interest and other income decreased to $646,000 in 1997 from $1 million
in 1996 primarily due to $472,000 of interest earned during 1996 on the
receivable from the sale of the marketing and pipeline segment of operations and
due to an unrealized gain of $450,000 on marketable securities in 1996,
partially offset by $137,000 of interest received in the first quarter of 1997
on a federal tax refund and $465,000 of interest earned in the fourth quarter of
1997 on cash investments.
Expenses. Production expenses (including production taxes) were $16
million for 1997 compared to $13.9 million for 1996. This increase primarily
reflects additional production volumes. On a BOE basis, production costs
increased to $3.90 per BOE in 1997 compared to $3.88 per BOE in 1996.
General and administrative costs decreased 1% between years from $7.3
million in 1996 to $7.2 million in 1997. General and administrative costs
expensed in 1997 were less than such costs expensed in 1996, even though total
general and administrative costs increased, due to an increase in the
capitalization of salaries and other general and administrative costs directly
associated with the Company's increased exploration and development activities.
Total general and administrative cost increased due to higher compensation and
employee related costs attributable to staff additions and higher professional
fees.
Interest expense increased 31% in 1997 compared to 1996, due to higher
borrowing levels during 1997 as compared to 1996 and due to the sale of $150
million of 8 f% Senior Subordinated Notes ("Senior Notes") on October 3, 1997
which bear a higher interest rate than the Company's revolving credit facility.
The average interest rate paid on outstanding indebtedness was 7.84% in 1997,
compared to 7.6% in 1996.
Depletion and depreciation expense increased 18% to $19.2 million in 1997
from $16.3 million in 1996. These increases are primarily the result of
increased production volumes and an increased rate per BOE, which increased to
$4.69 in 1997, compared with $4.55 in 1996.
In accordance with generally accepted accounting principles, at a point
in time coinciding with the quarterly and annual reporting periods, the Company
must test the carrying value of its crude oil and natural gas properties, net of
related deferred taxes, against a calculated amount based on estimated reserve
volumes valued at then current realized prices held flat for the life of the
properties discounted at 10% per annum plus the lower of cost or estimated fair
value of unproved properties (the "cost center ceiling"). If the carrying value
exceeds the cost center ceiling, the excess must be expensed in such period and
the carrying value of the oil and gas lowered accordingly. Amounts required to
be written off may not be reinstated for any subsequent increase in the cost
center ceiling.
Based on this test at December 31, 1997, using the year end WTI posted
reference price of $16.17 per Bbl of crude oil and a year end price of $2.26 per
Mcf of natural gas, the carrying value of the crude oil and natural gas
properties were lower than the cost center ceiling therefore no writeoff was
required. Assuming the price of natural gas remains constant and the ratio of
crude oil reserves to total reserves and the crude oil components of such
reserves do not change significantly from such quantities estimated in the year
end reserve report used in the December 31, 1997 test, the Company's carrying
value of its crude oil and natural gas properties would not exceed the cost
center ceiling at any WTI posted reference price above $14.72 per Bbl of crude
oil. The Company's capital expenditure program is, in large measure, designed to
increase production of both crude oil and natural gas from its proved reserves.
Such increases have the effect of increasing the present value of the discounted
future cash flows, thus increasing the cost center ceiling. The Company has
experienced increases in its daily rate of production during the first quarter
of 1998.
The Company's net operating loss carryforwards ("NOLs") for United States
and Canadian federal income tax purposes were approximately $67.5 million at
December 31, 1997 and expire between 1998 and 2011. Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109")
requires that the tax benefit
25
<PAGE> 26
of such NOLs be recorded as an asset to the extent that management assesses the
utilization of such NOLs to be "more likely than not." It is expected that
future reversals of existing taxable temporary differences will generate taxable
amounts sufficient to utilize the majority of the NOL carryforwards prior to
their expiration. A valuation allowance has been established with respect to
approximately $10.4 million of these NOLs as it is uncertain whether they will
be utilized before they expire.
The Company's net earnings for 1997 were $6.3 million, as compared to net
earnings of $5.9 million for 1996 for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Operating Revenues. During 1996, production revenues increased 33% to
$54.3 million as compared to $40.9 million in 1995 (including hedging gains and
losses discussed below). This increase was principally due to increases of 13%
in crude oil production, 21% in crude oil prices and 30% in natural gas prices
which were slightly offset by a 6% decrease in natural gas production.
The 13% increase in daily crude oil production for 1996 to 6,742 Bbls is
primarily a result of continued development activity, including recompletions
and workovers on existing wells and drilling new wells and waterflood operations
in the Martinville, Soso and Summerland fields and waterflooding and exploration
success in Martinville. In addition, 1996 includes crude oil production from the
Brookhaven field for the entire year as compared to only five months in 1995.
Natural gas production for 1996 was 6% lower than 1995, primarily due to
operational problems associated with the natural gas gathering system caused by
unusually cold, wet weather during the winter months of 1996. Although the
Monroe gas field (the Company's primary gas field) is experiencing normal
production declines, production from new development wells in the field should
offset such declines absent the operational problems discussed above.
In 1996, the posted price for the Company's crude oil averaged $20.23 per
Bbl, a 21% increase over the average posted price of $16.73 experienced in 1995.
The crude oil prices received by the Company during 1996 increased more
significantly than the average posted price because the Company amended its
marketing arrangements for the sale of substantially all of its crude oil during
1995 and again in March 1996, to improve the price and resultant revenues it
receives for its crude oil.
The price for the Company's natural gas, including hedging gains and
losses, increased 30% in 1996 compared to 1995 due to increased demands for
natural gas.
Production revenues for 1996 included crude oil hedging losses of $4.7
million ($1.92 per Bbl) compared to crude oil hedging losses of $.6 million
($.27 per Bbl) in 1995. Production revenues in 1996 also included natural gas
hedging losses of $1.2 million ($.18 per Mcf) compared with natural gas hedging
gains of $1.0 million ($.15 per Mcf) in 1995.
Interest and other income increased to $1.0 million in 1996 from $92,000
in 1995 due to $472,000 of interest earned during 1996 on the receivable from
the sale of the marketing and pipeline segment of operations and due to an
unrealized gain of $450,000 on marketable securities.
Expenses. Production expenses were $13.9 million for 1996 compared to
$12.5 million for 1995. This increase primarily reflects additional production
volumes. On a BOE basis, production costs increased to $3.88 per BOE in 1996
compared to $3.71 per BOE in 1995, primarily due to an increase of $.15 per BOE
in production taxes as a result of higher crude oil and natural gas prices.
General and administrative costs increased 35% in 1996 to $7.3 million,
primarily due to increased compensation and employee related costs attributable
to staff additions made during the last half of 1995 and during 1996 to handle
the increased drilling and recompletion activity. Additionally, 1996 expenses
include an estimated bonus accrual of approximately $812,000 associated with the
Company's 1996 bonus plan, which is awarded based on the Company's after tax
return on equity for the year. As a result of these increases, general and
administrative expenses per BOE increased 26% from $1.61 in 1995 to $2.03 in
1996.
26
<PAGE> 27
Depletion and depreciation expense increased 11% to $16.3 million in
1996. This increase is primarily the result of increased production volumes. The
depletion rate per BOE in 1996 increased 4% to $4.55 compared with $4.38 for
1995.
Interest expense increased 5% to $8.5 million in 1996 from $8.1 million
in 1995 due to higher borrowing levels, which were partially offset by a
decrease in interest rates. Borrowing levels increased by $2.0 million to $105.4
million prior to the paydown of $20.5 million on April 3, 1996 from the proceeds
of the natural gas pipeline sale discussed under "Liquidity and Capital
Resources". Borrowing levels during the remainder of 1996 increased by $35.6
million to $120.5 million to fund increased drilling activities. The average
interest rate paid on outstanding indebtedness under the Company's Revolving
Credit Facility was 7.6% in 1996, compared to 8.4% in 1995.
The Company's net earnings in 1996 were $5.9 million, as compared to $1.8
million in 1995 (including $1.6 million of income from discontinued operations)
for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Capital Sources. Cash flow generated from operating activities was $16.8
million and $37.1 million for the years ended December 31, 1996 and 1997,
respectively. Cash flow generated from operating activities before changes in
operating assets and liabilities improved $3.6 million from 1996 to 1997
primarily due to production and gas price increase. Changes in operating assets
and liabilities provided additional cash flow of $7.1 million in 1997 as
compared to a use of cash flow of $9.5 million in 1996.
At December 31, 1997, the Company had a working capital deficit of $2.0
million primarily due to current payables associated with drilling and
recompletion activity which will be funded with cash flow from operations and
borrowings under the Revolving Credit Facility.
In April 1996, the Company's wholly owned subsidiary, ING, sold all of
the stock of its wholly owned subsidiaries that comprised the Company's
Louisiana natural gas marketing and transportation segment to an unrelated third
party, for total consideration of approximately $23 million. The total
consideration was comprised of $19.5 million in cash, the assumption of net
liabilities of approximately $2.3 million (excluding deferred taxes) and the
reimbursement for the payment of certain taxes of up to $1.2 million generated
as a result of the tax treatment of the transaction. The cash proceeds from the
sale were used to reduce amounts outstanding under the Company's Revolving
Credit Facility.
On October 3, 1997, the Company issued 5,000,000 shares of common stock
at $10.50 per share and issued $150 million of 8 7/8% Senior Subordinated Notes
due 2007 ("Senior Notes") pursuant to two public offerings with combined net
proceeds of $193.7 million. The proceeds from these offerings were used to repay
$144.8 million of indebtedness outstanding under the Company's Revolving Credit
Facility, for general corporate purposes and to fund a portion of the December
1997 Oklahoma property acquisition discussed under "Property Acquisitions".
Under the Revolving Credit Facility, the amount available to the Company
in borrowing capacity for general corporate purposes ("Borrowing Base") is $300
million, which terminates on January 2, 2003. The margin premium charged in
excess of LIBOR for revolving Eurodollar advances is based on a ratio calculated
on a rolling four-quarter basis of consolidated indebtedness to EBITDA. The
margin is currently 1.50%. CRI, and its wholly owned subsidiaries, Coho
Louisiana Production Company, Coho Exploration, Inc. and Coho Oil & Gas, Inc.,
are the borrowers under the Revolving Credit Facility and the repayment of all
advances is guaranteed by Coho Energy, Inc. and outstanding advances are secured
by substantially all of the assets of the Company. At December 31, 1997,
outstanding advances under the Company's Revolving Credit Facility were $221
million, all of which were classified as long term, leaving $79 million
available thereafter.
The Revolving Credit Facility contains certain financial and other
covenants including (i) the maintenance of minimum amounts of shareholders'
equity ($108 million plus 50% of the accumulated consolidated net income
beginning in 1998 for the cumulative period excluding adjustments for any write
down of property, plant and equipment, plus 75% of the cash proceeds of any
sales of capital stock of the Company), (ii) maintenance of minimum ratios of
cash flow to interest expense (2.5 to 1) as well as current assets (including
unused borrowing base) to current liabilities (1 to 1), (iii) limitations on the
Company's ability to incur additional debt and (iv) restrictions on the payment
of dividends.
27
<PAGE> 28
At December 31, 1997, shareholders' equity exceeded the minimum required under
the Revolving Credit Facility by approximately $34 million and the ratio of
current assets to current liabilities was 5.0 to 1. For the year ended December
31, 1997, the ratio of EBITDA to interest expense was 3.7 to 1.
The Senior Notes are unsecured senior subordinated obligations of the
Company and rank pari passu in right of payment to all existing and future
senior subordinated indebtedness of the Company. The Senior Notes mature on
October 15, 2007 and bear interest from October 3, 1997 at the rate of 8 7/8%
per annum payable semi-annually, commencing on April 15, 1998. Certain
subsidiaries of the Company issued guarantees of the Senior Notes on a senior
subordinated basis.
The indenture issued in conjunction with the Senior Notes (the
"Indenture") contains certain covenants, including covenants that limit (i)
indebtedness, (ii) restricted payments, (iii) distributions from restricted
subsidiaries, (iv) transactions with affiliates, (v) sales of assets and
subsidiary stock (including sale and leaseback transactions), (vi) dividends and
other payment restrictions affecting restricted subsidiaries and (vii) mergers
or consolidations.
Property Acquisition. Effective December 31, 1997, the Company acquired
the Amoco Properties located primarily in southern Oklahoma for cash
consideration of approximately $257.5 million and warrants to purchase one
million shares of common stock of the Company at $10.425 per share for a period
of five years valued at $3.4 million. The aggregate purchase price was $267.8
million, including transaction costs of approximately $1.9 million and assumed
liabilities of $5 million. $221 million of the cash consideration was financed
under the Revolving Credit Facility and the remaining $36.5 million was funded
from working capital.
Dividends. While the Company is restricted on the payment of dividends
under the Revolving Credit Facility, dividends are permitted on Company equity
securities provided (i) the Company is not in default under the Revolving Credit
Facility; and (ii) (a) the aggregate sum of the proposed dividend, plus all
other dividends or distributions made since February 8, 1994 do not exceed 50%
of cumulative consolidated net income during the period from January 1, 1994 to
the date of the proposed dividend; or (b) the ratio of total consolidated
indebtedness (excluding accounts payable and accrued liabilities) to
shareholders' equity does not exceed 1.6 to 1 after giving effect to such
proposed dividend or (c) the aggregate amount of the proposed dividend, plus all
other dividends or distributions made since February 8, 1994, do not exceed 100%
of cumulative consolidated net income for the three fiscal years immediately
preceding the date of payment of the proposed dividend. The Indenture will limit
the Company's ability to pay dividends, based on the Company's ability to incur
additional indebtedness and primarily limited to 50% of consolidated net income
earned, excluding any write down of property, plant and equipment after the date
the Senior Notes were issued plus the net proceeds from any future sales of
capital stock of the Company. Although the Company has never paid a dividend on
its Common Stock and has no plan to do so in the foreseeable future, the Company
does not believe that the Revolving Credit Facility or the Indenture imposes an
undue burden on the Company's ability to pay dividends.
Capital Expenditures. During 1997, the Company incurred capital
expenditures of $72.7 million (excluding the acquisition cost of the recently
acquired Oklahoma properties) compared with $52.3 million in 1996. The capital
expenditures incurred during 1997 were largely in connection with the continuing
development efforts, including recompletions, workovers and waterfloods, on
existing wells in the Company's Brookhaven, Laurel, Martinville and Soso fields.
In addition during 1997, the Company drilled 28 wells as follows: four producing
crude oil wells in the Laurel field, three producing crude oil wells and one dry
hole in the Martinville field, two producing crude oil wells in the Soso field,
four producing crude oil wells and one producing natural gas well in the
Brookhaven field, nine producing natural gas wells and two dry holes in the
Monroe field and two producing offshore natural gas wells in the North Padre
field. The Company was in the process of drilling six wells at December 31,
1997: one in the Summerland field, two in the Martinville field and three in the
Brookhaven field.
General and administrative costs directly associated with the Company's
exploration and development activities were $2.5 million and $4.1 million for
the years ended December 31, 1996 and 1997, respectively, and were included in
total capital expenditures.
The Company initially budgeted expenditures of approximately $90 million
to continue the exploration and exploitation of the Company's properties in the
Mississippi salt basin and exploitation of the newly acquired Oklahoma
properties. With the fall in oil prices, during the first quarter the Company
has reviewed its 1998 projects and has
28
<PAGE> 29
decided to postpone approximately $20 million of capital expenditures. Coho is
in a unique position to increase or decrease its capital budget because it
operates and has a high working interest in the majority of its fields.
Management believes that, barring any significant acquisitions or other
unforeseen capital requirements, borrowings under the Revolving Credit Facility
and cash flow from operations will be adequate to fund the anticipated capital
expenditures and working capital needs of the Company through 1998.
Year 2000 Issue. The Company has assessed and continues to assess the
impact of the "year 2000" issue on its reporting systems and operations. The
"year 2000" issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
occurs, date sensitive systems will recognize the year 2000 as 1900 or not at
all. This inability to recognize or properly treat the year 2000 may cause
systems to process critical financial and operational information incorrectly.
The Company projects all computer systems and software will be year 2000
compliant during 1998. Management does not estimate future expenditures related
to the year 2000 exposure to be material.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants ........................................................ 31
Consolidated Balance Sheets, December 31, 1996 and 1997 ......................................... 32
Consolidated Statements of Earnings, Years Ended December 31, 1995, 1996 and 1997 ............... 33
Consolidated Statements of Shareholders' Equity, Years Ended December 31, 1995, 1996 and 1997 ... 34
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997 ............. 35
Notes to Consolidated Financial Statements, Years Ended December 31, 1995, 1996 and 1997 ........ 36
</TABLE>
30
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Coho Energy, Inc.:
We have audited the accompanying consolidated balance sheets of Coho
Energy, Inc. (a Texas corporation) and subsidiaries for the years ended December
31, 1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Coho Energy, Inc.
and subsidiaries for the years ended December 31, 1997 and 1996, and results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Dallas, Texas
March 20, 1998
31
<PAGE> 32
COHO ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents
Account receivable, principally trade ...................................... $ 1,864 $ 3,817
Deferred income taxes ...................................................... 11,884 10,724
Investment in marketable securities ........................................ 913 1,818
Other current assets ....................................................... 1,962 --
995 715
--------- ---------
17,618 17,074
Property and equipment, at cost net of accumulated depletion and
depreciation, based on full cost accounting method (note 3) ................ 210,212 531,409
Other assets ............................................................... 2,211 6,645
--------- ---------
$ 230,041 $ 555,128
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable, principally trade ........................................ $ 5,752 $ 4,888
Accrued liabilities and other payables ..................................... 5,043 14,169
Current portion of long term debt (note 4).................................. 161 38
--------- ---------
10,956 19,095
Long term debt, excluding current portion (note ............................. 122,777 369,924
Deferred income taxes (note 5) .............................................. 14,842 20,306
--------- ---------
148,575 409,325
--------- ---------
Commitments and contingencies (note 9) -- 3,700
Shareholders' equity (note 7)
Preferred stock, par value $0.01 per share Authorized 10,000,000 shares,
none issued................................................................
Common stock, par value $0.01 per share Authorized 50,000,000 shares
Issued 20,347,126 and 25,603,512 shares at December 31, 1996 and 1997,
respectively .............................................................. 203 256
Additional paid-in capital .................................................. 83,516 137,812
Retained earnings (deficit).................................................. (2,253) 4,035
--------- ---------
Total shareholders' equity ............................................. 81,466 142,103
--------- ---------
$ 230,041 $ 555,128
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
<PAGE> 33
COHO ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenues
Crude oil and natural gas production (note 10) ......................... $ 40,903 $ 54,272 $ 63,130
-------- -------- --------
Operating expenses
Crude oil and natural gas production .................................. 10,514 11,277 13,747
Taxes on oil and gas production ....................................... 1,943 2,598 2,223
General and administrative ............................................ 5,400 7,264 7,163
Depletion and depreciation ............................................ 14,717 16,280 19,214
-------- -------- --------
Total operating expenses .......................................... 32,574 37,419 42,347
-------- -------- --------
Operating income (loss) ................................................ 8,329 16,853 20,783
-------- -------- --------
Other income and expenses
Interest and other income ............................................. 92 1,012 646
Interest expense ...................................................... (8,140) (8,476) (11,120)
-------- -------- --------
(8,048) (7,464) (10,474)
-------- -------- --------
Earnings from continuing operations before income taxes ................ 281 9,389 10,309
-------- -------- --------
Income taxes (note 5)
Current (recovery) expense ............................................ 457 (411) 163
Deferred (reduction) expense .......................................... (345) 3,894 3,858
-------- -------- --------
112 3,483 4,021
-------- -------- --------
Net earnings from continuing operations ................................ 169 5,906 6,288
Discontinued operations (note 2)
Income (loss) from discontinued marketing and transportation operations
(less applicable income tax expense (benefit) of $1,384 in 1995) .... 1,611 -- --
-------- -------- --------
Net earnings ........................................................... 1,780 5,906 6,288
Dividends on preferred stock ........................................... (944) -- --
-------- -------- --------
Net earnings applicable to common stock ................................ $ 836 $ 5,906 $ 6,288
======== ======== ========
Basic earnings (loss) from continuing operations per common share ...... $ (.02) $ .29 $ .29
======== ======== ========
Diluted earnings (loss) from continuing operations per common share .... $ (.02) $ .29 $ .28
======== ======== ========
Basic earnings per common share ........................................ $ .05 $ .29 $ .29
======== ======== ========
Diluted earnings per common share ...................................... $ .05 $ .29 $ .28
======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
<PAGE> 34
COHO ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NUMBER OF
COMMON ADDITIONAL RETAINED
SHARES COMMON PAID-IN EARNINGS
OUTSTANDING STOCK CAPITAL (DEFICIT) TOTAL
----------- ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ..................... 16,782,925 $ 168 $ 65,243 $ (8,995) $ 56,416
Issued on
(i) Exchange of preferred stock (note 7)...... 3,225,000 32 16,093 -- 16,125
(ii) Satisfaction of accrued preferred
dividends (note 7) ....................... 157,338 2 942 -- 944
Net earnings .................................... -- -- -- 1,780 1,780
Dividends on preferred stock .................... -- -- -- (944) (944)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 ..................... 20,165,263 202 82,278 (8,159) 74,321
Issued on
(i) Exercise of Employee Stock Options ........ 81,863 -- 414 -- 414
(ii) Acquisition of working interest .......... 100,000 1 824 -- 825
Net earnings ..................................... -- -- -- 5,906 5,906
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ..................... 20,347,126 203 83,516 (2,253) 81,466
Issued on
(i) Exercise of Employee Stock Options ...... 256,386 3 1,733 -- 1,736
(ii) Public offering of common stock ......... 5,000,000 50 49,173 -- 49,223
(iii) Warrants ................................ -- -- 3,390 -- 3,390
Net earnings ..................................... -- -- -- 6,288 6,288
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ..................... 25,603,512 $ 256 $ 137,812 $ 4,035 $ 142,103
========== ========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34
<PAGE> 35
COHO ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings ................................................... $ 1,780 $ 5,906 $ 6,288
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depletion and depreciation ..................................... 15,876 16,280 19,214
Deferred income taxes .......................................... 653 3,894 3,858
Amortization of debt issue costs and other...................... 918 271 591
Changes in:
Accounts receivable............................................. (4,696) (6,983) 1,160
Other assets ................................................... 1,188 (489) (351)
Accounts payable and accrued liabilities ....................... (3,221) 40 4,346
Investment in marketable securities ............................ -- (1,512) 1,962
Deferred income taxes and other current liabilities ............ 337 (560) --
--------- --------- --------
Net cash provided (used) by operating activities ................ 12,835 16,847 37,068
--------- --------- --------
Cash flows from investing activities
Acquisitions ................................................... -- -- (259,355)
Property and equipment ......................................... (29,970) (52,384) (72,667)
Changes in accounts payable and accrued liabilities related to
exploration and development ................................... 986 (902) 3,559
Cash included in net assets of discontinued operations ......... (352) -- --
Proceeds on sale of property and equipment...................... -- 21,476 --
--------- --------- --------
Net cash used in investing activities ........................... (29,336) (31,810) (328,463)
--------- --------- --------
Cash flows from financing activities
Increase in long term debt ..................................... 19,140 52,600 402,894
Debt issuance costs ............................................ -- -- (4,275)
Repayment of long term debt .................................... (1,822) (37,617) (155,989)
Increase in gas storage loan ................................... 4,000 -- --
Repayment of gas storage loan .................................. (5,000) -- --
Proceeds from exercised stock options .......................... -- 414 1,495
Issuance of common stock ....................................... -- -- 49,223
--------- --------- --------
Net cash provided by financing activities ....................... 16,318 15,397 293,348
--------- --------- --------
Net increase (decrease) in cash and cash equivalents ............ (183) 434 1,953
Cash and cash equivalents at beginning of year .................. 1,613 1,430 1,864
--------- --------- --------
Cash and cash equivalents at end of year ........................ $ 1,430 $ 1,864 $ 3,817
========= ========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
35
<PAGE> 36
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(TABULAR AMOUNTS ARE IN THOUSANDS OF DOLLARS EXCEPT WHERE NOTED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Coho Energy, Inc. ("CEI") was incorporated in June 1993 as a Texas
corporation and conducts a majority of its operations through its subsidiary,
Coho Resources, Inc. ("CRI"), and its subsidiaries (collectively the "Company").
Prior to September 29, 1993, CRI was a publicly held company of which Coho
Resources Limited, a publicly held Alberta, Canada Company ("CRL"), held a 68%
ownership interest. As a result of the reorganization effective on September 29,
1993 (the "1993 Reorganization"), CRI and CRL became wholly-owned subsidiaries
of CEI.
Principles of Presentation
These consolidated financial statements have been prepared in conformity
with generally accepted accounting principles as presently established in the
United States and include the accounts of CEI as successor to CRI, and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to the prior year
statements to conform with the current year presentation.
Substantially all of the Company's exploration, development and
production activities are conducted in the United States and Tunisia jointly
with others and, accordingly, the financial statements reflect only the
Company's proportionate interest in such activities.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and highly liquid debt instruments purchased with an original maturity of
three months or less.
Marketable Securities
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Instruments in Debt and Equity Securities", the Company
has classified all equity securities as trading securities and adjusted such
securities to market value at the end of each period. Unrealized gains and
losses on trading securities are reported in earnings. Trading securities, as of
December 31, 1996, had a fair value of $1,962,000 and gross unrealized gains of
$722,000.
Crude Oil and Natural Gas Properties
The Company's crude oil and natural gas producing activities,
substantially all of which are in the United States, are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all costs
incurred in connection with the acquisition of crude oil and natural gas
properties and with the exploration for and development of crude oil and natural
gas reserves, including related gathering facilities. All internal corporate
costs relating to crude oil and natural gas producing activities are expensed as
incurred. Proceeds from disposition of crude oil and natural gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such dispositions involve a significant alteration in the
depletion rate in which case the gain or loss is recognized.
Depletion of crude oil and natural gas properties is provided using the
equivalent unit-of-production method based upon estimates of proved crude oil
and natural gas reserves and production which are converted to a common unit of
measure based upon their relative energy content. Unproved crude oil and natural
gas properties are not amortized but are individually assessed for impairment.
The costs of any impaired properties are transferred to the balance of crude
36
<PAGE> 37
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
oil and natural gas properties being depleted. Estimated future site restoration
and abandonment costs are charged to earnings at the rate of depletion of proved
crude oil and natural gas reserves and are included in accumulated depletion and
depreciation.
In accordance with the full cost method of accounting, the net
capitalized costs of crude oil and natural gas properties as well as estimated
future development, site restoration and abandonment costs are not to exceed
their related estimated future net revenues discounted at 10%, net of tax
considerations, plus the lower of cost or estimated fair value of unproved
properties.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
During fiscal year 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived-Assets To Be Disposed
Of." The Company has no assets which meet the requirement for impairment.
Other Assets
Other assets generally include deferred financing charges which are
amortized over the term of the related financing under the straight line method.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations to
account for stock-based compensation. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
Earnings Per Common Share
The Company accounts for earnings per share ("EPS") in accordance with
FASB-Statement No. 128 "Earnings Per Share." Under Statement 128, no dilution
for any potentially dilutive securities is included for basic EPS. Diluted EPS
are based upon the weighted average number of common shares outstanding
including common shares plus, when their effect is dilutive, common stock
equivalents consisting of stock options and warrants. Previously reported EPS
were equivalent to the diluted EPS calculated under Statement 128.
37
<PAGE> 38
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------- ---------------------------- ---------------------------
Income Common Income Common Income Common
(in 000's) Shares EPS (in 000's) Shares EPS (in 000's) Shares EPS
---------- ---------- --- ---------- ---------- ---- ---------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings $ 1,780 $ 5,906 $ 6,288
Less preferred dividend (944) -- --
------- ------- -------
BASIC EARNINGS PER SHARE 836 17,931,933 $.05 5,906 20,178,917 $.29 6,288 21,692,804 $.29
==== ==== ====
Stock Options 162,651 641,099
------- ---------- ---- ------- ---------- ---- ------- ---------- ----
DILUTED EARNINGS PER SHARE $ 836 17,931,933 $.05 $ 5,906 20,341,568 $.29 $ 6,288 22,333,903 $.28
======= ========== ==== ======= ========== ==== ======= ========== ====
</TABLE>
Basic EPS were computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted EPS were
calculated based upon the weighted number of common shares outstanding during
the year including common stock equivalents, consisting of stock options for the
three years and warrants for 1997, when their effect is dilutive. In 1995,
conversion of the stock options would have been anti-dilutive and, therefore,
was not considered in diluted EPS. In 1997, conversion of the warrants would
have been anti-dilutive and, therefore, was not considered in diluted EPS.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Hedging Activities
Periodically, the Company enters into futures contracts which are
traded on the stock exchanges in order to fix the price on a portion of its
crude oil and natural gas production. Changes in the market value of crude oil
and natural gas futures contracts are reported as an adjustment to revenues in
the period in which the hedged production or inventory is sold. The gain or loss
on the Company's hedging transactions is determined as the difference between
the contract price and a reference price, generally closing prices on the New
York Mercantile Exchange.
Revenue Recognition Policy
Revenues generally are recorded when products have been delivered and
services have been performed.
Environmental Expenditures
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures which improve the condition
of a property as compared to the condition when originally constructed or
acquired or prevent environmental contamination are capitalized. Expenditures
which relate to an existing condition caused by past operations, and do not
contribute to future operations, are expensed. The Company accrues remediation
costs when environmental assessments and/or remedial efforts are probable and
the cost can be reasonably estimated.
38
<PAGE> 39
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Business Segments
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 "Disclosure about Segments of an
Enterprise and Related Information", which requires information to be reported
in segments. The Company currently operates in a single reportable segment,
therefore, no additional disclosure will be required.
2. DISCONTINUED OPERATIONS
On April 3, 1996, the Company's wholly owned subsidiary, Interstate
Natural Gas Company ("ING"), sold the stock of three wholly owned subsidiaries
that comprised its natural gas marketing and transportation segment to an
unrelated third party for cash of $19.5 million, the assumption of net
liabilities of approximately $2.3 million and the payment of taxes of $1.2
million generated as a result of the tax treatment of the transaction. The
marketing and transportation segment is accounted for as discontinued
operations, and accordingly, its operations are segregated in the accompanying
statements of operations.
Revenues of the marketing and transportation segment were $71,773,000
for 1995. Certain expenses have been allocated to discontinued operations,
including interest expense, which was allocated on the ratio of net assets
discontinued to the total net assets acquired from ING applied to the $20
million of cash borrowed to acquire ING.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31
-------------------------
1996 1997
--------- ---------
<S> <C> <C>
Crude oil and natural gas leases and rights including exploration,
development and equipment thereon, at cost ................... $ 328,836 $ 669,247
Accumulated depletion and depreciation ........................... (118,624) (137,838)
--------- ---------
$ 210,212 $ 531,409
========= =========
</TABLE>
Overhead expenditures directly associated with exploration for and
development of crude oil and natural gas reserves have been capitalized in
accordance with the accounting policies of the Company. Such charges totalled
$1,788,000, $2,452,000 and $4,081,000 in 1995, 1996 and 1997, respectively.
During 1995, 1996 and 1997, the Company did not capitalize any interest
or other financing charges on funds borrowed to finance unproved properties or
major development projects.
Unproved crude oil and natural gas properties totalling $8,284,000 and
$82,872,000 (including $70,000,000 for the recently acquired Oklahoma
properties) at December 31, 1996 and 1997, respectively, have been excluded from
costs subject to depletion. These costs are anticipated to be included in costs
subject to depletion within the next five years.
Depletion and depreciation expense per equivalent barrel of production
was $4.38, $4.55 and $4.69 in 1995, 1996 and 1997, respectively.
39
<PAGE> 40
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Revolving credit facility ...................................... $ 120,500 $ 221,000
8 7/8% Senior Subordinated Notes Due 2007 ...................... -- 150,000
Promissory notes ............................................... 2,323 --
Other ......................................................... 234 68
--------- ---------
123,057 371,068
Unamortized original issue discount on senior subordinated
notes......................................................... -- (1,106)
Unamortized discount on promissory notes ....................... (119) --
Current maturities on long term debt ........................... (161) (38)
--------- ---------
$ 122,777 $ 369,924
========= =========
</TABLE>
Revolving Credit Facility
In August 1992, the Company established a revolving credit and term loan
facility with a group of international and domestic financial institutions. The
agreement, as amended and restated ("the Restated Credit Agreement"), provides a
maximum commitment amount available to the Company ("Borrowing Base") of $300
million for general corporate purposes. Outstanding advances as of December 31,
1997, were $221 million, leaving $79 million in available borrowing under the
credit facility for general corporate purposes. The Restated Credit Agreement,
which permits advances and repayments, terminates January 2, 2003. The repayment
of all advances is guaranteed by Coho Energy, Inc. and outstanding advances are
secured by substantially all of the assets of the Company.
Loans under the Restated Credit Agreement bear interest, at the option of
the Company, at the bank prime rate or a Eurodollar rate plus a maximum of 1.5%
(currently 1.5%) and are secured by a lien on substantially all of the Company's
crude oil and natural gas properties and the capital stock of the Company's
wholly owned subsidiaries. If the outstanding amount of the loan exceeds the
Borrowing Base at any time, the Company is required to either provide collateral
with value equal to such excess or prepay the principal amount of the notes
equal to such excess in five (5) equal monthly installments provided the entire
excess shall be paid prior to the immediately succeeding redetermination date.
The fee on the portion of the unused credit facility is .375% per annum. The
commitment fee applicable to increases from time to time in the Borrowing Base
is .375% of the incremental Borrowing Base amount.
The Restated Credit Agreement contains certain financial and other
covenants including (i) the maintenance of minimum amounts of shareholder's
equity, (ii) maintenance of minimum ratios of cash flow to interest expense as
well as current assets to current liabilities, (iii) limitations on the
Company's and CRI's ability to incur additional debt, and (iv) restrictions on
the payment of dividends.
8 7/8% Senior Subordinated Notes
On October 3, 1997, the Company completed a sale to the public of $150
million of 8 7/8% Senior Subordinated Notes due 2007 ("Senior Notes"). Proceeds
of the offering, net of offering costs, were approximately $144.5 million. The
proceeds from this offering, together with the proceeds from the common stock
offering discussed in Note 7, were used to repay indebtedness outstanding under
the Restated Credit Agreement and for general corporate purposes.
The Senior Notes are unsecured senior subordinated obligations of the
Company and rank pari passu in right of payment with all existing and future
senior subordinated indebtedness of the Company. The Senior Notes mature on
October 15, 2007 and bear interest from October 3, 1997 at the rate of 8 7/8%
per annum payable semi-annually, commencing on April 15, 1998. Certain
subsidiaries of the Company issued guarantees of the Senior Notes on a senior
subordinated basis.
40
<PAGE> 41
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Indenture issued in conjunction with the Senior Notes (the
"Indenture") contains certain covenants, including covenants that limit (i)
indebtedness, (ii) restricted payments, (iii) distributions from restricted
subsidiaries, (iv) transactions with affiliates, (v) sales of assets and
subsidiary stock (including sale and leaseback transactions), (vi) dividends and
other payment restrictions affecting restricted subsidiaries and (vii) mergers
or consolidations.
Promissory Notes
In August 1995, the Company entered into noninterest bearing promissory
notes aggregating $4.2 million ($3.8 million net of discount based on an imputed
interest rate of 8.13%) which were paid in two installments of $1.9 million in
August 1996 and $2.3 million in August 1997 in connection with the Brookhaven
Acquisition (Note 6).
Debt Repayments
Based on the balances outstanding and current terms under the Restated
Credit Agreement and the Senior Notes indenture, estimated aggregate principal
repayments for each of the next five years are as follows: ; 1998 - $52,000;
1999 - $16,000; 2000- $0; 2001 - $0; 2002 - $0 and $371,000,000 thereafter.
5. INCOME TAXES
Deferred income taxes are recorded based upon differences between
financial statement and income tax basis of assets and liabilities. The tax
effects of these differences which give rise to deferred income tax assets and
liabilities at December 31, 1996 and 1997, were as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards...................... $ 26,087 $ 25,176
Alternative minimum tax credit carryforwards.......... 1,866 1,095
Employee benefits..................................... 46 565
Other................................................. (46) 165
Total gross deferred tax assets....................... ---------- ---------
27,953 27,001
Less valuation allowance.............................. (4,150) (4,594)
---------- ---------
Net deferred tax assets............................... 23,803 22,407
---------- ---------
DEFERRED TAX LIABILITIES
Property and equipment, due to differences in
depletion and depreciation........................ 37,732 40,895
---------- ---------
NET DEFERRED TAX LIABILITY................................ $ 13,929 $ 18,488
========== =========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1996
and 1997 includes $2,052,000 and $2,051,000, respectively, related to Canadian
deferred tax assets.
To determine the amount of net deferred tax liability it is assumed no
future capital expenditures will be incurred other than the estimated
expenditures to develop the Company's proved undeveloped reserves.
41
<PAGE> 42
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table reconciles the differences between recorded income
tax expense and the expected income tax expense obtained by applying the basic
tax rate to earnings (loss) before income taxes:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Earnings (loss) before income taxes from continuing
operations.................................................. $ 281 $ 9,389 $ 10,309
======== ======== ========
Expected income tax expense (recovery) (statutory
rate - 34%)................................................ $ 95 $ 3,192 $ 3,505
State taxes - deferred ....................................... 232 (353) 552
Federal benefit of state taxes ............................... (78) 120 (188)
Change in valuation allowance ................................ (168) 471 444
Other ........................................................ 31 53 (293)
-------- -------- --------
$ 112 $ 3,483 $ 4,020
======== ======== ========
</TABLE>
At December 31, 1997, the Company had the following income tax
carryforwards available to reduce future years' income for tax purposes:
<TABLE>
<CAPTION>
Expires Amount
------- ------
<S> <C> <C>
Net operating loss carryforwards for federal income tax purposes ...................... 1998 $ 5,043
1999 1,727
2000 4,253
2001 3,016
2002 211
2003-2011 49,252
--------
$ 63,502
========
Operating loss carryforwards for Canadian income tax purposes ......................... 1999-2003 $ 4,046
========
Operating loss carryforwards for federal alternative minimum tax
purposes .......................................................................... 2009-2010 $ 12,832
========
Federal alternative minimum tax credit carryforwards .................................. -- $ 1,095
========
Operating loss carryforwards for Mississippi income tax purposes ...................... 2010-2012 $ 14,440
========
Operating loss carryforwards for Louisiana income tax purposes ........................ 2004-2012 $ 10,161
========
</TABLE>
6. ACQUISITIONS
Effective December 31, 1997, the Company acquired from Amoco Production
Company ("Amoco") interests in certain crude oil and natural gas properties
("Amoco Properties") located primarily in southern Oklahoma for cash
consideration of approximately $257.5 million and warrants to purchase one
million shares of common stock at $10.425 per share for a period of five years
valued at $3.4 million. The Amoco Properties are in more than 25,000 gross acres
concentrated in southern Oklahoma, including 14 major producing oil fields. The
aggregate purchase price was $267.8 million, including transaction costs of
approximately $1.9 million and assumed liabilities of $5 million. Investing
activities in the cash flow statement for the year ended December 31, 1997
related to this acquisition, exclude the noncash portions of the purchase price
of $3.4 million attributable to the warrants and $5 million for assumed
liabilities.
The following unaudited proforma information of the Company for the
years ended December 31, 1996 and 1997 have been prepared assuming the
acquisition of the Amoco Properties occurred on January 1, 1996. Such proforma
42
<PAGE> 43
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
information is not necessarily indicative of what actually could have occurred
had the acquisition taken place on January 1, 1996 or 1997.
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Revenues ................................... $ 99,150 $ 109,428
Net earnings ............................... 6,167 6,422
Basic earnings per share ................... .31 .30
Diluted earnings per share ................. .30 .29
</TABLE>
On August 18, 1995, the Company acquired from a third party approximately
93% of the working interests in a unitized oil field containing 11 active wells
and 159 inactive wells located in the Brookhaven field in Mississippi (the
"Brookhaven Acquisition"). The total cost of the acquisition was $5.6 million in
cash as follows: $1.4 million paid on the acquisition date; $1.9 million due in
August 1996 and $2.3 million due in August 1997. The net cost was $5.1 million
net of discount based on an imputed interest rate of 8.13% for the promissory
notes due in 1996 and 1997. Only the $1.4 million cash portion of the
acquisition cost is reflected in the consolidated statement of cash flows for
the year ended December 31, 1995 (the year of acquisition).
7. SHAREHOLDERS' EQUITY
On October 3, 1997, the Company completed the sale to the public of
5,000,000 shares of common stock at $10.50 per share. Proceeds of the offering,
net of offering costs, were approximately $49.2 million. The proceeds from this
offering, together with the proceeds from the Senior Notes offering discussed in
Note 4, were used to repay indebtedness outstanding under the Company's Restated
Credit Agreement and for general corporate purposes.
In December 1997, the Company issued warrants, valued at $3,390,000, to
purchase one million shares of common stock at $10.425 per share for a period of
five years to Amoco Production Company as partial consideration for the purchase
of certain crude oil and natural gas properties discussed in Note 6.
In December 1996, the Company issued 100,000 shares of common stock,
valued at approximately $825,000, to Churchill Resource Investments Inc. as
consideration for the purchase of interest in certain crude oil properties.
The redeemable preferred stock issued in connection with the acquisition
of ING in 1994 was non-voting and entitled to receive cumulative quarterly
dividends at a coupon rate equal to the prime lending rate per annum (8.5% for
the first quarter of 1995 and 9% for the second and third quarters of 1995). If
the preferred stock were not redeemed by September 4, 1995, the coupon rate
increased 1/2% per quarter to a maximum rate of 18% per annum. On August 30,
1995, the Company exchanged 3,225,000 shares of Common Stock for the 161,250
shares of Series A Preferred Stock with a stated value of $16,125,000 and issued
157,338 shares of Common Stock to the holders of the preferred stock to satisfy
the accrued dividend obligation through August 30, 1995 of $944,000. These
noncash transactions are not reflected in the consolidated statement of cash
flows for the year ended December 31, 1995.
8. STOCK-BASED COMPENSATION
Options to purchase the Company's common stock have been granted to
officers, directors and key employees pursuant to the Company's 1993 Stock
Option Plan and 1993 Non Employee Director Stock Option Plan, or assumed from
the Company's subsidiaries in the 1993 Reorganization. The stock option plans
provide for the issuance of five year options with a three year vesting period
and a grant price equal to or above market value. Some exceptions have been made
to provide immediate or shortened vesting periods as approved by the Company's
board of directors. On December 2, 1997, the Company granted, subject to
shareholder approval, 407,500 stock options which will be voted on May 12,
43
<PAGE> 44
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1998 and are included in 1997 granted shares. A summary of the status of the
Company's stock option plans at December 31, 1995, 1996 and 1997 and changes
during the years then ended follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 ......... 1,533,813 5.63 1,700,313 5.56 1,815,784 5.55
Granted ...................... 166,500 4.98 202,000 5.19 1,286,000 8.73
Exercised .................... -- -- (81,863) 5.05 (256,386) 5.82
Canceled ..................... -- -- (4,666) 5.43 (21,583) 6.50
---------- ---- --------- ---- --------- ----
Outstanding at December 31........ 1,700,313 5.56 1,815,784 5.55 2,823,815 6.96
---------- ---- --------- ---- --------- ----
Exercisable at December 31........ 1,048,402 5.75 1,390,118 5.69 2,250,903 6.31
Available for grant at
December 31 .................. 39,670 118,836 36,419
</TABLE>
Significant option groups outstanding at December 31, 1997 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
WTD AVG
OPTIONS OPTIONS EXERCISE REMAINING
GRANT DATE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
---------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
December 2, 1997 .............................. 410,000 2,500 $ 10.50 7
August 22, 1997 ............................... 16,000 -- 9.38 7
May 12, 1997 .................................. 8,000 -- 8.13 5
March 3, 1997 ................................. 836,000 745,750 7.88 4
June 13, 1996 ................................. 12,000 12,000 6.63 4
February 22, 1996.............................. 150,000 150,000 5.13 5
January 8, 1996 ............................... 40,000 13,333 5.00 5
September 25, 1995............................. 50,000 50,000 5.00 4
September 12 ,1995............................. 38,666 25,003 5.00 5
August 3, 1995 ................................ 24,000 24,000 4.88 4
April 14, 1995 ................................ 32,500 21,668 5.00 4
December 4, 1994 .............................. 105,000 105,000 5.01 5
November 10, 1994.............................. 240,000 240,000 5.00 4
June 7, 1994 .................................. 79,883 79,883 5.49 3
March 28, 1994 ................................ 5,000 5,000 4.50 2
October 22, 1993 .............................. 378,089 378,089 6.00 3
September 29, 1993............................. 105,067 105,067 6.84 2
November 18, 1992.............................. 6,667 6,667 5.25 2
October 19, 1992 .............................. 286,943 286,943 5.52 2
</TABLE>
44
<PAGE> 45
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The weighted average fair value at date for options granted during 1995,
1996 and 1997 was $2.25, $2.21 and $4.02 per option, respectively. The fair
value of options at date of grant was estimated using the Black-Scholes model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Expected life (years).............. 5 5 5
Interest rate...................... 6.28% 5.37% 6.44%
Volatility......................... 43.43% 38.79% 43.76%
Dividend yield..................... --- --- ---
</TABLE>
Had compensation cost for these plans been determined consistent with
FASB Statement No. 123 "Accounting for Stock-Based Compensation", the Company's
pro forma net income and earnings per share from continuing operations would
have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) As reported.................................... $ 169 $ 5,906 $6,288
Pro forma.................................... $ (67) $ 5,625 $4,385
Basic earnings (loss) per share As reported................................... $ .01 $ .29 $ .29
Pro forma.................................... $ --- $ .27 $ .20
Diluted earnings (loss) per share As reported................................... $. 01 $ .29 $ .28
Pro forma..................................... $ --- $ .27 $ .20
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
(a) In July, 1994, the Company, together with several other companies,
was named as a defendant in a lawsuit filed in Jones County, Mississippi. The
lawsuit, involves claims by a landowner for purported damages caused by
naturally occurring radioactive materials ("NORM") at various wellsite locations
on land leased by the Company in Mississippi. The plaintiff is seeking
significant compensatory and punitive damages, including damages for "emotional
distress." This lawsuit has been dormant for two years and the land involved has
been remediated.
Additionally, in 1996 and 1997, the Company, together with several other
companies, was named as a defendant in a number of lawsuits of the same nature
as the July, 1994 lawsuit. All of the suits are principally identical and seek
damages for land damage, health hazard, mental and emotional distress, etc. None
of the suits seek specific award amounts, but all seek punitive damages.
In connection with the acquisition of the Amoco Properties on December
18, 1997, the Company assumed the responsibility for costs and expenses
associated with the assessment, remediation, removal, transportation and
disposal of the asbestos or NORM associated with the Amoco Properties.
Additionally, the Company is responsible for all other environmental claims up
to approximately $10.3 million and all environmental claims not identified and
presented to Amoco by December 18, 1998. The Company is not currently aware of
any such claims and is performing due diligence to identify all potential
environmental claims.
While the Company is not able to determine its exposure in the remaining
suits at this time, the Company believes that the claims will have no material
adverse effect on its financial position or results of operations.
The Company is involved in various other legal actions arising in the
ordinary course of business. While it is not feasible to predict the ultimate
outcome of these actions or those listed above, management believes that the
resolution of these matters will not have a material adverse effect, either
individually or in the aggregate, on the Company's financial
45
<PAGE> 46
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
position or results of operations. The Company has accrued $5 million, including
$1.3 million which has been reflected in current accrued liabilities, for future
remediation costs.
(b) The Company has leased (i) 38,568 square feet of office space in
Dallas, Texas under a non-cancellable lease extending through October 2000, (ii)
5,000 square feet of office space in Laurel, Mississippi under a non-cancellable
lease extending through June 2000, and (iii) various vehicles under
non-cancellable leases extending through February 2000. Rental expense totalled
$487,000, $694,000 and $799,000 in 1995, 1996 and 1997, respectively. Minimum
rentals payable under these leases for each of the next five years are as
follows: 1998 - $784,000; 1999 - $706,000; 2000 - $564,000; 2001 - $0 and 2002
- -$0. Total rentals payable over the remaining terms of the leases are
$2,054,000.
(c) Like other crude oil and natural gas producers, the Company's
operations are subject to extensive and rapidly changing federal, state and
local environmental regulations governing emissions into the atmosphere, waste
water discharges, solid and hazardous waste management activities, noise levels
and site restoration and abandonment activities. The Company's policy is to make
a provision for future site restoration charges on a unit-of-production basis.
Total future site restoration costs are estimated to be $6,000,000, including
the Oklahoma properties but excluding the Monroe gas field discussed below. A
total of $1,061,000 has been included in depletion and depreciation expense with
respect to such costs as of December 31, 1997.
Certain governmental agencies are presently studying whether the oil and
gas industry's practice of utilizing mercury meters poses any potential
environmental problems that require more stringent regulation. Operators in the
Monroe Field have been asked to monitor their operations and assist in gathering
data. During 1995, the Company voluntarily negotiated a remediation plan with
the governmental agencies responsible for the two wildlife refuges in the Monroe
Field. Under the plan, the Company began removal of the mercury meters within
the two wildlife refuges in 1996. The Company continues to cooperate with the
various agencies in their studies. At this time, the Company believes that minor
mercury spillages and leaks may have occurred in the past. However, the Company
believes that such spillages and leaks are less than the amounts reportable
under prior or existing statutes and laws. The Company makes a provision for
future site restoration charges on a unit-of-production basis for the Monroe
field gas which is included in depletion and depreciation expense; a total of
$1,030,000 has been included in depletion and depreciation expense with respect
to such costs as of December 31, 1997.
(d) The Company has entered into employment agreements with certain of
its officers. In addition to base salary and participation in employee benefit
plans offered by the Company, these employment agreements generally provide for
a severance payment in an amount equal to two times the rate of total annual
compensation of the officer in the event the officer's employment is terminated
for other than cause. If the officer's employment is terminated for other than
cause following a change in control in the Company, the officer generally is
entitled to a severance payment in the amount of 2.99 times the rate of total
annual compensation of the officer.
The officers' aggregate base salary and bonus portion of total annual
compensation covered under such employment agreements is approximately $1.3
million.
(e) The Company has entered into executive severance agreements with its
other officers which are designed to encourage executive officers to continue to
carry out their duties with the Company in the event of a change in control of
the Company. In the event of the officer's employment is terminated for other
than cause following a change of control, these severance agreements generally
provide for a severance payment in an amount equal to 1.5 times the highest
salary plus bonus paid to such officer in any of the five years preceding the
year of termination.
The highest salary plus bonus paid to the officers covered under such
severance agreements during the preceding five year period would aggregate
approximately $876.000.
46
<PAGE> 47
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(f) In conjunction with the acquisition of the Amoco Properties, the
acquisition of ING and the 1993 reorganization (Note 1), the Company has granted
certain persons the right to require the Company, at its expense, to register
their shares under the Securities Act of 1933. These registration rights may be
exercised on up to 4 occasions. The number of shares of Common Stock subject to
registration rights as of December 31, 1997, is approximately 3,324,287.
10. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
Financial instruments which are potentially subject to concentrations of
credit risk consist principally of cash, cash equivalents and accounts
receivable. Cash and cash equivalents are placed with high credit quality
financial institutions to minimize risk. The carrying amounts of these
instruments approximate fair value because of their short maturities. The
Company has entered into certain financial arrangements which act as a hedge
against price fluctuations in future crude oil and natural gas production.
Included in operating revenues are gains (losses) of $441,000, $(5,908,000) and
$(232,000) for 1995, 1996 and 1997, respectively, resulting from these hedging
programs. At December 31, 1997, the Company has 10,000 Mmbtu per day of natural
gas production hedged over the period from January through March 1998, at a
minimum price of $2.70 per Mmbtu and a maximum price of $3.28 per Mmbtu. In
March 1998, the Company hedged an additional 15,000 Mmbtu per day of natural gas
production over the period from April through August 1998, at a minimum price of
$2.00 per Mmbtu and a maximum price of $2.54 per Mmbtu.
The stated value of long term debt approximates fair market value since
the interest applicable to each instrument approximates market rates.
During the years ended December 31, 1996 and 1997, EOTT Energy Corp.
("EOTT") accounted for 66% and 75%, respectively, of Coho's receipt of operating
revenues, and Mid Louisiana Marketing Company (formerly a wholly owned
subsidiary sold on April 3, 1996 - see Note 2), accounted for 15% and 21%,
respectively, of Coho's receipt of operating revenues. In 1995, Amerada Hess
Corporation ("Amerada") accounted for 66% of Coho's receipt of operating
revenues. Included in accounts receivable is $2,691,000, $7,222,491 and
$2,969,000 due from these customers at December 31, 1995, 1996 and 1997,
respectively.
11. RELATED PARTY TRANSACTIONS
(a) Corporations controlled by certain directors and shareholders of the
Company have participated with the Company in certain crude oil and natural gas
joint ventures on the same terms and conditions as other industry partners.
These transactions are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Campco International Capital Ltd. (i)
Net crude oil and natural gas revenues............ $ 219 $ 243 $ 255
Capital expenditures ............................ 77 101 173
Payable to (receivable from) CRI at the balance
sheet date....................................... (3) (22) 16
</TABLE>
(i) Campco International Capital Ltd. is a private company controlled by
Frederick K. Campbell, a director of the Company.
(b) In 1990, the Company made a non-interest bearing loan in the amount
of $205,000 to Jeffrey Clarke, President, Chief Executive Officer and Director
of the Company, to assist him in the purchase of a house in Dallas. The loan is
unsecured, is repayable on the date Mr. Clarke ceases employment with the
Company and is included in other assets at December 31, 1997.
47
<PAGE> 48
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(c) Pursuant to the equity offering, the Company's officers and
directors were precluded from selling stock for a 90 day period beginning
October 3, 1997 (the "Lock Up Period"). On October 6, 1997, the Company made
non-interest bearing loans of $622,111, payable on demand, to certain officers
and a director. The loans were made to provide assistance in acquiring stock
upon exercise of expiring stock options during the Lock Up Period.
(d) Certain of the Company's hedging agreements are with an affiliate of
the Company, Morgan Stanley Capital Group, which owned over 10% of the Company's
outstanding common stock until October 3, 1997, when it's ownership dropped to
5.3% as a result of the equity offering discussed in Note 7. Management of the
Company believes that such transactions are on similar terms as could be
obtained from unrelated third parties.
12. CASH FLOW INFORMATION
Supplemental cash flow information is presented below:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash paid (received) during the period
Interest...................................... $ 7,574 $ 8,259 $ 7,774
Income taxes.................................. $ (1,131) $ 478 $ 603
</TABLE>
13. CANADIAN ACCOUNTING PRINCIPLES
These financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") as presently established in
the United States. These principles differ in certain respects from those
applicable in Canada. These differences would have affected net earnings (loss)
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1995 1996 1997
---------- --------- -----------
<S> <C> <C> <C>
Net earnings (loss) based on US GAAP...................................... $ 1,780 $ 5,096 $ 6,288
Adjustment to depletion based on difference in carrying value of oil and
gas properties related to:
ING acquisition (i)................................................... 576 556 562
Business combination with Odyssey Exploration, Inc. in 1990........... (198) (178) (168)
Application of Canadian full cost ceiling test........................ (535) (482) (455)
Deferred tax effect of adjustment above .................................. 53 35 21
--------- --------- -------
Net earnings (loss) based on Canadian GAAP ............................... $ 1,676 $ 5,027 $ 6,248
========= ========= =======
Net earnings (loss) per common share based on Canadian GAAP .............. $ 0.09 $ 0.25 $ 0.29
========= ========= =======
</TABLE>
- -------------
(i) Under FAS 109 in the United States, the Company was required to increase
deferred income taxes and property and equipment by $8,355,000 for the
deferred tax effect of the excess of the Company's tax basis of the stock
acquired in the ING acquisition over the tax basis of the net assets of
ING acquired (Note 6). Under Canadian GAAP this adjustment is not
required.
48
<PAGE> 49
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effect on the consolidated balance sheets of the differences between
United States and Canadian GAAP is as follows:
<TABLE>
<CAPTION>
Under
As Increase Canadian
Reported (Decrease) GAAP
-------- -------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1997
Property and Equipment................................ $531,409 $ 2,131 $533,540
Deferred Income Taxes................................. 20,306 (4,790) 15,516
Long Term Debt........................................ 369,924 (1,106) 368,818
Deferred Charges...................................... --- 1,106 1,106
Shareholder's Equity.................................. 142,103 6,921 149,024
DECEMBER 31, 1996
Property and Equipment................................ $210,212 $ 2,191 $212,403
Deferred Income Taxes................................. 14,842 (4,769) 10,073
Shareholder's Equity.................................. 81,466 6,961 88,427
</TABLE>
14. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1997
Operating revenues ........................... $ 15,536 $ 13,985 $ 15,985 $ 17,624 $ 63,130
Operating income ............................. 5,604 4,151 4,990 6,038 20,783
Net earnings ................................. 2,104 1,081 1,401 1,702 6,288
Basic earnings per share ..................... $ 0.10 $ 0.05 $ 0.07 $ 0.07 $ 0.29
Diluted earnings per share ................... $ 0.10 $ 0.05 $ 0.07 $ 0.06 $ 0.28
1996
Operating revenues ........................... $ 12,367 $ 12,938 $ 13,552 $ 15,415 $ 54,272
Operating income ............................. 3,576 3,738 4,182 5,357 16,853
Net earnings ................................. 1,035 1,103 1,326 2,442 5,906
Basic earnings per share ..................... $ 0.05 $ 0.06 $ 0.06 $ 0.12 $ 0.29
Diluted earnings per share ...................... $ 0.05 $ 0.06 $ 0.06 $ 0.12 $ 0.29
1995
Operating revenues ........................... $ 9,402 $ 10,000 $ 10,418 $ 11,083 $ 40,903
Operating income ............................. 1,574 1,321 1,913 3,521 8,329
Income (loss) from continuing operations ..... (140) (361) (147) 817 169
Income (loss) from discontinued operations.... 317 26 113 1,155 1,611
Net earnings (loss) .......................... 177 (335) (34) 1,972 1,780
Basic earnings (loss) per share:
Continuing operations ..................... $ (0.02) $ (0.03) $ (0.02) $ 0.04 $ (0.02)
Discontinued operations ................... 0.01 (0.01) 0.00 0.06 0.07
-------- -------- -------- -------- --------
Net income (loss) per share ............... $ (0.01) $ (0.04) $ (0.02) $ 0.10 $ 0.05
======== ======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations ..................... $ (0.02) $ (0.03) $ (0.02) $ 0.04 $ (0.02)
Discontinued operations ................... 0.01 (0.01) 0.00 0.06 0.07
-------- -------- -------- -------- --------
Net income (loss) per share ............... $ (0.01) $ (0.04) $ (0.02) $ 0.10 $ 0.05
======== ======== ======== ======== ========
</TABLE>
49
<PAGE> 50
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Basic per share figures are computed based on the weighted average number
of shares outstanding for each period shown. Diluted per share figures are
computed based on the weighted average number of shares outstanding including
common stock equivalents, consisting of stock options and warrants, when their
effect is dilutive.
15. SUPPLEMENTARY INFORMATION RELATED TO OIL AND GAS ACTIVITIES
(a) COSTS INCURRED
Costs incurred for property acquisition, exploration and development
activities were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Property acquisitions
Proved ............................................ $ 7,294 $ 1,139 $ 199,485
Unproved .......................................... 2,253 986 73,281
Exploration ........................................... 3,378 6,528 13,374
Development ........................................... 19,194 41,091 53,542
Other.................................................. 677 894 729
--------- --------- ---------
$ 32,796 $ 50,638 $ 340,411
========= ========= =========
Property and equipment, net of accumulated depletion... $ 175,899 $ 210,212 $ 531,409
========= ========= =========
</TABLE>
50
<PAGE> 51
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) Quantities of Oil and Gas Reserves (Unaudited)
The following table presents estimates of the Company's proved reserves,
all of which have been prepared by the Company's engineers and evaluated by
independent petroleum consultants. Substantially all of the Company's crude oil
and natural gas activities are conducted in the United States.
<TABLE>
<CAPTION>
Reserve Quantities
--------------------
Oil Gas
(Mbbls) (Mmcf)
------- ----------
<S> <C> <C>
Estimated reserves at December 31, 1994 ........... 27,515 100,117
Revisions of previous estimates ................... (599) 14,639
Purchase of reserves in place ..................... 1,786 9
Extensions and discoveries ........................ 4,274 200
Production ........................................ (2,178) (7,093)
-------- --------
Estimated reserves at December 31, 1995 ........... 30,798 107,872
Revisions of previous estimates ................... (1,913) 10,335
Purchase of reserves in place ..................... 218 --
Extensions and discoveries ........................ 8,186 1,571
Production ........................................ (2,467) (6,646)
-------- --------
Estimated reserves at December 31, 1996 ........... 34,822 113,132
Revisions of previous estimates ................... 1,601 8,556
Purchase of reserves in place ..................... 49,723 32,581
Extensions and discoveries ........................ 11,758 902
Production ........................................ (2,820) (7,666)
.......... -------- --------
Estimated reserves at December 31, 1997 ........... 95,084 147,505
======== ========
Proved developed reserves at December 31,
1995.............................................. 23,478 94,878
1996.............................................. 24,089 98,936
1997.............................................. 62,663 129,392
</TABLE>
(c) Costs Incurred
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Reserves.
The following standardized measure of discounted future net cash flows
was computed in accordance with the rules and regulations of the Securities and
Exchange Commission and Financial Accounting Standards Board Statement No. 69
using year-end prices and costs, and year-end statutory tax rates. Royalty
deductions were based on laws, regulations and contracts existing at the end of
each period. No values are given to unproved properties or to probable reserves
that may be recovered from proved properties.
The inexactness associated with estimating reserve quantities, future
production and revenue streams and future development and production
expenditures, together with the assumptions applied in valuing future
production, substantially diminishes the reliability of this data. The values so
derived are not considered to be an estimate of fair market value. The Company
therefore cautions against its simplistic use.
51
<PAGE> 52
COHO ENERGY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following tabulation reflects the Company's estimated discounted
future cash flows from crude oil and natural gas production:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Future cash inflows ............................................ $ 766,196 $ 1,174,356 $ 1,764,924
Future production costs......................................... (234,309) (301,619) (607,114)
Future development costs........................................ (33,824) (52,769) (114,294)
----------- ----------- -----------
Future net cash flows before income taxes....................... 498,063 819,968 1,043,516
Annual discount at 10%.......................................... (229,445) (402,885) (517,239)
----------- ----------- -----------
Present value of future net cash flows before income taxes
("Present Value of Proved Reserves")......................... 268,618 417,083 526,277
Future income taxes discounted at 10%........................... (43,679) (79,864) (58,084)
----------- ----------- -----------
Standardized measure of discounted future net cash flows........ $ 224,939 $ 337,219 $ 468,193
=========== =========== ===========
West Texas Intermediate posted reference price ($ per Bbl)...... $ 18.00 $ 25.25 $ 16.17
Estimated December 31 Company average realized price
$/Bbl........................................................ $ 15.69 $ 22.02 $ 15.06
$/Mcf........................................................ $ 2.54 $ 3.53 $ 2.26
</TABLE>
The following are the significant sources of changes in discounted future
net cash flows relating to proved reserves:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Crude oil and natural gas sales, net of production costs ................ $ (28,446) $ (46,305) $ (47,392)
Net changes in anticipated prices and production costs .................. 93,551 128,960 (176,309)
Extensions and discoveries, less related costs .......................... 24,281 74,560 73,565
Changes in estimated future development costs ........................... (10,581) (2,580) (6,393)
Development costs incurred during the period ............................ 19,194 6,321 10,817
Net change due to sales and purchase of reserves in place ............... 10,409 1,108 224,579
Accretion of discount ................................................... 16,441 26,862 41,708
Revision of previous quantity estimates ................................. 11,768 (1,643) 11,737
Net changes in income taxes ............................................. (14,289) (36,185) 21,780
Changes in timing of production and other ............................... (32,408) (38,818) (23,118)
--------- --------- ---------
Net increase (decrease) ................................................. 89,920 112,280 130,974
Beginning of year ....................................................... 135,019 224,939 337,219
--------- --------- ---------
Standardized measure of discounted future net cash flows ................ $ 224,939 $ 337,219 $ 468,193
========= ========= =========
</TABLE>
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears in the Company's proxy
statement for the Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the caption
"Executive Compensation" set forth in the Company's proxy statement for the
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption
"Security Ownership of Certain Beneficial Owners and Management" set forth in
the Company's proxy statement for the Annual Meeting of Shareholders to be filed
with the Securities Commission pursuant to Regulation 14A, which information is
incorporated herein by references.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Certain
Relationships and Related Transactions" set forth in the Company's proxy
statement for the Annual Meeting of Shareholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, which information is
incorporated herein by reference.
53
<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Report
1. FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements under Item 8 on
page 30.
2. FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. 58
Schedule III -- Condensed Financial Information - Parent Only............. 59
</TABLE>
All other schedules and financial statements are omitted because they are
not applicable or the required information is shown in the financial statements
or notes thereto listed above in Item 14(a) 1.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 - Plan of Reorganization dated as of June 30, 1993, by
and among the Registrant, Coho Resources, Inc., a
Nevada corporation, and Coho Resources Limited, an
Alberta, Canada corporation (incorporated by
reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (Reg. No.
33-65620)).
3(i).1 - Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4
(Registration No. 33-65620)).
3(i).2 - Statement of Resolution Establishing Series of Shares
of Series A Preferred Stock dated December 8, 1994
(incorporated by reference to the Company's Form 8-K
filed on December 16, 1984).
3(i).3 - First Amendment to Statement of Resolution
Establishing Series of Shares of Series A Preferred
Stock dated August 23, 1995 (incorporated by
reference to Exhibit 3(i).1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
3(ii).1 - Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-4
(Registration No. 33-65620) and incorporated by
reference herein.
4.1 - Articles of Incorporation (included as Exhibit 3(i).1
above).
4.2 - Statement of Resolution Establishing Series of Shares
(included as Exhibit 3(i).2 above).
4.3 - Bylaws of the Company (included as Exhibit 3(ii).1
above).
4.4 - Rights Agreement dated September 13, 1994 between
Coho Energy, Inc. and Chemical Bank (incorporated by
reference to Exhibit 1 to the Company's Form 8-A
dated September 13, 1994).
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C>
4.5 - First Amendment to Rights Agreement made as of
December 8, 1994 between Coho Energy, Inc. and
Chemical Bank (incorporated by reference to Exhibit
4.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.6 - Second Amendment to Rights Agreement as of August 30,
1995 between Coho Energy, Inc. and Chemical Bank
(incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.1 - Registration Rights and Shareholder Agreement dated
December 8, 1994 by and among Coho Energy, Inc., The
Morgan Stanley Leveraged Equity Fund II, LP, and
Quinn Oil Company Ltd (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.2 - Amended and Restated Registration Rights Agreement
dated December 8, 1994 among Coho Energy, Inc.,
Kenneth H. Lambert and Frederick K. Campbell
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.3 - 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement
on Form S-4 (Reg. No. 33-65620)).
*10.4 - First Amendment to 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
*10.5 - Second Amendment and Third Amendment to 1993 Stock
Option Plan (incorporated by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.6 Third Amendment to 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
*10.7 - Employment Agreement dated as of November 11, 1994 by
and between Coho Energy, Inc. and Jeffrey Clarke
(incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.8 - Employment Agreement dated as of November 11, 1994 by
and between Coho Energy, Inc. and R. M. Pearce
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report Form 10-K for the year ended
December 31, 1994).
*10.9 - Employment Agreement dated as of June 25, 1995 by and
between Eddie M. LeBlanc, III and Coho Energy, Inc.
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
*10.10 - Employment Agreement dated as of August 19, 1996 by
and between Anne Marie O'Gorman and Coho Energy, Inc.
(incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
*10.11 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among Jeffrey Clarke and Coho
Energy, Inc. (incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
*10.12 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among R. M. Pearce and Coho
Energy, Inc. (incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C>
*10.13 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among Eddie M. LeBlanc and
Coho Energy, Inc. (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.14 - Third Amended and Restated Credit Agreement among
Coho Resources, Inc., Coho Louisiana Production
Company, Coho Exploration, Inc., Coho Energy, Inc.,
Banque Paribas, Houston Agency, Bank One, Texas,
N.A., and Meespierson N.V. dated as of August 8, 1996
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996).
*10.15 - 1993 Non Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-4 (Reg.
No. 33-65620).
*10.16 - First Amendment to 1993 Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996).
*10.17 - Form of Executive Severance Agreement entered into
with each of Keri Clarke, R. Lynn Guillory, Larry L.
Keller, Susan J. McAden, and Patrick S. Wright
(incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
*10.18 - Stock Purchase Agreement dated March 4, 1996 among
Coho Energy, Inc., Interstate Natural Gas Company,
and Republic Gas Partners, L. L. C. (incorporated by
reference to the Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995.
10.19 - Crude Oil Purchase Contract dated January 25, 1996,
by and between Coho Marketing and Transportation,
Inc. And EOTT Energy Operating Limited Partnership
(incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on From 10-K for the year
ended December 31, 1995).
10.20 - Gas Purchase Contract dated January 1, 1996, by and
between Mid Louisiana Production Company and Mid
Louisiana Marketing Company (incorporated by
reference to Exhibit 99.1 to the Company's current
report on Form 8-K dated April 3, 1996).
10.21 - Gas Transportation Agreement dated January 1, 1996,
by and between Mid Louisiana Gathering Company and
Mid Louisiana Marketing Company (incorporated by
reference to Exhibit 99.2 to the Company's current
report on Form 8-K dated April 3, 1996).
10.22 - Gas Transportation Agreement dated January 1, 1996,
by and between Fairbanks Gathering Company and Mid
Louisiana Marketing Company (incorporated by
reference to Exhibit 99.3 to the Company's current
report on Form 8-K dated April 3, 1996).
10.23 - Fourth Amended and Restated Credit Agreement among
Coho Resources, Inc., Coho Louisiana Production
Company, Coho Exploration, Inc., Coho Acquisitions
Company, Coho Energy, Inc., Banque Paribas, Houston
Agency, Bank One, Texas, N.A., and Meespierson N.V.
dated as of December 18, 1997.
10.24 - Crude Call Purchase Contract dated November 26, 1997
by and between Amoco Production Company and Coho
Acquisitions Company (incorporated by reference to
Exhibit 2.1 to the Company's report on form 8-K dated
December 18, 1997).
11.1 - Statement re computation of per share earnings.
21.1 - List of Subsidiaries of the Company.
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C>
27 - Financial Data Schedule
</TABLE>
- --------------
* Represents management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that as of the
record date for the Company's 1997 Annual Meeting of Shareholders, such
beneficial holder is entitled to vote at such meeting, and upon payment to the
Company of a fee compensating the Company for its reasonable expenses in
furnishing such exhibits.
(b) Reports on Form 8-K
The Company has filed with the Securities and Exchange Commission a
current report on Form 8-K dated December 18, 1997, related to the acquisition
of interests in certain crude oil and natural gas properties located primarily
in southern Oklahoma from Amoco Production Company.
57
<PAGE> 58
REPORT FOR INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Coho Energy, Inc.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information contained in Schedule III
is not a required part of the basic financial statements but is supplementary
information required by the Securities and Exchange Commission. This information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
March 20, 1998
58
<PAGE> 59
COHO ENERGY, INC.
AND SUBSIDIARIES
SCHEDULE III
CONDENSED FINANCIAL INFORMATION - PARENT ONLY
The following presents the condensed balance sheets as of December 31,
1997 and 1996 and statements of earnings and statements of cash flows for Coho
Energy, Inc., the parent company, for the years ended December 31, 1997, 1996
and 1995.
COHO ENERGY, INC.
(PARENT)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents ........................................ $ 304 $ 27
Due from subsidiaries ............................................ 7,535 180,743
-------- --------
7,839 180,770
Investments in subsidiaries, at equity ............................. 73,632 109,247
Other assets ....................................................... -- 4,297
-------- --------
$ 81,471 $294,314
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................. 5 3,317
-------- --------
Long-term debt.................................................... --- 148,894
-------- --------
5 152,211
Shareholders' equity -------- --------
Preferred stock, par value $0.01 per share
Authorized 10,000,000 shares, none issued
Common stock, par value $0.01 per share
Authorized 50,000,000 shares
Issued 20,347,126 and 25,603,512 shares at December 31, 1996 and
1997, respectively............................................... 203 256
Additional paid-in capital.......................................... 83,516 137,812
Retained earnings (deficit)......................................... (2,253) 4,035
-------- --------
Total shareholders' equity.......................................... 81,466 142,103
-------- --------
$ 81,471 $ 294,314
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Information
59
<PAGE> 60
SCHEDULE III
COHO ENERGY, INC.
(PARENT)
CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31
------------------------------
1995 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
Operating expenses
General and administrative.............. $ 428 $ 423 $ 471
Other (income) expenses
Interest income from subsidiaries........ --- --- (4,320)
Interest expense......................... --- --- 3,389
Equity in income of subsidiaries......... (2,208) (6,329) (5,828)
------- ------- -------
(2,208) (6,329) (6,759)
------- ------- -------
Net earnings.............................. $ 1,780 $ 5,906 $ 6,288
Dividends on preferred stock.............. (944) --- ---
------- ------- -------
Net earnings applicable to common stock... $ 836 $ 5,906 $ 6,288
======= ======= =======
Basic earnings per common share........... $ .05 $ .29 $ .29
======= ======= =======
Diluted earnings per common share......... $ .05 $ .29 $ .28
======= ======= =======
</TABLE>
See accompanying Notes to Condensed Financial Information
60
<PAGE> 61
SCHEDULE III
COHO ENERGY, INC.
(PARENT)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1995 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings........................................................ $ 1,780 $ 5,906 $ 6,288
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Equity in income of subsidiaries.................................... (2,208) (6,329) (5,828)
Changes in:
Other assets........................................................ -- -- (22)
Accounts payable.................................................... (94) (15) 3,312
------- ------- -------
Net cash provided by (used in) operating activities.................. (522) (438) 3,750
------- ------- -------
Cash flows from investing activities
Investments in subsidiaries......................................... -- -- (26,397)
Advances from (to) subsidiaries..................................... 466 325 (172,967)
------- ------- -------
Net cash provided by (used in) investing activities.................. 466 325 (199,364)
------- ------- -------
Cash flows from financing activities
Increase in long term debt.......................................... -- -- 148,894
Debt issuance cost.................................................. -- -- (4,275)
Issuance of common stock............................................ -- -- 49,223
Proceeds from stock options exercised............................... -- 414 1,495
------- ------- -------
Net cash provided by (used in) financing activities.................. -- 414 195,337
------- ------- -------
Increase (decrease) in cash.......................................... (56) 301 (277)
Cash and cash equivalents at beginning of period..................... 59 3 304
------- ------- -------
Cash and cash equivalents at end of period........................... $ 3 $ 304 $ 27
======= ======= =======
</TABLE>
See accompanying Notes to Condensed Financial Information
61
<PAGE> 62
SCHEDULE III
COHO ENERGY, INC.
(PARENT)
NOTES TO CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1. GENERAL
The accompanying condensed financial information of Coho Energy, Inc.
(the "Company") should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
2. COMMITMENTS AND CONTINGENCIES
The Registrant has guaranteed $221,000,000 of debt related to
unconsolidated subsidiaries under the Restated Credit Agreement described in
note 4 to the consolidated financial statements of the Company.
The Restated Credit Agreement contains certain financial and other
covenants including (i) the maintenance of minimum amounts of shareholder's
equity, (ii) maintenance of minimum ratios of cash flow to interest expense, as
well as current assets to current liabilities, (iii) limitations on the
Company's ability to incur additional debt, and (iv) restrictions on the payment
of dividends. In the event of a change of control of the Company, as defined in
the Restated Credit Agreement, at the discretion of the lenders, the loan may
become immediately due and payable. At December 31, 1997, the Company was in
compliance with all debt covenants.
3. LONG TERM DEBT
On October 3, 1997, the Company completed a sale to the public of $150
million of 8 7/8% Senior Subordinated Notes due 2007 ("Senior Notes").
Proceeds of the offering, net of offering costs, were approximately $144.5
million. The proceeds from this offering, together with the proceeds from the
common stock offering discussed in Note 4, were used to repay indebtedness
outstanding under the Restated Credit Agreement and for general corporate
purposes.
The Senior Notes will be unsecured senior subordinated obligations of
the Company and will rank pari passu in right of payment with all existing and
future senior subordinated indebtedness of the Company. The Senior Notes mature
on October 15, 2007 and bear interest from October 3, 1997 at the rate of 8 7/8%
per annum payable semi-annually, commencing on April 15, 1998. Certain
subsidiaries of the Company issued guarantees of the Senior Notes on a senior
subordinated basis.
The indenture issued in conjunction with the Senior Notes (the
"Indenture") will contain certain covenants, including covenants that limit (i)
indebtedness, (ii) restricted payments, (iii) distributions from restricted
subsidiaries, (iv) transactions with affiliates, (v) sales of assets and
subsidiary stock (including sale and leaseback transactions), (vi) dividends and
other payment restrictions affecting restricted subsidiaries and (vii) mergers
or consolidations.
4. SHAREHOLDERS' EQUITY
On October 3, 1997, the Company completed the sale to the public of
5,000,000 shares of common stock at $10.50 per share. Proceeds of the offering,
net of offering costs, were approximately $49.2 million. The proceeds from this
offering, together with the proceeds from the Senior Notes offering discussed in
Note 3, were used to repay indebtedness outstanding under the Company's Restated
Credit Agreement and for general corporate purposes.
In December 1997, the Company issued warrants, valued at $3.4 million,
to purchase one million shares of common stock at $10.425 per share for a period
of five years to Amoco Production Company as partial consideration
62
<PAGE> 63
for the purchase of certain crude oil and natural gas properties. This noncash
transaction is not reflected in the statement of cash flows for the year ended
December 31, 1997.
The redeemable preferred stock issued in connection with the acquisition
of a subsidiary corporation was non-voting and entitled to receive cumulative
quarterly dividends at a coupon rate equal to the prime lending rate per annum
(8.5% for the first quarter of 1995 and 9% for the second and third quarters of
1995). If the preferred stock were not redeemed by September 4, 1995, the coupon
rate increased 1/2% per quarter to a maximum rate of 18% per annum. On August
30, 1995, the Company exchanged 3,225,000 shares of Common Stock for the 161,250
shares of Series A Preferred Stock with a stated value of $16,125,000 and issued
157,338 shares of Common Stock to the holders of the preferred stock to satisfy
the accrued dividend obligation through August 30, 1995 of $944,000. These
noncash transactions are not reflected in the statement of cash flows for the
year ended December 31, 1995.
63
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Coho Energy, Inc.
Date: March 20, 1998 By: (Signed) JEFFREY CLARKE
------------------------------
Jeffrey Clarke
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(Signed) JEFFREY CLARKE Chairman, President March 20, 1998
- --------------------------------------------------- Chief Executive Officer
Jeffrey Clarke and Director
(Signed) EDDIE M. LEBLANC, III Sr. Vice President and March 20, 1998
- --------------------------------------------------- Chief Financial Officer
Eddie M. LeBlanc, III (principal financial
and accounting officer)
(Signed) ROBERT B. ANDERSON Director March 20, 1998
- --------------------------------------------------
Robert B. Anderson
(Signed) ROY R. BAKER Director March 20, 1998
- --------------------------------------------------
Roy R. Baker
(Signed) FREDERICK K. CAMPBELL Director March 20, 1998
- --------------------------------------------------
Frederick K. Campbell
(Signed) LOUIS F. CRANE Director March 20, 1998
- --------------------------------------------------
Louis F. Crane
(Signed) HOWARD I. HOFFEN Director March 20, 1998
- ---------------------------------------------------
Howard I. Hoffen
(Signed) KENNETH H. LAMBERT Director March 20, 1998
- ---------------------------------------------------
Kenneth H. Lambert
(Signed) DOUGLAS R. MARTIN Director March 20, 1998
- ----------------------------------------------------
Douglas R. Martin
(Signed) CARL S. QUINN Director March 20, 1998
- ----------------------------------------------------
Carl S. Quinn
(Signed) JAKE TAYLOR Director March 20, 1998
- ----------------------------------------------------
Jake Taylor
</TABLE>
64
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 - Plan of Reorganization dated as of June 30, 1993, by
and among the Registrant, Coho Resources, Inc., a
Nevada corporation, and Coho Resources Limited, an
Alberta, Canada corporation (incorporated by
reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (Reg. No.
33-65620)).
3(i).1 - Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4
(Registration No. 33-65620)).
3(i).2 - Statement of Resolution Establishing Series of Shares
of Series A Preferred Stock dated December 8, 1994
(incorporated by reference to the Company's Form 8-K
filed on December 16, 1984).
3(i).3 - First Amendment to Statement of Resolution
Establishing Series of Shares of Series A Preferred
Stock dated August 23, 1995 (incorporated by
reference to Exhibit 3(i).1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
3(ii).1 - Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-4
(Registration No. 33-65620) and incorporated by
reference herein.
4.1 - Articles of Incorporation (included as Exhibit 3(i).1
above).
4.2 - Statement of Resolution Establishing Series of Shares
(included as Exhibit 3(i).2 above).
4.3 - Bylaws of the Company (included as Exhibit 3(ii).1
above).
4.4 - Rights Agreement dated September 13, 1994 between
Coho Energy, Inc. and Chemical Bank (incorporated by
reference to Exhibit 1 to the Company's Form 8-A
dated September 13, 1994).
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
4.5 - First Amendment to Rights Agreement made as of
December 8, 1994 between Coho Energy, Inc. and
Chemical Bank (incorporated by reference to Exhibit
4.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.6 - Second Amendment to Rights Agreement as of August 30,
1995 between Coho Energy, Inc. and Chemical Bank
(incorporated by reference to Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.1 - Registration Rights and Shareholder Agreement dated
December 8, 1994 by and among Coho Energy, Inc., The
Morgan Stanley Leveraged Equity Fund II, LP, and
Quinn Oil Company Ltd (incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.2 - Amended and Restated Registration Rights Agreement
dated December 8, 1994 among Coho Energy, Inc.,
Kenneth H. Lambert and Frederick K. Campbell
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.3 - 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement
on Form S-4 (Reg. No. 33-65620)).
*10.4 - First Amendment to 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
*10.5 - Second Amendment and Third Amendment to 1993 Stock
Option Plan (incorporated by reference to Exhibit
10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.6 Third Amendment to 1993 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996).
*10.7 - Employment Agreement dated as of November 11, 1994 by
and between Coho Energy, Inc. and Jeffrey Clarke
(incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.8 - Employment Agreement dated as of November 11, 1994 by
and between Coho Energy, Inc. and R. M. Pearce
(incorporated by reference to Exhibit 10.8 to the
Company's Annual Report Form 10-K for the year ended
December 31, 1994).
*10.9 - Employment Agreement dated as of June 25, 1995 by and
between Eddie M. LeBlanc, III and Coho Energy, Inc.
(incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
*10.10 - Employment Agreement dated as of August 19, 1996 by
and between Anne Marie O'Gorman and Coho Energy, Inc.
(incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
*10.11 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among Jeffrey Clarke and Coho
Energy, Inc. (incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
*10.12 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among R. M. Pearce and Coho
Energy, Inc. (incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996).
</TABLE>
<PAGE> 67
<TABLE>
<S> <C>
*10.13 - First Amendment to Employment Agreement dated as of
August 19, 1996 by and among Eddie M. LeBlanc and
Coho Energy, Inc. (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
10.14 - Third Amended and Restated Credit Agreement among
Coho Resources, Inc., Coho Louisiana Production
Company, Coho Exploration, Inc., Coho Energy, Inc.,
Banque Paribas, Houston Agency, Bank One, Texas,
N.A., and Meespierson N.V. dated as of August 8, 1996
(incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September
30, 1996).
*10.15 - 1993 Non Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-4 (Reg.
No. 33-65620).
*10.16 - First Amendment to 1993 Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996).
*10.17 - Form of Executive Severance Agreement entered into
with each of Keri Clarke, R. Lynn Guillory, Larry L.
Keller, Susan J. McAden, and Patrick S. Wright
(incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
*10.18 - Stock Purchase Agreement dated March 4, 1996 among
Coho Energy, Inc., Interstate Natural Gas Company,
and Republic Gas Partners, L. L. C. (incorporated by
reference to the Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1995.
10.19 - Crude Oil Purchase Contract dated January 25, 1996,
by and between Coho Marketing and Transportation,
Inc. And EOTT Energy Operating Limited Partnership
(incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on From 10-K for the year
ended December 31, 1995).
10.20 - Gas Purchase Contract dated January 1, 1996, by and
between Mid Louisiana Production Company and Mid
Louisiana Marketing Company (incorporated by
reference to Exhibit 99.1 to the Company's current
report on Form 8-K dated April 3, 1996).
10.21 - Gas Transportation Agreement dated January 1, 1996,
by and between Mid Louisiana Gathering Company and
Mid Louisiana Marketing Company (incorporated by
reference to Exhibit 99.2 to the Company's current
report on Form 8-K dated April 3, 1996).
10.22 - Gas Transportation Agreement dated January 1, 1996,
by and between Fairbanks Gathering Company and Mid
Louisiana Marketing Company (incorporated by
reference to Exhibit 99.3 to the Company's current
report on Form 8-K dated April 3, 1996).
10.23 - Fourth Amended and Restated Credit Agreement among
Coho Resources, Inc., Coho Louisiana Production
Company, Coho Exploration, Inc., Coho Acquisitions
Company, Coho Energy, Inc., Banque Paribas, Houston
Agency, Bank One, Texas, N.A., and Meespierson N.V.
dated as of December 18, 1997.
10.24 - Crude Call Purchase Contract dated November 26, 1997
by and between Amoco Production Company and Coho
Acquisitions Company (incorporated by reference to
Exhibit 2.1 to the Company's report on form 8-K dated
December 18, 1997).
11.1 - Statement re computation of per share earnings.
21.1 - List of Subsidiaries of the Company.
27 - Financial Data Schedule
</TABLE>
- ------------------
* Represents management contract or compensatory plan or arrangement.
The Company will furnish a copy of any exhibit described above to any
beneficial holder of its securities upon receipt of a written request therefor,
provided that such request sets forth a good faith representation that as of the
record date for the Company's 1997 Annual Meeting of Shareholders, such
beneficial holder is entitled to vote at such meeting, and upon payment to the
Company of a fee compensating the Company for its reasonable expenses in
furnishing such exhibits.
<PAGE> 1
EXHIBIT 10.23
================================================================================
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
among
COHO RESOURCES, INC.,
COHO LOUISIANA PRODUCTION COMPANY,
COHO EXPLORATION, INC.
and
COHO ACQUISITIONS COMPANY
as the Borrowers
COHO ENERGY, INC.
as a Guarantor
certain Lenders named herein
BANQUE PARIBAS, HOUSTON AGENCY
as the Administrative Agent
and
BANK ONE, TEXAS, N.A.,
and
MEESPIERSON CAPITAL CORP.
as Co-Documentation Agents
December 18, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - DEFINITIONS; CERTAIN TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.02. Accounting and other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE II - ADVANCES AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.01. Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(b) Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.02. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.03. Repayment of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.04. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.05. Access to Availability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Procedure for Issuing Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.06. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.08. Commitment Fee; Reduction or Termination of Commitments. . . . . . . . . . . . . . . . . . . 30
SECTION 2.09. Additional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.10. Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Initial Amount; Waiver of Redetermination . . . . . . . . . . . . . . . . . . . . . 31
(b) Semiannual Redeterminations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Interim Redetermination by Lenders. . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Interim Redeterminations at the Request of Borrowers . . . . . . . . . . . . . . . 32
(e) Redetermination as a Result of a Sale of Collateral . . . . . . . . . . . . . . . . 32
(f) Standards for Redetermination . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE III - PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.01. Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 3.02. Repayments and Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Optional Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 3.03. Pro Rata Treatment; Distribution of Payments . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Distribution of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 3.04. Non-Receipt of Funds by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.05. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 3.06. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Payment by Borrowers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Withholding Tax Exemption Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE IV - YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 4.01. Increased Costs and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.02. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . 39
SECTION 4.03. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.04. Treatment of Affected Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.05. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V - CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.01. Conditions to the Effectiveness of this Agreement . . . . . . . . . . . . . . . . . . . . . . 41
(a) Amendment Fees; Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(b) Representations and Warranties; No Event of Default . . . . . . . . . . . . . . . . . . . . 41
(c) Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(d) Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 5.02. Conditions Precedent to the Advances and Issuances of Letters of Credit 42
(a) Payment of Fees, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Representations and Warranties; No Event of Default . . . . . . . . . . . . . . . . . . . . 43
(c) Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(d) Advance Request Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(e) Proceedings; Receipt of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.01. Representations and Warranties of Each Company . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Organization, Good Standing, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(b) Authorization, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(c) Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(d) Enforceability of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(e) Subsidiaries; Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(g) Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(h) Compliance with Law, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(i) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(j) Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(k) Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(l) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(m) Credit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(n) Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(o) Adverse Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(p) Holding Company and Investment Company Acts . . . . . . . . . . . . . . . . . . . . . . . . 47
(q) Permits, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(r) Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(s) Environmental Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(t) Principal Place of Business; Location of Collateral . . . . . . . . . . . . . . . . . . . . 48
(u) Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(v) Security Interests and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 7.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(a) Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(b) Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(c) Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(d) Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(e) Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(f) Preservation of Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(g) Maintenance of Properties, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(h) Obtaining of Permits, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(i) Keeping of Records and Books of Account . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(j) Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(k) Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(l) Environmental Reports and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(m) Further Assurances; Post Closing Matters; Letters in Lieu . . . . . . . . . . . . . . . . . 56
(n) Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(a) Liens, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(b) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(c) Merger, Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(d) Sale of Assets, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(e) Change in Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(f) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(g) Restricted Payments and Restricted Investments . . . . . . . . . . . . . . . . . . . . . . 63
(h) Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(i) Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE VIII - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 8.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 8.02. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(a) Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(b) Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(c) Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(d) Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(e) Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 8.03. Performance by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE IX - THE ADMINISTRATIVE AGENT AND THE CO-DOCUMENTATION AGENTS . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.01. Appointment, Powers and Immunities of Co-Documentation Agent Agents . . . . . . . . . . . . . 68
SECTION 9.02. Rights of Co-Documentation Agents as a Lender . . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 9.03. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.04. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9.05. Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 9.06. Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.07. Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE X - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.01. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.02. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 10.03. No Waiver; Remedies, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.04. Fees, Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.05. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(a) Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(b) General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
(c) Provisions Applicable to All Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.06. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 10.08. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(a) Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(b) Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
(c) Assignments by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
(d) Deliveries of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.10. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.12. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.13. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 10.14. Non-Application of Chapter 15 of Texas Credit Code . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.15. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.16. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 10.17. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10.18. Joint and Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10.19. ENTIRE AGREEMENT; AMENDMENT
AND RESTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
iv
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Note
Exhibit B - Advance Request Form
Exhibit C - Solvency Certificate
Exhibit D - Local Counsel Opinion
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
6.01(e) - Subsidiaries
6.01(f) - Litigation
6.01(m) - Credit Agreements
6.01(s) - Environmental Matters
6.01(t) - Locations of Business and Collateral
7.02(a) - Liens
7.02(f) - Affiliate Transactions
</TABLE>
v
<PAGE> 7
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") dated
as of December 18, 1997 by and among COHO RESOURCES, INC., a Nevada corporation
("CRI"), COHO LOUISIANA PRODUCTION COMPANY, a Delaware corporation (the
"Production Company"), COHO EXPLORATION, INC., a Delaware corporation
("Exploration") COHO ACQUISITIONS COMPANY, a Delaware corporation
("Acquisitions"), (CRI, the Production Company, Exploration and Acquisitions
are sometimes collectively referred to as the "Borrowers" and individually as a
"Borrower"), COHO ENERGY, INC., a Texas corporation ("Holdings") (the Borrowers
and Holdings are sometimes referred to herein together as the "Companies" or
individually as a "Company"), each of the banks or other lending institutions
which is or which may from time to time become a signatory hereto or any
successor or assignee thereof (collectively, the "Lenders"), BANQUE PARIBAS, a
bank organized under the laws of the Republic of France acting through its
Houston Agency ("PARIBAS") in its capacity as Administrative Agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Administrative Agent"), and BANK ONE, TEXAS, N.A., a national banking
association ("Bank One"), and MEESPIERSON CAPITAL CORP., a Delaware corporation
("MeesPierson"), as Co-Documentation Agents for the Lenders (Bank One and
MeesPierson in such capacities, together with their successors in such
capacities, the "Co-Documentation Agents").
R E C I T A L S:
A. CRI and Canada Trust Bank N.V. formerly known as The Canada
Trust Company B.V. (herein, "Canada Trust") entered into that certain Revolving
Credit Agreement dated as of August 16, 1990 (such agreement, as the same has
been amended, hereinafter referred to as the "Canada Trust Credit Agreement").
To evidence the indebtedness of CRI to Canada Trust under the Canada Trust
Credit Agreement, CRI executed and delivered to Canada Trust that certain
Promissory Note dated August 16, 1990, payable to the order of Canada Trust in
the original principal amount of $75,000,000.00 (the "Canada Trust Note").
B. Canada Trust has assigned to the Administrative Agent for the
benefit of the Lenders, Canada Trust's right, title and interest in and to,
among other things, the Canada Trust Credit Agreement, the Canada Trust Note,
the security agreements, mortgages and other collateral documents securing
payment thereof (all such documentation referred to collectively herein as the
"Canada Trust Loan Documents") pursuant to that certain Assignment of Note,
Loan Documents and Liens dated as of August 27, 1992, executed by Canada Trust
for the benefit of the Administrative Agent and the Lenders (such assignment
hereinafter referred to as the "Assignment").
C. CRI has entered into that certain Credit Agreement dated as of
August 27, 1992 (such agreement, as the same has been modified, herein the
"Original Credit Agreement") with the Administrative Agent, Canada Trust and
the other Lenders named therein, to amend and restate the Canada Trust Credit
Agreement in its entirety.
D. Canada Trust has assigned all its interest in the Original
Credit Agreement pursuant to the following:
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 1
<PAGE> 8
(i) that certain Assignment Agreement dated June 10, 1993
among Canada Trust, PARIBAS and the Administrative
Agent;
(ii) that certain Assignment Agreement dated October 22,
1993 among Canada Trust, MeesPierson and the
Administrative Agent;
(iii) that certain Assignment Agreement dated November 5,
1993 among Canada Trust, Bank of Scotland and the
Administrative Agent;
(iv) that certain Assignment Agreement dated November 5,
1993 among Canada Trust, Wells Fargo Bank, N.A. and
the Administrative Agent; and
(v) that certain Assignment Agreement dated November 5,
1993 among Canada Trust, Christiania Bank OG
Kreditkasse and the Administrative Agent.
E. The Original Credit Agreement has been amended and restated in
its entirety by that certain Amended and Restated Credit Agreement dated as of
February 8, 1994, by and among CRI, Holdings, Paribas, as Agent, and the
Lenders parties thereto (as amended by that certain First Amendment to Amended
and Restated Credit Agreement dated as of June 24, 1994, the "First Amended
Credit Agreement").
F. The First Amended Credit Agreement has been amended and
restated in its entirety by that certain Second Amended and Restated Credit
Agreement dated as of December 2, 1994, by and among CRI, Holdings, Paribas, as
Agent, and the Lenders parties thereto (as amended by that certain First
Amendment to Second Amended and Restated Credit Agreement dated as of June 30,
1995, that certain Second Amendment to Second Amended and Restated Credit
Agreement dated as of August 4, 1995, that certain Third Amendment to Second
Amended and Restated Credit Agreement dated as of November 1, 1995, and that
certain Fourth Amendment to Second Amended and Restated Credit Agreement dated
as of March 29, 1996, the "Second Amended Credit Agreement").
G. The Second Amended Credit Agreement has been amended and
restated in its entirety by that certain Third Amended and Restated Credit
Agreement dated as of August 8, 1996, by and among CRI, Holdings, Paribas, as
Agent, and the Lenders parties thereto (as amended by that certain First
Amendment to Third Amended and Restated Credit Agreement dated as of October 1,
1997, the "Second Amended Credit Agreement").
H. CRI has requested that the Administrative Agent and the
Lenders amend the Third Amended Credit Agreement (i) to increase the amount of
the facility, (ii) to permit the increase of facility proceeds to be used to
acquire certain properties located in Oklahoma, (iii) to extend the Maturity
Date to December 18, 2002, and (iv) to modify certain other provisions of the
Third Amended Credit Agreement. The Lenders and the Administrative Agent are
willing to make such amendments to the Third Amended Credit Agreement upon and
subject to the terms and conditions of the Third Amended Credit Agreement as
amended and restated hereby.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 2
<PAGE> 9
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Acquisition Engineering Report" means the Engineering Report prepared
by Sproule Associates, Inc., dated November 19, 1997, covering the Amoco
Properties.
"Acquisitions" has the meaning specified in the preamble hereto.
"Additional Security Agreement" means the Security Agreement dated
February 8, 1994, between CRI and the Administrative Agent for the benefit of
Lenders, as the same may be amended or otherwise modified from time to time.
"Adjusted Eurodollar Rate" means, for any Eurodollar Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Interbank Offered Rate for such Eurodollar Advance for such Interest Period
divided by 1 minus the Reserve Requirement for such Eurodollar Advance for such
Interest Period.
"Administrative Agent" has the meaning specified in the preamble
hereto.
"Advance" means a Revolving Advance.
"Advance Request Form" means a certificate, in substantially the form
of Exhibit B hereto, properly completed and signed by a Borrower requesting an
Advance or the issuance of a Letter of Credit.
"Affiliate" means, as to any Person, (a) any other Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person or (b) when used
with respect to all covenants, representations, warranties and other provisions
relating to ERISA and ERISA related matters, the term "Affiliate" shall only
mean, as to any Person, any trade or business (whether or not incorporated)
which is a member of a group of which such Person is a member and which is
under common control within the meaning of the regulations promulgated under
Section 414 of the Internal Revenue Code. The term "control" means the
possession, directly or indirectly, of the power to direct or cause direction
of the management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise; provided, however, in no event
shall the Administrative Agent, any Co-Documentation Agent or any Lender be
deemed an Affiliate of Holdings or any of its Subsidiaries.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 3
<PAGE> 10
"Agreement" means this Fourth Amended and Restated Credit Agreement
as the same may be amended or otherwise modified.
"Amoco" means Amoco Production Company, a Delaware corporation and
party to the Amoco Purchase Agreement.
"Amoco Properties" means the Petroleum and Natural Gas Rights and
other real and personal property to be purchased by Acquisitions from Amoco
Production Company pursuant to the Amoco Purchase Agreement.
"Amoco Purchase Agreement" means that certain Purchase and Sale
Agreement between Amoco Production Company and Acquisitions, dated November 26,
1997.
"Applicable Lending Office" means for each Lender and each Type of
Advance, the Lending Office of such Lender (or of an Affiliate of such Lender)
designated for such Type of Advance below its name on the signature pages
hereof or such other office of such Lender (or of an Affiliate of such Lender)
as such Lender may from time to time specify to the Borrowers and the
Administrative Agent as the office from which its Advances of such Type are to
be made and maintained.
"Applicable Margin" for Revolving Advances means (a) with respect to
Prime Rate Advances, zero percent (0.00%) and (b) with respect to Eurodollar
Advances, one and one-half of one percent (1.50%); provided however, that the
Applicable Margin for Eurodollar Advances shall be adjusted based upon the
ratio of the Consolidated Indebtedness of Holdings and its Restricted
Subsidiaries to the EBITDA of Holdings and its Restricted Subsidiaries
(measured on a rolling four-quarters basis) as follows:
<TABLE>
<CAPTION>
CONSOLIDATED APPLICABLE MARGIN FOR
INDEBTEDNESS/EBITDA EURODOLLAR ADVANCES
<S> <C>
<2.0 1.000%
> 2.0 X <2.5 1.125%
-
> 2.5 X <3.0 1.250%
-
> 3.0 X <3.5 1.375%
-
> 3.5X 1.500%
-
</TABLE>
Changes in the Applicable Margin for Eurodollar Advances shall be based upon
such ratio of Consolidated Indebtedness to EBITDA of Holdings and its
Restricted Subsidiaries as disclosed in the certified quarterly or annual
audited consolidated financial statements of Holdings delivered to the
Administrative Agent pursuant to Section 7.01(d) and calculated in the
officer's certificate delivered concurrently therewith pursuant to Section
7.01(d)(iv) and shall become effective on delivery of such financial statements
and certificate to the Administrative Agent. Provided, however, for the period
from the Closing Date until March 31, 1998, the Applicable Margin for
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 4
<PAGE> 11
Eurodollar Advances shall be 1.50%, and for the next three calendar quarters of
1998, the Applicable Margin for Eurodollar Advances shall be computed on the
basis of the ratio of the Consolidated Indebtedness of Holdings and its
Restricted Subsidiaries to the EBITDA of Holdings and its Restricted
Subsidiaries for the prior calendar quarters of 1998 alone computed on an
annualized basis, so that (i) the calculation for March 31, 1998 shall be made
solely with respect to EBITDA for the calendar quarter ending March 31, 1998
which shall be multiplied times four, (ii) the calculation for June 30, 1998
shall be made with respect to EBITDA for the two calendar quarters ending June
30, 1998 which shall be multiplied times two, (iii) the calculation for
September 30, 1998 shall be made with respect to EBITDA for the three calendar
quarters ending September 30, 1998 which shall be multiplied times four/thirds,
and (iv) thereafter the calculation shall be made on a rolling four quarters
basis as having been done prior to the Closing Date.
"Applicable Rate" means: (a) during the period that an Advance is a
Prime Rate Advance, the Prime Rate plus the Applicable Margin, and (b) during
the period that an Advance is a Eurodollar Advance, the Adjusted Eurodollar
Rate plus the Applicable Margin.
"Assignment" has the meaning specified in the Recitals hereto.
"Authorizing Resolution" means that certain Coho Energy, Inc.
Statement of Resolution Establishing Series of Shares filed in accordance with
the terms of the ING Acquisition Agreement.
"Availability" means, at the date of determination, the difference
between (a) the Borrowing Base as of such date, and (b) the Outstanding Credit
as of such date.
"Borrower" and "Borrowers" have the meanings specified in the preamble
hereto.
"Borrowing Base" means the Dollar amount determined in accordance with
Section 2.10 which shall never exceed the aggregate amount of the Commitments.
"Borrowing Date" means the date on which an Advance is made or Letter
of Credit is issued hereunder.
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Houston, Texas and New York, New York and
(b) with respect to all borrowings, payments, Conversions, Continuations,
Interest Periods, and notices in connection with Eurodollar Advances, any day
which is a Business Day described in clause (a) above and which is also a day
on which dealings in Dollar deposits are carried out in the London interbank
market.
"Canada Trust" has the meaning specified in the Recitals hereto.
"Canada Trust Credit Agreement " has the meaning specified in the
Recitals hereto.
"Canada Trust Loan Documents" has the meaning specified in the
Recitals hereto.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 5
<PAGE> 12
"Canada Trust Note" has the meaning specified in the Recitals hereto.
"Capitalized Lease Obligations" means obligations for the payment of
rent for any real or personal property under leases or agreements to lease that
in accordance with GAAP have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participation,
rights or other equivalents (however designated) evidencing equity interests in
an issuing entity.
"Change of Control" means the occurrence of the following: any Person
or two or more Persons acting as a group (as defined in Section 13d-3 of the
Securities Exchange Act of 1934) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of thirty percent (30%) or more of
the outstanding shares of voting stock of Holdings.
"Closing Date" means December 18, 1997.
"Coho Canada" means Coho Resources Limited, an Alberta, Canada
corporation and Subsidiary of Holdings.
"Coho Canada Negative Pledge" means the Negative Pledge Agreement
dated as of February 8, 1994, between Coho Canada and the Administrative Agent
for the benefit of Lenders as the same may be amended or otherwise modified
from time to time.
"Coho Shell" means Coho Shell Company, a Delaware corporation.
"Co-Documentation Agents" means Bank One and MeesPierson in their
capacities as Co-Agents for the Lenders.
"Collateral" means all of the property (tangible and intangible)
purported to be subject to the Liens of the Security Documents.
"Commitment" means the obligation of each Lender to make Advances
hereunder in an aggregate principal amount at any one time outstanding up to
but not exceeding the amount set forth opposite the name of such Lender on the
signature pages hereto under the heading "Commitment," as such amount may be
reduced pursuant to Section 2.08, and "Commitments" means all such commitments
of all of the Lenders, the aggregate of which on the Closing Date equals
$300,000,000.
"Company" and "Companies" have the meanings specified in the preamble
hereto.
"Consolidated Current Assets", as of any date of determination, means
all assets of Holdings and its Restricted Subsidiaries which would properly be
characterized as current assets on a balance sheet prepared in accordance with
GAAP as of such date, plus the Availability as of such date.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 6
<PAGE> 13
"Consolidated Current Liabilities" means, as of any date of
determination, all liabilities of Holdings and its Restricted Subsidiaries
which would properly be characterized as current liabilities on a balance sheet
prepared in accordance with GAAP as of such date.
"Consolidated Current Ratio" means as of the date of determination,
the ratio of Consolidated Current Assets to Consolidated Current Liabilities as
of such date.
"Consolidated Indebtedness" means, for any Person, all Indebtedness of
such Person and its Restricted Subsidiaries determined on a consolidated basis
in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, all interest on
Indebtedness of Holdings and its Restricted Subsidiaries paid or accrued during
such period, including the interest portion of payments under Capital Lease
Obligations.
"Consolidated Net Income" means, for any period and for any Person,
the consolidated net income of such Person and its Restricted Subsidiaries for
such period determined in accordance with GAAP.
"Contaminant" means those substances which are regulated by or form
the basis of liability under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls ("PCBs"), Hazardous Materials,
pollutants, chemicals or any other material or substance which now or in the
future constitutes or is deemed by a Governmental Authority to constitute a
health, safety, or environmental hazard to any Person or property.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.07 of a Eurodollar Advance as a Eurodollar
Advance from one Interest Period to the next Interest Period.
"Contribution and Reimbursement Agreement" means that certain
Contribution and Reimbursement Agreement dated as of December 2, 1994, among
the Credit Parties, as amended and restated pursuant to that certain Amended
and Restated Contribution and Reimbursement Agreement dated as of August 8,
1996 among the Credit Parties, as the same may be amended or otherwise modified
from time to time.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.07 or Article IV of one Type of Advance into another Type
of Advance.
"CRI Pledge Agreement" means the Pledge Agreement dated as of December
2, 1994, pursuant to which CRI pledged to the Administrative Agent, for the
benefit of the Lenders, the Capital Stock of ING owned by CRI as collateral for
the Obligations, as the same may be amended or otherwise modified from time to
time.
"Credit Parties" means, collectively, the Companies, Coho Canada, ING
and the ING Subsidiaries.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 7
<PAGE> 14
"Daily Production of Crude Oil" means an amount equal to the
Borrowers' actual average daily production of crude oil for the thirty (30) day
period ending on the applicable date of determination.
"Daily Production of Natural Gas" means an amount equal to the
Borrowers' actual average daily production of natural gas for the thirty (30)
day period ending on the applicable date of determination.
"Deed of Trust" means that certain Deed of Trust, Mortgage,
Assignment, Security Agreement and Financing Statement dated December 11, 1990,
made by CRI for the benefit of Canada Trust encumbering the various real and
personal properties described therein located in Texas, as assigned to the
Administrative Agent for the benefit of the Lenders pursuant to the Assignment,
as amended pursuant to that certain First Renewal, Extension and Modification
of Deed of Trust, Mortgage, Assignment, Security Agreement and Financing
Statement dated August 27, 1992, that certain Second Modification of Deed of
Trust, Mortgage, Assignment, Security Agreement and Financing Statement dated
January 6, 1993, Third Renewal, Extension and Modification of Deed of Trust,
Mortgage, Assignment, Security Agreement and Financing Statement dated June 24,
1994, the Fourth Modification of Texas Deed of Trust and as the same may
hereafter be amended or otherwise modified.
"Default Rate" means the lesser of (i) the Maximum Rate or (ii) the
sum of the Prime Rate in effect from day to day plus four percent (4%).
"Dollars" and "$" means lawful money of the United States of America.
"EBITDA" means, for any period, without duplication, the sum of the
following for Holdings and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP: (a) Consolidated Net Income, plus
(b) Consolidated Interest Expense, plus (c) income, franchise and other taxes
(excluding taxes related to the production of Hydrocarbons) to the extent
deducted in determining Consolidated Net Income, plus (d) depreciation and
amortization expense and other non-cash items to the extent deducted in
determining Consolidated Net Income, minus (e) non-cash income to the extent
included in determining Consolidated Net Income.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained for employees
of Holdings or any of its Affiliates.
"Engineering Report" means a report, in form and substance reasonably
satisfactory to the Lenders, certified by, in the case of an Annual Engineering
Report described in Section 2.10(b), an Independent Engineer and by the chief
financial officer of CRI and, in the case of a Semi-Annual Engineering Report
described in Section 2.10(b), by the chief financial officer of CRI or the
chief financial officer of CRI and an Independent Engineer, as the case may be,
addressed to the Administrative Agent for the benefit of the Lenders setting
forth, with respect to the Petroleum and Natural Gas Rights of the Borrowers
(or to be acquired by the Borrowers, as applicable) which are or are to be
Collateral, (a) the location, quantity and type of the estimated Proven
Reserves applicable to such Petroleum and Natural Gas Rights, (b) a projection
of the rate of production of
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 8
<PAGE> 15
such Proven Reserves, (c) an estimation of the net operating revenues to be
derived from the production and sale of Hydrocarbons from such Proven Reserves
and (d) such other information as is customarily obtained from and provided in
such reports or is otherwise reasonably requested to be contained in such
reports by the Required Lenders.
"Environmental Claim" means any notice of violation, claim, demand,
order, directive or cause of action by any Governmental Authority or any Person
for personal injury (including, without limitation, sickness, disease or
death), tangible or intangible property damage, damage to the environment,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, resulting from or based upon (a) the
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden, accidental or nonaccidental Releases)
or exposure to any Contaminant, odor or audible noise, (b) the transportation,
storage, treatment or disposal of Contaminants in connection with the operation
of facilities or (c) the violation or alleged violation of any Environmental
Law.
"Environmental Law" means any and all applicable past, present and
future laws, regulations, enforceable requirements, binding determinations,
orders, decrees, judgments, injunctions, permits, approvals, authorizations,
licenses, variances, permissions, notices or binding agreements issued,
promulgated or entered by any Governmental Authority, relating to the
environment, health, safety preservation or reclamation of natural resources,
historic structures and places, or to a Release or threatened Release, or any
noxious noise or odor, including, without limitation, those relating to
manufacturing, processing, registering, introducing into commerce, labeling,
distributing, using, generating, treating, storing, disposing, transporting or
handling of any regulated material.
"Environmental Permit" means any permit, authorization, approval or
other consent required to be obtained under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and, unless the context otherwise requires, the
rules and regulations promulgated thereunder from time to time.
"Eurodollar Advances" means Advances that bear interest at rates based
on the rates referred to in the definition of "Adjusted Eurodollar Rate" in
this Section 1.01.
"Event of Default" means any of the events set forth in Section 8.01
hereof.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided however, that (a) if the day for which such rate
is to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day and (b) if such rate is not so
published on such next succeeding Business Day, the Federal Funds Rate for any
day shall
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 9
<PAGE> 16
be the average rate charged to the Reference Lenders on such day on such
transactions as determined by the Administrative Agent.
"Financial Statements" means the audited consolidated financial
statements of Holdings as of December 31, 1996 and the related statement of
earnings, cash flow and shareholders' equity for the year ending December 31,
1996, together with the notes thereto.
"First Amended and Restated Modification Agreement" means that certain
First Amended and Restated Modification Agreement dated of even date herewith
among the Companies, the other Guarantors, Coho Canada and the Administrative
Agent.
"First Amended Credit Agreement" has the meaning specified in the
Recitals hereto.
"First Amendment to Holdings Pledge Agreement" means the First
Amendment to Pledge Agreement dated as of December 2, 1994, pursuant to which
Holdings pledged to the Administrative Agent, for the benefit of the Lenders,
the Capital Stock of ING owned by Holdings as collateral for the Obligations,
as the same may be amended or otherwise modified from time to time.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means the United States or any state or
political subdivision thereof or any foreign nation or political subdivision
thereof, any entity, body or authority exercising executive, legislative,
judicial, regulatory or administrative functions of, or pertaining to,
government in the United States (or any state or political subdivision thereof)
or any foreign nation or any political subdivision thereof, including, without
limitation, any central bank or other governmental or quasi-governmental
authority exercising control over banks or other financial institutions, and
any corporation or other entity or authority owned or controlled (through stock
or capital ownership or otherwise) by any of the foregoing.
"Guarantors" means Holdings, ING, Coho Fairbanks Gathering Company and
Coho Louisiana Gathering Company.
"Hazardous Materials" means all materials subject to any Environmental
Law, including, without limitation, materials listed in 49 C.F.R. Section
172.101, materials defined as hazardous pursuant to Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, explosive or regulated radioactive materials or substances,
pollutants, contaminants, hazardous or toxic wastes or substances, petroleum or
petroleum distillates or asbestos or material containing asbestos.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 10
<PAGE> 17
"Hedging Arrangements" means any hedging accounts or hedging contracts
relating to the trading of crude oil or natural gas that are established or
maintained by any Credit Party to limit or reduce the market risk of holding
crude oil or natural gas in either the cash or futures market.
"Holdings" has the meaning specified in the preamble hereto.
"Holdings Guaranty" means the Guaranty Agreement dated as of February
8, 1994, executed and delivered by Holdings for the benefit of the
Administrative Agent and the Lenders, as the same may be amended or otherwise
modified from time to time.
"Holdings Pledge Agreement" means the Pledge Agreement dated as of
February 8, 1994, between Holdings and the Administrative Agent, as amended by
the First Amendment to Holdings Pledge Agreement and as the same may be further
amended or otherwise modified from time to time.
"Hydrocarbons" means crude oil, natural gas, natural gas liquids,
other liquid or gaseous hydrocarbons and sulphur.
"Indebtedness" means, with respect to any Person, (a) all indebtedness
or other obligations of such Person for borrowed money or for the deferred
purchase price of property or services except trade accounts payable incurred
in the ordinary course of business which are not past due by more than one
hundred twenty (120) days unless they are being contested in good faith by
appropriate proceedings, (b) Capitalized Lease Obligations of such Person, (c)
all obligations of such Person under direct or indirect guaranties in respect
of, and contingent or other obligations of such Person to purchase or otherwise
acquire or to otherwise assure a creditor against loss in respect of,
indebtedness or other obligations of any other Person for borrowed money or for
the deferred purchase price of property or services or Capitalized Lease
Obligations of any other Person, (d) all indebtedness or other obligations of
any other Person for borrowed money or for the deferred purchase price of
property or services secured by (or for which the holder of such indebtedness
has an existing right, contingent or otherwise, to be secured by) any lien,
security interest or other charge or encumbrance upon or in property owned by
such Person, (e) all obligations of such Person in respect of letters of credit
and bankers' acceptances, (f) liabilities (other than premiums to the Pension
Benefit Guaranty Corporation under Title IV of ERISA) incurred under Title IV
of ERISA with respect to any plan (other than a Multiemployer Plan) covered by
Title IV of ERISA and maintained for employees of such Person or any of its
Affiliates and (g) withdrawal liability incurred under ERISA by such Person or
any of its Affiliates to any Multiemployer Plan.
"Indenture" means that certain Indenture dated as of October 1, 1997,
executed and delivered by Holdings, as issuer, the Borrowers, ING, Coho
Fairbanks Gathering Company and Coho Louisiana Gathering Company, as subsidiary
guarantors, and Marine Midland Bank, as Trustee, as the same may be amended or
otherwise modified with the consent of Required Lenders.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 11
<PAGE> 18
"Independent Engineer" means Ryder Scott Company or another
independent engineering firm selected by the Borrowers and reasonably
satisfactory to the Lenders; provided however, that, if the Borrowers shall not
have selected an independent engineering firm satisfactory to the Lenders
within thirty (30) days of receiving notice from the Administrative Agent
requesting a different engineering firm, the Administrative Agent shall furnish
to the Borrowers a list of three alternative engineering firms and "Independent
Engineer" shall mean the engineering firm selected by the Borrowers from such
list.
"ING" means Interstate Natural Gas Company, a Delaware corporation.
"ING Acquisition" means the acquisition of ING by Holdings and CRI
pursuant to the ING Acquisition Agreement.
"ING Acquisition Agreement" means that certain Acquisition Agreement
dated as of November 11, 1994, by and among The Morgan Stanley Leveraged Equity
Fund II, L.P., Quinn Oil Company Ltd., ING, Holdings and CRI.
"ING Pledge Agreement" means the Pledge Agreement dated as of December
2, 1994, pursuant to which ING pledged to the Administrative Agent, for the
benefit of the Lenders, the Capital Stock of the ING Subsidiaries directly
owned by ING as collateral for the Obligations, as the same may be amended or
otherwise modified from time to time.
"ING Subsidiaries" means the Production Company, Coho Fairbanks
Gathering Company, Coho Louisiana Gathering Company and Exploration.
"Initial Engineering Report" means the engineering report prepared by
The Scotia Group, dated June 1992.
"Initial Environmental Report" means the Phase 1 environmental report
delivered to the Administrative Agent in accordance with Section 5.01(e)(xvii)
of the Original Credit Agreement.
"Interbank Offered Rate" means, with respect to each Interest Period,
the rate of interest per annum determined by the Administrative Agent to be the
average (rounded upward, if necessary, to the nearest 1/100 of 1%) of the rates
per annum at which deposits in immediately available freely transferable funds
in Dollars are offered to each of the Reference Lenders (at approximately 11:00
a.m., London, England time, two Business Days prior to the first day of such
Interest Period) in the London interbank market for delivery on the first day
of such Interest Period, such deposits being for a period of time equal or
comparable to such Interest Period and in an amount equal or comparable to each
Reference Lender's share of the principal amount of the Eurodollar Advance to
which such Interest Period relates. Each determination by the Administrative
Agent of the Interbank Offered Rate shall be conclusive in the absence of
manifest error.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 12
<PAGE> 19
"Intercompany Borrower" means, if and only if approved in writing by
the Administrative Agent and Required Lenders and only to the extent so
approved, any one or more of Holdings and, except for Coho Shell, one or more
Restricted Subsidiaries of Holdings.
"Interest Coverage Ratio" means, as of any date of determination, the
ratio of EBITDA to Consolidated Interest Expense for the four fiscal quarters
of Holdings and its Restricted Subsidiaries then most recently ended.
"Interest Period" means with respect to any Eurodollar Advances, each
period commencing on the date such Advances are made (including, as applicable,
the date such advances were made under the Second Restated Credit Agreement) or
Converted from Advances of another Type or, in the case of each subsequent,
successive Interest Period applicable to a Eurodollar Advance, the last day of
the next preceding Interest Period with respect to such Advance, and ending on
the numerically corresponding day in the first, second or third calendar month
thereafter, as a Borrower may select as provided in Section 2.05 or 2.07
hereof, except that each such Interest Period which commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day or if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day; (b) any Interest
Period which would otherwise extend beyond the Maturity Date shall end on the
Maturity Date; (c) no more than four (4) Interest Periods for Eurodollar
Advances shall be in effect at the same time; (d) no Interest Period for any
Eurodollar Advances shall have a duration of less than one (1) month and, if
the Interest Period for any Eurodollar Advances would otherwise be a shorter
period, such Advances shall not be available hereunder, and (e) no Interest
Period may extend beyond a principal repayment date unless, after giving effect
thereto, the aggregate principal amount of the Eurodollar Advances having
Interest Periods that end after such principal repayment date shall be equal to
or less than the maximum principal amount of Advances permitted to be
outstanding hereunder after such principal repayment date.
"Interest Rate Hedging Arrangements" means interest rate swaps,
interest rate caps, interest rate collars or other similar mechanisms enabling
a Person to fix or limit its interest expense.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Investment" has the meaning specified in the definition of Restricted
Investments.
"Lender" has the meaning specified in the preamble hereto.
"Letters in Lieu of Transfer Orders" means each letter in lieu of
transfer and division orders, in form and substance satisfactory to the
Administrative Agent directing each purchaser
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 13
<PAGE> 20
of Hydrocarbons attributable to the Petroleum and Natural Gas Rights pledged as
Collateral to make payment directly to the Administrative Agent.
"Letter of Credit" means a standby or commercial letter of credit
issued by the Administrative Agent for the account of a Borrower pursuant to
Section 2.01 (b) or, prior to the Closing Date, pursuant to Section 2.01(b) of
the Original Credit Agreement, Section 2.01(b) of the First Amended Credit
Agreement, Section 2.01(b) of the Second Amended Credit Agreement or Section
2.01(b) of the Third Amended Credit Agreement.
"Letter of Credit Liabilities" means, at any time, all fixed and
contingent liabilities of the Administrative Agent under outstanding Letters of
Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority, or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law, or otherwise.
"Loan Documents" means this Agreement, the Notes, the Security
Documents and the other Canada Trust Loan Documents (to the extent not amended
and restated pursuant to the Original Credit Agreement, the First Amended
Credit Agreement, the Second Amended Credit Agreement, the Third Amended Credit
Agreement or this Agreement), the "Loan Documents" as defined in the Original
Credit Agreement (to the extent not amended and restated pursuant to the First
Amended Credit Agreement, the Second Amended Credit Agreement, the Third
Amended Credit Agreement, or this Agreement), the "Loan Documents" as defined
in the First Amended Credit Agreement (to the extent not amended and restated
pursuant to the Second Amended Credit Agreement, the Third Amended Credit
Agreement, or this Agreement), the "Loan Documents" as defined in the Second
Amended Credit Agreement (to the extent not amended and restated pursuant to
the Third Amended Credit Agreement or this Agreement), the "Loan Documents" (as
defined in the Third Amended Credit Agreement, to the extent not amended and
restated pursuant to this Agreement), the Letters of Credit, all applications,
agreements and other documents pursuant to which any Letter of Credit is issued
and all other agreements, instruments and other documentation which may from
time to time be executed by any Credit Party or any third Person in favor of
the Administrative Agent or any Lender in connection with this Agreement as any
of such documentation may be amended or otherwise modified from time to time.
"Louisiana Oil and Gas Mortgage" means the mortgage dated as of
December 2, 1994, pursuant to which the Production Company, Coho Louisiana
Gathering Company and Coho Fairbanks Gathering Company granted to the
Administrative Agent, for the benefit of the Lenders, a first priority lien on
the ING Subject Interests (as such term is defined in the ING Acquisition
Agreement) located in Louisiana and certain other assets as collateral for the
Obligations, as the same may be amended or otherwise modified from time to
time.
"Majority Lenders" means at any time while no Advances or Letters of
Credit are outstanding Lenders holding at least fifty-one percent (51%) of the
aggregate amount of the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 14
<PAGE> 21
Commitments and, at any time while Advances or Letters of Credit are
outstanding, Lenders holding at least fifty-one percent (51%) of the
outstanding aggregate principal amount of the Advances and Letter of Credit
Liabilities.
"Material Adverse Change" means any change that is material and
adverse in or to (i) the operations, business or condition (financial or
otherwise) of (a) any Borrower and its Subsidiaries taken as a whole, (b) the
Borrowers and their Subsidiaries taken as a whole or (c) Holdings and its
Subsidiaries taken as a whole or (ii) the ability of any Credit Party to
perform its obligations under any Related Transactions Document to which it is
a party.
"Maturity Date" means 11:00 A.M. Houston time on January 2, 2003;
provided, however, the Lenders in their sole discretion may extend the Maturity
Date for additional one-year periods to by notice to the Borrowers.
"Maximum Rate" means the maximum rate of nonusurious interest
permitted from day to day by applicable law, including to the extent that Texas
law may ever be applied to the Loan Documents despite the parties election of
New York law to govern the Loan Documents, as to Article 5069-1.04, Vernon's
Texas Civil Statutes (and as the same may be incorporated by reference in other
Texas statutes), but otherwise without limitation, that rate based upon the
"indicated rate ceiling" and calculated after taking into account any and all
relevant fees, payments, and other charges charged, paid or contracted for in
connection with the Loan Documents which are deemed to be interest under
applicable law.
"Mid Louisiana Pledge Agreement" means the Pledge Agreement dated as
of December 2, 1994, pursuant to which the Production Company pledged the
Capital Stock of Exploration to the Administrative Agent, for the benefit of
the Lenders, as collateral for the Obligations, as amended by that certain
First Amendment to Pledge Agreement dated as of the Renewal Date, and as the
same may be amended or otherwise modified from time to time.
"Mississippi Oil and Gas Deed of Trust" means the Deed of Trust dated
as of December 2, 1994, pursuant to which the Production Company, Coho
Louisiana Gathering Company and Coho Fairbanks Gathering Company granted to the
Administrative Agent, for the benefit of the Lenders, a first priority lien on
the ING Subject Interests (as such term is defined in the ING Acquisition
Agreement) located in Mississippi and certain other assets as collateral for
the Obligations, as the same may be amended or otherwise modified from time to
time.
"Monthly Payment Date" means the last Business Day of each calendar
month.
"Mortgage" means the Deed of Trust, Mortgage, Assignment, Security
Agreement and Financing Statement dated as of August 13, 1990 (effective August
16, 1990), made by CRI for the benefit of Canada Trust encumbering the various
real and personal property described therein located in Mississippi, assigned
to the Administrative Agent for the benefit of the Lenders pursuant to the
Assignment, as amended pursuant to that certain Amendment and Ratification of
Deeds of Trust, Mortgages, Assignments, Security Agreements and Financing
Statements dated June 11, 1992, as supplemented pursuant to that certain First
Supplemental Deed of Trust, Mortgage, Assignment,
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 15
<PAGE> 22
Security Agreement and Financing Statement dated June 9, 1992, as amended by
the Third Renewal, Extension and Modification of Deed of Trust, Mortgage,
Assignment, Security Agreement and Financing Statement dated as of August 27,
1992, as amended by the Fourth Renewal, Extension and Modification of Deed of
Trust, Mortgage, Assignment, Security Agreement and Financing Statement dated
as of June 24, 1994, as amended by the Fifth Modification of Mississippi
Mortgage, and as the same may hereafter be amended or otherwise be modified
from time to time.
"Mortgaged Property" means collectively the Petroleum and Natural Gas
Rights encumbered by the Mortgage, the Deed of Trust, the Louisiana Oil and Gas
Mortgage, the Mississippi Deed of Trust, and the Oklahoma Mortgage, as the same
have been or may be in the future amended or otherwise modified from time to
time.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Note" means a promissory note executed by the Borrowers in the form
of Exhibit A payable to the order of a Lender in the amount of its Commitment
and all extensions, renewals and other modifications thereof and all
substitutions therefor.
"Obligations" means collectively, (a) the obligation of any Credit
Party to pay, as and when due and payable (by scheduled maturity or otherwise),
all amounts from time to time owing by it to the Administrative Agent, any
Co-Agent, or any Lender, in respect of any Loan Document, whether for
principal, interest, fees or otherwise, (b) the obligation of any Credit Party
to perform or observe all of its other obligations from time to time existing
under any Loan Document and (c) all obligations, indebtedness and liabilities
of any Credit Party to any Lender arising in connection with any Hedging
Arrangements or any Interest Rate Hedging Arrangements.
"Oklahoma Mortgage" means that certain Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated of even date
herewith pursuant to which Acquisitions is granting to the Administrative
Agent, for the benefit of the Lenders, a first priority Lien on the Amoco
Properties, as the same may be amended from time to time.
"Original Closing Date" means August 27, 1992.
"Original Credit Agreement" has the meaning specified in the Recitals
hereto.
"Original Security Agreement" means that certain Amended and Restated
General Security Agreement and Pledge of Collateral Mortgage Note dated August
27, 1992 between CRI and the Administrative Agent, as modified pursuant to that
certain Act of Partial Release of Act of Collateral Mortgage and Security
Agreement dated June 15, 1993 and pursuant to that certain Partial Release of
Amended and Restated General Security Agreement and Pledge of Collateral
Mortgage Note dated August 17, 1993 and as the same may hereafter be amended or
otherwise modified from time to time.
"Other Taxes" has the meaning specified in Section 3.06(a).
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 16
<PAGE> 23
"Outstanding Credit" means, at the date of determination, the sum of
the following: (a) the sum of the aggregate outstanding principal amount of
Advances as of such date, plus (b) the outstanding Letter of Credit Liabilities
as of such date, plus (c) all fixed and contingent liabilities outstanding as
of such date in respect of the letters of credit issued pursuant to the
provisions set forth in subsection 7.02(b)(xi) and, prior to the Closing Date,
pursuant to the provisions set forth in subsection 7.02(b)(xi) of the First
Amended Credit Agreement, Subsection 7.02(b)(xi) of the Second Amended Credit
Agreement and Subsection 7.02(b)(xi) of the Third Amended Credit Agreement,,
and prior to February 8, 1994, pursuant to the provisions of subsection
7.02(b)(ix) of the Original Credit Agreement.
"Paribas" has the meaning specified in the Recitals hereto.
"Permitted Coho Shell Advance" means an advance made by a Borrower to
Coho Shell if (A) no Potential Default or Event of Default exists or would
result therefrom, (B) the amount of such advance does not exceed the
Availability existing immediately prior to the time such advance is made, (C)
such advance is used by Coho Shell to acquire Petroleum and Natural Gas Rights,
(D) such advance is otherwise made on terms and conditions and is evidenced and
governed by loan and security documents which are reasonably acceptable to the
Administrative Agent and Lenders, (E) such advance, along with the collateral
securing the repayment thereof and all documentation executed in connection
therewith, is pledged to the Administrative Agent for the benefit of the
Lenders to secure repayment of the Obligations pursuant to the terms of the
Additional Security Agreement, and (F) the applicable Borrower shall have
provided evidence to the Administrative Agent and the Lenders, in form and
substance reasonably acceptable to the Administrative Agent and the Lenders,
that after giving effect to such advance (1) the present fair saleable value of
such Borrower's assets is in excess of the total amount of such Borrower's
liabilities, contingent or otherwise, (2) such Borrower is paying its debts as
they become due, (3) such Borrower does not believe that it will incur debts or
liabilities beyond its ability to pay such debts and liabilities as they
mature, and (4) such Borrower has sufficient capital to carry on its business
as it has been operated and as it is intended to be operated.
"Permitted Intercompany Advance" means an advance made by a Borrower
to an Intercompany Borrower if (A) no Potential Default or Event of Default
exists or would result therefrom, (B) the amount of such advance does not
exceed the Availability existing immediately prior to the time such advance is
made, (C) such advance is used by the applicable Intercompany Borrower to
acquire Petroleum and Natural Gas Rights, (D) such advance is otherwise made on
terms and conditions and is evidenced and governed by loan and security
documents which are reasonably acceptable to the Administrative Agent and
Lenders, (E) such advance, along with the collateral securing the repayment
thereof and all documentation executed in connection therewith, is pledged to
the Administrative Agent for the benefit of the Lenders to secure repayment of
the Obligations pursuant to the terms of the Additional Security Agreement, and
(F) the applicable Borrower shall have provided evidence to Administrative
Agent and the Lenders, in form and substance reasonably acceptable to the
Administrative Agent and the Lenders, that after giving effect to such advance
(1) the present fair saleable value of such Borrower's assets is in excess of
the total amount of such Borrower's liabilities, contingent or otherwise, (2)
such Borrower is paying its debts as they become due, (3) such Borrower does
not believe that it will incur debts or liabilities beyond
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 17
<PAGE> 24
its ability to pay such debts and liabilities as they mature, and (4) such
Borrower has sufficient capital to carry on its business as it has been
operated and as it is intended to be operated.
"Person" means an individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture or
governmental authority or other regulatory body.
"Petroleum and Natural Gas Right" means a Working Interest, a mineral
interest, a mineral servitude or a Royalty Interest relating to lands
(including, without limitation, submerged lands), whether pursuant to a
petroleum and/or natural gas lease or sublease, royalty agreement, farmout
agreement, joint participation agreement, conveyance, pooling agreement, unit
agreement or other instrument.
"Plan" means an Employee Plan or Multiemployer Plan.
"Potential Default" means any condition or event which, after notice
or lapse of time or both, would constitute an Event of Default.
"Prime Rate" means the variable rate of interest established from time
to time by Citibank, N.A. or any successor in interest to such bank (at its
head office) (or such other bank as may be designated by the Administrative
Agent as provided below), as its prime rate of interest, which rate of interest
may or may not be the lowest or best rate charged by such bank; provided,
however, that, in lieu of Citibank, N.A. or any successor bank to Citibank,
N.A. for purposes of establishing the Prime Rate, the Administrative Agent
may, at any time and from time to time upon five (5) Business Days' prior
written notice to Borrowers and the Lenders, designate (a) The Bank of New
York, New York, New York (at its head office) or (b) any other bank as may be
reasonably acceptable to Borrowers and the Lenders, as the reference bank for
purposes of establishing the Prime Rate. Each change in the Prime Rate shall
become effective without prior notice to Borrowers automatically as of the
opening of business on the date of such change in the Prime Rate.
"Prime Rate Advances" means Advances that bear interest at rates based
upon the Prime Rate.
"Principal Office" means the principal office of the Administrative
Agent located at Houston, Texas.
"Production Company" means Coho Louisiana Production Company, a
Delaware corporation.
"Production Report" means, with respect to any calendar quarter, a
report prepared by the Borrowers and certified by the President or any Vice
President of CRI setting forth the quantity of Hydrocarbons produced from the
Proven Reserves covered by the Security Documents during such quarter.
"Proven Non-Producing Reserves" means Proven Reserves other than
Proven Producing Reserves.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 18
<PAGE> 25
"Proven Producing Reserves" means Proven Reserves which are presently
being produced from completion intervals cased for production in existing
wells.
"Proven Reserves" means, at any time, those quantities of Hydrocarbons
which, upon analysis of geological and engineering information and economic
conditions in respect of Petroleum and Natural Gas Rights of the Borrowers,
demonstrate with reasonable certainty to be economically recoverable in the
future from known oil and gas reservoirs under then-existing economic and
then-current operating conditions, and then existing prices and costs, and
which have demonstrated the ability to produce by the availability of actual
production information or conclusive formation testing.
"Pro Rata" means, as to any Lender, its ratable share expressed as a
percentage obtained by multiplying by one hundred (100) the ratio obtained by
either (a) dividing the applicable Commitment of the Lender in question by the
total Commitments of all Lenders (whether or not such Commitments have
terminated and if such Commitments have terminated, then the Commitments shall
be deemed equal to the amount thereof immediately prior to such termination for
the purposes of calculating "Pro Rata") or (b) dividing the aggregate principal
amount of the Advances and/or the Letter of Credit Liabilities outstanding
which were made or participated in by the Lender in question by the aggregate
principal amount of all the Advances and/or Letter of Credit Liabilities
outstanding.
"Quarterly Payment Date" means the last Business Day of January,
April, July and October of each year.
"Redetermination Date" means five (5) days after the Borrowers shall
have been given notice that the Borrowing Base has been redetermined pursuant
to Section 2.10 .
"Reference Lenders" means Paribas and such other Lender or Lenders (if
any) as the Administrative Agent may, in addition to Paribas, designate as
Reference Lenders from time to time in its discretion upon notice to the
Borrowers and Lenders.
"Registration Rights Agreement" means that certain Registration Rights
and Shareholder Agreement among Holdings, The Morgan Stanley Leveraged Equity
Fund II, LP, and Quinn Oil Company Ltd. executed pursuant to the terms of the
ING Acquisition Agreement.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Regulatory Change" means, with respect to any Lender, any change
after the date hereof in United States federal, state, or foreign laws, rules,
treaties, directives, guidelines, regulations or policies (including without
limitation, any policy with respect to preexisting laws, rules, treaties,
regulations, guidelines or directives) or the adoption or making after such
date of any interpretations, directives, or requests applying to a class of
banks including such Lender (or its Applicable Lending Office) of or under any
United States federal or state, or any foreign, laws, rules, treaties,
directives, guidelines, regulations or policies (whether or not having the
force of law) by any Governmental
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 19
<PAGE> 26
Authority charged with the interpretation or administration thereof, including,
without limitation, any change in (a) any law, rule, regulation, policy,
guideline or directive contemplated by the report dated July 1988 entitled
"International Convergence of Capital Measurement and Capital Standards" issued
by the Basle Committee on Banking Regulations and Supervisory Practices and (b)
Japanese Ministry of Finance Act No. 901, dated April 1, 1982, as amended or
otherwise modified from time to time, including the amendment dated December
22, 1988 but excluding reserve requirements under Regulation D.
"Related Transactions Documents" has the meaning specified in the
Second Amended Credit Agreement.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching, emanation or
migration in, into or onto the environment (including, without limitation,
ambient air, surface water, ground water, land surface, subsurface strata or
work place) of any Contaminant, at, in, by or related to the facilities of any
Person, including, without limitation, the movement of any Contaminant or other
substance through or in the air, soil, surface water or groundwater, except
that for purposes of this definition only, "Contaminant" shall not include
petroleum or petroleum distillates unless (a) the event constituting a
"Release" for purposes of this definition requires notification pursuant to the
Federal Clean Water Act, as amended from time to time, or notification and/or
filing under Mississippi law or other applicable law or (b) the cost of
Remedial Action with respect to such event would exceed One Hundred Thousand
Dollars ($100,000.00).
"Remedial Action" means all actions required or voluntarily undertaken
to (a) clean up, remove, treat, or in any other way address any Contaminant in
the environment or work place, (b) prevent a Release or threat of Release, or
minimize any further Release, so it does not migrate or endanger or threaten to
endanger public health or welfare of the environment or work place, or (c)
perform pre-remedial studies and investigations and post-remedial monitoring
and care.
"Renewal Date" means August 8, 1996.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Required Lenders" means at any time while no Advances or Letters of
Credit are outstanding Lenders holding at least sixty-six and two thirds
percent (66 2/3%) of the aggregate amount of the Commitments and, at any time
while Advances or Letters of Credit are outstanding, Lenders holding at least
sixty-six and two thirds percent (66 2/3%) of the outstanding aggregate
principal amount of the Advances and Letter of Credit Liabilities.
"Reserve Requirement" means, for any Eurodollar Advance for any
Interest Period therefor, the average maximum rate at which reserves (including
any marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency Liabilities" as such term is used in Regulation D.
Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 20
<PAGE> 27
by such member banks by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which the
Adjusted Eurodollar Rate is to be determined or (b) any category of extensions
of credit or other assets which include Eurodollar Advances.
"Restricted Investments" means all investments, made in cash or by
delivery of property, by Holdings and its Restricted Subsidiaries (a) in any
Person, whether by acquisition of stock, indebtedness or other obligation or
security, or by loan, advance or capital contribution, or otherwise, or (b) in
any property (items (a) and (b) herein called "Investments"), except the
following:
(i) Investments by Holdings in property to be used in the
ordinary course of its business;
(ii) Investments by any Subsidiary of Holdings in property
to be used in the ordinary course of business of such Subsidiary;
(iii) Investments by Holdings in current assets arising
from the sale of goods and services in the ordinary course of its business;
(iv) Investments by any Subsidiary of Holdings in current
assets arising from the sale of goods and services in the ordinary course of
business of such Subsidiary;
(v) Investments in direct obligations of the United
States of America, or any agency thereof, or obligations guaranteed by the
United States of America or any agency thereof;
(vi) Investments in certificates of deposit maturing one
year or less from the date of acquisition thereof issued by a Lender or any
other bank or trust company organized under the laws of the United States of
America or any state thereof having capital, surplus and undivided profits
aggregating at least Five Hundred Million Dollars ($500,000,000.00);
(vii) Investments in commercial paper if at the time of
acquisition such paper is rated in one of the two highest rating categories of
Standard and Poor's Corporation or Moody's Investors Service;
(viii) Investments consisting of operating deposit accounts
with commercial banks;
(ix) Investments in the ordinary course of business
relating to the acquisition of Petroleum and Natural Gas Rights and the
exploration and development thereof;
(x) Investments made in connection with Hedging
Arrangements or Interest Rate Hedging Arrangements;
(xi) Investments made by Holdings in any of its
Subsidiaries with the proceeds of the sale of its equity securities;
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 21
<PAGE> 28
(xii) Permitted Coho Shell Advances and Permitted
Intercompany Advances, if any; and
(xiii) Investments in ING and the ING Subsidiaries arising
as a direct result of the ING Acquisition.
"Restricted Payments" means, with respect to any Person (a) cash
dividends or distributions or any other dividends or distributions on, or in
respect of, any class of Capital Stock or other equity interests of such
Person, except for distributions made solely in shares of stock or other equity
interests of the same class, (b) any and all funds, cash or other payments made
in respect of the retirement, redemption, repurchase or other acquisition of
such stock or equity interests, unless such stock or equity interests shall be
redeemed or acquired through the exchange of such stock or equity interests
with stock or equity interests of the same class, and (c) any loan or advance
by such Person to, or other investment by such Person in, the holder of any
such stock or equity interests (other than Permitted Coho Shell Advances and
Permitted Intercompany Advances); provided, however, that dividends or other
distributions by any Borrower or any of Holdings' other Restricted Subsidiaries
to its shareholders shall not be considered Restricted Payments if (i) no
Potential Default or Event of Default exists or would result therefrom, (ii)
such dividends or other distributions made in any fiscal year do not exceed an
amount equal to, and are made for the purpose of paying, Holdings'
administrative expenses and taxes incurred and attributable to the operations
of the Borrowers and other Subsidiaries of Holdings for such fiscal year, (iii)
the amount of such expenses and taxes are determined pursuant to agreements in
form and substance reasonably acceptable to the Administrative Agent and
Lenders, and (iv) the amount of such dividends and distributions made for the
purpose of paying such administrative expenses do not exceed Three Million
Dollars ($3,000,000.00) in any fiscal year.
"Restricted Subsidiary" means Borrowers, Coho Shell and any other
Subsidiary of Holdings or a Borrower, as applicable, that is not an
Unrestricted Subsidiary.
"Revolving Advance" means an advance of funds by the Lenders or any of
them to a Borrower pursuant to Section 2.01(a) of this Agreement or, prior to
the Closing Date, pursuant to Article II of the Third Amended Credit Agreement.
"Royalty Interest" means a right to a portion of the production of
Hydrocarbons from lands or a portion of the proceeds from the production of
Hydrocarbons from lands, free and clear of operating or other costs, or a right
to a share of profits from the production of Hydrocarbons from lands, provided
that a Royalty Interest shall not include a Working Interest.
"Second Amended and Restated Contribution Agreement" means the Second
Amended and Restated Contribution Agreement of dated even date herewith among
Coho Resources, Inc., Coho Energy, Inc., Coho Louisiana Production Company,
Coho Exploration, Inc., Coho Acquisitions Company, Interstate Natural Gas
Company, Coho Fairbanks Gathering Company, and Coho Louisiana Gathering
Company.
"Second Amended Credit Agreement" has the meaning specified in the
Recitals hereto.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 22
<PAGE> 29
"Second Amendment to Pledge Agreement" means that certain Second
Amendment to Pledge Agreement dated of even date herewith between Coho
Resources, Inc. and the Administrative Agent pursuant to which the CRI Pledge
Agreement is amended to provide for Coho Resources, Inc. pledge of all of the
issued and outstanding capital stock of Acquisitions to the Administrative
Agent for the benefit of the Lenders.
"Security Documents" means the Mortgage, the Deed of Trust, the
Original Security Agreement, the Additional Security Agreement, the Guaranty,
the Holdings Pledge Agreement, the CRI Pledge Agreement, the ING Pledge
Agreement, the Mid Louisiana Pledge Agreement, the Louisiana Oil and Gas
Mortgage, the Mississippi Oil and Gas Deed of Trust, the Oklahoma Mortgage, the
Negative Pledge Agreement dated February 8, 1994, executed by Coho Canada for
the benefit of the Administrative Agent and the Lenders, Uniform Commercial
Code Financing Statements and such other mortgages, deeds of trust, security
agreements, financing statement and other documentation executed and delivered
by any Credit Party or any other Person for the benefit of the Administrative
Agent and the Lenders that grant or perfect Liens on property to secure the
Obligations or any part thereof, as any of the same may be amended or otherwise
modified from time to time.
"Second Modification - Brookhaven Deed of Trust" means that certain
Second Renewal, Extension and Modification of Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated as
of the Renewal Date by and between CRI and the Administrative Agent.
"Second Modification to Louisiana Oil and Gas Mortgage" means that
certain Second Renewal, Extension and Modification of Mortgage, Assignment of
Production, Security Agreement and Financing Statement dated as of the Renewal
Date between CRI and the Administrative Agent.
"Second Modification to Mississippi Oil and Gas Deed of Trust" means
that certain Second Renewal, Extension and Modification of Deed of Trust,
Mortgage, Assignment of Production, Security Agreement and Financing Statement
dated as of the Renewal Date by and between CRI and the Administrative Agent.
"Seventh Modification of Mississippi Mortgage" means that certain
Seventh Renewal, Extension and Modification of Deed of Trust, Mortgage,
Assignment, Security Agreement and Financing Statement dated as of the Renewal
Date, by and among CRI, Exploration and the Administrative Agent.
"Sixth Modification of Texas Deed of Trust" means that certain Sixth
Renewal, Extension and Modification of Deed of Trust, Mortgage, Assignment,
Security Agreement and Financing Statement dated as of the Renewal Date, by and
between CRI and the Administrative Agent.
"Stockholders' Equity" means, with respect to any Person, the
aggregate of the following accounts (or their equivalents) set forth on a
consolidated balance sheet of such Person and its
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 23
<PAGE> 30
Restricted Subsidiaries prepared in accordance with GAAP, provided that there
shall be no adjustments for any write down of any property, plant and equipment
and there shall be excluded therefrom any loans or advances by such Person to
any of its shareholders: (a) the par or stated value of all outstanding Capital
Stock after deducting treasury stock), (b) capital surplus and (c) retained
earnings.
"Subordinated Indebtedness" means any Indebtedness of any Company or
any Guarantor (whether outstanding on the effective date hereof or hereafter
incurred) incurred pursuant to the Indenture or evidenced by the Securities (as
defined in the Indenture) or the Subsidiary Guaranties (as defined in the
Indenture).
"Subsidiary" means, as to any Person, any corporation of which more
than 50% of the outstanding Capital Stock having (in the absence of
contingencies) ordinary voting power to elect directors (or Persons performing
similar functions) of such corporation is, at the time of determination, owned
directly, or indirectly through one or more intermediaries, by such Person.
"Subsidiary Guaranties" means the Guaranty Agreements dated as of
December 2, 1994, executed by ING and each of the ING Subsidiaries in favor of
the Administrative Agent and the Lenders, pursuant to which ING and each ING
Subsidiary unconditionally guaranteed the payment and performance of the
Obligations to the extent as set forth therein, as the same may be amended or
otherwise modified from time to time.
"Supermajority Lenders" means at any time while no Advances or Letters
of Credit are outstanding, Lenders holding at least seventy-five percent (75%)
of the aggregate amount of the Commitments and, at any time while Advances or
Letters of Credit are outstanding, Lenders holding at least seventy-five
percent (75%) of the outstanding aggregate principal amount of the Advances and
Letter of Credit Liabilities; provided, however, that a group of Lenders which
excludes more than one Lender shall never be deemed to constitute Supermajority
Lenders.
"Taxes" has the meaning specified in Section 3.06.
"Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA (other than a Reportable Event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation under the regulations
promulgated under such Section) with respect to any Employee Plan, (b) the
withdrawal of Holdings or any of its Affiliates from an Employee Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, if as a result Holdings or such Affiliate would be liable
to the Pension Benefit Guaranty Corporation under ERISA Section 4063(b) for
more than Five Hundred Thousand Dollars ($500,000.00), (c) the filing of a
notice of intent to terminate an Employee Plan (other than in a "standard
termination" under Section 4041 of ERISA) or the treatment of an Employee Plan
amendment as a termination under section 4041 of ERISA, but only if the
actuarial present value of the benefit liabilities under the Employee Plan
exceeds the current value of assets allocable to those benefit liabilities in
that Employee Plan by more than Five Hundred Thousand Dollars
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 24
<PAGE> 31
($500,000.00), (d) the institution of proceedings by the Pension Benefit
Guaranty Corporation to terminate an Employee Plan, or (e) any other event or
condition which constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Employee
Plan.
"Type" means any type of Advance determined with respect to the
interest option applicable thereto, i.e. a Prime Rate Advance or a Eurodollar
Advance.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings (other
than Coho Shell or any Credit Party) that Holdings has designated in writing to
the Administrative Agent and the Lenders as an Unrestricted Subsidiary and each
Subsidiary of such designated Subsidiary (other than Coho Shell or any Credit
Party), and (ii) the following Subsidiaries of Coho Canada: 253741 Alberta
Ltd., an Alberta, Canada corporation and 249183 Alberta Ltd., an Alberta,
Canada corporation. Once a Subsidiary has been designated as an Unrestricted
Subsidiary it may not become a Restricted Subsidiary without the consent of all
the Lenders.
"Working Interest" means an interest embodying the right to operate a
well or wells and the right to share in production of Hydrocarbons from such
well or wells or a right to a share of the revenues from the sale of such
Hydrocarbons.
SECTION 1.02. Accounting and other Terms. Unless otherwise expressly
stated herein, all accounting terms used in this Agreement which are not
otherwise defined herein shall be construed in accordance with GAAP. All terms
used in this Agreement which are defined in Article 9 of the Uniform Commercial
Code (the "UCC") in effect in the State of Texas on the date hereof and which
are not otherwise defined herein shall have the same meanings herein as set
forth therein. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement.
ARTICLE II
ADVANCES AND LETTERS OF CREDIT
SECTION 2.01. Commitments.
(a) Revolving Advances. Subject to the terms and conditions of
this Agreement, each Lender severally agrees to make one or more Revolving
Advances to the Borrowers from time to time from the Closing Date prior to the
Maturity Date in an aggregate principal amount at any time outstanding up to
but not exceeding the amount of such Lender's Commitment as then in effect;
provided, however, that the Outstanding Credit shall not any time exceed the
Borrowing Base. Subject to the foregoing limitations, and the other terms and
provisions of this Agreement, Borrowers may borrow, repay, and reborrow
hereunder the amount of the Commitments by means of Prime Rate Advances and
Eurodollar Advances prior to the Maturity Date, Borrowers may Convert Revolving
Advances of one Type into Revolving Advances of another Type. Revolving
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 25
<PAGE> 32
Advances of each Type made by each Lender shall be made and maintained at such
Lender's Applicable Lending Office for Advances of such Type.
(b) Letters of Credit.
(i) Issuance. Subject to the terms and conditions of this
Agreement, the Administrative Agent agrees to issue one or more Letters of
Credit for the account of any Borrower from time to time from the Closing Date
hereof to but excluding the Maturity Date; provided, however, that (A) the
outstanding Letter of Credit Liabilities shall not at any time exceed Fifteen
Million Dollars ($15,000,000.00) and (B) the Outstanding Credit shall not any
time exceed the Borrowing Base . Each Letter of Credit shall be issued in the
minimum face amount of One Hundred Thousand Dollars ($100,000.00), shall not
have an expiration date beyond the Maturity Date, shall be payable in Dollars,
must support a transaction that is entered into in the ordinary course of
business by a Borrower or any Subsidiary of a Borrower, must otherwise be
satisfactory in form and substance to the Administrative Agent and shall be
issued pursuant to such documents and instruments (including without
limitation, letter of credit applications and agreements) as the Administrative
Agent may require. At the time of issuance of each Letter of Credit, the
Administrative Agent shall be deemed, without further action by any party
hereto, to have sold to each other Lender, and each other Lender shall be
deemed without further action by any party hereto, to have purchased from the
Administrative Agent, a participation to the extent of such Lender's Pro Rata
portion (calculated on the basis of the Commitments) of such Letter of Credit
and the related Letter of Credit Liabilities.
(ii) Reimbursement of Letter of Credit Drawings. Upon
receipt by the Administrative Agent of a request for any drawing under a Letter
of Credit, the Administrative Agent shall promptly notify the Borrower which is
the account party on the Letter of Credit and each Lender as to the payment
date for such drawing and amount to be paid as a result of the drawing. Each
Lender shall make available to the Administrative Agent its Pro Rata portion
(calculated on the basis of the Commitments) of the amount to be paid as result
of the drawing on the Letter of Credit, at the Principal Office, in immediately
available funds, not later than 11:00 A.M. (Houston, Texas time) on the payment
date. Each payment made by the Administrative Agent pursuant to a drawing
under a Letter of Credit shall be deemed an Advance under each Lender's Note in
an amount equal to such Lender's Pro Rata portion of such payment (calculated
on the basis of the Commitments). Each such Advance shall be a Prime Rate
Advance.
(iii) Letter of Credit Fees. The Borrowers jointly and
severally agree to pay the Administrative Agent for the benefit of each Lender
a letter of credit fee on such Lender's Pro Rata portion (calculated on the
basis of the Commitments) of the average daily amount available for drawing
under the Letters of Credit, such letter of credit fee to be paid in arrears on
each Quarterly Payment Date and on the Maturity Date and to be calculated at a
rate of one percent (1%) per annum of such average daily amount available for
drawing under the Letters of Credit based on a 365 or 366 day year (as the case
may be) and the actual number of days elapsed. After receiving any payment of
any letter of credit fees under this clause (iii), the Administrative Agent
will promptly pay to each Lender the letter of credit fees then due such
Lender. With respect to
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 26
<PAGE> 33
each Letter of Credit, the Borrowers will also jointly and severally pay to the
Administrative Agent for its account only and on the date of the issuance of
the Letter of Credit an issuance fee equal to one fourth of one percent (0.25%)
of the maximum amount available to be drawn under the Letter of Credit.
SECTION 2.02. Notes. The obligation of the Borrowers to repay each
Lender for Advances made by such Lender and interest thereon shall be evidenced
by a Note executed by the Borrowers, payable to the order of such Lender, in
the principal amount of such Lender's Commitment as originally in effect. The
Lenders and the Borrowers acknowledge and agree that the Lenders are willing to
make advances to any Borrower only if the other Borrowers are liable for
payment thereof and, accordingly, and in order to avoid the necessity of the
issuance of a separate note for each Borrower the payment of which would be
guaranteed by each of the other Borrowers, each of the Borrowers desires to be
a co-borrower of, and jointly and severally liable for, payment of the
Advances. None of the Borrowers is a co-borrower with respect to an advance or
is executing a Note as a co-maker thereof as a condition to or otherwise in
connection with any Advance to such Borrower other than an Advance the proceeds
of which are used by such Borrower.
SECTION 2.03. Repayment of Advances. All outstanding Revolving
Advances shall be due and payable in full on the Maturity Date.
SECTION 2.04. Interest. The unpaid principal amount of the Advances
shall bear interest prior to maturity at a varying rate per annum equal from
day to day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate,
each such change in the rate of interest charged on the Advances to become
effective, without notice to Borrowers, on the effective date of each change in
the Applicable Rate or the Maximum Rate, as the case may be; provided, however,
that if at any time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest on the Advances to
be limited to the Maximum Rate, then any subsequent reduction in the Applicable
Rate shall not reduce the rate of interest on the Advances below the Maximum
Rate until the aggregate amount of interest accrued on the Advances equals the
aggregate amount of interest which would have accrued on the Advances if the
interest rate specified in clause (b) preceding had at all times been in
effect. Accrued and unpaid interest on the Advances shall be due and payable
as follows:
(i) in the case of Prime Rate Advances, on each
Monthly Payment Date and on the Maturity Date applicable to such
Advances;
(ii) in the case of each Eurodollar Advance, on
the last day of the Interest Period with respect thereto, but no less
often than quarterly;
(iii) upon the payment or prepayment of any Advance
or the Conversion of any Advance to an Advance of another Type (but
only on the principal amount so paid, prepaid, or Converted); and
(iv) on the Maturity Date.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 27
<PAGE> 34
All past due principal and interest shall bear interest at the Default
Rate.
SECTION 2.05. Access to Availability.
(a) Borrowing Procedure. Each Borrower requesting an Advance
shall give the Administrative Agent notice by means of an Advance Request Form
of each requested Advance (other than an Advance pursuant to subsection
2.01(b)(ii)), at least two (2) Business Days before the requested date of each
Prime Rate Advance and at least three (3) Business Days before the requested
date of each Eurodollar Advance, specifying: (i) the requested date of such
Advance (which shall be a Business Day), (ii) the amount of such Advance, (iii)
the Type of the Advance, and (iv) in the case of a Eurodollar Advance, the
duration of the Interest Period for such Advance. The Administrative Agent at
its option may accept telephonic requests for Advances, provided that such
acceptance shall not constitute a waiver of the Administrative Agent's right to
delivery of an Advance Request Form in connection with subsequent Advances.
Any telephonic request for an Advance by a Borrower shall be promptly confirmed
by submission of a properly completed Advance Request Form to the
Administrative Agent. Each Advance (other than an Advance pursuant to
subsection 2.01(b)(ii)) shall be in a minimum principal amount of One Million
Dollars ($1,000,000.00). The aggregate principal amount of Eurodollar Advances
having the same Interest Period shall be at least equal to One Million Dollars
($1,000,000.00). The Administrative Agent shall promptly notify each Lender of
each such notice of borrowing. Not later than 11:00 A.M. Houston, Texas time
on the date specified for each Advance hereunder, each Lender will make
available to the Administrative Agent at the Principal Office in immediately
available funds, for the account of the applicable Borrower, its Pro Rata share
(determined based on the Commitments) of each Advance. After the
Administrative Agent's receipt of such funds and subject to the other terms and
conditions of this Agreement, the Administrative Agent will make such Advances
available to the applicable Borrower by depositing the same, in immediately
available funds, in an account of such Borrower designated by such Borrower.
All notices under this subsection (a) given by any Borrower shall be
irrevocable and shall be given not later than 10:00 A.M. Houston, Texas, time
on the day which is not less than the number of Business Days specified above
for such notice.
(b) Procedure for Issuing Letters of Credit. Each Letter of
Credit shall be issued on at least five (5) Business Days prior notice from the
requesting Borrower to the Administrative Agent by means of an Advance Request
Form describing the proposed terms of such Letter of Credit and the
transactions proposed to be supported thereby. The Administrative Agent at its
option may accept telephonic requests for Letters of Credit, provided that such
acceptance shall not constitute a waiver of the Administrative Agent's right to
require delivery of an Advance Request Form in connection with subsequent
Letters of Credit. Any telephonic request for a Letter of Credit by a Borrower
shall be promptly confirmed by submission of a properly completed Advance
Request Form to the Administrative Agent. The Administrative Agent shall
promptly notify each Lender of each request for a Letter of Credit. Upon
fulfillment of the applicable conditions precedent in Article V, the
Administrative Agent shall make the Letter of Credit available to such
Borrower. The Administrative Agent shall provide copies of all issued Letters
of Credit to Lenders after issuance thereof. All notices given by a Borrower
under this subsection (b) shall be irrevocable and shall be given not later
than 10:00 A.M. Houston, Texas time on the day which is not less than the
number of Business Days specified above for such notice.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 28
<PAGE> 35
SECTION 2.06. Use of Proceeds. Upon the effectiveness of this
Agreement, the principal amount then outstanding under the Third Amended Credit
Agreement is and shall be deemed to be a "Revolving Advance" outstanding
hereunder, each Lender to have its Pro Rata share thereof (based on the
Commitments) and such Revolving Advance to be of the Type or Types selected by
CRI pursuant to the Third Amended Credit Agreement. The proceeds of all other
Revolving Advances shall be used by Borrowers (i) to finance the acquisition of
Petroleum and Natural Gas Rights, including those being acquired pursuant to
the AMOCO Purchase Agreement, (ii) for the exploration for, drilling and
development of Petroleum and Natural Gas Rights, (iii) to make Permitted Coho
Shell Advances and Permitted Intercompany Advances, and (iv) for other general
corporate purposes; provided, however, that the proceeds of Revolving Advances
may not be, and shall not be, used to pay or prepay any Subordinated
Indebtedness, including, without limitation, any Indebtedness evidenced by the
Indenture, the Securities or the Subsidiary Guaranties (as defined in the
Indenture).
SECTION 2.07. Conversions and Continuations. The Borrowers shall
have the right from time to time to Convert all or part of an Advance of one
Type into an Advance of another Type or to Continue Advances of one Type as
Advances of the same Type by giving the Administrative Agent written notice at
least two (2) Business Days before Conversion into a Prime Rate Advance and at
least three (3) Business Days before Conversion into or Continuation of a
Eurodollar Advance, specifying: (a) the Conversion or Continuation date, (b)
the amount of the Advance to be Converted or Continued, (c) in the case of
Conversions, the Type of Advance to be Converted into, and (d) in the case of a
Continuation of or Conversion into a Eurodollar Advance, the duration of the
Interest Period applicable thereto; provided, however, that (i) Eurodollar
Advances may only be Converted on the last day of the Interest Period, and (ii)
except for Conversions into Prime Rate Advances, no Conversions shall be made
while an Event of Default or Potential Default has occurred and is continuing.
The Administrative Agent shall promptly notify each Lender of each such notice.
All notices given by any Borrower under this Section 2.07 shall be irrevocable
and shall be given not later than 11:00 A.M., Houston, Texas time on the day
which is not less than the number of Business Days specified above for such
notice. If any Borrower shall fail to give the Administrative Agent the notice
as specified above for Continuation or Conversion of a Eurodollar Advance prior
to the end of the Interest Period with respect thereto, such Eurodollar Advance
shall automatically be Converted into a Prime Rate Advance on the last day of
the Interest Period for such Eurodollar Advance.
SECTION 2.08. Commitment Fee; Reduction or Termination of
Commitments. The Borrowers jointly and severally agree to pay to the
Administrative Agent for the benefit of each Lender a commitment fee on the
average daily Availability, from and including the last Quarterly Payment Date
prior to the Closing Date, to and including the Maturity Date, at the rate of
three-eighths of one percent (.375%) per annum based on a 365 or 366 day year
(as the case may be) and the actual number of days elapsed, payable on each
Quarterly Payment Date prior to the Maturity Date and on the Maturity Date.
The Borrowers shall have the right at any time to terminate in whole or from
time to time to irrevocably reduce in part the Commitments upon at least three
(3) Business Days prior notice to the Administrative Agent specifying the
effective date thereof, whether a termination or reduction is being made, and
the amount of any partial reduction, provided that (a) each partial reduction
shall be in the amount of One Million Dollars ($1,000,000.00) or an integral
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 29
<PAGE> 36
multiple thereof, (b) the Commitments shall not be reduced below an aggregate
amount equal to Ten Million Dollars ($10,000,000.00) unless completely
terminated, (c) the Borrowers shall simultaneously prepay the amount by which
the unpaid principal amount of the Advances exceeds the Commitments (after
giving effect to such notice) plus accrued and unpaid interest on the principal
amount so prepaid and (d) the Borrowers may not reduce the Commitments below an
amount equal to the aggregate unused portion of the stated amount of the
Letters of Credit then outstanding. The Commitments may not be reinstated
after they have been terminated or reduced. The Commitments shall
automatically terminate on the Maturity Date except with respect to calculating
the Lenders' Pro Rata portions hereunder.
SECTION 2.09. Additional Fees.
(a) Revolver Activation Fee. At the time of any increase in the
Borrowing Base after the Closing Date, the Borrowers shall jointly and
severally pay to the Administrative Agent, for the benefit of each Lender, a
Revolver activation fee equal to three-eighths of one percent (.375%) of the
amount of the increase; provided, however, that the cumulative total of all
Revolver activation fees shall not exceed three-eighths of one percent (.375%)
of $300,000,000.00.
(b) Facility Fee. On the Closing Date, the Borrowers shall
jointly and severally pay to the Administrative Agent, for the benefit of each
Lender, a Facility Fee equal to 0.1875% of the Borrowing Base in effect at the
Closing Date.
SECTION 2.10. Borrowing Base.
(a) Initial Amount; Waiver of Redetermination. During the period
from the Closing Date to the first Redetermination Date following the Closing
Date, the Borrowing Base shall be equal to Three Hundred Million Dollars
($300,000,000.00).
(b) Semiannual Redeterminations. Promptly after each January 1st
of each calendar year commencing 1998 and in any event prior to each April 1st,
the Borrowers shall furnish to the Administrative Agent and each of the other
Lenders an Engineering Report certified by the Independent Engineer and the
chief financial officer of CRI and prepared within thirty (30) days of the date
of delivery (such report being hereinafter referred to as the "Annual
Engineering Report"). Within thirty (30) days after receipt by the
Administrative Agent and the other Lenders of such Annual Engineering Report,
the Administrative Agent and the Co-Documentation Agents shall determine a
proposed redetermination of the Borrowing Base in accordance with Section
2.10(f). The Administrative Agent shall then notify the Lenders of the
proposed redetermined Borrowing Base, request the approval of the Lenders to
the proposed redetermined Borrowing Base and request any Lender who does not
agree with the proposed redetermined Borrowing Base to propose the Borrowing
Base level acceptable to it. If Required Lenders or, if a Borrowing Base
increase is proposed, Supermajority Lenders agree to the proposed redetermined
Borrowing Base, the Administrative Agent shall notify the Borrowers of the
redetermined Borrowing Base. If Required Lenders (or, if a Borrowing Base
increase is requested, Supermajority Lenders) do not agree with the proposed
redetermined Borrowing Base, the Administrative Agent shall determine the
Borrowing Base level approved by Required Lenders (or, if a Borrowing Base
increase is requested,
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 30
<PAGE> 37
Supermajority Lenders), and the Administrative Agent shall promptly notify the
Borrowers of the amount of the Borrowing Base as so redetermined. Promptly
after each July 1st of each calendar year commencing July 1, 1998 and in any
event prior to each October 1st, Borrower shall furnish to the Administrative
Agent and each of the other Lenders an Engineering Report certified by the
chief financial officer of CRI and prepared within thirty (30) days of the date
of delivery (such report being hereinafter referred to as the "Semi-Annual
Engineering Report"). Within thirty (30) days after receipt by the
Administrative Agent and the other Lenders of such Semi-Annual Engineering
Report and provided that the Administrative Agent reasonably determines that
such Semi-Annual Engineering Report is satisfactory in all respects, the
Administrative Agent and the Co-Documentation Agents shall determine a proposed
redetermination of the Borrowing Base in accordance with Section 2.10(f). The
Administrative Agent and the Co-Documentation Agents shall then notify the
Lenders of the proposed redetermined Borrowing Base, request the approval of
the Lenders to the proposed redetermined Borrowing Base and request any Lender
who does not agree with the proposed redetermined Borrowing Base to propose the
Borrowing Base level acceptable to it. If Required Lenders or (if a Borrowing
Base increase is proposed, Supermajority Lenders) agree to the proposed
redetermined Borrowing Base, the Administrative Agent shall notify the
Borrowers of the redetermined Borrowing Base. If Required Lenders (or, if a
Borrowing Base increase is requested, Supermajority Lenders) do not agree with
the proposed redetermined Borrowing Base, the Administrative Agent shall
determine the Borrowing Base level approved by Required Lenders (or, if a
Borrowing Base increase is requested, Supermajority Lenders), and shall
promptly notify the Borrowers of the amount of the Borrowing Base as so
redetermined. If the Administrative Agent reasonably determines that such
Semi-Annual Engineering Report is not satisfactory, Borrowers shall furnish to
the Administrative Agent and each of the other Lenders, within thirty (30) days
after notification from the Administrative Agent that such Semi-Annual
Engineering Report is not satisfactory, another Semi-Annual Engineering Report
certified by an Independent Engineer and the chief financial officer of CRI and
prepared within thirty (30) days of the date of delivery. Within thirty (30)
days after receipt by the Administrative Agent and the other Lenders of such
re-submitted Semi-Annual Engineering Report, the Administrative Agent, the
Co-Documentation Agents and the Required Lenders shall make a redetermination
of the Borrowing Base as described above in accordance with Section 2.10(f) and
the Administrative Agent shall promptly notify the Borrowers of the amount of
the Borrowing Base as so redetermined.
(c) Interim Redetermination by Lenders. The Required Lenders (or,
if a Borrowing Base increase is requested, Supermajority Lenders) may
redetermine the Borrowing Base more often than semiannually in their sole
discretion and based on such information as they may deem relevant (but in
accordance with Section 2.10(f)); provided, however, that (i) the Borrowing
Base will not be redetermined by the Required Lenders more than once during any
period between the semiannual redetermination dates established in Section
2.10(b) and (ii) the Borrowing Base cannot be redetermined under this Section
2.10(c) more than seven (7) times prior to the Revolving Maturity Date. If the
Administrative Agent, the Co-Documentation Agents and the Required Lenders
redetermine the Borrowing Base, the Administrative Agent shall promptly provide
the Borrowers with notice of the redetermination and of the amount of the
Borrowing Base as so redetermined.
(d) Interim Redeterminations at the Request of Borrowers. The
Borrowers may request a redetermination of the Borrowing Base more often than
semiannually in order to add to the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 31
<PAGE> 38
Borrowing Base the value of additional Proven Reserves which have been or will
be acquired by a Borrower or for any other reason; provided, however, that the
Borrowing Base will not be redetermined at the request of the Borrowers more
than once during any period between the semiannual Redetermination Dates
established in Section 2.10(b). In order for the Lenders to consider a
redetermination of the Borrowing Base pursuant to this Section 2.10(d), the
Borrowers must submit a written request for redetermination to the
Administrative Agent containing (i) a statement as to the reason for such
request; (ii) if additional Proven Reserves are to be included in the
redetermination, an Engineering Report relating to such Proven Reserves dated a
current date and reasonably satisfactory to the Lenders and otherwise in form
and substance reasonably acceptable to the Lenders and (iii) such other
information as the Lenders may reasonably request. Within thirty (30) days of
receipt of all information requested by the Lenders in connection with a
request under this Section 2.10(d), the Administrative Agent, the
Co-Documentation Agents and the Required Lenders (or, if a Borrowing Base
increase is requested, Supermajority Lenders) shall redetermine the Borrowing
Base in accordance with Section 2.10(f) and as described above and the
Administrative Agent shall promptly notify the Borrowers of the amount of the
Borrowing Base as so redetermined.
(e) Redetermination as a Result of a Sale of Collateral or
Issuance of Other Indebtedness. In addition to the redeterminations described
above in this Section 2.10, the Borrowing Base shall be redetermined by the
Administrative Agent, the Co-Documentation Agents and the Required Lenders in
accordance with Section 2.10(f) each date (i) that a Borrower disposes of any
assets which comprise part of the Borrowing Base (whether or not such assets
are part of the Collateral) in accordance with Section 7.02(d) to subtract from
the Borrowing Base the value of such assets, if any, disposed of by such
Borrower (unless a Borrowing Base redetermination indicates a decrease is not
required), and (ii) that any other indebtedness of the a Borrower is issued as
may be permitted by Section 7.02(b)(vii). The Administrative Agent shall
promptly notify the Borrowers of the amount of the Borrowing Base as so
redetermined.
(f) Standards for Redetermination. Each redetermination of the
Borrowing Base made by the Required Lenders or Supermajority Lenders, as
applicable, pursuant to this Section 2.10 shall be made (i) in the sole
discretion of the Required Lenders or Supermajority Lenders, as applicable (but
in accordance with the other provision of this Section 2.10(f)), (ii) in
accordance with the Required Lenders' or Supermajority Lenders' customary
internal standards and practices for valuing and redetermining the value of oil
and gas properties in connection with reserve based oil and gas loan
transactions, (iii) in good faith, (iv) in conjunction with the most recent
Engineering Reports or other information received by the Lenders relating to
the Proven Reserves of the Borrowers and (v) based upon the estimated value of
the Petroleum and Natural Gas Rights (including both Proven Producing Reserves
and Proven Non-Producing Reserves) owned or to be acquired concurrently by the
Borrowers; provided, however, that, in valuing Proven Reserves of the Borrowers
for purposes of redetermining the Borrowing Base, the Administrative Agent and
the Required Lenders or Supermajority Lenders, as applicable, agree to use
customary industry pricing assumptions; provided further, however, no Proven
Reserves shall be considered for inclusion in the Borrowing Base unless (1)
such Proven Reserves are (or will become simultaneously with an Advance
hereunder) Collateral; and (2) unless otherwise agreed, the Administrative
Agent shall have received a reasonably satisfactory title opinion or other
evidence reasonably satisfactory to the Required Lenders that the
Administrative Agent has a valid, first priority Lien on the Petroleum and
Natural Gas Rights
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 32
<PAGE> 39
relating thereto. At all times after the Borrowers have been given
notification of a redetermination of the Borrowing Base, the Borrowing Base
shall be equal to the amount thereof as so subsequently redetermined until the
Borrowing Base is redetermined in accordance with this Section 2.10.
ARTICLE III
PAYMENTS
SECTION 3.01. Method of Payment. All payments of principal,
interest, and other amounts to be made by Borrowers under this Agreement, the
Notes, or any other Loan Document shall be made to the Administrative Agent at
its Principal Office for the account of each Lender's Applicable Lending Office
in Dollars and in immediately available funds, without set-off, deduction, or
counterclaim, not later than 11:00 A.M., Houston, Texas time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day). Borrowers shall, at the time of making each such payment, specify to the
Administrative Agent the sums payable by Borrowers under this Agreement, the
Notes, or any other Loan Document to which such payment is to be applied (and
in the event that Borrowers fail to so specify, or if an Event of Default has
occurred and is continuing, the Administrative Agent may apply such payment to
the Obligations in such order and manner as it may elect in its sole
discretion, subject to Section 3.02 with regard to prepayments, and Section
3.03 hereof). Each payment received by the Administrative Agent under this
Agreement, the Notes, or any other Loan Document for the account of a Lender
shall be paid promptly to such Lender, in immediately available funds, for the
account of such Lender's Applicable Lending Office on the same Business Day of
Administrative Agent's receipt thereof if received before 11:00 A.M. Houston,
Texas time on a Business Day or the next Business Day if received after 11:00
A.M. Houston, Texas time on a Business Day. Whenever any payment under this
Agreement, the Notes, or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
SECTION 3.02. Repayments and Prepayment.
(a) Optional Repayments and Prepayments. Borrowers may, upon at
least two (2) Business Days prior notice to the Administrative Agent in the
case of Prime Rate Advances and at least three (3) Business Days prior notice
to the Administrative Agent in the case of Eurodollar Advances, repay or prepay
the Notes in whole at any time or from time to time in part without premium or
penalty but with accrued and unpaid interest to the date of repayment or
prepayment on the amount so repaid or prepaid; provided that (i) Eurodollar
Advances may be repaid or prepaid only on the last day of the Interest Period
for such Advances, unless the Borrowers shall pay to the Administrative Agent
for the account of the applicable Lenders any amounts owed pursuant to Section
4.05 and (ii) each partial repayment or prepayment shall be in the principal
amount of One Million Dollars ($1,000,000.00) or an integral multiple thereof.
(b) Mandatory Prepayments. If the Outstanding Credit at any time
ever exceeds the Borrowing Base, the Borrowers shall within thirty (30) days
after notification from the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 33
<PAGE> 40
Administrative Agent, either (a) provide collateral with value and quantity in
amounts satisfactory to Majority Lenders in their sole discretion equal to such
excess, (b) prepay, without premium or penalty (except for any applicable
breakage costs), the principal amount of the Obligations in an amount equal to
such excess plus accrued interest or (c) prepay the principal amount of the
Obligations in an amount equal to such excess in five (5) equal monthly
installments provided that the entire amount of such mandatory prepayment shall
be paid on or prior to the immediately succeeding Redetermination Date. Any
prepayments under this Section 3.02(b) shall be distributed to the Lenders
pursuant to Section 3.03 until or unless all amounts under the applicable Notes
have been paid, then such repayments shall be held by the Administrative Agent
as additional collateral pursuant to such documentation and agreements as
Administrative Agent may require to secure the Obligations with respect to the
applicable Letter of Credit Liabilities outstanding, if any. Upon any sale or
sales of Collateral in any calendar year with aggregate net after-tax proceeds
in excess of $5,000,000, the Borrowers shall make the prepayments required
under Section 7.02(d)(iii)(1).
SECTION 3.03. Pro Rata Treatment; Distribution of Payments.
(a) Treatment. Except to the extent otherwise provided herein:
(i) each Advance shall be made by the Lenders under Section 2.01 and each
payment of commitment fee under Section 2.08 shall be made for the account of
the Lenders and each termination or reduction of the Commitments under Section
2.08 shall be applied to the Commitments of the Lenders, Pro Rata according to
the respective unused Commitments; (ii) each Conversion of Advances of a
particular Type (other than Conversions provided for by Section 4.04), shall be
made Pro Rata among the Lenders holding Advances of such Type according to the
respective principal amounts of such Advances held by such Lenders; (iii) each
payment and prepayment of principal of or interest on Advances by Borrowers of
a particular Type shall be made to the Administrative Agent for the account of
the Lenders holding Advances of such Type Pro Rata in accordance with the
respective unpaid principal amounts of such Advances held by such Lenders; (iv)
Interest Periods for Advances of a particular Type shall be allocated among the
Lenders holding Advances of such Type Pro Rata according to the respective
principal amounts held by such Lenders; (v) all proceeds received by the
Administrative Agent on account of the Collateral or from the exercise of any
rights or remedies under the Loan Documents shall be shared by the Lenders,
each Lender to receive its Pro Rata portion thereof determined based on the
outstanding principal amount of the Advances owed to the Lenders; provided,
however, that from any such proceeds, the Administrative Agent shall first be
entitled to deduct all unpaid or unreimbursed Obligations owing to the
Administrative Agent under the terms of the Loan Documents in its capacity as
Administrative Agent only and not in its capacity as a Lender.
(b) Distribution of Payments. The Administrative Agent shall
distribute the amount of each payment or prepayment of principal of or interest
on Advances by Borrowers (other than from proceeds of Collateral or proceeds
from the exercise of rights or remedies) to the Lenders, each Lender to receive
the Pro Rata portion thereof to which it is entitled as calculated pursuant to
clause (a) of this Section 3.03 on the same Business Day of the Administrative
Agent's receipt thereof if received before 11:00 A.M. Houston, Texas time on a
Business Day or the next Business Day if received after 11:00 A.M. Houston,
Texas time on a Business Day. Upon receipt by the Administrative Agent of any
proceeds of Collateral or proceeds received from the exercise of rights or
remedies, the Administrative Agent shall reimburse itself for any unpaid or
unreimbursed
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 34
<PAGE> 41
Obligations owing to the Administrative Agent under the Loan Documents in its
capacity as Administrative Agent only and not in its capacity as a Lender and
then shall distribute the remaining amount to the Lenders, each Lender to
receive the Pro Rata portion thereof to which it is entitled as calculated
pursuant to clause (a) of this Section 3.03; provided however, if the Letter of
Credit Liabilities remain outstanding and all other Obligations have been
satisfied, the Administrative Agent may hold any such proceeds as collateral
pursuant to such documentation as the Administrative Agent may require to
secure the Obligations with respect to the applicable Letter of Credit
Liabilities outstanding. Subject to the forgoing, any and all other amounts
received by the Administrative Agent as payment on the Obligations, shall be
distributed to the Lenders on the same Business Day of the Administrative
Agent's receipt thereof if received before 11:00 A.M. Houston, Texas time on a
Business Day or the next Business Day if received after 11:00 A.M. Houston,
Texas time on a Business Day, each Lender to receive its Pro Rata portion
thereof in immediately available funds (calculated on the basis of the
outstanding principal amount of the Advances or, if no principal is
outstanding, on the basis of the Commitments) unless this Agreement or any
other Loan Document directs that the Administrative Agent distribute such
amounts in an alternative manner.
SECTION 3.04. Non-Receipt of Funds by the Administrative Agent.
Unless the Administrative Agent shall have been notified by a Lender or a
Borrower (the "Payor") prior to the date on which such Lender is to make
payment to the Administrative Agent of the proceeds of an Advance to be made by
it hereunder or a Borrower is to make a payment to the Administrative Agent for
the account of one or more of the Lenders, as the case may be (such payment
being herein called the "Required Payment") (which notice shall be effective
upon receipt) that the Payor does not intend to make the Required Payment to
the Administrative Agent, the Administrative Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient of such payment shall, on demand, pay to
the Administrative Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such period.
SECTION 3.05. Computation of Interest. Interest on the indebtedness
evidenced by the Notes shall be computed (a) with respect to Eurodollar
Advances, on the basis of a year of 360 days and the actual number of days
elapsed (including the first day but excluding the last day) unless such
calculation would result in a usurious rate, in which case interest shall be
calculated on the basis of a year of 365 or 366 days, as the case may be and
(b) with respect to Prime Rate Advances, on the basis of a year of 365 or 366
days, as the case may be.
SECTION 3.06. Taxes.
(a) Payment by Borrowers. All payments made by the Borrowers
hereunder (including, without limitation, payments under Article IV hereof) or
under the Notes shall be made free and clear of and without deduction for any
present or future income, stamp or other taxes, levies, imposts, deductions,
charges, fees, withholding, restrictions or conditions of any nature now or
hereafter imposed, levied, collected, withheld or assessed by any jurisdiction
(whether pursuant to United
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 35
<PAGE> 42
States Federal, state or local or foreign law) or by any political subdivision
or taxing authority thereof or therein, and all interest, penalties or similar
liabilities, excluding franchise taxes and taxes based on the overall net
income of the Administrative Agent, any other Co-Documentation Agent, any
Lender or its Applicable Lending Office (such non-excluded taxes are
hereinafter collectively referred to as the "Taxes"). If the Borrowers shall
be required by law to deduct or to withhold any Taxes from or in respect of any
amount payable hereunder, (i) unless the applicable Lender has failed to
deliver a United States Internal Revenue Service Form 1001 or 4224 or other
applicable form in accordance with Section 3.06(b) and the Borrowers have
notified the applicable Lender of such failure, the amount so payable shall be
increased to the extent necessary so that after making all required deductions
and withholdings (including Taxes on amounts payable to the Lender) the
applicable Lender receives an amount equal to the sum it would have received
had no such deductions or withholdings been made, (ii) the Borrowers shall make
such deductions or withholdings, and (iii) the Borrowers shall jointly and
severally pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law. Whenever any Tax is payable by
the Borrowers, as promptly as possible thereafter the Borrowers shall send the
Administrative Agent and each affected Lender an official receipt showing
payment. In addition, the Borrowers jointly and severally agree to pay any
present or future taxes, charges or similar levies (excluding franchise taxes,
and taxes based on the overall net income of the Administrative Agent, any
Co-Documentation Agent, any Lender or its Applicable Lending Office) which
arise from any payment made hereunder or from the execution, delivery,
performance, recordation or filing of, or otherwise with respect to, this
Agreement, the Notes or any other Loan Document (hereinafter referred to as
"Other Taxes"). The Borrowers jointly and severally will indemnify the
Administrative Agent, any Co-Documentation Agent and each Lender for the full
amount of Taxes or Other Taxes (including, any Taxes or Other Taxes on amounts
payable to the Administrative Agent, any Co-Documentation Agent, or any Lender
under this paragraph) paid by the Administrative Agent, any Co-Documentation
Agent or any Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, upon written demand by the
Administrative Agent, any Co-Documentation Agent or such Lender therefor.
(b) Withholding Tax Exemption Forms. Each Lender that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Borrowers and the Administrative Agent two
(2) duly completed copies of United States Internal Revenue Service Form 1001
or 4224 certifying in either case that such Lender is entitled to receive
payments from the Borrowers under the Loan Documents without deduction or
withholding of any United States Federal income taxes. Each Lender which so
delivers a Form 1001 or 4224 further undertakes to deliver to the Borrowers and
the Administrative Agent two (2) additional copies of such form (or a successor
form) on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrowers or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments from the Borrowers
under the Loan Documents without deduction or withholding of any United States
Federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrowers
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 36
<PAGE> 43
and the Administrative Agent that it is not capable of receiving such payments
without any deduction or withholding of United States Federal income tax.
ARTICLE IV
YIELD PROTECTION AND ILLEGALITY
SECTION 4.01. Increased Costs and Reduced Return.
(a) If any Lender shall have determined that any Regulatory Change
(other than with respect to taxes referred to in Section 3.06 hereof) shall (i)
change the basis of taxation of payments to the Lender of any amounts payable
hereunder with respect to any Eurodollar Advance (except for taxes based on the
overall net income of such Lender or its Applicable Lending Office), (ii)
impose, modify or deem applicable any reserve, special deposit or similar
requirement (other than Reserve Requirements used in the determination of the
Adjusted Eurodollar Rate) against any Eurodollar Advance or against assets held
by, or deposits with or for the account of, such Lender, or (iii) impose on the
applicable Lender any other condition regarding this Agreement, its Note or any
Eurodollar Advance and the result of any event referred to in clause (i), (ii)
or (iii) above shall be to increase the cost to the applicable Lender of making
or maintaining any Eurodollar Advance or the funding for any Eurodollar
Advance, or to reduce any amount received or receivable by the Lender hereunder
with respect to any such Advance, then, within ten (10) Business Days of
written demand by the applicable Lender (made through the Administrative
Agent), the Borrowers shall jointly and severally pay to the Administrative
Agent for the account of the applicable Lender such additional amounts as will
compensate the Lender for such increased costs or reductions in amount.
(b) If any Lender shall have determined that any Regulatory Change
shall impose, modify or deem applicable any capital adequacy or similar
requirement (including, without limitation, a request or requirement that
affects the manner in which the applicable Lender allocates capital resources
to its Commitment and Advances) that either affects or would affect the amount
of capital to be maintained by the applicable Lender as a consequence of its
commitments or obligations hereunder or reduces or would reduce the rate of
return on the Lender's capital to a level below that which the Lender could
have achieved but for such Regulatory Change as a consequence of its
commitments or obligations hereunder (taking into consideration the Lender's
policies with respect to capital adequacy), then, within ten (10) Business Days
of written demand by the applicable Lender (made through the Administrative
Agent), the Borrowers shall jointly and severally pay to the Administrative
Agent for the account of the applicable Lender such additional amounts as will
compensate the Lender for such cost of maintaining such increased capital or
such reduction in the rate of return on the Lender's capital.
(c) Before making any claims pursuant to Section 4.01(a) or
4.01(b) hereof, the applicable Lender, shall, if practicable, designate a
different Applicable Lending Office if such designation will avoid the need for
making such claim and will not, in the reasonable judgment of the applicable
Lender be otherwise disadvantageous to the applicable Lender. If the
applicable Lender does make a claim pursuant to subsection 4.01(a) or 4.01(b)
hereof, it shall give notice to the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 37
<PAGE> 44
Borrowers of the event by reason of which it is entitled to do so accompanied
by a certificate as described in subsection 4.01(d).
(d) A certificate of the applicable Lender claiming compensation
under this Section 4.01 shall be submitted by the Lender to the Administrative
Agent and the Borrowers, setting forth the Lender's reasons for invoking the
provisions of this Section 4.01, and shall be final and conclusive (absent
manifest error) as to the amount thereof, provided that any determination by a
Lender as to the occurrence and effect of a Regulatory Change for purposes of
this Section 4.01 shall be made on a reasonable basis.
SECTION 4.02. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period applicable to
Eurodollar Advances:
(a) The Administrative Agent determines (which determination shall
be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Interbank Offered Rate" in Section 1.01 are
not being provided in the relative amounts or for the relative maturities for
purposes of determining the rate of interest for such Advances as provided in
this Agreement; or
(b) The Required Lenders determine (which determination shall be
conclusive) and notify the Administrative Agent that the relevant rates of
interest referred to in the definition of "Interbank Offered Rate" in Section
1.01 on the basis of which the rate of interest for such Advances for such
Interest Period is to be determined do not accurately reflect the cost to the
Lenders of making or maintaining such Advances for such Interest Period;
then the Administrative Agent shall give Borrowers prompt notice thereof
specifying the relevant amounts or periods, and so long as such condition
remains in effect, the Lenders shall be under no obligation to make additional
Eurodollar Advances or to Convert Prime Rate Advances into Eurodollar Advances
and Borrowers shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Advances of the affected Type, either prepay such Advances
or Convert such Advances into Prime Rate Advances in accordance with the terms
of this Agreement.
SECTION 4.03. Illegality. If, after the date of this Agreement, any
Regulatory Change shall make it unlawful or impossible for the applicable
Lender (or its Applicable Lending Office) to make, maintain or fund its
Eurodollar Advances, the applicable Lender shall forthwith give notice thereof
to the Administrative Agent and the Borrowers, whereupon until such Lender
notifies the Borrowers that the circumstances giving rise to such suspension no
longer exist, the obligation of the applicable Lender to make Eurodollar
Advances and to Convert Prime Rate Advances into Eurodollar Advances hereunder
shall be suspended. Before giving any notice to the Borrowers pursuant to this
Section 4.03, the applicable Lender shall, if practicable, designate a
different Applicable Lending Office if such designation will avoid the need for
giving such notice and will not, in the reasonable judgment of the Lender, be
otherwise disadvantageous to the Lender.
SECTION 4.04. Treatment of Affected Advances: If the Eurodollar
Advances of any Lender (hereinafter called "Affected Advances") are to be
Converted pursuant to Section 4.02 or 4.03 hereof, such Lender's Affected
Advances shall be automatically Converted into Prime Rate Advances on the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 38
<PAGE> 45
last day(s) of the then current Interest Period(s) for the Affected Advances
(or, in the case of a Conversion required by Section 4.01(b) or 4.03 hereof, on
such earlier date as such Lender may specify to Borrowers, with a copy to the
Administrative Agent) and, unless and until such Lender gives notice as
provided below that the circumstances specified in Section 4.01 or 4.03 hereof
which gave rise to such Conversion no longer exist:
(a) To the extent that such Lender's Affected Advances
have been so Converted, all payments and prepayments of principal
which would otherwise be applied to such Lender's Affected Advances
shall be applied instead to its Prime Rate Advances; and
(b) All Advances which would otherwise be made or
Continued by such Lender as Eurodollar Advances shall be made as or
Converted into Prime Rate Advances and all Advances of such Lender
which would otherwise be Converted into Eurodollar Advances shall be
Converted instead into (or shall remain as) Prime Rate Advances; and
If such Lender gives notice to Borrowers (with a copy to the Administrative
Agent) that the circumstances specified in Section 4.01 or 4.03 hereof which
gave rise to the Conversion of such Lender's Affected Advances pursuant to this
Section 4.04 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Advances are
outstanding, such Lender's Prime Rate Advances shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Advances to the extent necessary so that, after
giving effect thereto, all Advances held by the Lenders holding Affected
Advances and by such Lender are held Pro Rata (as to principal amounts, Types,
and Interest Periods) in accordance with their respective Commitments.
SECTION 4.05. Funding Losses. The Borrowers shall jointly and
severally compensate each Lender, immediately upon receipt of such Lender's
certificate as to amount (which shall be conclusive in the absence of manifest
error), for all losses, expenses and liabilities (including, without
limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by the Lender
to fund or maintain any Advance (but excluding loss of anticipated profits),
and including any costs and expenses arising under or in connection with any
interest rate exchange agreement or similar agreement relating to any such
agreement, whether or not theretofore disclosed to the Borrowers, entered into
by such Lender in connection with the funding or maintenance of any Eurodollar
Advance), (a) if for any reason (other than a default by the applicable Lender)
any Borrower fails to borrow or Convert any Eurodollar Advance after a notice
(whether or not withdrawn by such Borrower) has been given to the
Administrative Agent requesting such Advance or Conversion, as applicable, (b)
if any Borrower makes any payment of principal of any Eurodollar Advance or
makes any Conversion of a Eurodollar Advance on any day other than on the last
day of the Interest Period relating to such Advance for any reason (including,
without limitation, prepayment or acceleration), or (c) if any prepayment of
any Eurodollar Advance is not made on any date specified in a notice of
prepayment given by any Borrower.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 39
<PAGE> 46
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. Conditions to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the fulfillment, in a manner
satisfactory to the Co-Documentation Agents and each Lender, of each of the
following conditions precedent:
(a) Amendment Fees; Payment of Fees. Borrowers shall have paid to
the Co-Documentation Agents and the Lenders any and all fees, costs, expenses
and taxes then payable by Borrowers pursuant to this Agreement relating to the
amendments contemplated hereby.
(b) Representations and Warranties; No Event of Default. The
representations and warranties contained in Section 6.01 of this Agreement and
in each other (other than, as to Loan Documents delivered or effective as of a
date prior to the Closing Date, representations and warranties limited by their
terms to the date given) and each certificate or other writing delivered to the
Administrative Agent or any Lender pursuant hereto shall be correct on and as
of the Closing Date as though made on and as of such date; and, no Event of
Default or Potential Default shall have occurred and be continuing on the
Closing Date or would result from the consummation of the Related Transactions.
(c) Legality. The modifications contemplated hereby and the
transactions contemplated herein shall not contravene any law, rule or
regulation.
(d) Closing of Amoco Purchase Agreement. All conditions to the
closing of the transactions contemplated by the Amoco Purchase Agreement shall
have been satisfied and such transactions shall be ready for closing subject
only to the advancing of Loan proceeds hereunder.
(e) Delivery of Documents. The Administrative Agent shall have
received on or before the Closing Date the following, each duly executed and in
form and substance satisfactory to the Administrative Agent and each Lender
and, unless indicated otherwise, dated the date hereof:
(i) the Notes;
(ii) the First Amended and Restated Modification
Agreement;
(iii) the Oklahoma Mortgage and any other Security
Documents required by the Administrative Agent;
(iv) Letters in Lieu of Transfer Orders executed by
Acquisitions in blank, together with a list of the names and addresses of all
presently anticipated purchasers of Hydrocarbons attributable to the Petroleum
and Natural Gas Rights of Acquisitions and such other information with respect
to such purchasers as the Administrative Agent may reasonably request;
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 40
<PAGE> 47
(v) a copy of the resolutions adopted by the Board of
Directors of each Credit Party, certified as of the Closing Date by an
authorized officer thereof, authorizing (A) the transactions contemplated by
this Agreement, and (B) the execution, delivery and performance by each Credit
Party of the Loan Documents to which it is a party that are executed in
connection herewith;
(vi) a certificate of an authorized officer of each Credit
Party, certifying the names and true signatures of the officers of each such
Credit Party authorized to sign each Loan Document together with evidence of
the incumbency of such authorized officer;
(vii) a certificate, dated as of a current date, of the
appropriate official(s) of the jurisdiction of incorporation or organization of
each Credit Party and the States of Mississippi, Oklahoma and Texas and as to
ING and the ING Subsidiaries, Louisiana, Texas and Mississippi, certifying as
to the authority to transact business and good standing of, and the payment of
taxes by, each Credit Party in such jurisdiction, as applicable;
(viii) a copy of the charter of each Credit Party, certified
as of a current date by the appropriate official of the jurisdiction of
incorporation or organization of such Credit Party and as of the Closing Date
by an authorized officer of such Credit Party;
(ix) a copy of the by-laws of each Credit Party, certified
as of the Closing Date by an authorized officer of such Credit Party;
(x) a certificate of the president of CRI as to the
solvency of each Credit Party, substantially in the form of Exhibit C hereto as
of the Closing Date;
(xi) opinions of counsel to the Credit Parties as to such
matters as the Administrative Agent may reasonably request;
(xii) the Second Amended and Restated Contribution and
Reimbursement Agreement among the Credit Parties;
(xiii) the Acquisition Engineering Report;
(xiv) the Second Amendment to Pledge Agreement;
(xv) evidence of the filing of all required notifications
by Amoco Production Company and Acquisitions under the Hart Scott Rodino
Antitrust Improvements Act of 1976, as amended, and expiration or early
termination of all waiting periods thereunder; and
(xvi) such other agreements, instruments, approvals,
opinions and other documentation as the Administrative Agent or any Lender may
reasonably request; and
SECTION 5.02. Conditions Precedent to the Advances and Issuances of
Letters of Credit. The obligation of each Lender to make any Advance after the
Closing Date (other than an Advance
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 41
<PAGE> 48
pursuant to subsection 2.01(b)(ii)) and the obligations of the Administrative
Agent to issue any Letter of Credit after the Closing Date is subject to the
fulfillment, in a manner satisfactory to the Administrative Agent and each
Lender, of each of the following conditions precedent:
(a) Payment of Fees, Etc. The Borrowers shall have paid any and
all fees, costs, expenses and taxes then payable by the Borrowers pursuant to
this Agreement and Section 10.04 hereof.
(b) Representations and Warranties; No Event of Default. The
representations and warranties contained in Section 6.01 of this Agreement and
in each other Loan Document (but excluding those representations and warranties
specifically limited by their terms to another date) and each certificate or
other writing delivered to the Administrative Agent or any Lender pursuant
hereto shall be correct on and as of the Borrowing Date as though made on and
as of such date; and no Event of Default or Potential Default shall have
occurred and be continuing on the Borrowing Date or would result from the
making of the Advance or issuance of the Letter of Credit.
(c) Legality. The making of such Advance or issuance of the
Letter of Credit shall not contravene any law, rule or regulation applicable to
the Administrative Agent or any Lender.
(d) Advance Request Form. The Administrative Agent shall have
received an Advance Request Form pursuant to Section 2.05 hereof with respect
to such Advance or Letter of Credit and, with respect to each Letter of Credit
and the documentation required by the Administrative Agent in accordance with
subsection 2.01(b)(i).
(e) Proceedings; Receipt of Documents. All proceedings in
connection with the making of the Advance or issuance of Letter of Credit and
all documentation incidental thereto, shall be satisfactory to the
Administrative Agent and each Lender and the Administrative Agent and each
Lender shall have received all such information and such counterpart originals
or certified or other copies of such documentation as the Administrative Agent
or any Lender may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Each Company. Each
Company represents and warrants to the Administrative Agent and each Lender as
follows:
(a) Organization, Good Standing, Etc. Holdings and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has all
requisite power and authority to conduct its business as now conducted and as
presently contemplated and to execute and deliver each Loan Document to which
it is a party and to make the borrowings hereunder and to consummate the
transactions contemplated hereby and thereby and (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary and in which the failure to be so
qualified would cause a Material Adverse Change.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 42
<PAGE> 49
(b) Authorization, Etc. The execution, delivery and performance
by each Credit Party of each Loan Document to which it is a party (i) have been
duly authorized by all necessary corporate action, (ii) do not and will not
contravene its charter or by-laws, any law or any contractual restriction
binding on or otherwise affecting it or any of its properties, (iii) do not and
will not result in or require the creation of any Lien, other than pursuant to
any Loan Document upon or with respect to any of its properties and in favor of
the Lenders and (iv) do not and will not result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to its operations or any of its properties.
(c) Governmental Approvals. Except for notices, filings,
authorization, approvals and application actions all of which have been made or
obtained, no authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required to permit a Credit Party to
duly execute, deliver and perform its obligations under any Loan Document.
(d) Enforceability of Loan Documents. This Agreement is, and each
other Loan Document, when delivered, will be, a legal, valid and binding
obligation of each Credit Party which is a party thereto, enforceable against
such Credit Party in accordance with its terms, except to the extent that (i)
the enforceability of such Loan Document is limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting generally the enforcement of creditors' rights and
remedies and by general principles of equity, (ii) any Loan Document creates a
security interest in that part of the Collateral, if any, which constitutes a
"security" (as defined in the UCC), such security interest will not be created
until steps necessary to the perfection of such security interest are taken
pursuant to Article 8 or Article 9 of the UCC and (iii) (without limiting the
applicability of the foregoing to the Security Documents) the validity or
enforceability of any Lien on real property or interest in real property which
is purported to be conveyed by the Security Documents is subject to the
recordation of appropriate instruments under local real property law or
applicable federal law.
(e) Subsidiaries; Capitalization. As of the Closing Date, no
Credit Party has any Subsidiaries other than as set forth in Schedule 6.01(e).
Schedule 6.01(e) hereto is a complete and correct description of the name,
jurisdiction of incorporation and authorized and outstanding Capital Stock of
each Subsidiary of each Credit Party and the percentage interest each Credit
Party holds in each of its Subsidiaries on the Closing Date. All of the
outstanding Capital Stock of each Subsidiary of each Credit Party has been
validly issued, is fully paid, is nonassessable and is not subject to any
restriction on transfer except for restrictions imposed by applicable federal
and state securities laws. All the issued and outstanding shares of Capital
Stock of each such Subsidiary are free and clear of all Liens other than those
in favor of the Administrative Agent granted pursuant to the Security Documents
and such shares have been issued in compliance with all applicable state and
federal laws concerning the issuance of securities. There are no preemptive or
other outstanding rights, options, warrants, conversion rights or similar
agreements or understandings for the purchase or acquisition from any such
Subsidiary or any Credit Party of any shares of Capital Stock or other
securities of any such Subsidiary. Holdings has the unrestricted right to
pledge the Capital Stock of CRI, Coho Canada, Coho Shell, and ING under the
terms of the Holdings Pledge Agreement. CRI has the unrestricted right to
pledge the Capital Stock of Acquisitions under the terms of the Pledge
Agreement. Coho Canada has the unrestricted right to enter into a negative
pledge with respect to
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 43
<PAGE> 50
the Capital Stock of CRI under the terms of the Coho Canada Negative Pledge
Agreement. CRI has the unrestricted right to pledge the Capital Stock of ING
under the terms of the CRI Security Agreement. ING has the unrestricted right
to pledge the Capital Stock of the ING Subsidiaries under the terms of the ING
Pledge Agreement. The Production Company has the unrestricted right to pledge
the Capital Stock of Exploration under the terms of the Mid Louisiana Pledge
Agreement.
(f) Litigation. Except set forth as Schedule 6.01(f), there is no
pending or, to the knowledge of any Company, threatened action, suit or
proceeding affecting Holdings or any of its Subsidiaries before any court or
other Governmental Authority or any arbitrator which may cause a Material
Adverse Change.
(g) Financial Condition. The Financial Statements fairly present
the financial condition of the Credit Parties subject thereto as at the
respective dates thereof and their results of operations for the fiscal periods
ended on such respective dates, all in accordance with GAAP consistently
applied, and since September 30, 1997, there has been no Material Adverse
Change.
(h) Compliance with Law, Etc. Neither Holdings nor any of its
Subsidiaries is (i) in violation of its charter or by-laws, any law or (ii) in
violation of any term of any agreement or instrument binding on or otherwise
affecting it or any of its properties, the effect of which violation would
cause a Material Adverse Change.
(i) ERISA. (i) No Termination Event has occurred nor is
reasonably expected to occur with respect to any Employee Plan, (ii) the most
recent annual report (Form 5500 Series) with respect to each Employee Plan,
including Schedule B (Actuarial Information) thereto, copies of which have been
filed with the Internal Revenue Service and delivered to the Administrative
Agent, is complete and correct and fairly presents the funding status of such
Employee Plan, and since the date of such report there has been no material
adverse change in such funding status, and (iii) no Employee Plan has incurred
an "accumulated funding deficiency" within the meaning of Section 412(a) of the
Internal Revenue Code in excess of Two Hundred Fifty Thousand Dollars
($250,000.00) at any time during the previous sixty (60) months unless waived
pursuant to Section 412(c)(8) of the Internal Revenue Code. Neither Holdings
nor any of its Affiliates has incurred any withdrawal liability under ERISA
with respect to any Multiemployer Plan, and neither Company is aware of any
facts indicating that Holdings or any of its Affiliates may in the future incur
any such withdrawal liability. Each Employee Plan now maintained or maintained
during the preceding five (5) years by Holdings or any of its Affiliates has
complied in all material respects in form and in operation with all applicable
laws. Neither Holdings nor any of its Affiliates maintains or has maintained a
Plan that is or was part of a multiple employer welfare arrangement (as defined
in section 3(40) of ERISA), and no welfare benefit plan (as defined in section
3(1) of ERISA) now maintained or maintained during the preceding five (5) years
by Holdings or any of its Affiliates currently provides or is obligated to
provide benefits to former employers of Holdings or any of its Affiliates other
than pursuant to continuing health care requirements of ERISA or the Internal
Revenue Code. Each Plan may be amended or terminated without the consent of
any party other than the parties thereto. There is and has been no actual,
anticipated, threatened or expected litigation, or arbitration or government
audit or proceeding concerning or involving any Plan which could cause a
Material Adverse Change. All reporting and disclosure requirements with
respect to
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 44
<PAGE> 51
each Plan have been timely satisfied. There have been no prohibited
transactions (as defined in sections 406 or 407 of ERISA or section 4975 of the
Internal Revenue Code excluding prohibited transactions for which an exemption
is available under ERISA or the Internal Revenue Code) involving any Plan.
There have been no failures to comply in any material respect with the
continuing health care coverage requirements of ERISA or the Internal Revenue
Code.
(j) Taxes, Etc. All Federal, state and local tax returns and
other reports required by applicable law to be filed by Holdings or any of its
Subsidiaries have been filed, and all taxes, assessments and other governmental
charges imposed upon Holdings or any of its Subsidiaries or any property of any
such Person and which have become due and payable on or prior to the Closing
Date have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof.
(k) Regulation U. Neither Holdings nor any of its Subsidiaries is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U issued by the Board
of Governors of the Federal Reserve System), and no proceeds of any Advance
will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock.
(l) Title to Properties. Each of Holdings and its Subsidiaries
has good and defensible title to all of its properties and assets (including
the Amoco Properties), and the properties and assets of Holdings and its
Restricted Subsidiaries (including the Amoco Properties) are free and clear of
all Liens except such as are permitted by Section 7.02(a) hereof. Acquisitions
has delivered to the Administrative Agent a complete and accurate copy of the
Amoco Purchase Agreement and all documents and instruments executed in
connection therewith, including all amendments, supplements and other
modifications thereto.
(m) Credit Arrangements. Schedule 6.01(m) hereto is a complete
and correct list of each credit agreement, guaranty or other agreement,
instrument or arrangement in effect as of the date hereof and providing for or
relating to the extension of credit (excluding agreements and arrangements for
the purchase of goods and services in the normal course of business, but
including agreements and arrangements for the issuance of letters of credit or
for acceptance financing) in respect of which Holdings or any of its Restricted
Subsidiaries is or may become directly or contingently liable in a principal or
face amount in excess of One Hundred Thousand Dollars ($100,000.00).
(n) Nature of Business. Neither Holdings nor any of its
Subsidiaries is engaged in any business other than the purchase of, exploration
for, and the production, transportation, storage and sale of, Hydrocarbons and
other activities necessary or useful to facilitate the profitable enhancement
of Hydrocarbon value.
(o) Adverse Agreements, Etc. Neither Holdings nor any of its
Subsidiaries is a party to any agreement or instrument, or subject to any
charter or other corporate restriction or any judgment,
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 45
<PAGE> 52
order, regulation, ruling or other requirement of a court or other Governmental
Authority, which causes or in the future may cause a Material Adverse Change.
(p) Holding Company and Investment Company Acts. Neither Holdings
nor any of its Subsidiaries is (i) a "holding company" or a subsidiary company
of a "holding company" or an "affiliate" of a "holding company", as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, or
(ii) an "investment company" or an "affiliated person" or "promoter" of, or
"principal underwriter" of or for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(q) Permits, Etc. Holdings and each of its Subsidiaries maintains
all permits, licenses, authorizations and approvals required for it lawfully to
own, lease, manage or operate each business currently owned, leased, managed or
operated by it and which the failure to so maintain would cause a Material
Adverse Change. No condition exists or event has occurred which, in itself or
with the giving of notice or lapse of time or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any such
permit, license, authorization or approval, and there is no claim that any
thereof is not in full force and effect.
(r) Full Disclosure. No Loan Document or schedule or exhibit
thereto and no certificate, report, statement or other document and/or
information furnished to the Administrative Agent or any Lender in connection
herewith or with the consummation of the transactions contemplated by the Loan
Documents, contains or contained, as applicable, as of the date of delivery of
such Loan Documents, any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained therein
not materially misleading. There is no fact existing which could cause a
Material Adverse Change and which has not been set forth in a Schedule hereto
or otherwise disclosed to the Administrative Agent in writing.
(s) Environmental Conditions. Except as disclosed in Schedule
6.01(s) hereto, (i) the operations of Holdings and each of its Subsidiaries
comply in all material respects with all Environmental Laws and, to the
Companies' knowledge, no conditions exist or are likely to exist during the
term of this Agreement which, individually or in the aggregate, would subject
Holdings or any of its Subsidiaries to material damages, penalties, injunctive
relief or cleanup costs under any Environmental Law or which, individually or
in the aggregate, require or are likely to require any material Remedial Action
under any Environmental Law; (ii) Holdings and each of its Subsidiaries has
obtained all material Environmental Permits necessary for its operation, and
all such Environmental Permits are in good standing; (iii) neither Holdings nor
any of its Subsidiaries is a party to any litigation or formal administrative
proceeding alleging the violation of any Environmental Law or asserting that
Holdings or any of its Subsidiaries is required to take any Remedial Action
under any Environmental Law; (iv) neither Holdings nor any of its Subsidiaries
is subject to any outstanding written order or agreement with any Governmental
Authority or other Person respecting (A) any Environmental Law, (B) any
Remedial Action under any Environmental Law or (C) any Environmental Claim
under any Environmental Law; (v) to each Company's knowledge, none of the
operations of Holdings or any of its Subsidiaries is the subject of any pending
or threatened investigation by a Governmental Authority evaluating whether any
Remedial Action under any Environmental Law is needed; (vi) neither Holdings
nor any of its Subsidiaries has
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 46
<PAGE> 53
filed any notice under federal or state law indicating past or present
treatment, storage or disposal of a hazardous waste as defined under 40 C.F.R.
Parts 260 or 270 (in effect as of the date hereof) or any state equivalent, or
reporting a Release of a Contaminant; (vii) except as permitted under any
Environmental Law, neither Holdings nor any of its Subsidiaries has experienced
a material Release of any Contaminant, and, except as permitted under and in
compliance with applicable Environmental Law, there has been no material
voluntary disposal, use, storage, recycling or treatment of any Contaminant (A)
on, under or at any property of Holdings or any of its Subsidiaries (or in
tanks or other facilities thereon) or (B) by Holdings or any of its
Subsidiaries at any other location, which, if known to be present on such
property, or present in soils or ground water, would require Remedial Action
under any Environmental Law, except for Remedial Action required after
depletion with respect to each production facility located on a portion of the
Collateral, the cost of which will not exceed One Hundred Thousand Dollars
($100,000.00), (viii) no recorded Lien and, to each Company's knowledge, no
unrecorded Lien, in favor of any Governmental Authority relating to (A) any
liability under any Environmental Law or (B) damages arising from or costs
incurred by such Governmental Authority in response to a Release of a
Contaminant into the environment has been filed or attached to any facility of
Holdings or any of its Subsidiaries; and (ix) within the last thirty-six (36)
months, neither Holdings nor any of its Subsidiaries has been subject to a
written order or binding written agreement with any Governmental Authority or
other Person respecting (A) any Environmental Law, (B) any Remedial Action
under any Environmental Law or (C) any Environmental Claim, and neither
Holdings nor any of its Subsidiaries has performed any Remedial Action, the
aggregate cost of which exceeded One Hundred Thousand Dollars ($100,000.00).
For purposes of this Section 6.01(s), "knowledge" means the actual knowledge of
any officer of any Company.
(t) Principal Place of Business; Location of Collateral. The
principal place of business and chief executive office of each Credit Party and
the place where each such Credit Party keeps its books and records is located
at the address of such Credit Party set forth on Schedule 6.01(t). The title
opinions delivered to Administrative Agent in connection with the previously
executed Loan Documents identify all of the Borrowers material Petroleum and
Natural Gas Rights as of the Closing Date other than the Amoco Properties.
Schedule 6.01(t) specifically sets forth all locations where each Credit Party
maintains the Collateral that it owns and all other locations where such Credit
Party maintains a place of business as of the Closing Date. Such title opinions
and Schedule 6.01(t) correctly identify each location where each Credit Party's
inventory or equipment which constitutes Collateral (other than mobile goods)
is located. No Persons have possession of any Collateral other than (i)
Hydrocarbons held by operators engaged with respect to Borrowers' Petroleum and
Natural Gas Rights; (ii) the Persons who hold hedge accounts of the Credit
Parties other than Coho Canada; (iii) the Credit Parties other than Coho
Canada; and (iv) such other Persons identified to the Administrative Agent
pursuant to the Security Documents. As of the Closing Date, Koch Oil Company,
EOTT Energy, Mid Louisiana Marketing Company and Amoco are the only purchasers
of Borrowers' Hydrocarbons produced from Petroleum and Natural Gas Rights which
constitute Collateral owned by the Borrowers and the purchasers identified on
the list delivered in accordance with Section 5.01(d)(v) are the only
purchasers of Exploration's or Acquisitions' Hydrocarbons produced from
Petroleum and Natural Gas Rights which constitute Collateral owned by
Exploration or Acquisitions. None of the Collateral constituting "goods" has
been located in any
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 47
<PAGE> 54
location not identified in Schedule 6.01(t) or in such title opinions within
the past four (4) months from the date hereof other than with respect to mobile
goods.
(u) Corporate Name. The exact corporate name of each Credit Party
as it appears in its certificate of incorporation is as set forth on Schedule
6.01(t) and no Credit Party has done business in any location under any other
name.
(v) Security Interests and Liens. The Security Documents create
in favor of Administrative Agent for the benefit of the Lenders valid and
enforceable Liens in the Collateral described therein which secure the payment
and performance of the Obligations that are described therein, including
without limitation, all future Advances pursuant to this Agreement and the
Notes, all contingent Obligations arising in connection with the Letters of
Credit and all extensions, renewals, and other modifications thereof. Upon
delivery to the Administrative Agent from time to time of any promissory note
evidencing Permitted Coho Shell Advances or any Permitted Intercompany Advances
and any other Collateral the possession of which is necessary to perfect the
security interest therein, the Liens created by the Loan Documents shall
constitute perfected, first priority Liens upon the property described therein
which shall be superior and prior to the rights of all third Persons now
existing or hereafter arising except for Liens permitted by Section 7.02(a).
ARTICLE VII
COVENANTS
SECTION 7.01. Affirmative Covenants. So long as any of the
Obligations shall remain unpaid or any Lender has any Commitment hereunder,
each Company covenants and agrees, unless the Required Lenders shall otherwise
consent in writing, as follows:
(a) Stockholders' Equity. Holdings and its Restricted
Subsidiaries will maintain its Stockholders' Equity in an amount at
all times not less than the sum of (A) One Hundred Eight Million
Dollars ($108,000,000.00) plus (B) fifty percent (50%) of the
Consolidated Net Income of Holdings for each fiscal quarter beginning
with the fiscal quarter ended March 31, 1998, plus (c) seventy-five
percent (75%) of the cash proceeds (less reasonable and customary fees
and expenses and underwriter's discounts) of any sales of Capital
Stock of Holdings on or after the Closing Date. If Consolidated Net
Income of Holdings for any fiscal year is negative, no adjustment to
the requisite level of Stockholders' Equity shall be made.
(b) Interest Coverage Ratio. Holdings will maintain an
Interest Coverage Ratio measured at the end of each fiscal quarter for
the four fiscal quarters then most recently ended of not less than 2.5
to 1.0;
(c) Current Ratio. Holdings will at all times maintain a
minimum Consolidated Current Ratio of 1.0 to 1.0;
(d) Reporting Requirements. The Companies will furnish
to the Administrative Agent and each Lender:
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 48
<PAGE> 55
(i) as soon as available and in any event within
sixty (60) days after the end of each of the first three
quarters of each fiscal year of Holdings, (a) consolidated and
consolidating balance sheets of Holdings and its Restricted
Subsidiaries as at the end of such quarter, and consolidated
and consolidating statements of earnings and cash flow of
Holdings and its Restricted Subsidiaries for such quarter and
for the period commencing at the end of the immediately
preceding fiscal year and ending with the end of such quarter,
(b) consolidated and consolidating balance sheets of each
Unrestricted Subsidiary and the applicable Unrestricted
Subsidiary's Subsidiaries as at the end of such quarter and
consolidated and consolidating statements of earnings and cash
flow of each Unrestricted Subsidiary and the applicable
Unrestricted Subsidiary's Subsidiaries for such quarter and
for the period commencing at the end of the immediately
preceding fiscal year and ending with the end of such quarter,
all such financial statements to set forth in comparative form
the corresponding figures for the corresponding date or period
of the immediately preceding fiscal year, all in reasonable
detail and prepared, in the case of the consolidated balance
sheets and statements, in accordance with GAAP (except for the
absence of any footnotes required by GAAP), duly certified by
the chief financial officer of Holdings (or in the case of
Unrestricted Subsidiaries, by an authorized officer thereof)
as (A) fairly presenting the financial condition of the
Persons subject thereof at the end of such quarter and the
results of the operations of the Persons subject thereof for
such periods (subject to normal year-end audit adjustments),
and (B), in the case of the consolidated balance sheets and
statements, having been prepared in accordance with GAAP.
(ii) as soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal
year of Holdings,
(A) consolidated and consolidating
balance sheets of Holdings and its Restricted
Subsidiaries as at the end of such fiscal year, and
consolidated and consolidating statements of earnings
and cash flow of Holdings and its Restricted
Subsidiaries for such fiscal year, setting forth in
comparative form the corresponding figures for the
immediately preceding fiscal year, all in reasonable
detail and prepared, in the case of the consolidated
balance sheets and statements, in accordance with
GAAP and (1) in the case of consolidated balance
sheets and statements, accompanied by a report and an
opinion that such balance sheets and statements have
been prepared in accordance with GAAP, of an
independent certified public accountant of recognized
standing selected by Holdings and satisfactory to the
Lenders (which opinion shall not be qualified in any
material respect), together with a written statement
of such accountants (x) to the effect that in making
the examination necessary for their certification of
such financial statements they have not obtained any
knowledge of the existence of an Event of Default or
any Potential Default, or (y) if such accountants
shall have obtained any knowledge of the existence of
an Event of Default or Potential Default, describing
the nature thereof, and (2) in the case of
consolidating balance sheets and statements, duly
certified
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 49
<PAGE> 56
by the chief financial officer of Holdings as fairly
presenting the financial condition of Holdings and
its Restricted Subsidiaries at the end of, and the
results of operations of Holdings and its Restricted
Subsidiaries for, such fiscal year; and
(B) consolidated and consolidating
balance sheets of each Unrestricted Subsidiary and
the applicable Unrestricted Subsidiary's Subsidiaries
as at the end of such fiscal year, and consolidated
and consolidating statements of earnings and cash
flow of each Unrestricted Subsidiary and the
applicable Unrestricted Subsidiary's Subsidiaries for
each fiscal year, setting forth in comparative form
the corresponding figures for the immediately
preceding fiscal year, all in reasonable detail and
prepared, in the case of the consolidated balance
sheets and statements, in accordance with GAAP and
duly certified by the chief financial officer of the
applicable Unrestricted Subsidiary as fairly
presenting the financial condition of the applicable
Unrestricted Subsidiary and its Subsidiaries at the
end of, and the results of operations of the
applicable Unrestricted Subsidiary and its
Subsidiaries for, such fiscal year;
(iii) as soon as available and in any event within
sixty (60) days after the end of each calendar quarter, a Production
Report for such quarter;
(iv) simultaneously with the delivery of the
financial statements required by paragraphs (i) and (ii) above, a
certificate of the chief financial officer of Holdings, (A) stating
that such officer has reviewed the provisions of this Agreement and
the other Loan Documents and has made or caused to be made under his
supervision a review of the condition and operations of Holdings and
its Subsidiaries during the period covered by such financial
statements with a view to determining whether Holdings and its
Subsidiaries were in compliance with all of the provisions of such
Loan Documents, and that such review has not disclosed, and such
officer has no knowledge of, the existence during such period of an
Event of Default or Potential Default or if an Event of Default or
Potential Default existed, describing the nature and period of
existence thereof and the action which the Companies propose to take
with respect thereto, and (B) setting forth data and calculations
demonstrating in reasonable detail compliance with the provisions of
subsections (a), (b) and (c) of this Section 7.01 as of the end of such
period and the calculation of the ratio of Consolidated Indebtedness
to EBITDA of Holdings and its Restricted Subsidiaries for the four
fiscal quarters then most recently ended;
(v) thirty (30) days before the end of each
fiscal year of Holdings, a projected cash flow statement for the
fiscal year immediately succeeding such fiscal year containing all
projected sources and uses of cash for Holdings and its Restricted
Subsidiaries (on a consolidated basis), disclosing all assumptions
made with respect to general economic, financial and market conditions
utilized in the preparation of such projected cash flow statement and
certified by an officer of Holdings to be, to the best of such
officer's knowledge, (a) based upon reasonable estimates and
assumptions, all of
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 50
<PAGE> 57
which are fair in light of then current conditions, (b) prepared on
the basis of the assumptions stated therein and (c) reflective of
Holdings estimates of the results of operations and other matters
projected therein;
(vi) promptly upon receipt thereof, copies of all
financial reports (including, without limitation, management letters),
if any, submitted to Holdings or any of its Subsidiaries by its
auditors in connection with any annual or interim audit of the books
thereof;
(vii) as soon as possible and in any event within
five (5) days after obtaining knowledge of the occurrence of an Event
of Default or a Potential Default the written statement of the chief
financial officer of Holdings, setting forth the details of such Event
of Default or Potential Default and the action which the Companies
proposes to take with respect thereto;
(viii) promptly after the sending or filing thereof,
copies of all statements, reports and other information which Holdings
or any of its Subsidiaries sends to its security-holders generally or
files with the Securities and Exchange Commission or any national
securities exchange;
(ix) (A) as soon as possible and in any event (1)
within thirty (30) days after Holdings or any of its Affiliates knows
or has reason to know that any Termination Event described in clause
(a) of the definition of Termination Event with respect to any
Employee Plan has occurred, and (2) within ten (10) days after
Holdings or any of its Affiliates knows or has reason to know that any
other Termination Event with respect to any Employee Plan has
occurred, a statement of the chief financial officer of Holdings
describing such Termination Event and the action, if any, which
Holdings or such Affiliate proposes to take with respect thereto, (B)
promptly and in any event within two Business Days after receipt
thereof by Holdings or any of its Affiliates from the Pension Benefit
Guaranty Corporation, copies of each notice received by Holdings or
any of its Affiliates of the Pension Benefit Guaranty Corporation's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within thirty (30)
days after the filing thereof with the Internal Revenue Service,
copies of each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) with respect to each Plan, and (D) promptly and in
any event within five (5) Business Days after receipt thereof by
Holdings or any of its Affiliates from a sponsor of a Multiemployer
Plan or from the Pension Benefit Guaranty Corporation, a copy of each
notice received by Holdings or any of its Affiliates concerning the
imposition or amount of withdrawal liability under Section 4202 of
ERISA in an annual amount in excess of Five Hundred Thousand Dollars
($500,000.00), or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA and that, as a
result thereof, Holdings or Affiliate's annual contribution
requirement with respect to such Multiemployer Plan will increase in
an annual amount exceeding Five Hundred Thousand Dollars
($500,000.00);
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 51
<PAGE> 58
(x) promptly after the commencement thereof and
in any event not later than five (5) Business Days after service of
process with respect thereto on, or the obtaining of knowledge thereof
by, Holdings or any of its Restricted Subsidiaries, notice of each
action, suit or proceeding before any court or other Governmental
Authority or any arbitrator which may cause a Material Adverse Change;
(xi) promptly after any change in any Person who
purchases any Hydrocarbons from any Borrower produced from Petroleum
and Natural Gas Rights which constitute Collateral, the name and
address of the new purchaser and, if the purchase contract applicable
to the purchaser extends for a period in excess of six (6) months, a
letter executed by such purchaser pursuant to which it shall
acknowledge the Administrative Agent's Lien in the amounts paid by
such purchaser to Borrowers and agree to pay such amounts to the
Administrative Agent upon receipt of written notice of default from
the Administrative Agent. Upon the request of the Administrative
Agent, the Borrowers will provide the Administrative Agent with the
names and address of all purchasers of Hydrocarbons attributable to
the Petroleum and Natural Gas Rights pledged as Collateral by
Exploration, Acquisitions and the other Borrowers and such other
information with respect to such purchasers as the Administrative
Agent may reasonably request; and
(xii) promptly upon request, such other information
concerning the Collateral or the condition or operations, financial or
otherwise, of any Credit Party or any of their respective Subsidiaries
as the Administrative Agent or any Lender from time to time may
reasonably request.
(e) Compliance with Laws, Etc. The Companies will
comply, and cause each of their respective Subsidiaries to comply,
with all applicable laws, rules, regulations and orders (including,
without limitation, Environmental Laws) to the extent the failure to
so comply therewith would cause a Material Adverse Change, such
compliance (to the extent required in accordance with the foregoing)
to include, without limitation, (i) paying before the same become
delinquent all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its
properties, and (ii) paying all lawful claims which if unpaid might
become a Lien or charge upon any of its properties, except to the
extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set
aside, to the extent required by GAAP, for the payment thereof.
(f) Preservation of Existence, Etc. Each Company will
maintain and preserve its existence and any material rights and
privileges, and cause each of its Subsidiaries to maintain and
preserve its existence, rights and privileges if the failure of any
such Subsidiary (other than a Borrower) so to maintain and preserve
such existence, rights and privileges would cause a Material Adverse
Change, and become or remain, and cause each of its Subsidiaries to
become or remain, duly qualified and in good standing in each
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 52
<PAGE> 59
jurisdiction in which the character of the properties owned or leased
by it or in which the transaction of its business makes such
qualification necessary and in which the failure to be so qualified
would cause a Material Adverse Change.
(g) Maintenance of Properties, Etc. Each Company will
maintain and preserve, and cause each of its Subsidiaries to maintain
and preserve, all of the Collateral and all of its other material
properties which are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear
excepted and comply in all material respects and cause each of its
Subsidiaries to comply in all material respects, at all times with the
provisions of all leases to which it is a party as lessee or under
which it occupies property, so as to prevent any loss or forfeiture
thereof or thereunder if such a loss or forfeiture would cause a
Material Adverse Change; provided, however, that (i) nothing in this
subsection (g) shall be deemed (x) to require Holdings or any of its
Subsidiaries to perpetuate or renew any oil and gas lease or other
lease by payment of rental or delay rental or by commencement or
continuation of operations or to prevent Holdings or any of its
Subsidiaries from abandoning or releasing any oil and gas lease or
other lease when in any of such events, in the opinion of Holdings or
the applicable Subsidiary exercised in good faith, it is uneconomic so
to perpetuate the same or (y) prohibit Holdings or any of its
Subsidiaries from assigning by customary farmout or farmin agreements,
oil and gas leases in the ordinary course of business which relate to
quantities of Hydrocarbons which are not Proven Reserves and (ii) in
the event of such termination or assignment of any such lease included
in the Collateral, upon request of Holdings, and at the expense of
Holdings, the Administrative Agent shall execute and deliver a
recordable instrument releasing the Liens of the Administrative Agent
therein to the extent that there has been termination or assignment of
such lease.
(h) Obtaining of Permits, Etc. Each Company will obtain,
maintain and preserve, and cause each of its Subsidiaries to obtain,
maintain and preserve, all permits, licenses, authorizations,
approvals and accreditations which are necessary or useful in the
proper conduct of its business and which the failure to so obtain,
maintain or preserve, as applicable, would cause a Material Adverse
Change.
(i) Keeping of Records and Books of Account. Each
Company will keep, and cause each of its Subsidiaries to keep,
adequate records and books of account, with complete entries made in
accordance with GAAP consistently applied, reflecting all of its
financial transactions.
(j) Inspection Rights. Each Company will permit, and
cause each of its Subsidiaries to permit, the Administrative Agent,
any Lender or any agents or representatives thereof at any reasonable
time and from time to time upon reasonable notice to examine and make
copies of and abstracts from its records and books of account, to
visit and inspect its properties and to discuss its affairs, finances
and accounts with any of the directors, officers, employees or other
representatives thereof; provided, however, that neither Holdings nor
any of its Subsidiaries shall be required to disclose to the
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 53
<PAGE> 60
Administrative Agent, any Lender or any agents or representatives
thereof any information which is the subject of attorney-client
privilege or attorney's work-product privilege properly asserted by
the applicable Person to prevent the loss of such privilege in
connection with such information.
(k) Environmental Laws. Each Company will (i) provide,
and cause each of its Subsidiaries to provide, to the Administrative
Agent promptly following receipt, copies of any notice, pleading,
citation, indictment, complaint, order, decree or other documentation
from any source asserting or alleging a material violation of any
Environmental Law or a circumstance or condition which requires or may
require a material financial contribution by Holdings or any of its
Subsidiaries for a Remedial Action under any Environmental Law, or
which seeks a material amount of damages or civil, criminal or
punitive penalties from Holdings or any of its Subsidiaries for an
alleged violation of any Environmental Law, or which names or lists
Holdings or any of its Subsidiaries as a potentially responsible party
under any Environmental Law; and (ii) comply, and cause each of its
Subsidiaries to comply, with any order, decree or similar requirements
from any Governmental Authority concerning a violation of any
Environmental Law or a financial contribution by Holdings or any of
its Subsidiaries or a cleanup, removal, remedial action or other
response by or on the part of Holdings or any of its Subsidiaries
under any Environmental Law, except that compliance shall not be
required so long as (1) the validity of the same shall be contested in
good faith and by proper proceedings, (2) the property shall then be
in no danger of being sold, forfeited or lost pursuant to such
contest, (3) adequate reserves have been established in accordance
with GAAP by Holdings or such Subsidiary in connection therewith and
are maintained for the duration of such contest, (4) the Lien of the
Security Documents shall then be in no danger of being forfeited or
subordinated to any Lien or claim, and (5) by reason of such Person's
action or inaction, neither the Administrative Agent nor any Lender
shall at any time be subject to any liability by reason of such
contest or the alleged noncompliance which is the subject of such
contest.
(l) Environmental Reports and Compliance. If the Lenders
determine in good faith that Holdings or any of its Subsidiaries may
not be operating its properties in accordance with Environmental Laws
or that the Administrative Agent, Lenders, Holdings, any of its
Subsidiaries or any Collateral may be subject to any liability or any
Liens under or in accordance with Environmental Law, the Lenders shall
have the right to require Holdings to cause to be conducted an
environmental audit of any portion of such properties at the
Companies' sole cost and expense, with an independent Person
satisfactory to the Lenders. If Holdings shall fail to cause such
environmental audit to be conducted, the Lenders shall have the right
to cause such environmental audit to be conducted, at the Companies'
sole cost and expense, and Holdings and its Subsidiaries shall give
access to the Administrative Agent and/or its representatives, and
shall otherwise fully cooperate, with respect to such environmental
audit.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 54
<PAGE> 61
(m) Further Assurances; Post Closing Matters; Letters in
Lieu. Each Company will execute and deliver, and will cause each of
its Subsidiaries to execute and deliver, such further documentation as
may be reasonably requested by any Lender to carry out the provisions
and purposes of this Agreement and the other Loan Documents and to
preserve and perfect the Liens of the Administrative Agent in the
Collateral. In furtherance of the foregoing, each Company agrees to
(i) deliver to the Administrative Agent endorsements to the insurance
policies covering the assets of Acquisitions within thirty (30) days
of the Closing Date (A) naming the Administrative Agent for the
benefit of the Lenders as named insured or loss payee thereunder as
specified by the Administrative Agent and (B) providing that such
policies may be terminated or cancelled (by the issuer or insured
thereunder) only upon thirty (30) days prior written notice to the
Administrative Agent; (ii) deliver within sixty (60) days of the
Closing Date all certificates of title issued in respect of equipment
(other than motor vehicles which do not have a material value) pledged
by any Borrower or any Restricted Subsidiary as Collateral with the
Administrative Agent's lien noted thereon; and (iii) from time to
time, provide the Administrative Agent with such additional Letters in
Lieu of Transfer Orders executed in blank by Exploration and
Acquisitions as the Administrative Agent may reasonably request. The
Letters in Lieu of Transfer Orders delivered pursuant to Section
5.01(d)(vi) and this Section 7.01(m) may be completed and sent by the
Administrative Agent to the purchasers of Hydrocarbons attributable to
the Petroleum and Natural Gas Rights pledged as Collateral by
Exploration and Acquisitions only upon the occurrence and during a
continuance of an Event of Default.
(n) Unrestricted Subsidiaries. Each Company will cause
each of its Unrestricted Subsidiaries at all times to (i) maintain
corporate records and books of account and deposit accounts separate
from those Holdings or any of Holdings' other Subsidiaries; (ii)
prepare separate consolidated financial statements in accordance with
Section 7.01(d); and (iii) observe all formal corporate formalities
applicable to a separate corporation and otherwise observe all other
requirements necessary to establish such Subsidiary, with respect to
all Persons (including all creditors) who deal with such Subsidiary,
as a separate legal entity. When any Unrestricted Subsidiary is
established Holdings will cause, as of such date, (i) the value of
such Unrestricted Subsidiary's assets to be greater than its debt and
other obligations (including contingent obligations) and (ii) such
Unrestricted Subsidiary to have sufficient capital to operate its
business as proposed to be conducted and sufficient anticipated cash
flow to be able to pay its obligations as they become due.
(o) Value of Mortgaged Properties. The Proven
Reserves attributable to the Mortgaged Property constitute at least
seventy-five percent (75%) of the value of all Proven Reserves
attributable to all Borrowers' Petroleum and Natural Gas Rights.
SECTION 7.02. Negative Covenants. So long as any of the Obligations
shall remain unpaid or any Lender has any Commitment hereunder, no Company
will, without the prior written consent of the Required Lenders:
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 55
<PAGE> 62
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Restricted Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of its properties, rights or other assets, whether now owned or
hereafter acquired, or assign or otherwise transfer as collateral security, or
permit any of its Restricted Subsidiaries to assign or otherwise transfer as
collateral security, any right to receive income, other than:
(i) Liens created pursuant to the Loan Documents
or otherwise created in favor of the Administrative Agent;
(ii) Liens existing on the date hereof, as set
forth in Schedule 7.02(a) hereto and any renewals or extensions
thereof, or replacements therefor, but not the extension of coverage
thereof to other property or the increase in the principal amount
secured thereby;
(iii) (A) purchase money Liens in property acquired
or held by Holdings or any of its Restricted Subsidiaries in the
ordinary course of its business to secure the purchase price of such
property or Indebtedness for borrowed money incurred solely for the
purpose of financing or refinancing the acquisition of such property
and any renewals or extensions thereof, or replacements therefor, (B)
Liens existing on such property at the time of its acquisition
securing Indebtedness for borrowed money permitted by Section 7.02(b)
and any renewals or extensions thereof, or replacements therefor or
(C) Liens arising in connection with Capitalized Lease Obligations on
property leased by Holdings or any of its Restricted Subsidiaries in
the ordinary course of its business to secure such Capitalized Lease
Obligations; provided in the case of Liens referred to in clauses (A),
(B) and (C) above (including the renewals, extensions and replacements
thereof) that (1) no such Lien shall extend to or cover any property
of Holdings or any of its Restricted Subsidiaries other than the
property so acquired or leased, as applicable, and improvements
thereon, and (2) the principal amount of the Indebtedness secured by
any such Lien shall not (x) exceed the fair market value of such
property at the time of the acquisition or lease, as applicable,
thereof or (y) increase in connection with any renewal, extension or
replacement;
(iv) Liens for taxes, assessments or governmental
charges or levies to the extent that the payment thereof shall not be
required by Section 7.01(e) hereof;
(v) Liens created by operation of law, including
but without limitation, carrier's liens, warehousemen's liens,
landlord's liens, materialmen's liens, mechanics' liens and other
similar liens, arising in the ordinary course of business and securing
claims the payment of which shall not be required by Section
7.01(e)hereof;
(vi) deposits, pledges or liens (other than liens
arising under ERISA) securing (A) obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, (B) the performance of bids,
tenders, leases, contracts (other than for the payment of money) and
statutory obligations, or (C) obligations on surety or appeal bonds,
but only to the extent such deposits, pledges or liens are incurred or
otherwise arise in the ordinary course of business and secure
obligations which are not past due;
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 56
<PAGE> 63
(vii) easements, rights-of-way, covenants,
restrictions and other similar encumbrances incurred in the ordinary
course of business and encumbrances consisting of zoning restrictions,
easements, licenses and other restrictions on the use of real property
and minor irregularities in the title thereto which do not (A) secure
obligations for the payment of money or (B) materially impair the
value of such property or its use by Holdings or any of its Restricted
Subsidiaries in the normal conduct of such Person's business;
(viii) royalties, overriding royalties, revenue
interests, net revenue interests, production payments (other than
production payments granted or created by Holdings or its Restricted
Subsidiaries in connection with the borrowing of money), advance
payment obligations (other than obligations in respect of advance
payments received by Holdings in connection with the borrowing of
money) and other similar burdens incurred in the ordinary course of
business and (a) now existing with respect to the Collateral (provided
they do not increase the Working Interests or decrease the net revenue
interests applicable to the Collateral from that as reflected on the
Initial Engineering Report or the ING Reserve Report (as defined in
the ING Acquisition Agreement) or any oil, gas or mineral leases or
other interests or (b) hereafter created on oil, gas or mineral leases
or other interests which do not constitute Collateral and which are
now owned or hereafter acquired by or any of its Restricted
Subsidiaries;
(ix) Liens that are permitted by the Security
Documents;
(x) Liens on property of any corporation that
becomes a Subsidiary of Holdings after the date of this Agreement,
provided that such Liens are in existence at the time such corporation
becomes a Subsidiary of Holdings and were not created in anticipation
thereof;
(xi) with respect to any property from which
Hydrocarbons may be severed or extracted in commercial quantities,
liens for farmout, farmin, joint operating, and area of mutual
interest agreements and/or similar arrangements that Holdings or the
applicable Restricted Subsidiary determines in good faith to be
necessary for the economic development of such property and are
customary and usual for the area in which such property is located;
provided, however, that with respect to any such Liens created
subsequent to the date hereof on property which constitutes
Collateral, such Liens shall be expressly made subordinate to the
Liens created by the Security Documents;
(xii) rights reserved to or vested in any
municipality or other Governmental Authority by the terms of any
right, power, franchise, grant, license or permit, or by any provision
of law, to terminate such right, power, franchise, grant, license or
permit or to purchase, condemn, expropriate or recapture, or to
designate a purchaser of, any of the property of Holdings or of any of
its Restricted Subsidiaries;
(xiii) rights reserved to or vested in any
municipality or other Governmental Authority to control or regulate
any property of Holdings or of any of its Restricted Subsidiaries, or
to use such property in a manner which does not materially impair the
use
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 57
<PAGE> 64
of such property for the purposes for which it is held by Holdings or
any such Restricted Subsidiary;
(xiv) any obligations or duties affecting the
property of Holdings or of any of its Restricted Subsidiaries to any
municipality or other Governmental Authority with respect to any
franchise, grant, license or permit;
(xv) rights under common law of a common owner of
any interest in real estate, right of way or easement held by Holdings
or any of its Restricted Subsidiaries and such common owner as tenants
in common or through other common ownership;
(xvi) rights of set-off or banker's liens created
by law in favor of commercial banks;
(xvii) Liens encumbering cash and cash equivalents
securing Indebtedness permitted by subsection 7.02(b)(x);
(xviii) Liens granted by Coho Shell to any Borrower
to secure Permitted Coho Shell Advances; and
(xix) Liens granted by any Intercompany Borrower to
any Borrower to secure Permitted Intercompany Advances.
(b) Indebtedness. Create, incur or suffer to exist, or permit any
Restricted Subsidiaries to create, incur or suffer to exist, any Indebtedness,
other than:
(i) Indebtedness evidenced or created hereunder
or under the other Loan Documents and any renewals and extensions
thereof;
(ii) Permitted Coho Shell Advances;
(iii) Permitted Intercompany Advances;
(iv) Indebtedness reflected on the Financial
Statements or on Schedule 6.01(m) hereto and any renewals and
extensions thereof but without any increase in the principal amount
thereof;
(v) Indebtedness incurred if neither Holdings nor
any of its Restricted Subsidiaries has any personal liability for the
repayment thereof and any renewals and extension thereof;
(vi) Guaranties by indorsement of negotiable
instruments for deposit or collection in the ordinary course of
business;
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 58
<PAGE> 65
(vii) The Subordinated Indebtedness and, subject to
the prior written approval of the Required Lenders, indebtedness of
Holdings or any of its Restricted Subsidiaries and any renewals and
extensions thereof if payment of such Indebtedness and any Liens
securing the payment thereof are fully subordinated to the Obligations
(including, without limitation, with respect to each Credit Party, its
obligations, if any, under the Guaranty or a Subsidiary Guaranty) and
the Liens of the Administrative Agent in the Collateral and, with
respect to Coho Shell and any Intercompany Borrower, are fully
subordinated to the obligations to repay the Permitted Coho Shell
Advances and the Permitted Intercompany Advances, as the case may be,
and the Liens securing payment thereof;
(viii) liabilities in an aggregate amount less than
Five Hundred Thousand Dollars ($500,000.00) incurred under Title IV of
ERISA with respect to any Plan (other than a Multiemployer Plan)
covered by Title IV of ERISA and withdrawal liability incurred under
ERISA in an amount not at any time exceeding Five Hundred Thousand
Dollars ($500,000.00);
(ix) Indebtedness in any fiscal year not to exceed
an aggregate amount of $20,000,000 (including Capitalized Lease
Obligations) secured by purchase money Liens permitted by Section
7.02(a)(iii) and any renewals or extension thereof provided there is
no increase in the principal amount thereof;
(x) Capitalized Lease Obligations incurred in
accordance with the limitations imposed by Section 7.02(a)(iii);
(xi) Indebtedness arising in connection with
letters of credit issued for the account of Holdings or any of its
Restricted Subsidiaries to secure (A) obligations incurred in respect
of workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, (B) the performance of bids,
tenders, leases, contracts (other than for the payment of money) and
statutory obligations, or (C) obligations on surety or appeal bonds
but only to the extent that (x) such obligations, bids, tenders,
leases, contracts, statutory obligation or obligations on surety and
appeal bonds are incurred or otherwise arise in the ordinary course of
business; (y) no letter of credit issued under the permission of this
subsection 7.02(b)(x)(i) shall have an original face amount in excess
of One Hundred Thousand Dollars ($100,000.00) and (z) the Indebtedness
of any Borrower arising in connection of each letter of credit issued
under the permission of this subsection 7.02(b)(x)(i) shall be secured
in full by cash or cash equivalent collateral; and
(xii) Indebtedness (and any renewals and extensions
thereof) owed to Holdings or a Restricted Subsidiary of Holdings
arising as a result of an Investment made by Holdings or such
Restricted Subsidiary in the obligor of such Indebtedness that is not
prohibited by Section 7.02(g), if (A) in the case of Indebtedness
incurred by any Credit Party, the payment of such Indebtedness and any
renewals and extensions thereof and any Liens securing the payment
thereof are fully subordinated to the Obligations (including, without
limitation, with respect to each Credit Party, its obligations, if
any, under the Guaranty or a
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 59
<PAGE> 66
Subsidiary Guaranty) and the Liens of the Administrative Agent in the
Collateral and (B) in the case of Indebtedness incurred by Coho Shell
or any Intercompany Borrower, the payment of such Indebtedness and any
renewals and extensions thereof and any Liens securing the payment
thereof are fully subordinated to the obligations of Coho Shell or
such Intercompany Borrower to repay the Permitted Coho Shell Advances
or the Permitted Intercompany Advances, as the case may be, and the
Liens securing payment thereof, all upon terms and provisions
reasonably acceptable to the Lenders.
(c) Merger, Consolidation. Merge into or consolidate with any
Person or permit any Restricted Subsidiaries to merge into or consolidate with
any Person except as permitted by Section 7.01(f) or unless the proposed merger
or consolidation will not negatively affect the financial condition or
otherwise impair the creditworthiness of either Company.
(d) Sale of Assets, Etc. Sell, assign, lease or otherwise
transfer or dispose of, or permit any of its Restricted Subsidiaries to sell,
assign, lease or otherwise transfer or dispose of, whether in one transaction
or in a series of related transactions, any of its properties, rights or other
assets (whether now owned or hereafter acquired) to any Person except for sales
and other dispositions by Holdings and its Restricted Subsidiaries of inventory
and assets (other than Petroleum and Natural Gas Rights to which Proven
Reserves are attributable) in the ordinary course of business, including, but
without limitation, routine farmouts by Holding and its Subsidiaries in
connection with quantities of Hydrocarbons which are not Proven Reserves;
provided, however, that
(i) nothing in this subsection (d) shall be
deemed to prohibit Holdings or any of its Restricted Subsidiaries from
making assignments of oil and gas leases pursuant to the provisions of
clause (i) (y) of subsection (g) of Section 7.01 hereof;
(ii) Holdings and its Restricted Subsidiaries may
sell, assign, lease or otherwise transfer or dispose of, in bona fide
arm's length transactions any of their properties, rights and other
assets that do not constitute Collateral; and
(iii) A Borrower may sell, assign, lease or
otherwise transfer or dispose of, in a bona fide arms' length
transaction, one or more portions of the Petroleum and Natural Gas
Rights constituting Collateral (and the Administrative Agent, at
Borrowers' expense, shall execute and deliver a recordable instrument
releasing the Liens of the Administrative Agent therein) so long as:
(1) when any such sale or sales of
assets included in determining the Borrowing Base in
any calendar year yield aggregate net after-tax
proceeds in excess of $5,000,000, and on any sale
thereafter during such calendar year, the outstanding
Advances shall be prepaid on the date of the sale,
assignment, lease, transfer or other disposition
which causes the aggregate of such proceeds to exceed
$5,000,000, and on the date of any subsequent sale
during that calendar year, by an amount equal to the
greater of (A) one hundred twenty percent (120%) of
the Borrowing Base valuation of the Collateral so
disposed of (as reasonably determined by the Lenders)
or
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 60
<PAGE> 67
(B) seventy percent (70%) of the net price paid to
the applicable Borrower in connection with such
disposition, such prepayment to be applied as a
mandatory prepayment in accordance with Section
3.02(b); and
(2) no Event of Default or Potential
Default exists or would result therefrom; and
(3) after giving effect to such
disposition and the redetermination of the Borrowing
Base in accordance with Section 2.10(e), the value of
the Borrowers' Proven Producing Reserves included as
Collateral shall constitute an amount not less than
seventy percent (70%) of the total Borrowing Base, as
determined by the Lenders.
Prior to the disposition of any Collateral in accordance with this
subsection 7.02(d)(iii) and upon the request of Borrowers, the Administrative
Agent and the Lenders shall provide the Borrowers information regarding the
Borrowing Base value being considered by the Lenders for the purposes of this
subsection 7.02(d)(iii) and with respect to the Collateral in question.
(e) Change in Nature of Business. Engage in any business other
than the exploration for, and the production, transportation, storage and sale
of, Hydrocarbons and related products and other activities necessary or useful
to facilitate the profitable enhancement of Hydrocarbon value.
(f) Transactions with Affiliates. Enter into contracts,
agreements, undertakings or transactions with Affiliates of the Companies,
other than contracts, agreements, undertakings or transactions which (i) are
described on Schedule 7.02(f) hereto, or (ii) (A) are at a price and on other
terms which are not less favorable than those which could be obtained from
qualified third parties in arms' length transactions, (B) are set forth in
written agreements and (C) are for the provisions of necessary services;
provided, however, that nothing in this subsection (f) shall prohibit any
Company from declaring or paying any dividends or other distributions to
shareholders in respect of Capital Stock to the extent that any such
declaration or payment otherwise complies with this Agreement and applicable
law.
(g) Restricted Payments and Restricted Investments. Make any
Restricted Payment or Restricted Investment or permit any of its Restricted
Subsidiaries to make any Restricted Payment or Restricted Investment; provided,
however, that Holdings or any Restricted Subsidiary may make a Restricted
Payment or a Restricted Investment if, immediately after giving effect to such
Restricted Payment or Restricted Investment, (a) no Event of Default or
Potential Default shall exist or result therefrom and (b)(i) the sum of the
aggregate amount of Restricted Payments and Restricted Investments made by the
Borrowers and their Restricted Subsidiaries since the Original Closing Date and
made since February 8, 1994 by Holdings and any of its Restricted Subsidiaries
which were not Restricted Subsidiaries as of the Original Closing Date and the
amount of such proposed Restricted Payment or Restricted Investment would not
exceed an amount equal to 50% of Borrowers' Consolidated Net Income for the
entire period from and including January 1, 1992 to the date of making such
proposed Restricted Payment or Restricted Investment, plus, in the case of any
proposed Investment in a Subsidiary of Holdings, an aggregate amount not to
exceed Two Million
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 61
<PAGE> 68
Five Hundred Thousand Dollars ($2,500,000.00), or (ii) the ratio of
Borrowers' Consolidated Indebtedness to Borrowers' Stockholders'
Equity would not exceed 1.6 to 1 after giving effect to such proposed
Restricted Payment or Restricted Investment or (iii) the sum of the
aggregate amount of Restricted Payments and Restricted Investments
made by the Borrowers and their Restricted Subsidiaries since the
Original Closing Date and made since February 8, 1994 by Holdings and
any of its Restricted Subsidiaries which were not Restricted
Subsidiaries as of the Original Closing Date and the amount of the
proposed Restricted Payment or Restricted Investment would not exceed
an amount equal to one hundred percent (100%) of Borrowers'
Consolidated Net Income for the three fiscal years immediately
preceding the date of making such proposed Restricted Payment or
Restricted Investment, plus, in the case of any proposed Investment in
a Subsidiary of Holdings, an aggregate amount equal to Two Million
Five Hundred Thousand Dollars ($2,500,000.00). Notwithstanding the
foregoing, Borrowers will not make any advance, loan or extension of
credit to Coho Shell or any Intercompany Borrower out of proceeds of
Advances unless such advance, loan or extension of credit would
constitute a Permitted Coho Shell Advance or a Permitted Intercompany
Advance. No Company shall consent to or approve the issuance of any
additional share of any class of Capital Stock of any Borrower or Coho
Canada or any securities convertible into, or exchangeable for, any
such shares or any warrants, options, rights, or other commitments
entitling any Person to purchase or otherwise acquire any such shares.
(h) Financial Covenants. Notwithstanding anything to the contrary
otherwise set forth in this Agreement, (i) create or incur any Indebtedness or
obligations as lessee, (ii) sell or transfer any assets, (iii) make any
investments or capital expenditures, (iv) make any Restricted Payment, (v)
engage in any other act or transaction or (vi) permit any of its Subsidiaries
to do any of the forgoing if, after giving effect thereto, any of the financial
covenants set forth in Section 7.01 hereof would be violated thereby.
(i) Hedging. The Borrowers will not enter into Hedging
Arrangements with respect to more than seventy-five percent (75%) of their
Daily Production of Crude Oil or their Daily Production of Natural Gas.
SECTION 7.03 Post-Closing Date Obligations. Within thirty (30) days
after the Closing Date (unless a longer period is specified below), Borrowers
shall deliver to the Administrative Agent all of the following, in form and
substance satisfactory to the Co-Documentation Agents and each Lender:
[(a) Foreign Qualification. Certificates as to
Acquisitions' good standing and due qualification to do business,
issued by the appropriate officials in Oklahoma and Texas;]
(b) Opinion of Local Counsel. Favorable opinion of local
counsel to the Borrowers in Oklahoma as to the matters set forth in
Exhibit D hereto, and such other matters as the Administrative Agent
may reasonably request;
(c) Title Matters. Within one hundred fifty (150) days
after the Closing Date, favorable title opinions and/or title reports
addressed to the Administrative Agent and issued by counsel to the
Borrowers that is experienced in the examination of title to Petroleum
and
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 62
<PAGE> 69
Natural Gas Rights as to the status of Acquisitions' title to and
Liens affecting the Amoco Properties containing at least seventy-five
percent (75%) of the Proven Reserves attributable to the Amoco
Properties;
(d) Environmental Matters. Within two hundred seventy
(270) days after the Closing Date, a report or reports, in form, scope
and detail satisfactory to the Administrative Agent, from
environmental engineering firms acceptable to the Administrative
Agent, setting forth the results of the Phase I environmental review
of the Amoco Properties, which reports shall (i) cover at least
seventy-five percent (75%) of the Proven Reserves attributable to the
Amoco Properties and (ii) not reflect the existence of facts or
circumstances which would constitute a violation(s) of applicable
Environmental Law which are likely to result in a Material Adverse
Change or in a material liability to a Credit Party;
(e) Notices/Correspondence pursuant to the Amoco Purchase
Agreement. Copies of all notices or other correspondence or
transmittals between Amoco Production Company and Acquisitions
pursuant to the Amoco Purchase Agreement, as soon as practical after
they have been sent or received, as the case may be, by Acquisitions;
(f) Lien Searches. Within sixty (60) days after the
Closing Date, the results of Uniform Commercial Code and other Lien
searches showing all financing statements and other Lien instruments
filed against Acquisitions or the Amoco Properties in such public
offices as may be identified by the Administrative Agent;
(g) Recording. Within forty-five (45) days after the
Closing Date, an opinion or opinions addressed to the Administrative
Agent and issued by counsel to the Borrowers experienced in examining
title to Petroleum and Natural Gas Rights, (i) certifying the due and
proper recording in the appropriate county records and in the
appropriate Bureau of Land Management (where applicable) of the
assignments, deeds and other conveyances to Acquisitions in connection
with the transactions contemplated by the Amoco Purchase Agreement of
interests in and to the properties covered by the Oklahoma Mortgage
which are set out in Exhibit A to the Oklahoma Mortgage; and (ii)
certifying the due and proper recording of the Oklahoma Mortgages in
each county and in each office of the Bureau of Land Management (where
applicable) required to perfect the Liens of the Lenders under the
terms of the Oklahoma Mortgage;
(h) Additional Governmental Certificates. Within thirty
(30) days after the Closing Date, all certificates contemplated by
Section 5.01(e)(vii) which the Administrative Agent does not require
to be delivered on the Closing Date; and
(i) Additional Documentation. The Administrative Agent
shall have received such additional approvals, opinions, title
opinions, or documents as the Administrative Agent or its legal
counsel may reasonably request.
A failure of Borrowers to timely comply with its obligations under this Section
7.03 shall not constitute a Default or prevent borrowing under this Agreement,
but instead shall constitute a basis
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 63
<PAGE> 70
for not including the affected Properties in the Borrowing Base and be subject
to the requirements of Section 3.02(b).
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) Any Borrower shall fail to pay any principal of any
Note when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); or
(b) Any Borrower shall fail to pay any interest on any
Note when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) or any Borrower or Holdings shall
fail to pay any other Obligation and such default shall continue for
more than five (5) days; or
(c) Any representation, warranty or certification made by
any Credit Party under or in connection with any Loan Document shall
have been incorrect in any material respect when made; or
(d) Any Credit Party shall fail to perform or observe any
covenant or agreement contained in any Loan Document (except the
covenants and agreements described in subsections (a) and (b) of this
Section 8.01, or set forth in subsections (b), (d) (vii), (f) and (j)
of Section 7.01 and the entire Section 7.02) and such failure, if
capable of being remedied, shall remain unremedied for thirty (30)
days after written notice thereof shall have been given to such Credit
Party by the Administrative Agent; or any Credit Party shall fail to
perform or observe any covenant or agreement contained in subsections
(b), (d) (vii), (f) and (j) of Section 7.01 or contained in Section
7.02; provided, however, a breach of the covenants contained in
Section 7.03 shall not be an Event of Default but shall have the
consequences provided at the end of such Section, including being
subject to the provisions of Section 3.02(b).
(e) Any Credit Party shall fail to pay any of its
Indebtedness (excluding (i) Indebtedness evidenced by the Notes and
(ii) Indebtedness consisting of accounts payable incurred in the
ordinary course of business to the extent contested in good faith by
proper proceedings and where an adverse determination thereof will not
cause a Material Adverse Change in excess of Five Hundred Thousand
($500,000.00)), or any interest or premium thereon, when due (whether
by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Indebtedness; or any other default under any agreement or
instrument relating to any such Indebtedness, or any other event,
shall occur and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
default or event is to accelerate, or to permit
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 64
<PAGE> 71
the acceleration of, the maturity of such Indebtedness; or any such
Indebtedness in excess of such amount shall be declared to be due and
payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof;
or
(f) Any Credit Party shall be generally not paying its
debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by any Credit Party seeking to adjudicate it a bankrupt or
insolvent, or seeking dissolution, liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any Credit Party or
for any substantial part of its property; or any Credit Party shall
take any action to authorize or effect any of the actions set forth
above in this subsection (f); or any proceeding shall be instituted
against any Credit Party seeking to adjudicate such Credit Party a
bankrupt or insolvent, or seeking dissolution, liquidation,
winding-up, reorganization, arrangement, adjustment, protection,
relief or composition of such Credit Party or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar
official for such Credit Party or for any substantial part of its
property and such proceeding shall not be dismissed within sixty (60)
days of the institution thereof; or
(g) Any material provision of any Loan Document shall at
any time for any reason be declared to be null and void, or the
validity or enforceability of any provision of any Loan Document shall
be contested by any Credit Party, or a proceeding shall be commenced
by any Credit Party seeking to establish the invalidity or
unenforceability of any provision of any Loan Document, or a
proceeding shall be commenced by any Governmental Authority or other
regulatory body having jurisdiction over any Credit Party, seeking to
establish the invalidity or unenforceability of any material provision
of any Loan Document, or any Credit Party shall deny that it has any
liability or obligation purported to be created under any Loan
Document; or
(h) Any Security Document, after delivery thereof,
pursuant hereto or pursuant to any other Loan Document, shall for any
reason, fail or cease to create a valid and perfected and, except to
the extent permitted by the terms hereof or thereof, first priority
Lien on any Collateral purported to be covered thereby; or
(i) One or more judgments or orders for the payment of
money exceeding any applicable insurance coverage by more than Five
Million Dollars ($5,000,000.00) in the aggregate shall be rendered
against any Credit Party, and either (i) enforcement proceedings shall
have been commenced by any creditor upon any such judgment or order,
or (ii) there shall be any period of thirty (30) consecutive days
during which a stay of enforcement of any such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 65
<PAGE> 72
(j) Holdings or any of its Affiliates shall have made a
complete or partial withdrawal from a Multiemployer Plan, and, as a
result of such complete or partial withdrawal, Holdings or such
Affiliate incurs a withdrawal liability in an annual amount exceeding
Five Hundred Thousand Dollars ($500,000.00) or a Multiemployer Plan
enters reorganization status under Section 42 of ERISA, and, as a
result thereof, Holdings' or such Affiliate's annual contribution
requirement with respect to such Multiemployer Plan increases in an
annual amount exceeding Five Hundred Thousand Dollars ($500,000.00);
or
(k) Any Termination Event with respect to any Employee
Plan shall have occurred, and, thirty (30) days after notice thereof
shall have been given to Holdings by the Administrative Agent, (i)
such Termination Event (if correctable) shall not have been corrected,
and (ii) the then current value of such Employee Plan's vested
benefits exceeds the then current value of assets allocable to such
benefits in such Employee Plan by more than Five Hundred Thousand
Dollars ($500,000.00) (or in the case of a Termination Event involving
the withdrawal of a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the withdrawal of an employer treated as a
"substantial employer" under Section 4062(e) of ERISA, the withdrawing
employer's proportionate share of such excess shall exceed such
amount); or
(l) A "default" (as defined in Section 4.01 of the
Mortgage or as set forth in any other Security Document) shall occur
and be continuing; or
(m) The occurrence of a Change of Control; or
(n) (i) An "Event of Default" (as defined in the
Indenture) shall occur under the Indenture, the Securities, the
Subsidiary Guaranties or any other documents executed in connection
therewith, (ii) the Indenture, the Securities, the Subsidiary
Guaranties or any other documents executed in connection therewith
shall be amended or modified without the consent of Required Lenders,
or (iii) the Companies shall fail to notify the Administrative Agent
and the Co-Documentation Agents of a Default under the Indenture, the
Securities or the Subsidiary Guaranties or any other documents
executed in connection therewith within five (5) days after any
Company becomes aware of the occurrence of such Default.
SECTION 8.02. Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent, if requested by Majority Lenders, may
(and if directed by Required Lenders, shall) do any one or more of the
following:
(a) Acceleration. Declare, by written notice to the
Borrowers, all outstanding principal of and all accrued and unpaid
interest on the Notes and all other obligations of the Credit Parties
under the Loan Documents immediately due and payable, and the same
shall thereupon become immediately due and payable, without notice,
demand, presentment, notice of dishonor, notice of acceleration,
notice of intent to accelerate, protest, or other formalities of any
kind, all of which are hereby expressly waived by each Company.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 66
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(b) Termination of Commitments. Terminate the
Commitments without notice to any Credit Party.
(c) Judgment. Reduce any claim to judgment.
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to the Administrative Agent for the benefit of the Lenders to
secure payment and performance of the Obligations in accordance with
the terms of the Loan Documents.
(e) Rights. Exercise any and all rights and remedies
afforded by the laws of the State of New York or any other
jurisdiction, by any of the Loan Documents, by equity, or otherwise.
Provided, however, that upon the occurrence of an Event of Default under
subsection (f) of Section 8.01, the Commitments of all of the Lenders shall
automatically terminate, and the outstanding principal of and accrued and
unpaid interest on the Notes and all other obligations of the Credit Parties
under the Loan Documents shall thereupon become immediately due and payable
without notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest, or other formalities of
any kind, all of which are hereby expressly waived by each Company.
SECTION 8.03. Performance by the Administrative Agent. If any Credit
Party shall fail to perform any covenant, duty, or agreement in accordance with
the terms of the Loan Documents, the Administrative Agent may, at the direction
of Required Lenders, and after notice in writing to Borrowers, perform or
attempt to perform, such covenant, duty, or agreement on behalf of such Credit
Party. In such event, Borrowers shall, at the request of the Administrative
Agent, promptly jointly and severally pay any amount expended by the
Administrative Agent or the Lenders in such performance or attempted
performance to the Administrative Agent at the Principal Office, together with
interest thereon at the Default Rate from the date of such expenditure until
paid. Notwithstanding the foregoing, it is expressly agreed that neither the
Administrative Agent nor any Lender shall have any liability or responsibility
for the performance of any obligation of any Credit Party under this Agreement
or any of the other Loan Documents.
ARTICLE IX
THE ADMINISTRATIVE AGENT AND THE CO-DOCUMENTATION AGENTS
SECTION 9.01. Appointment, Powers and Immunities of Co-Document
Agents. In order to expedite the various transactions contemplated by this
Agreement, the Lenders hereby irrevocably appoint (and confirm their prior
appointment pursuant to the Original Credit Agreement and the First Amended
Credit Agreement, the Second Amended Credit Agreement, and the Third Amended
Credit Agreement) and authorize Paribas to act as their Administrative Agent
hereunder and under each of the other Loan Documents. Paribas consents to such
appointment and agrees to perform the duties of the Administrative Agent as
specified herein. The Lenders authorize and direct the Administrative Agent to
take such action in their name and on their behalf under the terms and
provisions of the Loan Documents and to exercise such rights and powers
thereunder as are
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 67
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specifically delegated to or required of the Administrative Agent for the
Lenders, together with such rights and powers as are reasonably incidental
thereto. Each Lender hereby irrevocably appoints and authorizes Bank One and
MeesPierson to act as Co-Documentation Agents under this Agreement and the
other Loan Documents. Except as expressly set out herein and unless otherwise
agreed by the Administrative Agent and the Lenders, the Co-Documentation Agents
shall have no obligations or duties other than those of a Lender hereunder.
The Administrative Agent is hereby expressly authorized to act as the
Administrative Agent on behalf of itself and the other Lenders:
(a) To receive on behalf of each of the Lenders any payment of
principal, interest, fees or other amounts paid pursuant to this Agreement and
the Notes and to distribute to each Lender its Pro Rata share of all payments
so received as provided in this Agreement;
(b) To receive all documents and items to be furnished under the
Loan Documents;
(c) To act as nominee for and on behalf of the Lenders in and
under the Loan Documents;
(d) To arrange for the means whereby the funds of the Lenders are
to be made available to Borrowers;
(e) To distribute to the Lenders information, requests, notices,
payments, prepayments, documents and other items received from any Credit Party
and other Persons;
(f) To execute and deliver to any Credit Party and other Persons,
all requests, demands, approvals, notices, and consents received from the
Lenders;
(g) To the extent permitted by the Loan Documents, to exercise on
behalf of each Lender all rights and remedies of Lenders upon the occurrence of
any Event of Default;
(h) To accept, execute, and deliver the Security Agreement and any
other Security Documents as the secured party or beneficiary; and
(i) To take such other actions as may be requested by Required
Lenders.
Neither the Administrative Agent, any Co-Documentation Agent nor any
of their Affiliates, officers, directors, employees, attorneys, or agents shall
be liable for any action taken or omitted to be taken by any of them hereunder
or otherwise in connection with this Agreement or any of the other Loan
Documents or Related Transactions Documents except for its or their own gross
negligence or willful misconduct. Without limiting the generality of the
preceding sentence, the Administrative Agent (i) may treat the payee of any
Note as the holder thereof until the Administrative Agent receives written
notice of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Administrative Agent; (ii) shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and shall not by reason of this Agreement or any other
Loan Document be a trustee or fiduciary for any Lender; (iii) shall not be
required to initiate any litigation or collection proceedings hereunder or
under any other Loan Document except to the extent requested by Required
Lenders; (iv) shall
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 68
<PAGE> 75
not be responsible to the Lenders for any recitals, statements, representations
or warranties contained in this Agreement or any other Loan Documents or
Related Transactions Document, or any certificate or other document referred to
or provided for in, or received by any of them under this Agreement or any
other Loan Document or Related Transaction Document , or for the value,
validity, effectiveness, enforceability or sufficiency of this Agreement or any
other Loan Document or Related Transactions Document or any other document
referred to or provided for herein or therein or for any failure by any Person
to perform any of its obligations hereunder or thereunder; (v) may consult with
legal counsel (including counsel for the Credit Parties), independent public
accountants, and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants, or experts; and (vi) shall incur no
liability under or in respect of any Loan Documents or Related Transactions
Document by acting upon any notice, consent, certificate, or other instrument
or writing believed by it to be genuine and signed or sent by the proper party
or parties. As to any matters not expressly provided for by this Agreement,
the Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by
Required Lenders, and such instructions of Required Lenders and any action
taken or failure to act pursuant thereto shall be binding on all of the
Lenders; provided, however, that the Administrative Agent shall not be required
to take any action which exposes the Administrative Agent to personal liability
or which is contrary to this Agreement or any other Loan Document or applicable
law.
SECTION 9.02. Rights of Co-Documentation Agents as a Lender. With
respect to their respective Commitments, the Advances made by them and the
Notes issued to them, Paribas, Bank One and MeesPierson in their capacities as
Lenders hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though they were not acting as the
Administrative Agent or Co-Documentation Agent, as applicable, and the term
"Lender" or "Lenders" shall, unless the context otherwise indicates, include
the Administrative Agent and Co-Documentation Agents in their individual
capacities. The Administrative Agent and Co-Documentation Agents and their
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, act as trustee under indentures of, provide
interest rate and commodities hedging services to, provide other merchant
banking services to, and generally engage in any kind of business with any
Company, any of their respective Subsidiaries, and any other Person who may do
business with or own securities of either Company or any of their respective
Subsidiaries, all as if they were not acting as the Administrative Agent or
Co-Documentation Agent and without any duty to account therefor to the Lenders.
SECTION 9.03. Sharing of Payments, Etc. If any Lender shall obtain
any payment of any principal of or interest on any Advance made by it under
this Agreement or payment of any other Obligation, whether voluntary,
involuntary, through the exercise of any right of set-off, banker's lien,
counterclaim or similar right, or otherwise, in excess of its Pro Rata share
(determined based on the outstanding Advances), such Lender shall promptly
purchase from the other Lenders participation in the Obligations held by them
hereunder in such amounts, and make such other adjustments from time to time as
shall be necessary to cause such purchasing Lender to share the excess payment
ratably with each of the other Lenders in accordance with its Pro Rata portion
(determined based on the outstanding Advances) thereof. To such end, all of
the Lenders shall make appropriate adjustments among themselves (by the resale
of participation sold or otherwise) if all or any portion
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 69
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of such excess payment is thereafter rescinded or must otherwise be restored.
Each Company agrees, to the fullest extent it may effectively do so under
applicable law, that any Lender so purchasing a participation in the
Obligations may exercise all rights of set-off, banker's lien, counterclaim, or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of the Obligations in the amount of such participation.
Nothing contained herein shall require any Lender to exercise any such right or
shall affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of any Credit Party.
SECTION 9.04. Indemnification. The Lenders hereby agree to indemnify
the Administrative Agent and the Co- Documentation Agents from and hold the
Administrative Agent and the Co-Documentation Agents harmless against (to the
extent not reimbursed under Sections 10.04 and 10.05, but without limiting the
obligations of the Companies under Section 10.04 or Section 10.05), ratably in
accordance with their respective Commitments, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, deficiencies,
suits, costs, expenses (including attorneys' fees), and disbursements of any
kind or nature whatsoever which may be imposed on, incurred or asserted against
the Administrative Agent or the Co-Documentation Agents in any way relating to
or arising out of the Original Credit Agreement, the First Amended Credit
Agreement, the Second Amended Credit Agreement, the Third Amended Credit
Agreement, any of the Related Transactions Documents, this Agreement or any
action taken or omitted to be taken by the Administrative Agent or the
Co-Documentation Agents under or in respect of the Original Credit Agreement,
the First Amended Credit Agreement, the Second Amended Credit Agreement, the
Third Amended Credit Agreement, or any of the Related Transactions Documents or
this Agreement; provided, however, that no Lender shall be liable for any
portion of the foregoing to the extent caused by the Administrative Agent's or
the Co-Documentation Agents' gross negligence or willful misconduct. WITHOUT
LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT
THE ADMINISTRATIVE AGENT AND THE CO-DOCUMENTATION AGENTS SHALL BE INDEMNIFIED
HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS,
EXPENSES (INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR
CONTRIBUTORY NEGLIGENCE OF THE ADMINISTRATIVE AGENT OR THE CO-DOCUMENTATION
AGENTS. Without limiting any other provision of this Section, each Lender
agrees to reimburse the Administrative Agent and the Co-Documentation Agents
promptly upon demand for its Pro Rata share (calculated on the basis of the
Commitments) of any and all out- of-pocket expenses (including attorneys' fees)
incurred by the Administrative Agent or the Co-Documentation Agents in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings, or otherwise) of, or legal advice in respect of rights or
responsibilities under, the Loan Documents, to the extent that the
Administrative Agent or the Co-Documentation Agents are not reimbursed for such
expenses by any Company.
SECTION 9.05. Independent Credit Decisions. Each Lender agrees that
it has independently and without reliance on the Administrative Agent, the
Co-Documentation Agents or any other Lender, and based on such documentation
and information as it has deemed appropriate, made its
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 70
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own credit analysis of the Credit Parties and decision to enter into the
Original Credit Agreement, the First Amended Credit Agreement (to the extent
applicable), the Second Amended Credit Agreement, the Third Amended Credit
Agreement and this Agreement and that it will, independently and without
reliance upon the Administrative Agent, the Co-Documentation Agents or any
other Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent and the Co-Documentation Agents shall not
be required to keep themselves informed as to the performance or observance by
any Credit Party of this Agreement or any other Loan Document or to inspect the
properties or books of any Credit Party. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent or the Co-Documentation Agents hereunder or under the
other Loan Documents, the Administrative Agent and the Co-Documentation Agents
shall not have any duty or responsibility to provide any Lender with any credit
or other financial information concerning the affairs, financial condition or
business of any Credit Party (or any of their Affiliates) which may come into
the possession of the Administrative Agent, the Co-Documentation Agents or any
of their Affiliates.
SECTION 9.06. Several Commitments. The Commitments and other
obligations of the Lenders under this Agreement are several. The default by
any Lender in making an Advance in accordance with its Commitment shall not
relieve the other Lenders of their obligations under this Agreement. In the
event of any default by any Lender in making any Advance, each nondefaulting
bank shall be obligated to make its Advance but shall not be obligated to
advance the amount which the defaulting Lender was required to advance
hereunder. In no event shall any Lender be required to advance an amount or
amounts to any Borrower which shall in the aggregate exceed such Lender's
Commitment. No Lender shall be responsible for any act or omission of any
other Lender.
SECTION 9.07. Successor Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and Borrowers and the Administrative Agent may be removed at any
time if the Administrative Agent fails to perform its obligations hereunder by
the vote of all of the Lenders other than Paribas. Upon any such resignation
or removal, the Lenders will have the right to appoint a successor
Administrative Agent with the consent of the Borrowers, unless any Default or
Event of Default shall have occurred and be continuing, in which case the
consent of the Borrowers shall not be required. If no successor Administrative
Agent shall have been so appointed by the Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent's
giving of notice of resignation or the Lenders' removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the United States of America or any
State thereof and having combined capital and surplus of at least One Hundred
Million Dollars ($100,000,000.00). Upon the acceptance of its appointment as
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities, and duties of the resigning or removed Administrative Agent, and
the resigning or removed Administrative Agent shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents.
After any Administrative Agent's resignation
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 71
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or removal as Administrative Agent, the provisions of this Article IX shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was the Administrative Agent.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Notices, Etc. All notices and other communications
provided for hereunder or under any other Loan Document shall be in writing and
shall be mailed, telegraphed, telecopied, telexed or delivered, to the intended
recipient at the "Address for Notices" specified below its name on the
signature pages hereto; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 10.01. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telex or telecopy, subject to telephone confirmation of
receipt, or when personally delivered or, in the case of a mailed notice, when
duly deposited in the mails, in each case given or addressed as aforesaid;
provided, however notices to the Administrative Agent pursuant to Sections 2.05
or 2.08 shall not be effective until received by the Administrative Agent.
SECTION 10.02. Amendments, Etc. No amendment of any provision of
this Agreement, the Notes or any other Loan Document shall be effective unless
it is in writing and signed by the Credit Parties who are a party thereto and
the Required Lenders, and no waiver of any provision of this Agreement, the
Notes or any other Loan Document, nor consent to any departure by any Credit
Party therefrom (notwithstanding anything in any Loan Document to the
contrary), shall be effective unless it is in writing and signed by the
Required Lenders, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided,
that no amendment, waiver or consent shall, unless in writing and signed by all
of the Lenders and each applicable Credit Party, do any of the following: (a)
increase the Commitments of the Lenders or subject the Lenders to any
additional obligations; (b) reduce the principal of, or interest on, the Notes
or any fees or other amounts payable hereunder; (c) postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder; (d) waive any of the conditions specified in Article
V; (e) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes or the number of Lenders which shall be required
for the Lenders or any of them to take any action under this Agreement; (f)
change any provision contained in this Section 10.02; or (g) release any
Collateral (other than in accordance with Section 7.02(d)). Notwithstanding
anything to the contrary contained in this Section, no amendment, waiver or
consent shall be made with respect to Article IX hereof without the prior
written consent of the Administrative Agent.
SECTION 10.03. No Waiver; Remedies, Etc. No failure on the part of
the Administrative Agent or any Lender to exercise, and no delay in exercising
any right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right under any Loan
Document preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Administrative Agent and the
Lenders provided herein and in
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 72
<PAGE> 79
the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the
Administrative Agent and the Lenders under any Loan Document against any party
thereto are not conditional or contingent on any attempt by the Administrative
Agent or any Lender to exercise any of its rights under any other Loan Document
against such party or against any other Person.
SECTION 10.04. Fees, Costs, Expenses and Taxes. Whether or not any
Advances are made hereunder or the transactions contemplated hereby are
consummated, each Company, jointly and severally, agrees to pay within ten (10)
days following demand (a) all fees, costs and expenses in connection with the
preparation, execution, delivery, filing, recording and administration of, and
any amendment, supplement or modification to, the Loan Documents, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent, and of any other special counsel or consultant retained
by the Administrative Agent with respect thereto and with respect to advising
the Administrative Agent as to its rights and responsibilities under the Loan
Documents, and (b) all costs and expenses, if any (including reasonable counsel
fees and disbursements), incurred in connection with the enforcement or
preservation of any rights under the Loan Documents and the other documents to
be delivered pursuant to the Loan Documents. In addition, each Company will,
jointly and severally, pay any and all stamp and other taxes and fees payable
or determined to be payable in connection with the execution, delivery, filing
and recording of the Loan Documents, and will save the Administrative Agent and
each Lender harmless from and against any and all liabilities with respect to
or resulting from any delay in paying or omission to pay such taxes and fees.
SECTION 10.05. Indemnity.
(a) Environmental Indemnity. Each Company will, jointly
and severally, defend, indemnify and hold harmless the Administrative
Agent, the Co-Document Agents, each Lender, and their respective
officers, directors, affiliates, employees and agents (each, an
"Indemnified Party") from and against all losses, liabilities, claims,
damages, penalties, judgments, costs and expenses (including
reasonable attorneys' fees) of whatever kind or nature, known or
unknown, contingent or otherwise, including, but without limitation,
reasonable attorney and consultant fees, investigation and laboratory
fees, court costs and litigation expenses incurred by any of them
arising out of, or in any way relating to (i) any violation or any
non-compliance or alleged non-compliance with any Environmental Laws
by any Company or any of its Subsidiaries or by any other Person with
whom any Company or any of its Subsidiaries are allegedly jointly,
severally or contingently liable or responsible, or (ii) any Release
or alleged Release into the environment of any Contaminant generated
or allegedly generated by any Company or any of its Subsidiaries or by
any other Person with whom any Company or any of its Subsidiaries are
allegedly jointly, severally or contingently liable or responsible, or
(iii) any material breach of any representation or warranty made by
any Company in Section 6.1(s) hereof, Section 6.1(s) of the Original
Credit Agreement, the First Amended Credit Agreement, the Second
Amended Credit Agreement, the Third Amended Credit Agreement or this
Agreement, (iv) the Administrative Agent's or any Lender's enforcement
or attempted enforcement of any of the provisions of this Section
10.05 or (v) otherwise arising in connection with any Environmental
Claim relating to any Company, any of its Subsidiaries or their
respective properties.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 73
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(b) General Indemnity. In addition to the foregoing
indemnity, each Company hereby jointly and severally indemnifies from,
and holds each of the Indemnified Parties harmless against, any and
all losses, liabilities, claims, damages, penalties, judgments, costs,
and expenses (including reasonable attorneys' fees) to which any of
them may become subject (other than those described in Section
10.05(a)) which directly or indirectly arise from or relate to (i) the
negotiation, execution, delivery, performance, administration,
enforcement or existence of the Original Credit Agreement, the First
Amended Credit Agreement, the Second Amended Credit Agreement, the
Third Amended Credit Agreement, this Agreement, any Loan Documents or
any of the Related Transactions Documents , (ii) any of the
transactions contemplated by the Original Credit Agreement, the First
Amended Credit Agreement, the Second Amended Credit Agreement, the
Third Amended Credit Agreement, this Agreement, or any of the Related
Transactions Documents , (iii) any breach by any Credit Party of any
representation, warranty, covenant, or other agreement contained in
the Original Credit Agreement, the First Amended Credit Agreement, the
Second Amended Credit Agreement, the Third Amended Credit Agreement,
this Agreement, or any of the Related Transactions Documents, or (iv)
any investigation, litigation, or other proceeding, including, without
limitation, any threatened investigation, litigation, or other
proceeding relating to any of the foregoing.
(c) Provisions Applicable to All Indemnities. WITHOUT
LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN
DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
INDEMNIFIED PARTY SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST
ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES)
ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE INDEMNIFIED PARTY; provided, however, that the indemnities
provided for in this Section 10.05 shall not apply to any loss,
damage, liability, claim, damage, penalties, judgments, cost or
expense (or the applicable part thereof) resulting from, or
attributable to, any bad faith, gross negligence or willful misconduct
of any Indemnified Party. The provisions of this Section 10.05 shall
survive the repayment of the Obligations, and shall continue
thereafter in full force and effect, notwithstanding the foreclosure
of any Security Document or realization on any other Collateral, and
notwithstanding any insolvency, bankruptcy or reorganization of any
Credit Party.
SECTION 10.06. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Administrative Agent and any Lender
may, and is hereby authorized to, at any time and from time to time, without
notice to any Company (any such notice being expressly waived by each Company)
and to the fullest extent permitted by law, set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Administrative Agent or any
Lender to or for the credit or the account of any Borrower or Holdings against
any and all Obligations now or hereafter existing under any Loan Document,
irrespective of whether or not the Administrative Agent or any Lender shall
have made any demand hereunder or thereunder and although such Obligations may
be contingent or unmatured.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 74
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The Administrative Agent or any Lender exercising the right of set-off agrees
promptly to notify the Borrowers, after any such set-off and application,
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application or otherwise subject the
Administrative Agent or the Lenders to liability of any kind or nature
whatsoever. The rights of the Administrative Agent and any Lender under this
Section 10.06 are in addition to the other rights and remedies (including,
without limitation, other rights of set-off) which the Administrative Agent and
any Lender may have.
SECTION 10.07. Severability. Any provision of this Agreement, or of
any other Loan Document to which any Company is a party, which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION 10.08. Successors and Assigns.
(a) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, Holdings, the Administrative Agent and
the Lenders and their respective successors and assigns, except that neither
the Borrowers nor Holdings may assign their rights hereunder or any interest
herein without the prior written consent of all the Lenders.
(b) Participations. Any Lender may sell participations to one or
more banks or other institutions in all or a portion of its rights and
obligations under this Agreement and the other Loan Documents (including,
without limitation, all or a portion of its Commitments and the Advances owing
to it); provided, however, that (i) such Lender's obligations under this
Agreement and the other Loan Documents (including, without limitation, its
Commitment) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrowers for the performance of such obligations, (iii)
such Lender shall remain the holder of its Note for all purposes of this
Agreement, (iv) the Borrowers shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents, and (v) such Lender shall not sell a
participation that conveys to the participant the right to vote or give or
withhold consents under this Agreement or any other Loan Document, other than
the right to vote upon or consent to (1) any increase of such Lender's
Commitment, (2) any reduction of the principal amount of, or interest to be
paid on, the Advances or the Note of such Lender, (3) any reduction of any
commitment fee or other amount payable to such Lender under any Loan Document,
or (4) any postponement of any date for the payment of any amount payable in
respect of the Advances or Note of such Lender. Any Lender who has sold a
participation under this Section 10.08, may on behalf of the participant but
subject to the next sentence of this clause (b), make claims hereunder in its
own name for amounts incurred by the participant which would be payable by the
Borrowers under Section 3.06 or Article IV hereof if such participant were a
Lender and in furtherance of the foregoing, the Borrowers agree that the
provisions of Section 3.06 and Article IV run to the benefit of each such
participant. Except in respect of the Reserve Requirements, no participant in
the Advances and the Note of a Lender shall be entitled to receive any greater
payment from the Borrowers than the Lender or, if greater, any bank which is a
member of the Federal Reserve System (and subject only to the laws, regulations
and administrative practices in effect in the United States)
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 75
<PAGE> 82
would have been entitled to receive had the Lender or such bank held the
interest in the Advances and the Note held by such participant. No Lender nor
any participant in the Advances and the Note of a Lender that has changed its
Applicable Lending Office shall be entitled to receive any greater payment from
the Borrowers than it would have received had it not changed its Applicable
Lending Office unless the Lender or such participant was required to change its
Applicable Lending office as provided in Sections 4.01(c) and 4.03 hereof.
(c) Assignments by Lenders. No Lender may assign any portion of
its rights or obligations under this Agreement and the other Loan Documents
without the consent of the Administrative Agent and, prior to the occurrence of
an Event of Default, the Borrowers, which consents shall not be unreasonably
withheld by either the Administrative Agent or the Borrowers. With respect to
any permitted assignment by a Lender of its rights and obligations hereunder or
any portion thereof, the Administrative Agent shall maintain at its address
referred to on the signature pages hereto a copy of each assignment by a Lender
delivered to and accepted by it in a register (which may be a computer record)
for the recordation of the names and addresses of the assignees under this
Section 10.08 and the Commitments of, and the principal amount of the Advances
owing to, each such assignee from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and each Company, the Lenders, and the assignees may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
each Company, any Lender, or any assignee at any reasonable time and from time
to time upon reasonable prior notice.
(d) Deliveries of Information. Any Lender may furnish any
information concerning any Company or any of its Subsidiaries in the possession
of such Lender from time to time to assignees and participants (including
prospective assignees and participants), subject, however, to the requirements
of Section 10.16.
SECTION 10.09. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original at such time as
both parties have executed a counterpart, but all of which taken together shall
constitute one and the same agreement.
SECTION 10.10. Headings. Section headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
SECTION 10.11. Governing Law. This Agreement and the Notes shall be
governed by, and construed in accordance with, the law of the State of New
York, without regard to principles of conflicts of law and the applicable laws
of the United States of America. The parties submit to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Courts located in New York, New York with respect to any action or
proceeding relating to the Loan Documents.
SECTION 10.12. WAIVER OF JURY TRIAL. EACH COMPANY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY
RIGHTS UNDER THIS AGREEMENT, ANY NOTE OR OTHER
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 76
<PAGE> 83
LOAN DOCUMENT OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR
OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING IN CONNECTION WITH ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 10.13. Maximum Interest Rate. No provision of this Agreement
or of any other Loan Document shall require the payment or the collection of
interest in excess of the maximum permitted by applicable law. If any excess
of interest in such respect is hereby provided for, or shall be adjudicated to
be so provided, in any Loan Document or otherwise in connection with this loan
transaction, the provisions of this Section 10.13 shall govern and prevail and
neither of the Companies nor the sureties, guarantors, successors, or assigns
of any of the Companies shall be obligated to pay the excess amount of such
interest or any other excess sum paid for the use, forbearance, or detention of
sums loaned pursuant hereto. In the event any Lender ever receives, collects,
or applies as interest any such sum, such amount which would be in excess of
the maximum amount permitted by applicable law shall be applied as a payment
and reduction of the principal of the indebtedness evidenced by the Notes; and,
if the principal of the Notes has been paid in full, any remaining excess shall
forthwith be paid to the Borrowers. In determining whether or not the interest
paid or payable exceeds the Maximum Rate, the Borrowers and each Lender shall,
to the extent permitted by applicable law, (i) characterize any nonprincipal
payment as an expense, fee, or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the indebtedness evidenced by the
Notes so that interest for the entire term does not exceed the Maximum Rate.
Without limiting the generality of the foregoing, if and to the extent
necessary to ensure compliance with this Section 10.13, what would otherwise be
the joint and several liability of a Borrower with respect to any Advances and
any Notes shall instead be deemed to be the liability of such Borrower as a
guarantor of payment of such Advances and not as a co-borrower of such Advances
or as a co-maker of such Notes. In furtherance of the foregoing, each Borrower
hereby irrevocable and unconditionally guarantees to the Administrative Agent
and the Lenders the punctual payment and performance of the obligations of each
other Borrower under the Loan Documents, including without limitations the
timely payment of the Obligations.
SECTION 10.14. Non-Application of Chapter 15 of Texas Credit Code.
The provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to this Agreement or any of the other Loan Documents or to the
transactions contemplated hereby.
SECTION 10.15. Construction. Each Company, the Administrative Agent,
and each Lender acknowledges that each of them has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Agreement and the other Loan Documents with its legal counsel and that this
Agreement and the other Loan Documents shall be construed as if jointly drafted
by the parties hereto.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 77
<PAGE> 84
SECTION 10.16. Confidentiality. The Administrative Agent and each
Lender agrees (on behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with its customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, any non-public information supplied to it by any Company or
any Subsidiary of any Company pursuant to this Agreement which is identified by
either such Company or such Subsidiary as being confidential at the time the
same is delivered to the Administrative Agent or any Lender, provided that
nothing herein shall limit the disclosure of any such information (a) to the
extent required by statute, rule, regulation or judicial process, (b) to
counsel for the Administrative Agent or any Lender, (c) in connection with the
enforcement of the Loan Documents and in any litigation to which the
Administrative Agent or any Lender is a party or (d) to any permitted assignee
or participant (or prospective permitted assignee or participant) so long as
such permitted assignee or participant (or prospective permitted assignee or
participant) first enters into a confidentiality agreement with the
Administrative Agent or such Lender binding itself to comply with the terms of
this Section 10.16.
SECTION 10.17. Survival. All representations and warranties made in
this Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by the Administrative Agent or any Lender or any closing shall
affect the representations and warranties or the right of the Administrative
Agent or any Lender to rely upon them. Without prejudice to the survival of
any other obligation of the Borrowers and Holdings hereunder, the obligations
of the Borrowers and Holdings under Article IV and Sections 10.04 and 10.05
shall survive repayment of the Obligations and termination of the Commitments.
SECTION 10.18. Joint and Several Obligations. Each and every
representation, warranty, covenant or agreement of the Companies contained
herein shall be, and shall be deemed to be, the joint and several
representation, warranty, covenant and agreement of each of the Companies and
of all such Persons. In addition, the indebtedness, liabilities and
obligations of the Borrowers shall be, and shall be deemed to be, the joint and
several indebtedness, liabilities and obligations of each of the Borrowers and
of all Borrowers. Notwithstanding the foregoing, if and to the extent that the
joint and several liability of a Borrower with respect to any Advance or
Advances made to another Borrower is determined by a court of competent
jurisdiction to cause the obligations of such Borrower to repay such Advance or
Advances to be subject to avoidance under Sections 544, 548 or 550 of the
Bankruptcy Code or subject to being set aside or annulled under any applicable
state law relating to fraud on creditors, the amount of such joint and several
or co-maker liability of such Borrower shall, without any further action by any
Borrower, the Administrative Agent or any Lender, be automatically limited to
the greatest amount which is valid and enforceable as determined in such
proceeding; provided, however, that for purposes of this sentence it shall be
presumed that the joint and several liabilities of the Borrowers under this
Agreement and the Notes do not equal or exceed an aggregate amount which would
render any such Borrower's obligations under this Agreement or any Note subject
to being avoided, set aside or annulled, and the burden of proof to the
contrary shall be on the party asserting to the contrary.
SECTION 10.19. ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT.
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 78
<PAGE> 85
(a) This Agreement amends and restates in its entirety the Third
Amended Credit Agreement which amended and restated the terms and provisions of
the Second Amended Credit Agreement, which amended and restated the terms and
provisions of the First Amended Credit Agreement, which amended and restated
the terms and provisions of the Original Credit Agreement in its entirety,
which amended and restated the terms and provisions of the Canada Trust Credit
Agreement in its entirety. The execution of this Agreement, the Notes and the
other Loan Documents executed in connection herewith does not constitute a
novation with respect to indebtedness outstanding in connection with the
Original Credit Agreement, the First Amended Credit Agreement, the Second
Amended Credit Agreement, the Third Amended Credit Agreement, the Canada Trust
Credit Agreement, or the indebtedness evidenced by the Canada Trust Note or any
Note executed prior to the Closing Date. The parties hereto hereby ratify and
confirm each of the Loan Documents entered into prior to the Closing Date,
including without limitation, the Guaranty and the other Security Documents and
agree that such Loan Documents continue to be legal, valid, binding and
enforceable in accordance with their respective terms. Without limiting the
generality of the foregoing, the parties hereto agree and acknowledge that (i)
the Liens created by the (A) the Original Security Agreement, Additional
Security Agreement, the Oklahoma Mortgage and the Holdings Pledge Agreement
secure the Obligations as defined hereby, including without limitation, the
obligations, indebtedness and liability of the Credit Parties arising in
connection with this Agreement and the Loan Documents executed by the Credit
Parties pursuant hereto and (B) the Deed of Trust and Mortgage secure the
Obligations of the Borrowers; (ii) the term "Credit Agreement" as used in the
Security Documents, includes without limitation, this Agreement; and (iii) the
term "Security Documents" as defined in the Security Documents includes,
without limitation, the New Mortgage Documents, the Subsidiary Guaranties, the
Holdings Pledge Agreement, the Borrower Pledge Agreement and the Mid Louisiana
Pledge Agreement.
(b) THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS
REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO
AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
(INCLUDING, WITHOUT LIMITATION, THE FIRST AMENDED CREDIT AGREEMENT, THE SECOND
AMENDED CREDIT AGREEMENT, THE THIRD AMENDED CREDIT AGREEMENT, THE ORIGINAL
CREDIT AGREEMENT AND THE CANADA TRUST CREDIT AGREEMENT) AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
[The remainder of this page is intentionally left blank.]
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 79
<PAGE> 86
IN WITNESS WHEREOF, the Borrowers, Holdings, the Administrative Agent,
the Co-Documentation Agents and the Lenders have executed this Agreement as of
the date first written above.
BORROWERS:
---------
COHO RESOURCES, INC.
By:
----------------------------------------------
Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
Address for Notices:
-------------------
14785 Preston Road, Suite 860
Dallas, Texas 75240
Telephone No.: 214-991-9493
Telecopy No.: 214-991-8514
Attention: Eddie M. LeBlanc, III
President
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 80
<PAGE> 87
COHO LOUISIANA PRODUCTION COMPANY
By:
----------------------------------------------
Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
Address for Notices:
-------------------
14785 Preston Road, Suite 860
Dallas, Texas 75240
Telephone No.: 214-991-9493
Telecopy No.: 214-991-8514
Attention: Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
COHO EXPLORATION, INC.
By:
----------------------------------------------
Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
Address for Notices:
-------------------
14785 Preston Road, Suite 860
Dallas, Texas 75240
Telephone No.: 214-991-9493
Telecopy No.: 214-991-8514
Attention: Eddie M. LeBlanc, III
Senior Vice President
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 81
<PAGE> 88
COHO ACQUISITIONS COMPANY
By:
----------------------------------------------
Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
Address for Notices:
-------------------
14785 Preston Road, Suite 860
Dallas, Texas 75240
Telephone No.: 214-991-9493
Telecopy No.: 214-991-8514
Attention: Eddie M. LeBlanc, III
Senior Vice President
HOLDINGS:
--------
COHO ENERGY, INC.
By:
----------------------------------------------
Eddie M. LeBlanc, III
Senior Vice President and
Chief Financial Officer
Address for Notices:
-------------------
14785 Preston Road, Suite 860
Dallas, Texas 75240
Telephone No.: 214-991-9493
Telecopy No.: 214-991-8514
Attention: Eddie M. LeBlanc, III
Senior Vice President
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 82
<PAGE> 89
ADMINISTRATIVE AGENT,
----------------------
CO-DOCUMENTATION AGENTS AND LENDERS:
------------------------------------
Commitment: BANQUE PARIBAS, Houston Agency
- ----------
$40,000,000.00 as Administrative Agent for Lenders and
as a Lender
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices:
-------------------
1200 Smith Street, Suite 3100
Houston, Texas 77002
Telephone No.: 713-659-4811
Telecopy No.: 713-659-6915
With a copy to:
--------------
2121 San Jacinto, Suite 930
Dallas, Texas 75201
Telephone No.: 214-969-0380
Telecopy No.: 214-969-0260
Lending Office for Prime Rate Advances
--------------------------------------
1200 Smith Street, Suite 3100
Houston, Texas 77002
Lending Office for Eurodollar Advances
--------------------------------------
1200 Smith Street, Suite 3100
Houston, Texas 77002
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 83
<PAGE> 90
Commitment: MEESPIERSON CAPITAL CORP., as
- ----------
$40,000,000.00 Co-Documentation Agent for the
Lenders and as a Lender
By:
----------------------------------------------
By:
----------------------------------------------
Address for Operational Notices:
-------------------------------
MeesPierson Capital Corp.
300 Crescent Court, Suite 1750
Dallas, Texas 75201
Telephone No.: 214-754-0009
Telecopy No.: 214-754-5981
Attention: Yolanda Ditmar
Address for Other Notices:
-------------------------
MeesPierson N.V.
300 Crescent Court, Suite 1750
Dallas, Texas 75201
Telephone No.: 214-754-0009
Telecopy No.: 214-754-5981
Attention: Karel Louman
Vice President & Manager
Lending Office for Prime Rate Advances
--------------------------------------
445 Park Avenue
New York, New York 10022
Lending Office for Eurodollar Advances
--------------------------------------
445 Park Avenue
New York, New York 10022
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 84
<PAGE> 91
Commitment: BANK ONE, TEXAS, N.A., as
- ----------
$40,000,000.00 Co-Documentation Agent for the
Lenders and as a Lender
By:
----------------------------------------------
John A. Clark
Assistant Vice President
Address for Notices:
-------------------
1717 Main Street, 4th Floor
Dallas, Texas 75201
Telephone No.: 214-290-3097
Telecopy No.: 214-290-2332
Attention: John A. Clark
Assistant Vice President
Lending Office for Prime Rate Advance:
-------------------------------------
1717 Main Street
Dallas, Texas 75201
Lending Office for Eurodollar Advances:
--------------------------------------
1717 Main Street
Dallas, Texas 75201
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 85
<PAGE> 92
Commitment: BANK OF SCOTLAND
- ----------
$37,500,000.00
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices for operational matters:
-------------------------------------------
Bank of Scotland, Grand Cayman
c/o 565 5th Avenue
New York, New York 10017
Telephone No.: 212-450-0872
Telecopy No.: 212-557-9460
Attention: Janet Taffe
Assistant Vice President
Addresses for Notices for credit matters:
----------------------------------------
Bank of Scotland
Two Allen Center
1200 Smith Street, Suite 1750
Houston, Texas 77002
Telephone No.: 713-651-1870
Telecopy No.: 713-651-9714
Attention: Rex McSwain
Vice President
Lending Office for Prime Rate Advances
--------------------------------------
565 5th Avenue
New York, New York 10017
Lending Office for Eurodollar Advances
--------------------------------------
565 5th Avenue
New York, New York 10017
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 86
<PAGE> 93
Commitment: CREDIT LYONNAIS NEW YORK BRANCH
- ----------
$37,500,000.00
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices for operational matters:
-------------------------------------------
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Telephone No.: 713-751-0500
Telecopy No.: 713-751-0307
Attention: Bernadette Archie
Addresses for Notices for credit matters:
----------------------------------------
c/o Credit Lyonnais Houston Representative Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Telephone No.: 713-751-0500
Telecopy No.: 713-751-0307
Attention: Mr. Timothy DeSpain
Lending Office for Prime Rate Advances
--------------------------------------
1301 Avenue of the Americas
New York, New York 10019
Lending Office for Eurodollar Advances
--------------------------------------
1301 Avenue of the Americas
New York, New York 10019
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 87
<PAGE> 94
Commitment: CHRISTIANIA BANK OG KREDITKASSE, ASA
- ----------
$27,500,000.00
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices:
-------------------
Christiania Bank OG Kreditkasse
11 West 42nd Street, 7th Floor
New York, New York 10036
Telephone No.: 212-827-4800
Telecopy No.: 212-827-4888
Attention: Mr. William S. Phillips
Lending Office for Prime Rate Advances
--------------------------------------
11 West 42nd Street, 7th Floor
New York, New York 10036
Lending Office for Eurodollar Advances
--------------------------------------
11 West 42nd Street, 7th Floor
New York, New York 10036
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 88
<PAGE> 95
Commitment: DEN NORSKE BANK ASA
- ----------
$37,500,000.00
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices:
-------------------
Den norske Bank ASA
200 Park Avenue, 31st Floor
New York, New York 10166
Telephone No.: 212-681-3800
Telecopy No.: 212-681-3900
Attention: Customer Service
With a copy to:
--------------
Den norske Bank ASA
Three Allen Center
333 Clay Street, Suite 4890
Houston, Texas 77002
Telephone No.: 713-844-9254
Telecopy No.: 713-757-1167
Attention: Mr. J. Morten Kreutz
Vice President
Lending Office for Prime Rate Advances
--------------------------------------
200 Park Avenue, 31st Floor
New York, New York 10166
Lending Office for Eurodollar Advances
--------------------------------------
200 Park Avenue, 31st Floor
New York, New York 10166
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 89
<PAGE> 96
Commitment: TORONTO DOMINION (TEXAS), INC.
- ----------
$17,500,000.00
By:
----------------------------------------------
Neva Nesbitt
Vice President
Address for Notices:
-------------------
909 Fannin, Suite 1700
Houston, Texas 77010
Telephone No.: 713-653-8261
Telecopy No.: 713-951-9921
Attention: Neva Nesbitt
Vice President
Lending Office for Prime Rate Advances
--------------------------------------
909 Fannin, Suite 1700
Houston, Texas 77010
Lending Office for Eurodollar Advances
--------------------------------------
909 Fannin, Suite 1700
Houston, Texas 77010
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 90
<PAGE> 97
Commitment: BANK OF MONTREAL
- ----------
$22,500,000.00
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Address for Notices and Other Reports:
-------------------------------------
700 Louisiana, Suite 4400
Houston, Texas 77002
Telephone No.: 713-546-9724
Telecopy No.: 713-223-4007
Attention: Anne-Marie Goodwin
Lending Office for Prime Rate Advances
--------------------------------------
115 South LaSalle Street, 11W
Chicago, Illinois 60603
Lending Office for Eurodollar Advances
--------------------------------------
115 South LaSalle Street, 11W
Chicago, Illinois 60603
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 91
<PAGE> 98
COHO CANADA ACKNOWLEDGMENT
Coho Resources Limited hereby consents and agrees to the execution and
delivery of this Agreement, ratifies and confirms that the certain Negative
Pledge Agreement dated February 8, 1994, executed by Coho Resources Limited for
the benefit of the Administrative Agent and the Lenders is in full force and
effect; agrees that it continues to be legal, valid, binding and enforceable in
accordance with its terms and acknowledges and agrees that the term "Credit
Agreement" as defined therein means this Agreement.
COHO RESOURCES LIMITED
By:
----------------------------------------------
Eddie M. LeBlanc, III
Treasurer
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, PAGE 92
<PAGE> 99
SCHEDULE 6.01(e)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
SUBSIDIARIES
<TABLE>
<CAPTION>
=====================================================================================================================
Jurisdiction Authorized
Subsidiary Of Incorporation Capitalization Outstanding % Owned
=====================================================================================================================
<S> <C> <C> <C> <C>
A. Holdings
- ---------------------------------------------------------------------------------------------------------------------
1. Coho Canada Alberta, Canada 1. Unlimited Common 1. 31,432,517 100%
2. 2,000,000 first 2. None
preferred shares
3. 5,000,000 second 3. None
preferred shares
4. Unlimited nonvoting 4. None
common
- ---------------------------------------------------------------------------------------------------------------------
2. Coho Shell Delaware 1000 shares common 1000 100%
- ---------------------------------------------------------------------------------------------------------------------
3. CRI Nevada 1. 50,000,000 common 1. 7,505,275 100% of common
stock, $.01 par value 0% of Class A
2. 8,000,000 class A 2. 8,000,000 common
Common Stock, $.01 par
value
3. 10,000,000 shares of 3. None
preferred stock $.01
par value
- ---------------------------------------------------------------------------------------------------------------------
B. Coho Canada
- ---------------------------------------------------------------------------------------------------------------------
1. CRI Nevada 1. 50,000,000 common 1. 7,505,275 0% of common
stock, $.01 par value
2. 8,000,000 class A 2. 8,000,000 100% of Class A
Common Stock, $.01 par Common
value
3. 10,000,000 shares of 3. None.
preferred stock $.01
par value
- ---------------------------------------------------------------------------------------------------------------------
2. Profile Petroleum Alberta Unlimited common shares, no 888,002 100%
Ltd. par value
- ---------------------------------------------------------------------------------------------------------------------
3. Grayon Developments Alberta 1. Unlimited common 1. 5,290,020 100%
Ltd. shares, no par value
2. Unlimited First 2. 320,250 100%
Preferred, no par
value
3. 2,000 100%
3. Unlimited Second
Preferred, no par
value
- ---------------------------------------------------------------------------------------------------------------------
4. Coho International Bahamas 5,000 common shares, $1 par 3,000 100%
Ltd. value
======================================================================================================================
</TABLE>
SCHEDULE 6.01(e), PAGE 1 OF 2
<PAGE> 100
<TABLE>
<CAPTION>
======================================================================================================================
Jurisdiction Authorized
Subsidiary Of Incorporation Capitalization Outstanding % Owned
======================================================================================================================
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
C. CRI
- ----------------------------------------------------------------------------------------------------------------------
1. Tierra Exploration, Nevada 2,500 common stock, $0.01 100 100%
Inc. par value
- ----------------------------------------------------------------------------------------------------------------------
2. Coho Marketing and Nevada 1. 1,000 common stock, no 1. 100 100%
Transportation, par value
Inc.
2. 1,000 shares of 2. None
preferred stock, no
par value
- ----------------------------------------------------------------------------------------------------------------------
3. ING Delaware 1. 600,000 common stock, 1. 20,000 100% of Common
$.01 par value
100% of
2. 250,000 preferred 2. 200,025 series Preferred
stock, $.01 par value 8% Preferred
- ----------------------------------------------------------------------------------------------------------------------
4. Coho Anaguid Inc. Delaware 1. 9,870 common stock, 1. 2,700 100%
$0.01 par value
2. 130 preferred stock, 2. 120 100% by Coho
$20,000 par value Interna-
tional
- ----------------------------------------------------------------------------------------------------------------------
D. ING
- ----------------------------------------------------------------------------------------------------------------------
1. Production Company Delaware 1,000 shares of common 1,000 100%
stock, $.10 par value
- ----------------------------------------------------------------------------------------------------------------------
2. Coho Fairbanks Delaware 1,000 shares of common 1,000 100%
Gathering Company stock, $.10 par value
- ----------------------------------------------------------------------------------------------------------------------
3. Coho Louisiana Delaware 1,000 shares of common 1,000 100%
Gathering Company stock, $.10 par value
- ----------------------------------------------------------------------------------------------------------------------
4. Coho Exploration, Delaware 1,000 shares of common 1,000 100%
Inc. stock, $.10 par value
======================================================================================================================
</TABLE>
SCHEDULE 6.01(e), PAGE 2 OF 2
<PAGE> 101
SCHEDULE 6.01(f)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
LITIGATION
A. Coho Resources, Inc.
1. Wall & Redekop Petroleum Inc. vs. Coho Resources, Inc. (1983)
Alleging amounts owing by CRI
Claim amount approximately $150,000
2. Humble Resources Management, Inc. vs. Coho Resources, Inc.
(1991)
Alleging economic loss by drainage of oil
Claiming actual, incidental, compensatory and punitive damages
Lawsuit will expire through statute of limitations.
Properties no longer owned by CRI.
3. During June and July, 1994, CRI, together with several
companies, was named as a defendant in three lawsuits filed in
Mississippi. The lawsuits, which are basically identical,
involve claims by landowners for purported damages caused by
naturally occurring radioactive materials at various wellsite
locations on land leased by CRI in Mississippi. The
plaintiffs are seeking compensatory and punitive damages,
including damages for "emotional distress". Two of these
lawsuits have been settled. The well sites contained in the
third lawsuit have been remediated, and the lawsuit has no
activity currently pending.
4. Douglas Osbourne and Sandra Osbourne vs. Coho Resources, Inc.
CRI purchased an interest in the eastern part of the Laurel
Field in Jones County, Mississippi in 1993 from Mosbacher
Energy, Inc. Plaintiffs live in a house adjacent to CRI's
production facility in that area, and have sued CRI generally
claiming contamination, nuisance and other matters.
Plaintiffs had sued Mosbacher in 1991 for these same claims,
and Mosbacher settled in 1992, receiving a general release
from plaintiffs. This lawsuit has been settled for a nominal
amount ($5,000).
5. Luther McCarthy, Administrator of the Estate of Kelvin Dale
McCarthy vs. Coho Resources, Inc. On December 6, 1995, Kelvin
McCarthy, employee of Smith Bros., Inc., an independent
contractor, was killed when a workover rig collapsed in the
SCHEDULE 6.01(f), PAGE 1 OF 3
<PAGE> 102
Soso Field, Mississippi. His estate filed an action against
CRI for actual damages in the amount of lifetime earnings
(present value $470,000), damages under the Mississippi
Wrongful Death Act and punitive damages ($3.5 million). Smith
Bros. insurer has agreed to defend the lawsuit on behalf of
CRI.
6. Bobby Stroo, et ux vs. Coho Resources, Inc. This is a
companion suit to the McCarthy lawsuit. During the same
incident on December 6, 1995 where Mr. McCarthy was killed
after a workover rig collapsed in the Soso Field, Mississippi,
Mr. Stroo injured his wrist. He has filed an action against
CRI for actual damage in the amount of $2,000,000.00. CRI's
insurer is defending the lawsuit on behalf of CRI.
7. Alcus Smith, et al vs. Chevron USA Inc., et al; Hal Ray Owens,
et ux vs. Chevron USA Inc. et al. Both of these lawsuits were
filed in early 1996 against CRI and several other companies:
Chevron USA Inc. and Florabama/Marjoe Inc., both prior
operators of the Brookhaven Field, Lincoln County,
Mississippi. The lawsuits, which are basically identical,
involve claims by landlowners for purported damage caused by
NORM at various wellsite locations on land leased by CRI. The
plaintiffs are seeking compensatory and punitive damages
including damages for the contamination of the land and
personal injury to the health of the plaintiffs.
8. Gerald Donald vs. Fina Oil & Gas Chemical Company, et al. In
June of 1996 Gerald Donald filed an action against 20 oil
companies and a bank for damage to land owned by him in Wayne
County, Mississippi. The damages claim to be contamination of
land from disposal operations by an oilfield contractor who
was the prior owner of the land. The field in question is the
Eucutta Field, of which Coho owned a small portion and
divested to a third party in 1989. There is no evidence that
Coho's operations in any way contributed to the problem
claimed by Mr. Donald in regard to contamination of his land.
B. ING and IN Subsidiaries
1. Litigation
ARCADIA HOLINESS ASSOCIATION V. IMC CORPORATION, ET AL. (V.
MID LOUISIANA GATHERING COMPANY), 15th Judicial District
Court, Vermillion Parish, Louisiana Case No. 87-52966.
Royalty owners seek asserted underpayment for production
produced by IMC Production Company and by Wintershall
Corporation/BASF Corporation in excess of $7,000,000.00. Mid
Louisiana Gathering Company has been indemnified by BASF for
this.
SCHEDULE 6.01(f), PAGE 2 OF 3
<PAGE> 103
2. Asserted Claims
L.E. HESTER, JR. ET AL VS. IMC EXPLORATION CO. INC., ET AL
(VS. MID LOUISIANA PRODUCTION COMPANY), 4th Judicial District
Court, Ouachita Parish, Louisiana, Case No. 96-2616.
Overriding royalty owners seek asserted underpayment for
production produced by IMC Production Company, Wintershall
Energy, and Mid Louisiana Production Company. Plaintiffs are
seeking the sum of $147,613.25 in actual damages. Mid
Louisiana Production Company is of the belief that the leases
that are purported to support this claim have expired, and no
payments are due.
SCHEDULE 6.01(f), PAGE 3 OF 3
<PAGE> 104
SCHEDULE 6.01(m)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
CREDIT AGREEMENTS
I. INTERCOMPANY INDEBTEDNESS
<TABLE>
<CAPTION>
Debtor Lender Amount
------ ------ ------
<S> <C> <C>
Coho International Limited Coho Resources Limited $ 279,544
Coho International Limited Coho Resources Inc. $ 2,674,814
Coho Energy Inc. Coho Resources Limited $ 96,897
Coho Resources Limited Coho Resources Inc. $ 91,884
Coho Resources Inc. Coho Anaguid Inc. $ 265,000
Coho Resources Inc. Coho Marketing & Transportation $ 382,594
Coho Resources Inc. Coho Energy Inc. $ 6,860,957
Coho Resources Inc. Interstate Natural Gas Co. $ 22,281,215*
Coho Exploration Inc. Coho Resources Inc. $ 27,494,293*
Interstate Natural Gas Co. Coho Louisiana Production Co. $ 2,071,305
Interstate Natural Gas Co. Coho Fairbanks Gathering Co. $ 1,171
Coho Louisiana Gathering Co. Coho Louisiana Production Co. $ 348,741
Coho Louisiana Production Co. Coho Fairbanks Gathering Co. $ 256,895
</TABLE>
II. GAS PROCESSING PLANT MORTGAGE
In October, 1994, CRI acquired, from Pronto Gas Co., Inc. ("Pronto") a
mechanical refrigeration plant and certain vapor recovery units
intended to extract liquid petroleum products from natural gas
produced at the Laurel field in Mississippi. The purchase price was
$440,000, $100,000 down plus a note for $340,000 due March 1997. CRI
is required to make monthly principal and interest payments of
$12,500. CRI pledged the plant and 60% of the value of the liquids
extracted as security for the note.
__________________________________
*On or before September 8, 1996, these items shall have been evidenced by
subordinated promissory notes in form and substance reasonably acceptable to
the Administrative Agent, or shall have been repaid or recharacterized as
something other than Indebtedness, to the extent permitted by this Agreement.
SCHEDULE 6.01(m), PAGE 1 OF 2
<PAGE> 105
III. BROOKHAVEN ACQUISITION
In August 1995, CRI acquired from Florabama Associates, Inc.
(Florabama) and Seminoil, Inc. (Seminoil) certain oil and gas
properties in Brookhaven, Mississippi. The purchase price was
$5,642,000. To evidence the purchase price, CRI executed
promissory notes in the aggregate principal amount of
$4,199,566. Letters of credit totalling $4,199,566.00 were
issued to secure such promissory notes. Of the letters of
credit issued, $1,866,846.99 expire 8/28/96 with the balance
expiring 8/28/97.
SCHEDULE 6.01(m), PAGE 2 OF 2
<PAGE> 106
SCHEDULE 6.01(s)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
ENVIRONMENTAL MATTERS
A. Coho Resources, Inc.
1. Agreed Order No. 1615-89 of the Mississippi Commission on
Environmental Quality, dated August 24, 1989, pursuant to which CRI
has paid to such Commission the sum of $6,000.00 as full and complete
settlement of such Commission's proposed citation of CRI for violation
of Mississippi Code Annotated Section 49-17-29(l)(c) by permitting a
facility owned by CRI in the Martinville Field to cause pollution in
an unnamed tributary of the Strong River on or about July 9, 1989.
2. Order of Dismissal, dated March 30, 1990, and Settlement
Agreement and Mutual Release, entered into on March 26, 1990, in the
litigation matter of B.J. Layton v. Coho Resources, Inc., Cause No.
9064-8800 in the Circuit Court of the First Judicial District of Hinds
County, Mississippi, pursuant to which CRI has paid to Mr. B.J. Layton
the sum of $4,000.00 in settlement of Mr. Layton's complaint alleging
damages resulting from the presence of drilling fluids and related
materials in an unnamed tributary of the Strong River on his property
on or about July 9, 1990.
3. Other matters disclosed on the Initial Environmental Report.
4. As a result of heavy rainfall, on July 14, 1993, the reserve
pit at Coho's Country Club location at Laurel, Mississippi overflowed
causing approximately $44,000 of damage to third parties. The
Company's insurance coverage will reimburse Coho for approximately
$33,000. The Company was not cited by the Mississippi Commission on
Environmental Quality.
5. On May 25, 1993, CRI had a salt water spill at its Summerland
field. Approximately 900 barrels of salt water were spilled. Of this
amount, approximately 50% was recovered and disposed. The remaining
amount was flushed with fresh water into the Leaf River. The Company
was not cited by the Mississippi Commission on Environmental Quality.
6. During June and July, 1994, CRI, together with several other
companies, were named as a defendant in three lawsuits filed in
Mississippi. The lawsuits, which are basically identical, involve
claims by landowners for purported damages caused by naturally
occurring radioactive materials at various wellsite locations on land
leased by CRI in Mississippi. The plaintiffs are seeking compensatory
and punitive damages, including damages for "emotional distress".
SCHEDULE 6.01(s), PAGE 1 OF 2
<PAGE> 107
7. In early 1996 CRI, together with Chevron USA Inc. and
Florabama/Marjoe Inc., both prior operators, were named as defendants
in two suits in Brookhaven Field, Lincoln County, Mississippi. The
lawsuits deal with purported damage to land caused by the presence of
NORM at wellsite locations in the field. The plaintiffs are seeking
compensatory and punitive damages including damages for contamination
to the land.
B. ING and ING Subsidiaries
1. In response to natural gas industry concerns, ING and its
affiliates have voluntarily commenced a program in its production
areas to remove measurement meters which utilized elemental mercury.
The program involves the removal and replacement of each mercury meter
with a newer style bellows meter, and removal of any mercury found on
the location site of the meter. Over the years, as mercury meters were
repaired or replaced, a small amount of mercury might occasionally
escape, falling to the ground. In connection with this program, ING
has worked extensively with the United States Fish and Wildlife
Services ("USFW") in the D'Arbonne and Upper Ouachita Wildlife Refuges
located in Northeast Louisiana, where ING through its affiliates have
approximately 100 mercury meter site locations. The USFW seeks the
voluntary removal of the mercury meters from its refuges and the
cleanup of any mercury which may have spilled. At this time the USFW
has only commenced an investigation of its concern, and through
meetings with the USFW, the Mid Louisiana Production Company has
reached a tentative agreement, yet to be put in writing, with the USFW
to address their concerns. The agreement requires the Production
Company to remove and replace its approximately 150 mercury meters
from the refuge areas with bellows meters and to remove any elemental
mercury that might have been spilled to mutually agreeable levels by
revolving and replacing the soil underneath each mercury meter
location which shows the presence of elemental mercury in the soil. A
similar program for the remainder of the Production Company's
operations in the Monroe Gas Field where ING's affiliates operate
approximately another 1,200 to 1,400 mercury meters will be
concurrently pursued over the next 5 years. ING has discussed the
program with the Louisiana Department of Environmental Quality
("LDEQ") for guidance and is in the process of submitting a plan to
the LDEQ for comment.
2. ING/Coho has commenced a remediation operation within the
refuges specified in Item B.1 above and will have remediated all sites
on USFW land that have had some spillage of the elemental mercury from
prior removed mercury meters. It is anticipated that this process of
remediation in the D'Arbonne and Upper Ouchita Refuges will be
completed by the end of September 1996.
SCHEDULE 6.01(s), PAGE 2 OF 2
<PAGE> 108
SCHEDULE 6.01(t)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
LOCATIONS OF COLLATERAL
1 Chief Executive Office
14785 Preston Road, Suite 860
Dallas, Texas 75240
2. Exact Corporate Name
Coho Energy, Inc.
Coho Resources, Inc.
Interstate Natural Gas Company
Coho Louisiana Production Company
Coho Fairbanks Gathering Company
Coho Louisiana Gathering Company
Coho Exploration, Inc.
3. Additional Locations
Interstate Natural Gas Company
a. Secretary of State, Texas
Coho Louisiana Production Company
a. Livingston Parish, LA
b. Morehouse Parish, LA
c. Ouachita Parish, LA
d. Union Parish, LA
e. Amite County, MS
f. Wilkinson County, MS
g. Secretary of State, MS
h. Secretary of State, TX
Coho Fairbanks Gathering Company
a. Morehouse Parish, LA
b. Ouachita Parish, LA
SCHEDULE 6.01(t), PAGE 1 OF 2
<PAGE> 109
c. Union Parish, LA
d. Secretary of State, MI
e. Secretary of State, TX
Coho Louisiana Gathering Company
a. Morehouse Parish, LA
b. Ouachita Parish, LA
c. Union Parish, LA
d. Secretary of State, MI
e. Secretary of State, TX
Coho Exploration, Inc.
a. Simpson County, MS
Coho Resources, Inc.
a. Smith County, MS
b. Jones County, MS
c. Covington County, MS
d. Jasper County, MS
e. Simpson County, MS
f. Yazoo County, MS
g. Madison County, MS
h. Perry County, MS
SCHEDULE 6.01(t), PAGE 2 OF 2
<PAGE> 110
SCHEDULE 7.02(a)
to
FOURTH AMENDED AND RESTATED
CREDIT AGREEMENT
LIENS SECURING INDEBTEDNESS
1. Cash deposits securing Indebtedness described on Schedule 6.01(m).
2. Security Agreement dated October 1, 1994 between CRI and Pronto Gas
Co., Inc. securing a $340,000 promissory note issued by CRI. The
security agreement covers a mechanical refrigeration plant and related
equipment and 60% of the liquids extracted by the plant.
3. Letters of Credit dated August 16, 1995, securing promissory notes
issued by CRI pursuant to that certain Purchase and Sale Agreement
between CRI and Floribama Associates, Inc. and Seminoil, Inc. dated
August 9, 1995. The purchase and sale agreement relates to the
acquisition of certain oil and gas properties in Brookhaven,
Mississippi.
SCHEDULE 7.02(a), SOLO PAGE
<PAGE> 111
SCHEDULE 7.02(f)
to
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
AFFILIATED TRANSACTIONS
1. The Exclusive Territory Agreement entered into by Coho Canada and CRI
which provides that CRI will have the exclusive right to produce, explore and
develop all present and future prospects in the United States, and Coho Canada
will have the exclusive right to conduct such activities outside the United
States. The Agreement has an initial term that expires on January 1, 1995 and
will continue thereafter until Coho Canada's fully-diluted proportionate voting
interest in CRI falls below 35%.
2. The Management Services Agreement entered into by Coho Canada and CRI
pursuant to which Coho Canada will provide all senior management and various
services, such as accounting, legal, technical support and administration
service to CRI. CRI will reimburse Coho Canada for all of its direct costs
incurred in rendering services to CRI under the contract and will pay Coho
Canada for allocated indirect costs incurred in rendering such services. The
Management Services Agreement provides that CRI will furnish certain services,
such as technical support services, to Coho Canada. CRI will be reimbursed by
Coho Canada for the direct and indirect expenses of providing such services to
Coho Canada on the same or similar basis. The Management Services Agreement
has an initial term that expires on January 1, 1995 and will continue
thereafter until terminated by either party upon 180 days' written notice to
the other party.
3. The Equity Participation Agreement entered into by Coho Canada and CRI
which entitles Coho Canada to participate in any future issuances by CRI of
equity securities at the time of such issuance and on terms equivalent in cash
to those terms being offered to others. Under the Equity Participation
Agreement, Coho Canada is entitled to acquire equity securities upon their
being issued by CRI (including, among others, issuances in connection with
public offerings, private placements or acquisitions of businesses or assets in
exchange for equity securities) in proportion to Coho Canada's percentage,
calculated on a fully-diluted basis immediately prior to such issuances, of the
total votes that could be cast upon an election of directors of CRI. Equity
securities include common shares, preferred shares (with or without voting
rights) and securities convertible into or exchangeable for, or options,
warrants or rights to acquire or subscribe for, common shares or preferred
shares (with or without voting rights) of CRI. The Equity Participation
Agreement terminates when Coho Canada's fully-diluted proportionate voting
interest in the Company falls below 35%.
4. The Registration Rights Agreement entered into by Coho Canada and CRI,
pursuant to which the Company agreed that, upon the request of Coho Canada, CRI
will register under the Securities Act of 1933 and applicable state securities
laws the sale of the common shares of CRI owned by Coho Canada that Coho Canada
(or certain assignees) has requested to be registered. Such registration right
will expire on the earlier of 21 years from the date of the proposed public
offering
SCHEDULE 7.02(f), PAGE 1 OF 2
<PAGE> 112
of common shares of CRI and the date on which Coho Canada's fully-diluted
proportionate voting interest in CRI falls below 10%. CRI's obligation is
subject to certain limitations relating to a minimum amount of common shares of
CRI required for registration, the timing of registration and other similar
matters. CRI will pay all out-of-pocket expenses in connection with Coho
Canada's initial two exercises of its registration rights under the
Registration Rights Agreement and Coho Canada will pay all expenses in
connection with all subsequent exercises.
5. The Registration Rights Agreement entered into by Holdings and Mr. Ken
Lambert and Mr. Frederick Campbell whereby upon the request of Mr. Lambert or
Mr. Campbell Holdings will register, on a one-time basis only for each, under
the Securities Act of 1933, and applicable state securities laws the sale of
the common shares of Lambert or Campbell.
6. The Registration Rights Agreement entered into by Holdings, Morgan
Stanley Leverage Equity Fund II, LP ("Morgan") and Quinn Oil Company Ltd,
("Quinn") whereby upon the request of Morgan or Quinn Holdings will register
under the Securities Act of 1993, and applicable state securities laws, its
sale of common shares of Morgan or Quinn.
7. The Amended and Restated Registration Rights Agreement entered into by
Holdings and Mr. Ken Lanbert and Mr. Frederick Campbell.
8. Holdings has entered into Employment Agreements with Jeffrey Clarke,
R. M. Pearce and E. M. LeBlanc providing for, among other things, severance
payments in the event of termination by Holdings without "cause".
9. CRI has entered into Executive Severance Agreements with Keri Clarke,
R. Lynn Guillory, Larry L. Keller, Anne Marie O'Gorman and Patrick S. Wright.
10. In 1990, Holdings made a non-interest bearing loan in the amount of
$205,000.00 to Jeffrey Clarke, President, Chief Executive Officer and Director
of Holdings, to assist him in the purchase of a house in Dallas. The loan is
unsecured and is repayable on the date Mr. Clarke ceases employment with
Holdings.
SCHEDULE 7.02(f), PAGE 2 OF 2
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
Net earnings from continuing operations ..................................... $ 169 $ 5,906 $ 6,288
Dividends on preferred stock applicable to continuing operations (1) ........ (643) -- --
------------ ------------ ------------
Net earnings (loss) from continuing operations applicable to common stock ... $ (474) $ 5,906 $ 6,288
============ ============ ============
Basic earnings (loss) from continuing operations per common share ........... $ (0.02) $ 0.29 $ 0.29
============ ============ ============
Diluted earnings (loss) from continuing operations per common share ......... $ (0.02) $ 0.29 $ 0.28
============ ============ ============
NET EARNINGS
Net earnings ................................................................ $ 1,780 $ 5,906 $ 6,288
Dividends on preferred stock ................................................ (944) -- --
------------ ------------ ------------
Net earnings applicable to common stock ..................................... $ 836 $ 5,906 $ 6,288
============ ============ ============
Basic earnings per common share ............................................. $ 0.05 $ 0.29 $ 0.29
============ ============ ============
Diluted earnings per common share ........................................... $ 0.05 $ 0.29 $ 0.28
============ ============ ============
Basic weighted average common shares outstanding ............................ 17,931,933 20,178,917 21,692,804
============ ============ ============
Diluted weighted average common shares outstanding .......................... 17,931,933 20,341,568 22,333,903
============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 21.1
COHO ENERGY, INC.
LIST OF SUBSIDIARIES
Coho Resources, Limited, Alberta, Canada (100% owned subsidiary)
Coho Resources, Inc., Nevada (owned 45% by Coho Resources Limited and 55% by
Coho Energy, Inc.)
Coho Marketing and Transportation, Inc., Nevada (100% subsidiary of Coho
Resources, Inc.)
Coho Shell Company, Delaware (100% owned subsidiary)
Profile Petroleum Limited, Alberta, Canada (100% subsidiary of Coho Resources
Limited)
Grayon Developments Limited, Alberta, Canada (100% subsidiary of Coho Resources
Limited)
Coho International Limited, Bahamas (100% subsidiary of Coho Resources Limited)
Coho Anaguid, Inc., Delaware (100% subsidiary of Coho Resources, Inc.)
Interstate Natural Gas Company, Delaware (100% subsidiary of Coho Resources,
Inc.)
Coho Exploration, Inc., Delaware (owned 100% by Interstate Natural Gas Company)
Coho Louisiana Production Company, Delaware (owned 100% by Interstate Natural
Gas Company)
Coho Fairbanks Gathering Company, Delaware (owned 100% by Interstate Natural
Gas Company)
Coho Louisiana Gathering Company, Delaware (owned 100% by Interstate Natural
Gas Company)
Coho Oil & Gas, Inc., Delaware (100% subsidiary of Coho Resources, Inc.)
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,817 1,864
<SECURITIES> 0 1,962
<RECEIVABLES> 10,724 11,884
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,074 17,618
<PP&E> 669,247 328,836
<DEPRECIATION> (137,838) (118,624)
<TOTAL-ASSETS> 555,128 230,041
<CURRENT-LIABILITIES> 19,095 10,956
<BONDS> 369,924 122,777
0 0
0 0
<COMMON> 256 203
<OTHER-SE> 141,847 81,263
<TOTAL-LIABILITY-AND-EQUITY> 555,128 230,041
<SALES> 63,130 54,272
<TOTAL-REVENUES> 63,130 54,272
<CGS> 15,970 13,875
<TOTAL-COSTS> 42,347 37,419
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,120 8,476
<INCOME-PRETAX> 10,309 9,389
<INCOME-TAX> 4,021 3,483
<INCOME-CONTINUING> 6,288 5,906
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,288 5,906
<EPS-PRIMARY> .29 .29
<EPS-DILUTED> .28 .29
</TABLE>
