<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 2000
REGISTRATION STATEMENT NO. 333-96331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COHO ENERGY, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
TEXAS 1311 75-2488635
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
<TABLE>
<S> <C>
14785 PRESTON ROAD, SUITE 860 MICHAEL MCGOVERN,
DALLAS, TEXAS 75240 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(972) 774-8300 14785 PRESTON ROAD, SUITE 860
(Address, Including Zip Code, and DALLAS, TEXAS 75240
Telephone Number, Including Area Code, (972) 774-8300
of Registrant's Principal Executive Offices) (Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent for Service)
</TABLE>
With a Copy to:
HARVA R. DOCKERY, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
2200 ROSS AVENUE, SUITE 2800
DALLAS, TEXAS 75201
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE AMOUNT OF REGISTRATION FEE
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<S> <C> <C>
Rights(1)....................................... N/A None
Common Stock.................................... $ 90,103,998 $23,788.00(2)
Common Stock(3)................................. $ 27,996,363 $ 7,392.00(2)
Total.................................. $118,100,361 $31,180.00(4)
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</TABLE>
(1) Evidencing the rights to subscribe for Common Stock of the Registrant.
Pursuant to Rule 457(g), no separate registration fee is required for the
rights since they are being registered in the same registration statement as
the Common Stock underlying the rights.
(2) Calculated in accordance with Rule 457(o) based on the estimated maximum
offering price of the Common Stock.
(3) Representing 2,691,958 shares of Common Stock to be issued to standby
lenders in accordance with the terms of the Registrant's plan of
reorganization made effective on March 31, 2000.
(4) Of the total registration fee, $23,760.00 was paid with the filing of the
original registration statement, and $28.00 was paid with the filing of
Amendment No. 1. The balance accompanies the filing of this Amendment No. 2.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION. DATED APRIL 26, 2000.
UP TO 11,355,804 SHARES
[COHO LOGO]
COHO ENERGY, INC.
COMMON STOCK
---------------------
We are distributing to the holders of our old common stock rights as of
March 6, 2000, to purchase up to an aggregate of 8,663,846 shares of our new
common stock. The total purchase price of the shares offered will be $90,103,998
if this rights offering is fully subscribed. The rights are not transferable and
will not be listed for trading on any stock exchange. We are also registering an
additional 2,691,958 shares of new common stock for distribution to the lenders
who participated in the standby loan made under the terms of our plan of
reorganization.
If you owned common stock on March 6, 2000, the record date for this rights
offering, you will receive, at no cost, a right to buy 0.338 shares of new
common stock at a price of $10.40 per share for each share of common stock that
you owned on the record date. This right is called the basic subscription
privilege. If you decide to purchase all of the shares that you are eligible to
purchase under the basic subscription privilege, you may also offer to buy
additional shares of new common stock at the same subscription price per share.
This right is called the over-subscription privilege. We will round the number
of rights you receive to the nearest whole number.
The rights are exercisable beginning on the date of this prospectus. The
rights will expire if they are not exercised by 5:00 p.m., New York City time,
on May 31, 2000, the expected expiration date of the rights. If you wish to
participate in this rights offering, we recommend that you follow the
instructions set forth in this prospectus and that you submit all subscription
documents and payments to the subscription agent at least 10 days before the
deadline. All subscriptions will be held in escrow by our subscription agent,
ChaseMellon Shareholder Services, L.L.C., until accepted by us. We, in our sole
discretion, may extend the period for exercising the rights.
The new common stock has had a very limited trading history since we emerged
from bankruptcy. Since April 3, 2000, the new common stock has traded in the
over-the-counter market under the symbol "CHOH." On April 25, 2000, the last
price at which the new common stock traded in the over-the-counter market was
$4.00.
---------------------
INVESTING IN THE NEW COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 8 BEFORE
PURCHASING ANY OF THE NEW COMMON STOCK.
---------------------
SUBSCRIPTION PRICE: $10.40 PER SHARE
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PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $10.40 $90,103,998
Estimated Expenses.......................................... $ 0.06 $ 550,000
Net Proceeds to Coho........................................ $10.34 $89,553,998
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS APRIL 28, 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING............. 1
PROSPECTUS SUMMARY.......................................... 4
SUMMARY CONSOLIDATED FINANCIAL INFORMATION.................. 5
SUMMARY HISTORICAL RESERVES AND OPERATING DATA.............. 7
RISK FACTORS................................................ 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 13
GLOSSARY.................................................... 14
THE RIGHTS OFFERING AND PLAN OF DISTRIBUTION................ 16
THE OFFERING TO STANDBY LENDERS............................. 23
USE OF PROCEEDS............................................. 24
DIVIDEND POLICY............................................. 24
PRICE RANGE OF COMMON STOCK................................. 25
CAPITALIZATION.............................................. 26
SELECTED FINANCIAL DATA..................................... 28
THE PLAN OF REORGANIZATION.................................. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 35
BUSINESS.................................................... 48
OIL AND GAS OPERATIONS...................................... 52
MANAGEMENT.................................................. 71
EXECUTIVE COMPENSATION...................................... 73
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND
MANAGEMENT................................................ 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 80
DESCRIPTION OF EXISTING INDEBTEDNESS........................ 81
DESCRIPTION OF OUR CAPITAL STOCK............................ 84
DILUTION.................................................... 86
LEGAL MATTERS............................................... 87
INDEPENDENT AUDITORS........................................ 87
ENGINEERS................................................... 87
WHERE YOU CAN FIND MORE INFORMATION......................... 87
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
i
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHY ARE WE CONDUCTING THE RIGHTS OFFERING?
We are conducting this rights offering to raise capital as part of a
comprehensive plan of reorganization under Chapter 11 of the Bankruptcy Code.
Our plan of reorganization is designed to provide us with additional financial
flexibility and to allow us to continue as a going concern. The rights offering
is made to shareholders as of the record date, March 6, 2000.
WHAT IS THE RIGHTS OFFERING?
The rights offering is a distribution of rights on a pro rata basis to all
of our shareholders who held shares of our common stock on March 6, 2000, the
record date. "Pro rata" means in proportion to the number of shares of our old
common stock that you and the other shareholders held on the record date. We are
distributing 0.338 rights for each share of our old common stock held on the
record date. We will not issue any fractional rights, but rather will round any
fractional rights to the nearest whole number.
WHAT IS A RIGHT?
Each right entitles the shareholder to purchase one share of our new common
stock at a subscription price of $10.40 per share. Each right carries with it a
basic subscription privilege and an over-subscription privilege.
WHAT IS THE NEW COMMON STOCK?
On March 31, 2000, the effective date of confirmation of our plan of
reorganization, we canceled our old common stock and issued new common stock.
Generally, the new common stock carries the same rights as the old common stock,
except that holders of the new common stock will not have cumulative voting
rights. See the sections of this prospectus called "The Plan of Reorganization"
and "Description of Our Capital Stock" for more information regarding the new
common stock.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of each right entitles you to purchase one
share of our new common stock for the subscription price.
WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
The over-subscription privilege of each right entitles you, if you fully
exercise your basic subscription privilege, to subscribe to purchase additional
shares of new common stock at the same subscription price per share.
WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
We will be able to satisfy your exercise of the over-subscription privilege
only if other rights holders do not fully exercise their basic subscription
privileges. If sufficient shares of our new common stock are available, we will
honor the over-subscription requests in full. If over-subscription requests
exceed the number of shares which are available, we will allocate the available
shares pro rata among those rights holders who over-subscribed, based on the
number of shares purchased under the basic subscription privilege.
WHAT IS THE STANDBY LOAN?
On March 31, 2000, the effective date of confirmation of our plan of
reorganization, we entered into a loan with some of our bondholders and others
to borrow $72 million. This loan is also called the standby loan, and the
lenders are called the standby lenders, in this prospectus. Under the terms of
the standby loan, the standby lenders will be issued shares of new common stock
representing 14.4% of all shares of
1
<PAGE> 5
new common stock outstanding, including any shares issued in the rights
offering. See the section of this prospectus called "Dilution" for more
information. These shares that will be issued to the standby lenders are being
offered to the standby lenders under this prospectus.
ARE THERE ANY ANTI-DILUTION PROTECTIONS?
Yes, there is limited anti-dilution protection for shares subscribed in the
rights offering. Under the standby loan, we will issue additional shares of new
common stock to the standby lenders. The number of shares to be issued to those
lenders, assuming no shares are issued under the rights offering, is 2,691,958.
Shares issued under the rights offering will not be diluted by shares issued
under the standby loan. Persons who receive shares under the rights offering
will receive additional shares to ensure that their percentage ownership of our
new common stock issued under the rights offering remains constant after taking
into account shares issued under the standby loan. Shares purchased in this
rights offering will carry no other anti-dilution protection if and when we
issue more new common stock or other securities in the future. For more
information regarding anti-dilution protection, see the section of this
prospectus called "Dilution."
WHEN WILL THE RIGHTS EXPIRE?
The rights will expire at 5:00 p.m., New York City time, on May 31, 2000,
unless we extend the time for exercise of the rights.
WHAT SHOULD I DO IF I WANT TO PARTICIPATE IN THE RIGHTS OFFERING BUT MY SHARES
ARE HELD IN THE NAME OF MY BROKER OR A CUSTODIAN BANK?
If you hold shares of our old common stock through a broker, dealer or
other nominee, we will ask your broker, dealer or nominee to notify you of the
rights offering. If you wish to exercise your rights, you will need to have your
broker, dealer or nominee act for you. To indicate your decision with respect to
your rights, you should complete and return to your broker, dealer or nominee
the form entitled "Beneficial Owner Election Form," together with your check for
the subscription price of the rights you wish to exercise. You should receive
this form from your broker, dealer or nominee with the other offering materials.
WILL I BE CHARGED A COMMISSION OR FEE IF I EXERCISE MY RIGHTS?
No. We will not charge a brokerage commission or a fee to rights holders
for exercising their rights. However, if you exercise your rights through a
broker or nominee, you will be responsible for any fees charged by your broker
or nominee.
ARE THERE ANY CONDITIONS TO EXERCISING MY RIGHTS?
Yes. The exercise of your rights is subject to the conditions described
under the heading "The Rights Offering and Plan of Distribution -- Conditions to
the Rights Offering" in this prospectus.
MAY I SELL OR TRANSFER MY RIGHTS IF I DO NOT WANT TO PURCHASE ANY SHARES?
No. The rights are not transferable and may not be sold.
WILL I BE ABLE TO TRADE MY RIGHTS ON NASDAQ?
No. The rights will not be listed for trading on Nasdaq or any other stock
exchange.
IF I EXERCISE RIGHTS IN THE RIGHTS OFFERING, MAY I CANCEL OR CHANGE MY DECISION?
No. All exercises of rights are irrevocable unless the conditions to
completion of this rights offering are not satisfied or waived before the
subscription period ends. If we extend the subscription period, you will be able
to change your decision.
2
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IF THE RIGHTS OFFERING IS NOT COMPLETED, WILL MY SUBSCRIPTION PAYMENT BE
REFUNDED TO ME?
Yes. The subscription agent will hold all funds it receives in escrow until
the rights offering is completed or terminated. If the rights offering is not
completed, the subscription agent will return all subscription payments
promptly, without interest or deduction.
IS PARTICIPATION IN THE RIGHTS OFFERING RECOMMENDED?
We and the subscription agent are not making any recommendations as to
whether or not you should exercise your rights or participate in the rights
offering. You should decide whether to subscribe for our new common stock based
on your own assessment of your best interests in consultation with your
financial and legal advisors.
WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?
If you have questions or need assistance, please contact ChaseMellon
Shareholder Services L.L.C., the subscription agent for the rights offering, at
(888) 823-4481.
Banks and brokerage firms please call (917) 320-6285.
For a more complete description of this rights offering, see the section of
this prospectus called "The Rights Offering and Plan of Distribution."
3
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information contained in this prospectus. This
summary does not contain all of the important information that you should
consider before exercising the rights and investing in our new common stock. You
should read the entire prospectus carefully, including the section called "Risk
Factors" and the financial data and related notes, before making an investment
decision. The terms "Coho," "our," "us" and "we" as used in this prospectus
refer to Coho Energy, Inc. and its consolidated subsidiaries, unless we indicate
otherwise or the context otherwise requires. Additional definitions related to
oil and gas terms are located in the section of this prospectus called
"Glossary."
COHO ENERGY, INC.
We are an independent energy company engaged, through our wholly owned
subsidiaries, in the development and production of, and exploration for, crude
oil and natural gas. Our operations are concentrated principally in the U.S.
Gulf Coast and Mid-Continent regions, including Mississippi, Oklahoma and Texas.
At December 31, 1999, our total proved reserves were 113.9 MMBOE, of which
approximately 94% were comprised of crude oil and approximately 69% were proved
developed. The present value of estimated future net cash flows, before income
taxes, of proved crude oil and natural gas reserves, discounted at an assumed
rate of 10%, was $790.2 million. We also have substantial exploitation reserve
growth opportunities, including recompletions, drilling and waterflood projects.
Additionally, we have exploration and exploitation reserve growth opportunities
associated with our 3-D seismic databases in Mississippi and Oklahoma within the
geographical confines of our existing fields. Of the 21 major producing
properties in which operations are conducted, we operate 17 and own an average
working interest of approximately 77% in these operated properties. Our
significant control of operations and geographic focus have resulted in
substantial operating economies of scale that have enabled us to maintain a low
cost structure.
Our strategy is to maximize production and increase reserves through
- relatively low-risk activities such as development and delineation
drilling, multi-zone completions, recompletions, enhancement of
production facilities and secondary recovery projects;
- use of 3-D seismic and other technologies to identify exploration
projects and to identify reserves;
- acquisition of controlling interests in underdeveloped crude oil and
natural gas properties; and
- significant control of operations.
Our executive offices are located at 14785 Preston Road, Suite 860, Dallas,
Texas 75240, and our telephone number is (972) 774-8300.
RECENT DEVELOPMENTS
On November 30, 1999, we filed our plan of reorganization with the United
States Bankruptcy Court for the Northern District of Texas. At a hearing on
February 4, 2000, the bankruptcy court approved our disclosure statement with
respect to the plan of reorganization. In that hearing, the bankruptcy court
also scheduled a confirmation hearing to consider the plan of reorganization for
March 15, 2000. On February 14, 2000, we and the Official Committee of Unsecured
Creditors jointly filed the Debtors' and Creditors Committee's First Amended and
Restated Chapter 11 Plan of Reorganization to reflect the matters contained in
the approved disclosure statement. On February 15, 2000, we filed the approved
disclosure statement with the bankruptcy court and on February 14, 2000, we
began mailing it to holders of claims and equity interests for voting on our
plan of reorganization.
Subsequently, we obtained approval of our plan of reorganization. On March
20, 2000, the bankruptcy court entered a confirmation order confirming our plan
of reorganization, as amended and restated, and on March 31, 2000, our plan of
reorganization became effective and was consummated.
4
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Our summary historical consolidated financial information presented below
has been derived from our audited consolidated financial statements for each of
the years in the three-year period ended December 31, 1999. Additionally, the
December 31, 1999 balance sheet data has been adjusted for the following
circumstances:
- to give pro forma effect for projected operating results through March
31, 2000, the effective date of our plan of reorganization and to give
pro forma effect to the consummation of our plan of reorganization;
- to give pro forma effect for the issuance of shares of new common stock
and the repayment of borrowings under the new credit facility assuming
that all of the rights are exercised in the rights offering, excluding
the additional 10,000 shares of new common stock we are registering in
this prospectus to account for the effects of the rounding of rights
being granted to the shareholders; and
- to give pro forma effect for the issuance of shares of new common stock
and the repayment of borrowings under the new credit facility assuming
20% of the rights are exercised in the rights offering, excluding the
additional 10,000 shares of new common stock we are registering in this
prospectus to account for the effects of the rounding of rights being
granted to the shareholders.
This information should be read in conjunction with the other information
contained under the captions "Capitalization," "Selected Financial Data," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in conjunction with our consolidated financial statements and
related notes to those financial statements included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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<S> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues........................................ $63,130 $ 68,759 $ 57,323
Operating expenses........................................ 15,970 26,859 21,155
General and administrative expenses....................... 7,163 7,750 9,905(1)
Reorganization costs...................................... -- -- 3,123
Depletion and depreciation................................ 19,214 28,135 13,702
Writedown of crude oil and natural gas properties......... -- 188,000 5,433
Net interest expense...................................... 10,474 32,721 33,698
Other expense............................................. -- 3,023 1,048
Income tax expense (benefit).............................. 4,021 (14,383) (26)
Net earnings (loss)....................................... 6,288 (203,346) (30,715)
Basic earnings (loss) per common share.................... 0.29 (7.94) (1.20)
Diluted earnings (loss) per common share.................. 0.28 (7.94) (1.20)
OTHER FINANCIAL DATA:
Capital expenditures...................................... $72,667 $ 70,143 $ 6,349
EBITDA(2)................................................. 39,997 31,127 22,093
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
AS OF UPON PURCHASE OF PURCHASE OF
DECEMBER 31, EFFECTIVENESS ALL SHARES 20% OF SHARES
1999 OF THE PLAN IN RIGHTS OFFERING IN RIGHTS OFFERING
------------ ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(3)........................... $(407,490) $ (1,151) $ (1,151) $ (1,151)
Net property and equipment............................. 311,788 310,408 310,408 310,408
Total assets........................................... 348,801 364,584 377,544 367,176
Long-term debt, excluding current portion.............. -- 259,452 169,452 241,452
Total shareholders' equity............................. (91,958) 81,598 184,558 102,190
</TABLE>
- ---------------
(1) General and administrative expenses for the year ended December 31, 1999
were substantially higher than those expenses for 1998 primarily due to the
expensing of all salaries and other general and administrative costs
associated with exploration and development activities during 1999 as
compared to the capitalization of $5.7 million of those costs in the year
ended December 31, 1998.
5
<PAGE> 9
(2) "EBITDA" refers to earnings before interest, taxes, depreciation, depletion
and amortization. EBITDA should not be considered as an alternative to, or
more meaningful than, net income or cash flow as determined in accordance
with generally accepted accounting principles as an indicator of our
operating performance or liquidity.
(3) Working capital (deficit) includes $388,685 related to the current portion
of long-term debt.
6
<PAGE> 10
SUMMARY HISTORICAL RESERVES AND OPERATING DATA
The following table sets forth summary information with respect to our
estimated proved crude oil and natural gas reserves and our operations as of the
dates or for the periods indicated. For more information regarding our reserves
and our operations, see the section of this prospectus called "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes to those financial
statements included in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1997 1998 1999
---------- -------- ----------
<S> <C> <C> <C>
PROVED RESERVES:
Crude oil and condensate (MBbls)............................ 95,084 100,004 107,113
Natural gas (MMcf).......................................... 147,505 66,328 40,638
Total (MBOE)...................................... 119,668 111,059 113,886
Estimated future net cash flows (before income tax, in
thousands)................................................ $1,043,516 $549,018 $1,784,368
Present value of proved reserves (in thousands)............. $ 526,277 $269,298 $ 790,154
Proved developed reserves as a percent of total reserves.... 70% 67% 69%
</TABLE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
PRODUCTION VOLUMES:
Crude oil and condensate (MBbls)............................ 2,820 5,069 3,343
Natural gas (MMcf).......................................... 7,666 8,124 2,608
Total (MBOE)...................................... 4,098 6,424 3,778
AVERAGE SALES PRICE PER UNIT:
Crude oil and condensate (per Bbl).......................... $16.31 $10.40 $15.40
Natural gas (per Mcf)....................................... 2.23 1.98 2.24
PER BOE DATA:
Average sales price......................................... $15.41 $10.70 $15.17
Production expenses......................................... 3.90 4.18 5.60
</TABLE>
7
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RISK FACTORS
An investment in our new common stock is extremely risky. You should
carefully consider the following factors, together with the other information
contained in this prospectus, before deciding to exercise your rights. An
investment in our new common stock involves a high degree of risk and may not be
appropriate for investors who cannot afford to lose their entire investment.
RISK FACTORS RELATING TO OUR BUSINESS
THE BANKRUPTCY MAY HAVE CREATED A NEGATIVE IMAGE OF US.
The effect, if any, which our plan of reorganization may have on our
operations now that it has been consummated cannot be accurately predicted or
quantified. We believe that the consummation of our plan of reorganization will
have a minimal future effect on our relationships with our customers, employees
and suppliers. Our plan of reorganization was consummated on March 31, 2000, but
there could be a detrimental impact on future sales and patronage because of the
negative image of us that may have been created by the bankruptcy.
OUR LEVEL OF DEBT MAY NOT ALLOW US PROPERLY TO PLAN FOR FUTURE OPPORTUNITIES
OR TO COMPETE EFFECTIVELY.
After the consummation of our plan of reorganization, we have a significant
amount of indebtedness. Assuming the completion of the purchase of all shares of
new common stock under the rights offering, our total consolidated indebtedness
would be $169.5 million and the ratio of total consolidated indebtedness to
total capitalization would be 48%. Our high level of indebtedness will have
several important effects on our future operations, including:
- requiring us to devote a substantial portion of our cash flow from
operations to pay interest on our indebtedness and not for other uses,
such as funding working capital or capital expenditures;
- limiting our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate
purposes or other purposes;
- putting us at a competitive disadvantage to our competitors who have less
debt than us; and
- limiting our flexibility to plan for, or to react to, changes in our
business and the industry in which we operate.
Please refer to the sections of this prospectus called "The Plan of
Reorganization -- The New Debt and Equity" and "Description of Existing
Indebtedness" for a description of our new indebtedness after consummation of
our plan of reorganization.
LIQUIDITY CONSTRAINTS MAY HINDER OUR CONTINUED OIL AND GAS OPERATIONS.
We have historically funded our operations primarily through our cash flow
from operations and borrowings under credit sources. Due to our need to conserve
capital, we have reduced maintenance of our wells, which has substantially
reduced our cash flow from operations. We anticipate our principal sources of
liquidity during the next 12 months will be cash on hand, including the net
proceeds of the rights offering and the standby loan, and cash generated by
operations. For more information regarding our liquidity constraints, see the
sections of this prospectus called "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of Existing Indebtedness" and our consolidated
financial statements and the related notes included in this prospectus.
Our ability to raise funds through additional indebtedness is limited by
the terms of our plan of reorganization. Additionally, substantially all of our
crude oil and natural gas properties are subject to a lien for the benefit of
the lenders under the new credit facility, further limiting our ability to incur
additional indebtedness. We may also choose to issue equity securities or sell
assets to fund our operations, although the terms of our new indebtedness limit
our use of the proceeds of any sale of assets. For a description of these
limitations, see the sections of this prospectus called "The Plan of
Reorganization --
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The New Debt and Equity" and "Description of Existing Indebtedness." If we elect
to raise additional capital by issuing equity securities, there can be no
assurance that we will be able to obtain equity financing on satisfactory terms.
PAST SUBSTANTIAL NET LOSSES MAY AFFECT FUTURE OPERATIONS.
We experienced a substantial loss for the year ended December 31, 1998 of
$203.3 million and for the year ended December 31, 1999 of $30.7 million. There
can be no assurances that we will become profitable in the future. For more
information regarding our losses, see the section of this prospectus called
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included in this prospectus.
WE MAY NOT BE ABLE TO REPLACE DEPLETED RESERVES THAT ARE NECESSARY TO CONTINUE
OUR PRODUCTION.
The rate of production from crude oil and natural gas properties declines
as reserves are depleted. Except to the extent we acquire additional properties
containing proved reserves, or conduct successful exploration and development
activities or, through engineering studies, identify additional formations with
primary or secondary reserve opportunities on our own properties, our proved
reserves will decline as reserves are produced. Future crude oil and natural gas
production is therefore highly dependent on our level of success in finding and
acquiring additional reserves. Our ability to continue acquiring producing
properties or companies that own producing properties assumes that major
integrated oil companies and independent oil companies will continue to divest
many of their crude oil and natural gas properties. There can be no assurance
that these divestitures will continue or that we will be able to acquire
producing properties at acceptable prices. Our ability to develop additional
reserves is limited by the terms of the new credit facility and the standby
loan, each of which limits our ability to obtain additional financing in the
future for acquisitions and capital expenditures.
OUR PROFITABILITY IS HIGHLY DEPENDENT ON INDUSTRY CONDITIONS THAT HAVE, IN THE
PAST, CAUSED US TO IMPLEMENT SIGNIFICANT WRITEDOWNS OF OUR ASSETS.
Our revenue, profitability and future rate of growth substantially depend
on prevailing prices for crude oil and natural gas. Crude oil and natural gas
prices can be extremely volatile and in recent times have been depressed by
excess total domestic and imported supplies. Prices are also affected by actions
of state and local agencies, the United States and foreign governments and
international cartels. Prices for crude oil and natural gas have recently
rebounded from historic lows on an inflation-adjusted basis. There can be no
assurance that commodity prices will rise or will not return to historic lows.
These external factors and the volatile nature of the energy markets make it
difficult to estimate future prices of crude oil and natural gas. The
substantial and extended decline in the prices of crude oil and natural gas,
until recently, adversely affected our financial condition and the results of
our operations, including reduced cash flow and borrowing capacity, which has
not been overcome by the most recent price rebound. All of these factors are
beyond our control.
We periodically review the carrying value of our crude oil and natural gas
properties under the full cost accounting rules of the Commission. Under these
rules, capitalized costs of proved oil and natural gas properties may not exceed
a present value, based on flat prices at a single point in time, of estimated
future net revenues from proved reserves, discounted at 10%. Application of the
ceiling test generally requires pricing future revenue at the unescalated prices
in effect as of the end of each fiscal quarter and requires a write-down for
accounting purposes if the ceiling is exceeded. We were required to write down
the carrying value of our crude oil and natural gas properties during 1998 by an
aggregate of $188 million. We took a write-down of our Tunisian properties of
$5.4 million during the third quarter of 1999 once it was determined that an
exploratory well drilled in Tunisia, North Africa would not produce sufficient
quantities of crude oil to justify further completion work on the well. When a
write-down is required, it results in a charge to earnings, but does not affect
cash flow from operating activities. Once incurred, a write-down of crude oil
and natural gas properties is not reversible at a later date.
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WE RELY ON ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUE INFORMATION
THAT ARE SUBJECT TO MANY FACTORS AND ANY NEGATIVE VARIANCE IN THESE ESTIMATES
COULD AFFECT OUR REPORTED ASSETS AND OUR ABILITY TO BORROW FUNDS.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond our control. The reserve
data included in this prospectus represent only estimates. In addition, the
estimates of future net revenue from proved reserves and their present value are
based on assumptions about future production levels, prices and costs that may
not prove to be correct over time. In particular, estimates of crude oil and
natural gas reserves, future net revenue from proved reserves and the present
value of proved reserves for the crude oil and natural gas properties described
in this prospectus are based on the assumption that future crude oil and natural
gas prices remain the same as crude oil and natural gas prices at December 31,
1999. The NYMEX prices as of December 31, 1999, used for purposes of our
estimates were $25.60 per Bbl of crude oil and $2.33 per Mcf of natural gas. Any
significant variance in actual results from these assumptions could also
materially affect the estimated quantity and value of our reserves.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY AGAINST MAJOR OIL COMPANIES AND OTHER
INDEPENDENT OPERATORS, WE MAY BE UNABLE TO OBTAIN NECESSARY MATERIALS AND
RESOURCES AND MAY EXPERIENCE A SIGNIFICANT DISRUPTION OF OUR OPERATIONS.
We encounter strong competition from major oil companies and independent
operators in acquiring properties and leases for the exploration for, and
production of, crude oil and natural gas. Competition is particularly intense
with respect to the acquisition of desirable undeveloped crude oil and natural
gas properties. Many of our competitors have financial resources, staff and
facilities substantially greater than ours. Although we believe our current
operating and financial resources will be adequate to preclude any significant
disruption of our operations in the immediate future, the continued availability
of these materials and resources to us cannot be assured.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION THAT MAY HINDER OUR
ABILITY TO CONDUCT OUR BUSINESS.
Our business is subject to federal, state, provincial and local laws and
regulations relating to the exploration for and development, production and
marketing of crude oil and natural gas, as well as environmental and safety
matters. These laws and regulations have generally become more stringent in
recent years, often imposing greater liability on a larger number of potentially
responsible parties. Because the requirements imposed by these laws and
regulations are frequently changed, we are unable to predict the ultimate cost
of compliance with these requirements. There is no assurance that laws and
regulations enacted in the future will not hinder our ability to conduct our
business. For more information regarding regulations that affect us, see the
sections of this prospectus called "Oil and Gas Operations -- Governmental
Regulations" and "Oil and Gas Operations -- Environmental Regulations."
WE HAVE A HIGH LEVEL OF DEPENDENCE ON TWO CUSTOMERS THAT CAN DIRECTLY AFFECT
OUR INCOME STATEMENT.
During 1999, two purchasers of our crude oil and natural gas, EOTT Energy
Operating Limited Partnership and Amoco Production Company, accounted for 39%
and 41%, respectively, of our revenues. While we believe that our relationships
with EOTT and Amoco are good, any loss of revenue from these customers due to
nonpayment by the customer would have an adverse effect on our net income and
earnings per share on our income statement and, ultimately, may affect our share
price. In addition, any significant late payment may adversely affect our short
term liquidity position.
OUR INDEPENDENT AUDITOR'S REPORT INDICATES THAT WE MAY NOT BE ABLE TO CONTINUE
AS A GOING CONCERN.
The independent auditor's report on our financial statements is qualified
with respect to our ability to continue as a going concern. Specifically, the
report notes that we had recurring losses, we defaulted on our old bank credit
facility, and we had negative cash flow from operations in 1999. The financial
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statements included in this prospectus have been prepared assuming we will
continue as a going concern, though that assumption may not necessarily be true.
See the section of this prospectus called "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 2 to our consolidated
financial statements included in this prospectus for more information regarding
our ability to continue as a going concern.
RISK FACTORS RELATING TO THE RIGHTS OFFERING AND OUR NEW COMMON STOCK
SHAREHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS WILL EXPERIENCE DILUTION.
The rights offering, the issuance of additional shares to our standby
lenders based on the success of the rights offering, and the issuance of
additional shares to rights offering participants pursuant to the limited
anti-dilution protection may result in our issuance of up to an additional
12,992,282 shares of our new common stock. These additional issuances assume
full exercise of the rights, excluding the additional 10,000 shares of new
common stock we are registering in this prospectus to account for the effects of
rounding of rights being granted to shareholders. If you choose not to fully
exercise your rights, your relative ownership interests will be diluted. If you
do not exercise your rights, you will relinquish any value inherent in the
rights.
YOU MAY NOT REVOKE YOUR EXERCISE OF RIGHTS AND THE RIGHTS OFFERING MAY NOT BE
COMPLETED.
Once you exercise your rights, you may not revoke the exercise unless the
conditions to our obligations to complete the rights offering are not satisfied
or waived before the subscription period ends. In that case, we may extend the
date the rights expire. If we extend the termination date of the rights, you
will be able to change your decision. If we elect to withdraw or terminate the
rights offering, neither we nor the subscription agent will have any obligation
with respect to the rights except to return to you any subscription payments,
without interest or deduction.
THE SUBSCRIPTION PRICE MAY NOT REFLECT THE VALUE OF OUR SHARES.
The subscription price does not necessarily bear any relationship to the
book value of our assets, historic or future cash flows, financial condition,
recent or historic prices for our old common stock or new common stock or other
established criteria for valuation. You should not consider the subscription
price as an indication of the value of our shares. See the section of this
prospectus called "The Rights Offering and Plan of Distribution -- Determination
of Subscription Price" for further detail regarding the way in which the
subscription price was determined.
THE ANTITAKEOVER EFFECTS OF SOME OF THE PROVISIONS OF OUR GOVERNING DOCUMENTS
MAY PREVENT SOME TRANSACTIONS.
Some of the provisions of our amended and restated articles of
incorporation and amended and restated bylaws may tend to deter potential
unsolicited offers or other efforts to obtain control that are not approved by
our board of directors. These provisions include the right of our board of
directors, without any action by our shareholders, to fix the rights and
preferences of undesignated preferred stock, including dividend, liquidation and
voting rights. All of these provisions apply to the new common stock, and may
have the effect of delaying, deferring or preventing a change of control.
IF OUR NEW COMMON STOCK IS NOT LISTED ON THE NASDAQ STOCK MARKET OR ANY OTHER
STOCK EXCHANGE, THE PRICE OF THE NEW COMMON STOCK MAY BE DEPRESSED AND YOU MAY
HAVE DIFFICULTIES RESELLING THE STOCK.
We intend to explore the possibility of listing the new common stock on the
Nasdaq Stock Market or on one or more other national securities exchanges.
However, there can be no assurance that we will determine that it is feasible,
practicable or advisable to list the new common stock or that, if an application
is made, that the new common stock would be approved for listing. Our inability
to secure the listing of the new common stock or the decision not to list the
new common stock will affect the liquidity and marketability of the new common
stock. Whether or not the new common stock is approved for listing
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on the Nasdaq Stock Market or any other national securities exchange, the new
common stock may trade in the over-the-counter market. Even if the new common
stock is approved for listing on the Nasdaq Stock Market or any other national
securities exchange, there can be no assurance as to the price as to which any
shares of the new common stock may be traded when issued or that an established
market for those securities will develop.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements, other than statements of historical facts, included in this
prospectus that address activities, events or developments that we expect,
project, believe or anticipate will or may occur in the future, including:
- 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 assumptions and
analyses made by us in light of our experience and our perception of historical
trends, current conditions, expected future developments and other factors we
believe are appropriate in the circumstances. These types of 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 us,
- changes in laws or regulations, and
- the other factors discussed above under the heading "Risk Factors" in
this prospectus.
These types of statements are not guarantees of future performance and
actual results or developments may differ materially from those projected in the
forward-looking statements. You should not rely on this information as an
estimate or prediction of future performance.
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GLOSSARY
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 apply to the technical terms used
in this prospectus:
"2-D seismic" means an interpretive data set that allows a view of a
vertical cross-section beneath a prospective area.
"3-D seismic" means an interpretive data set that allows a view of a
vertical cross-section as well as a horizontal cross-section beneath a
prospective area.
"Bbls" means barrels of crude oil, condensate or natural gas liquids, and
is equivalent to 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 we have 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 our working
interest in those 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
those reserves available for production is relatively small relative to the cost
of a new well.
"Proved 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.
"Recompletion" means leaving one formation for another formation within a
well bore.
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"Secondary recovery" means a method of oil and natural gas extraction in
which energy sources extrinsic to the reservoir are used.
"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 that
acreage contains proved reserves.
"Unitized" means the royalty and working interests are pooled within a
given geological and/or geographical area.
"Waterflood" means the injection of water into oil bearing formations to
displace the oil.
"Workover" means the performing of work within a well bore associated with
the currently producing formation.
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THE RIGHTS OFFERING AND PLAN OF DISTRIBUTION
BEFORE EXERCISING OR SELLING ANY RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION CONTAINED UNDER THE CAPTION "RISK FACTORS" IN THIS PROSPECTUS.
The following describes the rights offering and plan of distribution in
general and assumes, unless specifically provided otherwise, that you were a
record holder of our old common stock as of March 6, 2000. If you hold your
shares in a brokerage account or through a dealer or other nominee, please see
"-- Beneficial Owners" below.
THE RIGHTS
If you were a record holder of our old common stock on the record date,
which is March 6, 2000, we are distributing to you, at no charge, 0.338 rights
for each share of our old common stock owned. Each right will allow you to
purchase one share of our new common stock at a price of $10.40. If you elect to
exercise your basic subscription privilege in full, you may also subscribe for
additional shares of our new common stock under your over-subscription
privilege, if there are enough shares available. The shares that you may
purchase under your basic subscription privilege or your over-subscription
privilege are in addition to the shares that are being distributed to our
shareholders in exchange for our old common stock under our plan of
reorganization.
NO FRACTIONAL RIGHTS
We will not issue fractional rights, but rather will round any fractional
rights to the nearest whole number. When any calculation of rights would
otherwise result in an allocation of rights that is not a whole number, the
actual allocation of rights will be adjusted by rounding fractions of 1/2 or
greater to the next higher whole number and by rounding fractions of less than
1/2 to the next lower whole number. Regardless of the number of shares owned,
each shareholder as of the record date will receive at least one right. We are
registering an additional 10,000 shares of new common stock in this prospectus
to account for the effects of rounding.
EXPIRATION OF THE RIGHTS
You may exercise your rights at any time before 5:00 p.m., New York City
time, on May 31, 2000, the expiration date for the rights. We may, in our sole
discretion, extend the time for exercising the rights. If you do not exercise
your rights before the expiration date, your unexercised rights will be null and
void. We will not be obligated to honor your exercise of rights if the
subscription agent receives the documents relating to your exercise after the
expiration date of the rights, regardless of when you transmitted the documents.
We may extend the expiration date by giving oral or written notice to the
subscription agent on or before the scheduled expiration date. If we elect to
extend the expiration date of the rights, we will issue a press release
announcing the extension no later than 9:00 a.m., New York City time, on the
next business day after the most recently announced expiration date.
SUBSCRIPTION PRIVILEGES
Your rights entitle you to the basic subscription privilege and the
over-subscription privilege.
Basic Subscription Privilege. With your basic subscription privilege, you
may purchase one share of our new common stock per right, upon delivery of the
required documents and payment of the subscription price of $10.40 per share.
You are not required to exercise all of your rights unless you wish to purchase
shares under your over-subscription privilege. We will deliver to you
certificates representing the shares that you purchase with your basic
subscription privilege as soon as practicable after the rights offering has been
completed.
Over-Subscription Privilege. In addition to your basic subscription
privilege, you may subscribe for additional shares of our new common stock, upon
delivery of the required documents and payment of the subscription price of
$10.40 per share, before the expiration of the rights. You may only exercise
your
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over-subscription privilege if you exercised your basic subscription privilege
in full and other holders of rights do not exercise their basic subscription
privileges in full. There is no maximum or minimum number of shares that you may
subscribe for under the over-subscription privilege.
Pro Rata Allocation. If there are not enough shares to satisfy all
subscriptions made under the over-subscription privilege, we will allocate the
remaining shares pro rata, after eliminating all fractional shares, among those
over-subscribing rights holders. "Pro rata" means in proportion to the number of
shares of our new common stock that you and the other rights holders have
purchased by exercising your basic subscription privilege. If there is a pro
rata distribution of the remaining shares and you receive a pro rata allocation
of a greater number of shares than you subscribed for under your
over-subscription privilege, then we will allocate to you only the number of
shares for which you subscribed. We will allocate the remaining shares among all
other holders exercising their over-subscription privileges.
Full Exercise of Basic Subscription Privilege. You may exercise your
over-subscription privilege only if you exercise your basic subscription
privilege in full. To determine if you have fully exercised your basic
subscription privilege, we will consider only the basic subscription privileges
held by you in the same capacity. For example, suppose that you were granted
rights for shares of our old common stock that you own individually and shares
of our old common stock that you own collectively with your spouse. If you wish
to exercise your over-subscription privilege with respect to the rights you own
individually, but not with respect to the rights you own collectively with your
spouse, you only need to fully exercise your basic subscription privilege with
respect to your individually owned rights. You do not have to subscribe for any
shares under the basic subscription privilege owned collectively with your
spouse to exercise your individual over-subscription privilege.
When you exercise your over-subscription privilege, you will be
representing and certifying that you have fully exercised your basic
subscription privilege as to shares of our old common stock which you hold in
that capacity. You must exercise your over-subscription privilege at the same
time you exercise your basic subscription privilege in full.
If you own shares of our common stock through your bank, broker or other
nominee holder who will exercise your subscription privilege on your behalf, the
bank, broker or other nominee holder will be required to certify to us and the
subscription agent the following information:
- the number of shares held on your behalf on the record date;
- the number of rights exercised under your basic subscription privilege;
- that your basic subscription privilege held in the same capacity has been
exercised in full; and
- the number of shares subscribed for under your over-subscription
privilege.
Your bank, broker or other nominee holder may also disclose to us other
information received from you.
Return of Excess Payment. If you exercise your over-subscription privilege
and are allocated less than all of the shares for which you wish to subscribe,
your excess payment for shares that were not allocated to you will be returned
by mail without interest or deduction as soon as practicable after the
expiration date. We will deliver to you certificates representing the shares
that you purchase as soon as practicable after the expiration date, after all
pro rata allocations and adjustments have been completed.
CONDITIONS TO THE RIGHTS OFFERING
We may terminate the rights offering at any time in our sole discretion. We
may terminate the rights offering if at any time before completion of the rights
offering there is any judgment, order, decree, injunction, statute, law or
regulation entered, enacted, amended or held to be applicable to the rights
offering that in the sole judgment of our board of directors would or might make
the rights offering or its completion illegal or otherwise restrict or prohibit
completion of the rights offering. We may waive any of these conditions and
choose to proceed with the rights offering even if one or more of these events
occur.
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If we terminate the rights offering, all rights will expire without value and
all subscription payments received by the subscription agent will be returned
promptly, without interest or deduction. This rights offering is not conditioned
on any minimum number of shares being purchased.
METHOD OF SUBSCRIPTION -- EXERCISE OF RIGHTS
You may exercise your rights by delivering the following to the
subscription agent, at or before 5:00 p.m., New York City time, on May 31, 2000,
the date on which the rights expire:
- Your properly completed and executed notice of exercise of rights with
any required signature guarantees or other supplemental documentation;
and
- Your full subscription price payment for each share subscribed for under
your subscription privileges.
METHOD OF PAYMENT
Your payment of the subscription price must be made in U.S. dollars for the
full number of shares of new common stock you are subscribing for by either:
- Check or bank draft drawn upon a U.S. bank or postal, telegraphic or
express money order payable to the subscription agent; or
- Wire transfer of immediately available funds, to the subscription account
maintained by the subscription agent at Chase Manhattan Bank, ABA No.
021000021, Account No. 323015034, further credit to Coho Energy Rights
Offering, Attention: Evelyn O'Connor.
RECEIPT OF PAYMENT
Your payment will be considered received by the subscription agent only
upon:
- Clearance of any uncertified check;
- Receipt by the subscription agent of any certified check or bank draft
drawn on a U.S. bank or of any postal, telegraphic or express money
order; or
- Receipt of collected funds in the subscription account designated above.
CLEARANCE OF UNCERTIFIED CHECKS
If you are paying by uncertified personal check, please note that
uncertified checks may take at least five business days to clear. If you wish to
pay the subscription price by uncertified personal check, we urge you to make
payment sufficiently in advance of the time the rights expire to ensure that
your payment is received and cleared by that time. We urge you to consider using
a certified or cashier's check, money order or wire transfer of funds to avoid
missing the opportunity to exercise your rights.
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DELIVERY OF SUBSCRIPTION MATERIALS AND PAYMENT
You should deliver your notice of exercise of rights and payment of the
subscription price to the subscription agent by one of the methods described
below:
- If by mail to:
ChaseMellon Shareholder Services L.L.C.
Post Office Box 3301
South Hackensack, New Jersey 07606
Attention: Reorganization Department
- If by hand delivery to:
ChaseMellon Shareholder Services L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
Attention: Reorganization Department
- If by overnight courier to:
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road, Mail Drop -- Reorg
Ridgefield Park, New Jersey, 07660
Attention: Reorganization Department
You may call the subscription agent at (888) 823-4481.
Your delivery to an address other than the address set forth above will not
constitute valid delivery.
CALCULATION OF RIGHTS EXERCISED
If you do not indicate the number of rights being exercised, or do not
forward full payment of the total subscription price payment for the number of
rights that you indicate are being exercised, then you will be deemed to have
exercised your basic subscription privilege with respect to the maximum number
of rights that may be exercised with the aggregate subscription price payment
you deliver to the subscription agent. If your aggregate subscription price
payment is greater than the amount you owe for your subscription, you will be
deemed to have exercised your over-subscription privilege for the maximum number
of shares with your overpayment at a price of $10.40 per share. If we do not
apply your full subscription price payment to your purchase of shares of our new
common stock, we will return the excess amount to you by mail without interest
or deduction as soon as practicable after the rights offering is completed.
YOUR FUNDS WILL BE HELD BY THE SUBSCRIPTION AGENT UNTIL SHARES OF NEW COMMON
STOCK ARE ISSUED
The subscription agent will hold your payment of the subscription price in
a segregated account with other payments received from other rights holders
until we issue your shares to you.
SIGNATURE GUARANTEE MAY BE REQUIRED
Your signature on the notice of exercise of rights must be guaranteed by an
eligible institution such as a member firm of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc., or
from a commercial bank or trust company having an office or correspondent in the
United States, subject to standards and procedures adopted by the subscription
agent, unless:
- Your notice of exercise of rights provides that shares are to be
delivered to you as record holder of those rights; or
- You are an eligible institution.
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NOTICE TO BENEFICIAL HOLDERS
If you are a broker, a trustee or a depositary for securities who held
shares of our old common stock for the account of others on March 6, 2000, the
record date for the issuance of rights under this rights offering, you should
notify the beneficial owners of those shares of the rights offering as soon as
possible to find out their intentions with respect to exercising their rights.
You should obtain instructions from the beneficial owners with respect to the
rights, as set forth in the instructions we have provided to you for your
distribution to beneficial owners. If a beneficial owner so instructs, you
should complete the appropriate notice of exercise of rights and submit it to
the subscription agent with the proper payment. If you hold shares of our old
common stock for the account of more than one beneficial owner, you may exercise
the number of rights to which all beneficial owners in the aggregate otherwise
would have been entitled had they been direct record holders of our old common
stock on the record date for the issuance of rights under this rights offering,
if you, as a nominee record holder, make a proper showing to the subscription
agent by submitting the form entitled "Nominee Holder Certification," which we
will provide to you with your offering materials.
BENEFICIAL OWNERS
If you are a beneficial owner of shares of our old common stock or will
receive your rights through a broker, custodian bank or other nominee, we will
ask your broker, custodian bank or other nominee to notify you of this rights
offering. If you wish to exercise your rights, you will need to have your
broker, custodian bank or other nominee act for you. If you hold certificates of
our old common stock directly and would prefer to have your broker, custodian
bank or other nominee exercise your rights, you should contact your nominee and
request it to effect the transactions for you. To indicate your decision with
respect to your rights, you should complete and return to your broker, custodian
bank or other nominee the form entitled "Beneficial Owners Election Form,"
together with your check for the subscription price of the rights you wish to
exercise. You should receive this form from your broker, custodian bank or other
nominee with the other offering materials. If you wish to obtain a separate
notice of exercise of rights, you should contact the nominee as soon as possible
and request that a separate notice of exercise of rights be provided to you.
INSTRUCTIONS FOR COMPLETING YOUR NOTICE OF EXERCISE OF RIGHTS
You should read and follow the instructions accompanying the notice of
exercise of rights carefully.
If you want to exercise your rights, you should send your notice of
exercise of rights with your subscription price payment to the subscription
agent. Do not send your notice of exercise of rights and subscription price
payment to us.
You are responsible for the method of delivery of your notice of exercise
of rights with your subscription price payment to the subscription agent. If you
send your notice of exercise of rights and subscription price payment by mail,
we recommend that you send them by registered mail, properly insured, with
return receipt requested. You should allow a sufficient number of days to ensure
delivery to the subscription agent before the time the rights expire. Because
uncertified personal checks may take at least five business days to clear, you
are strongly urged to pay, or arrange for payment, by means of certified or
cashier's check, money order or wire transfer of funds.
DETERMINATIONS REGARDING THE EXERCISE OF YOUR RIGHTS
We will decide all questions concerning the timeliness, validity, form and
eligibility of your exercise of your rights and our determinations will be final
and binding. We, in our sole discretion, may waive any defect or irregularity,
or permit a defect or irregularity to be corrected within a period of time as we
may determine. We may reject the exercise of any of your rights because of any
defect or irregularity. We will not receive or accept any subscription until all
irregularities have been waived by us or cured by you within a period of time as
we decide, in our sole discretion.
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<PAGE> 24
Neither we nor the subscription agent will be under any duty to notify you
of any defect or irregularity in connection with your submission of notice of
exercise of rights and we will not be liable for any failure to notify you of
any defect or irregularity. We reserve the right to reject your exercise of
rights if your exercise is not in accordance with the terms of the rights
offering or in proper form. We will also not accept your exercise of rights if
our issuance of shares of our new common stock to you could be deemed unlawful
under applicable law or is materially burdensome to us.
QUESTIONS ABOUT EXERCISING RIGHTS -- SUBSCRIPTION AGENT
We have appointed ChaseMellon Shareholder Services L.L.C. as subscription
agent for the rights offering. We will pay its fees and expenses related to the
rights offering. We also have agreed to indemnify the subscription agent for
some of the liabilities that it may incur in connection with the rights
offering. You may direct any questions or requests for assistance concerning the
method of exercising your rights, additional copies of this prospectus, the
instructions, the nominee holder certification or other subscription documents
referred to in this prospectus, to the subscription agent, at the following
telephone number and address:
ChaseMellon Shareholder Services L.L.C.
120 Broadway, 13th Floor
New York, New York 10271
Attention: Reorganization Department
Telephone No.: (888) 823-4481
Banks and brokerage firms, please call (917) 320-6285.
NO REVOCATION
Once you have exercised your subscription privileges, you may not revoke
your exercise. Rights not exercised before the expiration date of the rights
will expire.
PROCEDURES FOR DTC PARTICIPANTS
We expect that your exercise of your basic subscription privilege and your
over-subscription privilege may be made through the facilities of the Depository
Trust Company, or the DTC. If your rights are held of record through DTC, you
may exercise your basic subscription privilege and your over-subscription
privilege by instructing DTC to transfer your rights from your account to the
account of the subscription agent, together with certification as to the
aggregate number of rights you are exercising and the number of shares of our
new common stock you are subscribing for under your basic subscription privilege
and your over-subscription privilege, if any, and your subscription price
payment for each share you subscribed for under your basic subscription
privilege and your over-subscription privilege.
SUBSCRIPTION PRICE
The subscription price is $10.40 per share.
DETERMINATION OF THE SUBSCRIPTION PRICE
The subscription price was determined through negotiations between us and
the holders of a majority of the old bonds. Under our plan of reorganization,
our bondholders are receiving 96% of the outstanding shares of the new common
stock, before giving effect to any shares issued under this rights offering or
under the standby loan. The original subscription price of $0.26 was derived
based on the value of the bondholder claim ($161,635,870) divided by the total
number of shares to be issued to the bondholders under our plan of
reorganization (614,484,288). Because we decreased the number of shares that
were issued under the plan of reorganization by a factor of 40, we multiplied
the original subscription price by 40 to arrive at the $10.40 subscription
price. If we issue additional shares to those who purchase shares in the rights
offering because of the limited anti-dilution feature, the effective purchase
price per share to
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<PAGE> 25
those purchases will be less than $10.40. See the section of this prospectus
called "Dilution" for more information about the limited anti-dilution feature.
EXTENSIONS AND TERMINATION
We may extend the rights offering and the period for exercising your
rights, in our sole discretion. If we extend the rights offering or the period
for exercising rights, you will be able to change your subscription decision. In
addition, we may terminate the rights offering at any time before the time the
rights expire.
NO RECOMMENDATION TO HOLDERS OF RIGHTS OR OTHERS
We are not making any recommendations as to whether or not you should
subscribe for shares of our new common stock. You should decide whether to
subscribe for shares based upon your own assessment of your best interests in
consultation with your legal and financial advisors.
FOREIGN AND OTHER SHAREHOLDERS
A notice of exercise of rights will be mailed to rights holders whose
addresses are outside the United States or who have an Army Post Office or Fleet
Post Office address. To exercise those rights, you must notify the subscription
agent, and take all other steps that are necessary to exercise your rights on or
before the expiration date of the rights. If the procedures set forth in the
preceding sentence are not followed before the expiration date, your rights will
expire.
SHARES OF NEW COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming we issue all of the shares offered in the rights offering
excluding the additional 10,000 shares of new common stock we are registering in
this prospectus to account for the effects of rounding of the rights being
granted to the shareholders, 31,686,435 shares of our new common stock will be
issued and outstanding after the rights offering expires. Based on the
16,002,195 shares of our new common stock that were issued on the effective date
of confirmation of our plan of reorganization plus the additional 2,691,958
shares to be issued under this prospectus to the standby lenders but before
taking into account shares sold in the rights offering, our issuance of all
shares in this rights offering would result on a pro forma basis in a 69%
increase in the number of outstanding shares of our new common stock. See the
section of this prospectus called "Dilution" for additional information
concerning the new common stock outstanding after the rights offering.
REGULATORY LIMITATION
We will not be required to issue to you shares of our new common stock in
the rights offering if, in our opinion, you would be required to obtain prior
clearance or approval from any state or federal regulatory authorities to own or
control the shares and if, at the time the rights expire, you have not obtained
that clearance or approval.
ISSUANCE OF COMMON STOCK
The subscription agent will issue to you certificates representing shares
of our new common stock you purchase under the rights offering as soon as
practicable after the time the rights expire.
Your payment of the aggregate subscription price will be retained by the
subscription agent and will not be delivered to us until your subscription is
accepted and you are issued your share certificates. We will not pay you any
interest on funds paid to the subscription agent, regardless of whether the
funds are applied to the subscription price or returned to you. You will have no
rights as a shareholder of Coho, with respect to shares of our new common stock
subscribed for, until certificates representing the shares are issued to you.
Upon our issuance of the certificates, you will be deemed the owner of the
shares you
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<PAGE> 26
purchased by exercise of your rights. Unless otherwise instructed in the notice
of exercise of rights, your certificates for shares issued as a result of your
exercise of rights will be registered in your name.
If the rights offering is not completed for any reason, the subscription
agent will promptly return, without interest or deduction, all funds received by
it.
We will retain any interest earned on the funds held by the subscription
agent.
COMPLIANCE WITH STATE REGULATIONS PERTAINING TO THE RIGHTS OFFERING
We are not making the rights offering in any state or other jurisdiction in
which it is unlawful to do so. We will not sell or accept an offer to purchase
our new common stock from you if you are a resident of any state or other
jurisdiction in which the sale or offer of the rights or the new common stock
would be unlawful. We may delay the commencement of the rights offering in these
states or other jurisdictions to comply with their laws. We do not expect that
there will be any changes in the terms of the rights offering. However, we may
decide, in our sole discretion, not to modify the terms of the rights offering
as may be requested by some of these states or other jurisdictions. If that
happens and you are a resident of the state or jurisdiction that requests the
modification, you will not be eligible to participate in the rights offering.
THE OFFERING TO STANDBY LENDERS
In this prospectus, we are registering an additional 2,691,958 shares of
new common stock for distribution to the lenders who participated in the standby
loan made under the terms of our plan of reorganization. Under the terms of the
standby loan, the standby lenders are to be issued shares of new common stock
representing 14.4% of all shares of new common stock outstanding, including any
shares issued in the rights offering, as additional compensation to the standby
lenders for their services as lenders under the standby loan. See the section of
this prospectus called "Dilution" for more information regarding the dilutive
effects of the issuance of shares to the standby lenders. Upon the effectiveness
of the registration statement of which this prospectus constitutes a part, we
will issue these shares to the standby lenders.
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<PAGE> 27
USE OF PROCEEDS
There is no minimum number of shares of new common stock that must be
subscribed for in this rights offering. If all the rights are exercised, we will
receive approximately $90 million upon completion of this rights offering,
before deducting the offering expenses. We will not receive any proceeds from
our issuance of 2,691,958 shares to the standby lenders. The offering expenses
are estimated to be $550,000. We may negotiate with the standby lenders to
receive satisfactory terms for the use of proceeds from the rights offering to
pay down the standby loan. The standby loan has a principal amount of $72
million with a term of seven years. The interest rate on the standby loan is 15%
per annum until March 31, 2001. The interest rate on the standby loan after
March 31, 2001 is a rate per annum of 15% plus a variable component of up to an
additional 10% per annum based on the price we receive for our production, for a
maximum possible interest rate of 25% per annum.
If satisfactory repayment terms are not reached with the standby lenders,
we will use the proceeds from the rights offering to pay down our debt under the
new credit facility. We currently have outstanding $183 million in principal
amount under the new credit facility. The new credit facility has a term of
three years and an interest rate of the lesser of prime plus 2% or LIBOR plus
3%. Any proceeds not used to pay down either the standby loan or the new credit
facility will be used for working capital.
Indebtedness under each of the standby loan and the new credit facility was
incurred in connection with discharging claims under our plan of reorganization.
See the section of this prospectus called "Description of Existing Indebtedness"
for more information regarding the standby loan and the new credit facility.
DIVIDEND POLICY
We never paid cash dividends on our old common stock and we do not intend
to pay cash dividends on our new common stock. Because Coho Energy, Inc. is a
holding company, our ability to pay dividends depends on the ability of our
subsidiaries to pay cash dividends or make other cash distributions. Our debt
agreements generally prohibit the subsidiaries from paying dividends or making
cash distributions. Our board of directors has sole discretion over the
declaration and payment of future dividends. Any future dividends will depend
on:
- our profitability,
- our financial condition,
- our cash requirements,
- our future prospects,
- general business conditions,
- the terms of our debt agreements, and
- other factors our board of directors believes relevant.
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<PAGE> 28
PRICE RANGE OF COMMON STOCK
The new common stock has had a very limited trading history since we
emerged from bankruptcy. Since April 3, 2000, the new common stock has traded in
the over-the-counter market under the symbol "CHOH." On April 25, 2000, the last
price at which the new common stock traded in the over-the-counter market was
$4.00. We anticipate that our new common stock will be quoted on Nasdaq's OTC
Bulletin Board under the symbol "CHOH."
Our old common stock was, until June 4, 1999, listed on the Nasdaq Stock
Market under the symbol "COHO." From June 7, 1999 until March 31, 2000, our old
common stock was traded on Nasdaq's OTC Bulletin Board under the symbol
"COHOQ.OB." The following table shows the high and low sales prices of our old
common stock over recent periods.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
1st Quarter............................................... $ 9 5/8 $ 6 1/4
2nd Quarter............................................... 9 1/4 6 1/4
3rd Quarter............................................... 7 1/8 4 1/2
4th Quarter............................................... 5 1/8 2 5/16
1999
1st Quarter............................................... $ 3 1/8 $ 1/2
2nd Quarter............................................... 1 1/32
3rd Quarter............................................... 1 5/8 7/32
4th Quarter............................................... 3/4 5/32
2000
1st Quarter (through March 31, 2000)...................... 51/64 3/16
</TABLE>
At April 1, 2000, there were 414 holders of record of the new common stock.
We believe we have in excess of 8,000 beneficial holders of our new common
stock.
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<PAGE> 29
CAPITALIZATION
The following table sets forth our consolidated capitalization at December
31, 1999, and as adjusted for the following circumstances:
- to give pro forma effect for projected operating results through March
31, 2000, the effective date of our plan of reorganization and to give
pro forma effect for the consummation of our plan of reorganization,
- to give pro forma effect for the issuance of shares of new common stock
and the repayment of borrowings under the new credit facility assuming
that all of the rights are exercised in the rights offering, excluding
the additional 10,000 shares of new common stock we are registering in
this prospectus to account for the effects of the rounding of rights
being granted to the shareholders, and
- to give pro forma effect for the issuance of shares of new common stock
and the repayment of borrowings under the new credit facility assuming
that 20% of the rights are exercised in the rights offering, excluding
the additional 10,000 shares of new common stock we are registering in
this prospectus to account for the effects of the rounding of rights
being granted to the shareholders.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" and our consolidated
financial statements and related notes to those statements included in this
prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA PURCHASE OF
UPON PURCHASE OF 20% OF
DECEMBER 31, EFFECTIVENESS ALL SHARES SHARES
1999 OF THE IN RIGHTS IN RIGHTS
HISTORICAL PLAN(3) OFFERING(4) OFFERING(5)
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Current Liabilities:
Old Bank Group Loan(1)........................... $258,836 $ -- $ -- $ --
Old Bonds(1)..................................... 161,094 -- -- --
Other............................................ 19,029 21,734 21,734 21,734
-------- --------- --------- ---------
Total Current Liabilities................ $438,959 $ 21,734 $ 21,734 $ 21,734
-------- --------- --------- ---------
Long-Term Liabilities:
Credit Facility.................................. $ -- $ 183,000 $ 93,000 $ 165,000
Standby Loan..................................... -- 72,000 72,000 72,000
Promissory Notes................................. -- 4,452 4,452 4,452
-------- --------- --------- ---------
Total Long-Term Liabilities.............. -- 259,452 169,452 241,452
-------- --------- --------- ---------
Shareholders' Equity:
Preferred stock, par value $0.01 per share.......
Old common stock and new common stock, par value
$0.01 per share; authorized 50,000,000
shares(2)..................................... 256 187 317 211
Additional paid-in capital....................... 137,812 298,606 400,886 318,624
Retained deficit................................. (230,026) (217,195) (216,645) (216,645)
-------- --------- --------- ---------
Total Shareholders' Equity............... (91,958) 81,598 184,558 102,190
-------- --------- --------- ---------
Total Capitalization, excluding current
liabilities............................ $(91,958) $ 341,050 $ 354,010 $ 343,642
======== ========= ========= =========
</TABLE>
- ---------------
(1) All amounts outstanding under the old bank group loan agreement and the old
bonds and the related accrued interest are classified as current liabilities
as of December 31, 1999 due to accelerations by the lenders.
(2) Shares of old common stock outstanding were 25,603,512 at December 31, 1999
and shares of new common stock outstanding were 18,694,153 under Pro Forma
Upon Effectiveness of the Plan. Shares of new common stock outstanding were
31,686,435 under Pro Forma Purchase of All Shares in Rights Offering and
21,099,991 under Pro Forma Purchase of 20% of Shares in Rights Offering.
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<PAGE> 30
(3) The pro forma column that presents the effectiveness of the plan of
reorganization reflects pro forma adjustments to record the following
transactions:
- Adjustments of current liabilities and retained deficit to reflect the
effect of projected operating results for the period from January 1, 2000
through March 31, 2000, the effective date of the plan of reorganization.
- Repayment of borrowings outstanding under the old bank group loan
agreement together with accrued interest totaling $258.8 million from
borrowings under the credit facility together with borrowings under the
standby loan, and the write-off of $1.6 million related to unamortized
debt issue costs.
- Conversion of the old bonds into 15,362,107 shares of new common stock at
an assumed fair market value of $8.90 per share for a total of $136.8
million and the recognition of a gain on the extinguishment of debt of
$20.7 million due to the dilution in the assumed fair market value of the
shares as a result of the additional shares issued for the standby loan.
- Payment of $501,000 of general secured and administrative convenience
claims paid on the effective date and the recognition of additional
reorganization expenses totaling $8.3 million, including $4.0 million for
estimated severance and retention bonus payments.
- The $4.5 million reclassification of the long-term portion of the
five-year promissory notes to be issued in settlement of the priority tax
claims from current liabilities.
- The borrowings of $183.0 million under the credit facility on the
effective date.
- The borrowings of $72.0 million under the standby loan and the related
issuance of 2,691,958 shares of new common stock at an assumed fair
market value of approximately $8.90 per share for a total of $24.0
million.
- Issuance of 640,088 shares of new common stock in exchange for 25,603,512
shares of old common stock.
(4) The pro forma column that presents the purchase of shares in the rights
offering assuming all shares are purchased reflects pro forma adjustments to
record the following transactions:
- Repayment of borrowings outstanding under the credit facility with
proceeds from the rights offering of $90 million.
- Issuance of 11,121,393 shares of new common stock at an assumed fair
market value of approximately $8.09 per share for total proceeds of $90
million comprised of 8,653,846 shares at the offering price of $10.40 per
share and 2,467,547 additional shares issued to offset the dilutive
effect of the additional shares issued to the standby lenders.
- Issuance of 1,870,889 shares of additional new common stock at an assumed
fair market value of approximately $8.09 per share to the standby lenders
to offset the dilutive effect of the rights offering.
(5) The pro forma column that presents the purchase of shares in the rights
offering assuming 20% of the shares are purchased reflects pro forma
adjustments to record the following transactions:
- Repayment of borrowings outstanding under the credit facility with
proceeds from the rights offering of $18 million.
- Issuance of 2,059,397 shares of new common stock at an assumed fair
market value of $8.74 per share for total proceeds of $18 million
comprised of 1,730,769 shares at the offering price of $10.40 per share
and 328,628 additional shares issued to offset the dilutive effect of the
additional shares issued to the standby lenders.
- Issuance of 346,441 additional shares of new common stock at an assumed
fair market value of approximately $8.74 per share to the standby lenders
to offset the dilutive effect of the rights offering.
27
<PAGE> 31
SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years in the period ended December 31, 1999 are derived from, and qualified by
reference to, our audited consolidated financial statements included in this
prospectus. The information presented below should be read in conjunction with
our consolidated financial statements and the related notes included in this
prospectus and the section of this prospectus called "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
consolidated financial data presented below is not necessarily indicative of the
future results of our operations or financial performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues........................................ $ 40,903 $ 54,272 $ 63,130 $ 68,759 $ 57,323
Operating costs........................................... 12,457 13,875 15,970 26,859 21,155
General and administrative expenses(1).................... 5,400 7,264 7,163 7,750 9,905
Reorganization costs...................................... -- -- -- -- 3,123
Depletion and depreciation................................ 14,717 16,280 19,214 28,135 13,702
Writedown of crude oil and natural gas properties......... -- -- -- 188,000 5,433
Net interest expense...................................... 8,048 7,464 10,474 32,721 33,698
Other expense............................................. -- -- -- 3,023 1,048
Income tax expense (benefit).............................. 112 3,483 4,021 (14,383) (26)
Earnings (loss) from continuing operations................ 169 5,906 6,288 (203,346) (30,715)
Net earnings (loss)....................................... 1,780 5,906 6,288 (203,346) (30,715)
Basic earnings (loss) from continuing operations per
common share............................................ (0.02) 0.29 0.29 (7.94) (1.20)
Diluted earnings (loss) from continuing operations per
common share............................................ (0.02) 0.29 0.28 (7.94) (1.20)
Basic earnings (loss) per common share(2)................. 0.05 0.29 0.29 (7.94) (1.20)
Diluted earnings (loss) per common share(3)............... 0.05 0.29 0.28 (7.94) (1.20)
OTHER FINANCIAL DATA:
Capital expenditures...................................... $ 29,970 $ 52,384 $ 72,667 $ 70,143 $ 6,349
EBITDA(4)................................................. 23,046 33,133 39,997 31,127 22,093
BALANCE SHEET DATA:
Working capital (deficit)(5).............................. $ 14,433 $ 6,662 $ (2,021) $(388,297) $(407,490)
Net property and equipment................................ 175,899 210,212 531,409 324,574 311,788
Total assets.............................................. 204,042 230,041 555,128 350,068 348,801
Long-term debt, excluding current portion................. 107,403 122,777 369,924 -- --
Total shareholders' equity................................ 74,321 81,466 142,103 (61,243) (91,958)
</TABLE>
- ---------------
(1) General and administrative expenses for 1999 are substantially higher than
those expenses for the same period in 1998 primarily due to the expensing of
all salaries and other general and administrative costs associated with
exploration and development activities during 1999 as compared to the
capitalization of $5.7 million of those costs in 1998.
(2) Basic per share amounts have been computed by dividing net earnings after
preferred dividends by the weighted average number of shares outstanding:
17,392 in 1995; 20,179 in 1996; 21,693 in 1997; 25,604 in 1998; and 25,604
in 1999.
(3) 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: 17,392 in 1995; 20,342 in 1996;
22,334 in 1997; 25,604 in 1998; and 25,604 in 1999.
(4) "EBITDA" refers to earnings before interest, taxes, depreciation, depletion
and amortization. EBITDA should not be considered as an alternative to, or
more meaningful than, net income or cash flow as determined in accordance
with generally accepted accounting principles as an indicator of our
operating performance or liquidity.
(5) Amounts for 1998 and 1999 include $384,031 and $388,685, respectively,
related to the current portion of long-term debt. The working capital
deficit as of December 31, 1999 includes liabilities subject to compromise
as a result of the bankruptcy filing.
28
<PAGE> 32
THE PLAN OF REORGANIZATION
INTRODUCTION
A summary of the principal provisions of the plan of reorganization and the
treatment of classes of claims and equity interests is set forth below. This
summary is qualified by reference to the plan of reorganization. You may obtain
a copy of the plan of reorganization and related disclosure statement by sending
us a written request at 14785 Preston Road, Suite 860, Dallas, Texas 75240 to
the attention of Ms. Anne Marie O'Gorman.
We conceived the plan of reorganization as an alternative to the more
drastic measures available to us for restructuring our debt, such as a
liquidation of our properties. The terms of the plan of reorganization were
arrived at after a diligent search for, and extensive evaluation of, numerous
financing and liquidation proposals by us, and consultation with our financial
advisors as to what type of plan of reorganization might be feasible after
lengthy negotiations with our creditors. On March 17, 2000, the Honorable Harold
C. Abramson, United States Bankruptcy Judge, confirmed the plan of
reorganization. The order confirming the plan of reorganization was entered on
March 20, 2000. Judge Abramson found that the plan of reorganization provides
our creditors and our shareholders with distributions of property in the form of
new securities having a value not less than the amount that those holders would
receive if we were to be liquidated under Chapter 7 of the Bankruptcy Code.
Judge Abramson further found that reorganization under the plan of
reorganization is feasible. We believe that the plan of reorganization provides
for the greatest and earliest possible recoveries for our creditors and our
shareholders. Since the plan of reorganization was confirmed and consummated,
we, as reorganized under the plan of reorganization, may operate our businesses
and buy, use and otherwise acquire and dispose of our property free of any
restrictions contained in the Bankruptcy Code.
1. Old Bank Group.
We and some of our subsidiaries were parties to an old bank group loan
agreement. The lenders under the old bank group loan were MeesPierson Capital
Corp.; Paribas, Houston Agency; Christiania Bank OG Kreditkasse, ASA; Den Norske
Bank ASA; Bank of Scotland; Bank One, Texas, N.A.; Credit Lyonnais New York
Branch; and Toronto Dominion (Texas), Inc. Approximately $240 million of
principal, plus accrued interest and reasonable fees, owed to the bank group in
connection with the old bank group loan agreement was treated as fully secured
under the plan of reorganization. The exact amount of the bank group claim,
including interest at a reasonable rate and reasonable fees, was subject to
allowance. The allowed amount of the bank group claim was fixed by the
bankruptcy court at approximately $260 million.
The bank group claim was paid in full in cash on the effective date of the
plan of reorganization, March 31, 2000. We obtained the funds necessary for the
payment of the allowed bank group claim through the combination of:
- a new senior revolving credit facility, from a syndicate of lenders led
by The Chase Manhattan Bank, as agent for the lenders,
- cash on hand from our operations and
- the sale of senior subordinated notes to the standby lenders, including:
- PPM America, Inc. and their assignees,
- Oaktree Capital Management, L.L.C. and their assignees,
- Pacholder Associates, Inc. and their assignees, and
- Appaloosa Management, L.P. and their assignees.
2. Old Bond Holders.
We were the issuer of $150 million principal amount of 8 7/8% senior
subordinated notes due 2007. These old bonds were issued under an indenture
dated October 1, 1997, which some of our subsidiaries
29
<PAGE> 33
guaranteed. Approximately $162 million was owed to the holders of the old bonds
in connection with the old bond indenture. Under the plan of reorganization, the
old bond indenture and the old bonds were extinguished on the effective date.
Holders of old bonds received as of the effective date their pro rata share of
96% of our new common stock. This 96% of new common stock will be diluted by
shares of new common stock issued in connection with this rights offering and
the standby loan.
3. Old Shareholders.
Prior to the effective date, we had issued and outstanding 25,603,512
shares of old common stock, $0.01 par value. The old common stock was held by
approximately 425 shareholders of record. As of the effective date, the old
common stock was extinguished and the shareholders received their pro rata share
of 4% of the new common stock, except that we paid cash in lieu of distributing
fractional shares of new common stock. This 4% of new common stock will be
diluted by shares of new common stock issued in connection with the rights
offering and the standby loan. The shareholders will also receive the exclusive
right to purchase their pro rata portions of additional shares of the new common
stock in the rights offering for a purchase price of $10.40 per share, up to a
total amount of approximately $90 million.
Additionally, shareholders as of February 7, 2000, are eligible to receive
their pro rata share of the following:
- 20% of the proceeds available from the Hicks Muse lawsuit after payment
of all fees and expenses, including any contingent fee paid in connection
with these proceeds, and
- 40% of the proceeds of the disposition of our interest in Coho Anaguid,
Inc. or the disposition of substantial assets of Coho Anaguid, Inc.
For more information about the Hicks Muse lawsuit, see the section of this
prospectus called "Oil and Gas Operations -- Legal Matters." For more
information about the assets of Coho Anaguid, Inc., see the section of this
prospectus called "Oil and Gas Operations -- Tunisia, North Africa."
4. New Capitalization.
Originally, our plan of reorganization anticipated that we would issue one
new share of stock for each share of old stock, and that the shares of stock
offered pursuant to this prospectus would be offered for a purchase price of
$0.26 per share. In the plan of reorganization, we noted that we may effect a
reverse stock split after the effective date of the plan to proportionately
reduce the number of our authorized and outstanding shares. As we noted, we
believed that this measure would help us to satisfy Nasdaq listing requirements.
After the plan of reorganization was confirmed by the bankruptcy court, we
determined that it would be in the best interests of us and our shareholders to
make the effect of that reverse stock split applicable as of the effective date
of the plan of reorganization, so that we would not have to take any actions
after the effective date to adjust the number of shares authorized and
outstanding. Therefore, we amended the plan of reorganization so that as of the
effective date, we issued one share of our new common stock for each forty
shares of our old common stock, and so that the purchase price for shares of
stock offered pursuant to this prospectus will be $10.40 per share. This
amendment had the effect of decreasing the number of our outstanding shares of
new common stock and increasing the per-share price. The amendment did not
affect the relative percentage ownership interests among various groups of
shareholders after the effective date.
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<PAGE> 34
CLASSIFICATION AND TREATMENT SUMMARY
The following is a summary of the classification of claims and interests,
and their treatment under the plan of reorganization.
<TABLE>
<CAPTION>
CLASSIFICATION TREATMENT
- -------------- ---------
<S> <C>
Class 1 Unimpaired
Administrative expense claims Will be paid in full, in cash including any
Total estimated amount of Class 1 retainers on hand, on the later of the
claims: effective date, the due date or court
$2,329,000 approval (if required by law), or paid on
other agreed terms.
Estimated recovery: Full recovery.
Class 2 Impaired
Priority tax claims Will receive five-year promissory notes
Total estimated amount of Class 2 bearing interest at a rate of 6% per annum
claims: unless a different rate is chosen by the
$5,260,000 bankruptcy court, or paid on other agreed
terms.
Estimated recovery: Full recovery over time.
Class 3 Impaired
Bank group claim Received payment in full, in cash on the
Total estimated amount of Class 3 effective date from advances made under the
claims: new credit facility and the standby loan.
$260,000,000
Estimated recovery: Full recovery.
Class 4 Impaired
Senior miscellaneous secured claims Will receive cash payment of 100% of allowed
Total estimated amount of Class 4 claims on the effective date, or paid on
claims: other agreed terms.
$300,000
Estimated recovery: Full recovery.
Class 5 Impaired
Unsecured bond claims Received shares representing 96% of the new
Total estimated amount of Class 5 common stock as of the effective date
claims: (without giving effect to dilution from
$161,635,870 shares issued under the rights offering and
the standby loan).
Estimated recovery: Approximately full
recovery over time.
Class 6 Impaired
General unsecured claims Will receive cash payment of 100% of allowed
Total estimated amount of Class 6 claims, payable in four equal quarterly
claims: $4,700,000 (Estimate assumes installments without interest.
no
significant adverse result to us in Estimated recovery: Full recovery over one
the year.
bankruptcy court's allowance and
estimation process. See "Oil and Gas
Operations-Legal Matters.")
Class 7 Unimpaired
Administrative convenience claims Will receive payment in full, in cash 30 days
Total estimated amount of Class 7 from the effective date, up to a maximum of
claims: $1,000 per claim.
$72,000
Estimated recovery: Full recovery.
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
CLASSIFICATION TREATMENT
- -------------- ---------
<S> <C>
Class 8 Impaired
Holders of our old common stock Will receive shares representing 4% of the
25,603,512 shares outstanding new common stock as of the effective date,
without giving effect to dilution from
shares issued under the rights offering and
the standby loan; and rights to purchase
additional shares of the new common stock
at $10.40 per share. Will receive cash in
lieu of any fractional shares of new common
stock to be issued in exchange for old
common stock. Will receive 20% of any
proceeds of the Hicks Muse lawsuit after
fees and expenses. Will receive 40% of any
proceeds from the disposition of our
interests in, or the assets of, Coho
Anaguid, Inc.
Estimated recovery: 2% to 37% of our new
outstanding common stock, depending on the
degree of participation in the rights
offering and other variables.
</TABLE>
THE NEW DEBT AND EQUITY
The Credit Facility.
On the effective date, we established a new credit facility with a group of
lenders and The Chase Manhattan Bank, as agent for the new lenders, for a
principal amount of up to $250 million. The new credit facility limits advances
to the amount of the borrowing base, which has been set initially at $205
million. The borrowing base is the loan value to be assigned to the proved
reserves attributable to our oil and gas properties. The borrowing base is
subject to semiannual review based on reserve reports. The initial borrowing
base was subject to Chase's review of the January 1, 2000 reserve report, which
was prepared and audited by independent petroleum engineering firms acceptable
to the new lenders.
The new credit facility is subject to semiannual borrowing base
redeterminations, each April 1 and October 1, and will be made in the sole
discretion of the lenders. We will deliver to the lenders by March 1 of each
year a reserve report prepared as of the immediately preceding January 1 and by
September 1 of each year a reserve report prepared as of the immediately
preceding July 1. The January 1 reserve report will be prepared internally by us
and audited by an independent petroleum engineering firm, acceptable to Chase,
and the July 1 reserve report will be prepared internally by us, in a form
acceptable to Chase. Based in part on the reserve report, the lenders will
redetermine the borrowing base in their sole discretion. For an increase in the
borrowing base, consent of 100% of the lenders will be required. To maintain the
borrowing base, or to reduce the borrowing base, consent of the lenders holding
75% of outstanding loans and letter of credit exposure or, if no loans or
letters of credit are outstanding, the lenders representing 75% of the current
loan commitments under the new credit facility, will be required. We or Chase
may request one additional borrowing base determination during any calendar
year.
Interest on advances under the new credit facility will be payable on the
earlier of the expiration of any interest period under the new credit facility
or quarterly, beginning the first quarter after the effective date. Amounts
outstanding under the new credit facility will accrue interest at our option at
either the Eurodollar rate, which is the annual interest rate equal to the
London interbank offered rate for deposits in United States dollars that is
determined by reference to the Telerate Service or offered to Chase plus an
applicable margin, or the prime rate, which is the floating annual interest rate
established by Chase from time to time as its prime rate of interest and which
may not be the lowest or best interest rate charged by Chase on loans similar to
the new credit facility, plus an applicable margin. All outstanding advances
under the new credit facility are due and payable in full three years from the
effective date.
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<PAGE> 36
The new credit facility has been secured by granting Chase the following
collateral for the benefit of the lenders:
- first and prior security interests in our issued and outstanding capital
stock and other equity interests of our material subsidiaries,
- first and prior mortgage liens and security interests covering proved
mineral interests selected by Chase having a present value, as determined
by Chase, of not less than 85% of the present value of all of our proved
mineral interests evaluated by the lenders for purposes of determining
the borrowing base, and
- first and prior security interests in our other tangible and intangible
assets.
The rights and responsibilities of Chase, the lenders and us are governed by a
new senior revolving credit agreement and related documents, which, in part,
permit the lenders to enforce their rights to the collateral on the occurrence
of an event of default under the new credit agreement.
The new credit agreement contains financial and other covenants including:
- maintenance of minimum ratios of cash flow to interest expense, senior
debt to cash flow, and current assets to current liabilities as of the
end of each quarter, commencing as of the end of the initial fiscal
quarter to commence after the effective date,
- restrictions on the payment of dividends and
- limitations on the incurrence of additional indebtedness, the creation of
liens and the incurrence of capital expenditures.
Fees for the lenders contained in the Chase commitment letter to us dated
December 9, 1999 were approved by the bankruptcy court at a hearing on the fees
held on January 27, 2000. These fees include an initial due diligence fee of
$200,000. Because the lenders funded under the new credit facility on the
effective date, they are entitled to an additional aggregate $5.8 million of
closing fees. All fees paid by us in connection with the new credit facility are
non-refundable and are in addition to reimbursements to be paid for expenses
incurred by Chase in connection with the preparation of the new credit agreement
and related documentation.
The Rights Offering.
To implement the plan of reorganization, we will raise up to $90 million of
new investment by the rights offering made under this prospectus and $72 million
in a standby loan that has been made by the standby lenders.
Under the rights offering, our shareholders as of the record date have the
exclusive opportunity to buy additional shares of the new common stock for a
price of $10.40 per share, up to an aggregate of $90 million. Shareholders who
wish to purchase more than their allocable portion of the shares offered to them
in this rights offering may do so, to the extent that other shareholders do not
elect to participate in the rights offering.
The Standby Loan.
The majority of the funds necessary for the payment of the allowed bank
group claim were obtained through an advance under the new credit facility with
Chase of $183.0 million of the initial borrowing base. The remaining amount of
the allowed bank group claim has been paid with the standby loan. The standby
loan has been made under a senior subordinated note facility under which we
issued, and PPM America, Inc., Appaloosa Management, L.P., Oaktree Capital
Management, L.L.C. and Pacholder Associates, Inc. and their assignees,
purchased, $72 million of senior subordinated notes. Our rights and
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<PAGE> 37
responsibilities and those of the standby lenders are governed by a standby loan
agreement which was executed and delivered on March 31, 2000.
Debt under the standby loan agreement is evidenced by notes, maturing seven
years after the effective date, and bearing interest at a minimum annual rate of
15% and payable in cash semiannually. After the first anniversary of the
effective date, additional semiannual interest payments will be payable in an
amount equal to 1/2% for every $0.25 that the "actual price" for our oil and
gas production exceeds $15 per barrel of oil equivalent during the applicable
semiannual interest period, up to a maximum of 10% additional interest per year.
The "actual price" for our oil and gas production is the weighted average price
received by us for all of our oil and gas production, including hedged and
unhedged production, net of hedging costs, in dollars per barrel of oil
equivalent using a 6:1 conversion ratio for natural gas. The actual price will
be calculated over a six-month measurement period ending on the date two months
before the applicable interest payment date. Additionally, upon an event of
default occurring under the standby loan, interest will be payable in cash,
unless otherwise required to be paid-in-kind, at a rate equal to 2% per year
over the applicable interest rate. Interest payments under the standby loan may
be paid-in-kind subject to the requirements of the new credit agreement.
"Paid-in-kind" refers to the payment of interest owed under the standby loan by
increasing the amount of principal outstanding under the standby loan notes,
rather than paying the interest in cash.
Payment of the standby loan notes is expressly subordinate to payments in
full in cash of all obligations arising in connection with the new credit
facility. After the initial 12-month period, cash interest payments may be made
only to the extent by which EBITDA, or earnings before interest, tax,
depreciation and amortization expense, on a trailing four-quarter basis exceed
$65 million. The new credit agreement also prohibits us from making any cash
interest payments on the standby loan indebtedness if the outstanding
indebtedness under both the new credit facility and the standby loan exceeds
3.75 times the EBITDA for the trailing four quarters. We may prepay the standby
loan notes at the face amount, in whole or in part, in minimum denominations of
$1,000,000, plus either a standard make-whole payment at 300 basis points over
the "treasury rate" for the first four years. Beginning in the fifth year, the
prepayment fee is 7.5% of the principal amount being prepaid; in the sixth year,
the prepayment fee is 3.75% of the principal amount being prepaid; and after the
sixth year there is no prepayment fee. The "treasury rate" is the yield of U.S.
Treasury securities with a term equal to the then-remaining term of the standby
loan notes that has become publicly available on the third business day before
the date fixed for repayment.
When the standby loan notes were issued, the standby lenders became
entitled to receive a percentage of our fully diluted new common stock. Because
$72 million in principal amount of the standby loan notes were issued, the
standby lenders will receive 14.4% of the fully diluted new common stock. The
shares of new common stock issued to the standby lenders will be in addition to
the shares of new common stock issued to holders of the old bonds, to our
shareholders prior to reorganization and to persons participating in this rights
offering. See the section of this prospectus called "Dilution" for an
illustration of the dilution of the new common stock.
Fees for the standby lenders contained in the standby lender fee letter to
us dated January 24, 2000 were approved by the bankruptcy court at a hearing on
the fees held on January 27, 2000. These fees include a due diligence fee of
$200,000, payable immediately, and a closing fee in an amount equal to the
greater of $1.0 million or 3 1/2% of the aggregate principal amount of the
standby loan notes purchased. Our obligation to pay the closing fee was an
administrative expense claim having priority over all administrative expenses in
accordance with Section 364(c)(1) of the bankruptcy code. We have paid the
closing fee of $2.52 million.
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<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements included in this prospectus. Some information
contained in this prospectus, including information with respect to our plans
and strategy for its business, are forward-looking statements. For more
information about the limitations associated with these types of statements, see
the section of this prospectus called "Cautionary Statement Regarding
Forward-Looking Statements."
SUBSEQUENT EVENTS
See the subsections below called "Bankruptcy Proceedings" and "Liquidity
and Capital Resources" for a description of certain events affecting our current
liquidity.
OUR HISTORY
We were incorporated in June 1993 under the laws of the State of Texas and
currently conduct a majority of our operations through Coho Resources, Inc.
In December 1994, we acquired all of the capital stock of Interstate
Natural Gas Company. Interstate Natural Gas, through its subsidiaries, was a
privately-held natural gas producer, gatherer and pipeline company operating in
Louisiana and Mississippi. To acquire Interstate Natural Gas, we:
- paid $20 million cash,
- assumed net liabilities of $3.3 million, excluding deferred taxes, and
- issued 2,775,000 shares of our old common stock and 161,250 shares of
redeemable preferred stock having an aggregate stated value of $16.1
million.
The preferred shares were exchanged on August 30, 1998 for 3,225,000 shares of
our old common stock. We accounted for the acquisition of Interstate Natural Gas
with the purchase method.
In April 1996, Interstate Natural Gas sold all of the stock of three
wholly-owned subsidiaries comprising its natural gas marketing and
transportation segment to an unrelated third party in exchange 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 in this prospectus.
On October 3, 1997, we issued 5,000,000 shares of common stock at $10.50
per share and $150 million of 8 7/8% senior subordinated notes due 2007, which
are our old bonds. The combined $193.7 million in proceeds from these offerings
were used to repay $144.8 million of indebtedness outstanding under our old bank
group loan, to fund general corporate purposes and to fund a portion of the
December 1997 Oklahoma property acquisition discussed in the next paragraph.
Effective December 31, 1997, we acquired from Amoco Production Company
interests in crude oil and natural gas properties located primarily in southern
Oklahoma for approximately $257.5 million in cash and for warrants valued at
$3.4 million to purchase one million shares of our common stock at $10.425 per
share for a period of five years. The Oklahoma properties comprise more than
25,000 gross acres in southern Oklahoma, and include 14 major producing oil
fields. Of the 14 major producing fields, we operate eleven fields. At December
31, 1999, we had an average working interest of approximately 74% in these
eleven fields we operate.
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<PAGE> 39
On December 2, 1998, we sold our natural gas assets, including our natural
gas properties and the related gas gathering systems, located in Monroe,
Louisiana, to an unaffiliated third party for net proceeds of approximately
$61.5 million. The proved reserves attributable to these natural gas properties
represented approximately 14% of our year end 1997 proved reserves. The sale of
these assets represented substantially all of the remaining assets of Interstate
Natural Gas.
GENERAL
Our operating revenues result solely from crude oil and natural gas sales,
with crude oil sales representing approximately 75% of production revenues for
1997, 77% of production revenues for 1998 and 90% of production revenues for
1999. Natural gas sales represented approximately 25% of production revenues for
1997, 23% of production revenues for 1998 and 10% of production revenues for
1999. Approximately 60% of natural gas sales revenues during 1998 were
attributable to the gas properties located in Monroe, Louisiana, which we sold
in December 1998.
Operating revenues increased from $26.5 million in 1994 to $68.8 million in
1998 primarily due to an increase in production volumes from successful
development and exploration activities in our existing Mississippi fields and
due to the following acquisitions:
- the December 1994 acquisition of the Monroe natural gas field,
- the August 1995 acquisition of the Brookhaven field, and
- the December 1997 acquisition of the Oklahoma properties.
Operating revenues were $57.3 million for 1999, representing a 17% decrease
from the same period in 1998. This decrease is attributable to:
- our sale of our natural gas assets in Monroe, Louisiana in December 1998,
which contributed approximately 2,452 BOE per day during 1998,
- overall production declines on our operated properties in Oklahoma and
Mississippi as a result of natural decline and the decrease and ultimate
cessation of well repair work and drilling activity during the last five
months of 1998 and the first four months of 1999, and
- our halting of production on wells that we considered uneconomical
because of depressed crude oil prices.
We also strive to maintain a low cost structure through asset
concentration, such as in the interior salt basin of Mississippi and the
Oklahoma properties. Asset concentration permits operating economies of scale
and leverages operational, technical and marketing capabilities.
The price we receive for crude oil and natural gas may vary significantly
during 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, we have
entered, and expect to continue to enter, into forward sale agreements or other
arrangements for a portion of our crude oil and natural gas production to hedge
our exposure to price fluctuations, though at December 31, 1999, we were not a
party to any forward sale agreements or other arrangements. It is unlikely that
we will be able to enter into any forward sales agreements or other similar
arrangements until we remedy our current liquidity problems because of the
associated credit risks of the counterparty to these agreements. See the
subsection of this prospectus called "Liquidity and Capital Resources" for more
information. While our hedging program is intended to stabilize cash flow and
thus allow us to plan our capital expenditure program with greater certainty,
any hedging transactions may limit our potential gains if crude oil and natural
gas prices rise substantially over the price established by the hedge. Because
all hedging transactions are tied directly to our crude oil and natural gas
production and natural gas marketing operations, we do not believe that these
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 our crude oil hedging
transactions is determined
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<PAGE> 40
as the difference between the contract price and the average closing price for
West Texas Intermediate crude oil on NYMEX for the contract period. Any gain or
loss on our 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 our
crude oil and natural gas.
We also control the magnitude and timing of our capital expenditures by
obtaining high working interests in and operating our properties. At December
31, 1999, we owned an average working interest of 77% in the fields we operate.
BANKRUPTCY PROCEEDINGS
On August 23, 1999, we and our wholly owned subsidiaries, Coho Resources,
Inc., Coho Oil & Gas, Inc., Coho Exploration, Inc., Coho Louisiana Production
Company and Interstate Natural Gas Company, filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Texas. We filed schedules with the
bankruptcy court on September 21, 1999, and amended these schedules on December
14, 1999. These schedules contain our unaudited, and in some cases estimated,
assets and liabilities as of August 23, 1999, as shown by our accounting
records.
The bankruptcy petitions were filed to facilitate the restructuring of our
long term debt and to protect us while we develop a solution to our capital
needs with the banks, bondholders and potential investors. The following list
contains some important dates in our bankruptcy process:
<TABLE>
<S> <C>
- - August 23, 1999 -- We filed a voluntary Chapter 11 bankruptcy petition.
- - November 30, 1999 -- We filed our initial plan of reorganization.
- - December 21, 1999 -- We filed our disclosure statement and amended plan of
reorganization.
- - February 4, 2000 -- At a hearing, the bankruptcy court approved our
disclosure statement with respect to our plan of
reorganization and scheduled a confirmation hearing for
March 15, 2000, to consider our plan of reorganization.
- - February 14, 2000 -- We and the Committee of Unsecured Creditors jointly filed
the Debtors' and Creditors Committee's First Amended and
Restated Chapter 11 Plan of Reorganization to reflect the
matters contained in the approved disclosure statement
and we began mailing our approved disclosure statement to
holders of claims and equity interests for voting on our
plan of reorganization.
- - February 15, 2000 -- We filed our approved disclosure statement with the
bankruptcy court.
- - March 10, 2000 -- Deadline for submitting votes on our plan of
reorganization.
- - March 15, 2000 -- The confirmation hearing to consider our plan of
reorganization commenced.
- - March 20, 2000 -- The bankruptcy court entered an order confirming our plan
of reorganization and approving our settlement with
Chevron.
- - March 31, 2000 -- The effective date of consummation of our plan of
reorganization.
</TABLE>
Our plan of reorganization described the means for satisfying claims,
including liabilities subject to compromise, and interests in Coho. Our plan of
reorganization included the cancellation of our old common stock and the
issuance of a new class of common stock in exchange for our old common stock and
our old bonds. The issuance of our new class of common stock materially diluted
the old equity interests.
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<PAGE> 41
Our ability to effect a successful reorganization through our bankruptcy
proceedings depended upon our ability to obtain approval for the plan of
reorganization. As of March 3, 2000, the date the financial statements were
finalized, it was not possible to predict the outcome of the bankruptcy
proceedings, in general, or their effect on our business or on the interests of
our creditors or shareholders. We believed, however, that it would not be
possible to satisfy in full all of the claims against us if the plan of
reorganization was not approved. As a result of the bankruptcy filing, all of
our liabilities incurred before August 23, 1999, including secured debt, are
subject to compromise. Under the Bankruptcy Code, payment of these liabilities
may not be made except under a plan of reorganization or bankruptcy court
approval.
The December 31, 1999 financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts,
including $311.8 million in net property, plant and equipment, or the amount and
classification of liabilities that might result should we be unable to continue
as a going concern. Our ability to continue as a going concern is dependent on
adequate sources of capital and the ability to sustain positive results of
operations and cash flows sufficient to continue to explore for and develop oil
and gas reserves.
As a result of the Chapter 11 filing, we have incurred and will continue to
incur significant costs for professional fees as the plan of reorganization is
developed. We have incurred approximately $3.1 million in reorganization costs
during 1999, relating to the professional fees for consultants and attorneys who
are assisting in the negotiations associated with the financing and
reorganization alternatives, partially offset by interest income earned since
August 23, 1999, on accumulated cash.
As of the effective date for consummation of our plan of reorganization we
anticipate significant adjustments will be made to our first quarter 2000
financial statements to effect the reorganization.
RESULTS OF OPERATIONS
Selected Operating Data
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
PRODUCTION:
Crude oil (Bbl/day)....................................... 7,726 13,889 9,159
Natural gas (Mcf/day)..................................... 21,003 22,260 7,146
BOE (Bbl/day).......................................... 11,227 17,599 10,350
AVERAGE SALES PRICES:
Crude oil (per Bbl)....................................... $ 16.31 $ 10.40 $ 15.40
Natural gas (per Mcf)(a).................................. 2.23 1.98 2.24
PER BOE DATA:
Production costs(b)....................................... $ 3.90 $ 4.18 $ 5.60
Depletion................................................. 4.69 4.38 3.63
PRODUCTION REVENUES (IN THOUSANDS):
Crude oil................................................. $45,991 $52,689 $51,469
Natural gas............................................... 17,139 16,070 5,854
------- ------- -------
Total production revenues......................... $63,130 $68,759 $57,323
======= ======= =======
</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.
1999 COMPARED WITH 1998
Operating Revenues. During 1999, production revenues decreased 17% to $57.3
million as compared to $68.8 million in 1998. This decrease was principally due
to a 34% decrease in crude oil production and
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<PAGE> 42
a 68% decrease in natural gas production, substantially offset by increases of
48% in the price received for crude oil and 13% in the price received for
natural gas, including hedging gains and losses discussed below.
The 68% decrease in daily natural gas production during 1999 is primarily
due to the December 1998 sale of the Monroe field gas properties which accounted
for 67% of our natural gas production during 1998. The 34% decrease in daily
crude oil production during 1999 is due to overall production declines in the
Mississippi and Oklahoma properties that we operate. Due to our capital
constraints caused by the decline in crude oil prices during 1998, we:
- significantly reduced both minor and major well repairs and drilling
activity on our operated properties during the last five months of 1998,
- ceased all well repairs and drilling activity in December 1998, and
- halted production on wells which were uneconomical due to depressed crude
oil prices.
All of these actions contributed to our overall production declines. Since May
1999, we have been using working capital provided by operations to perform well
repair work to return some of our shut-in wells to production in response to the
improved crude oil prices in the second quarter of 1999. We intend to continue
to use available working capital, if any, generated from improved prices and
improved production to fund further well repairs and some well recompletions to
stabilize production. Despite the recent increases in price and the recent
repair work, we do not anticipate a significant improvement in production over
the production in 1999 until substantial additional funds are available for well
repairs and additional development activity.
Average crude oil prices increased 48% during 1999 compared to the same
period in 1998. During 1998 and the first quarter of 1999, substantially all of
our crude oil was sold under contracts which were keyed off of posted crude oil
prices. Beginning in April 1999, we entered into a new crude oil contract for
substantially all of our Oklahoma crude oil, now keyed off of the NYMEX price,
which should result in a net increase in our realized price. Our overall average
crude oil price per Bbl was $15.40, which represented a discount of 20% to the
average NYMEX price in 1999.
Our realized price for our natural gas, including hedging gains and losses
discussed below, increased 13% from $1.98 per Mcf in 1998 to $2.24 per Mcf in
1999 due to an increase in demand for natural gas during 1999.
Production revenues for 1999 and 1998 did not include any crude oil hedging
gains or losses. Production revenues in 1999 did not include any natural gas
hedging gains or losses compared to natural gas hedging gains of $488,000 ($0.06
per Mcf) for 1998.
Expenses. Production expenses, including production taxes, were $21.2
million for 1999 compared to $26.9 million for 1998. The decrease in expenses
between years is primarily due to:
- decreased production,
- decreased production taxes, and
- the December 1998 sale of the Monroe properties.
On a BOE basis, production costs increased 34% to $5.60 per BOE in 1999 compared
to $4.18 per BOE in 1998. On a BOE basis, the increase in production costs is
primarily due to a decrease in production volumes, which resulted in a higher
fixed cost per BOE, and $3.3 million of well repair work performed during the
last half of 1999 to return shut-in wells to production. Additionally, severance
taxes increased $0.25 per BOE over the same period last year due to higher price
realization. The current well repair work represents an accumulation of projects
because we had reduced both minor and major well repairs during the last five
months of 1998 and ceased substantially all well repair work in December 1998
due to depressed oil prices.
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<PAGE> 43
General and administrative costs increased $2.2 million or 28% between the
comparable periods. This increase is primarily due to the expensing of all
salaries and other general and administrative costs associated with exploration
and development activities during 1999 as compared to the capitalization of $5.7
million of these costs in 1998. Total general and administrative costs,
excluding capitalization of administrative costs associated with exploration and
development activities, decreased $3.6 million or 27% between the comparable
periods. This decrease is primarily due to:
- cost reductions associated with the Monroe field sale,
- reductions in employee-related costs due to staff attrition,
- reductions in estimated franchise tax accruals as a result of our losses
in 1998, and
- reductions in professional fees and general corporate costs.
These decreases were partially offset by lower cost recoveries from working
interest owners due to a decrease in well activity.
State income tax penalties of $1.0 million for 1999 result from
approximately $4 million in Louisiana state income taxes which were due on April
15, 1999, resulting from the gain on the December 1998 sale of the Monroe gas
field. The past due taxes include the accrual of the maximum penalty of 25% of
the taxes due.
Interest expense increased 3% in 1999 compared to 1998 primarily as a
result of higher interest rates from payment defaults and debt acceleration, but
partially offset by the discontinuance of interest expense accruals on our
unsecured debt. On August 24, 1999, we discontinued the accrual of interest on
our unsecured debt as a result of our Chapter 11 filing. We would have
recognized approximately $5.7 million of additional interest expense in 1999,
including $2.2 million of interest on our old bonds that would have been due on
October 15, 1999, if not for the discontinuation of these interest expense
accruals. The average interest rate on outstanding indebtedness was 8.55% in
1999, compared to 8.07% in 1998.
Depletion and depreciation expense decreased 51% to $13.7 million in 1999
from $28.1 million in 1998. This decrease is primarily the result of decreased
production volumes and a decreased depletion and depreciation rate per BOE,
which was $3.63 in 1999, compared with $4.38 in 1998. The depletion and
depreciation rate per BOE decreased between 1998 and 1999 due to the writedowns
of oil and gas properties in 1998 as discussed in the next paragraph.
In accordance with generally accepted accounting principles, at a point in
time coinciding with the quarterly and annual reporting periods, we must test
the carrying value of our crude oil and natural gas properties, net of related
deferred taxes, against the "cost center ceiling." The "cost center ceiling" is
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. If
the carrying value exceeds the cost center ceiling, the excess must be expensed
in that period and the carrying value of the oil and gas reserves lowered
accordingly. Amounts required to be written off may not be reinstated for any
subsequent increase in the cost center ceiling. During 1998, the carrying values
related to our United States properties exceeded the cost center ceilings,
resulting in non-cash writedowns of our crude oil and natural gas properties of
$188 million. These writedowns resulted from the declines in crude oil prices in
1998. No writedowns of this kind were required on our United States properties
in 1999.
In June 1999, we commenced drilling an exploratory well on our Anaguid
permit in Tunisia, North Africa, due to our obligation under the permit. In
September 1999, we tested the well and determined that the well would not
produce sufficient quantities of crude oil to justify further completion work on
it. As a result, we took a writedown of our Tunisian properties of $5.4 million
during the third quarter of 1999. Anadarko Tunisia Anaguid Company, one of the
working interest owners in this permit, assumed responsibility as operator in
December 1999 and plans to continue exploration of this permit. Our
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<PAGE> 44
remaining carrying cost in this permit is $2.4 million associated with
geological and geophysical costs that will be used for this continued
exploration.
Reorganization costs of $3.1 million in 1999 relate to professional fees
for consultants and attorneys assisting us in the negotiations associated with
our financing and reorganization alternatives and are partially offset by
interest income earned since August 23, 1999, on accumulated cash.
Our net operating loss carryforwards for United States and Canadian federal
income tax purposes were approximately $124.0 million at December 31, 1999 and
expire between 2000 and 2019. Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," requires that the tax benefit of those net
operating loss carryforwards be recorded as an asset to the extent that
management assesses the utilization of those net operating loss carryforwards to
be more likely than not. A valuation allowance has been established for the
entire net deferred tax asset balance of these net operating loss carryforwards
as it is uncertain whether they will be used before they expire.
Due to the factors discussed above, our net loss for 1999 was $30.7
million, as compared to a net loss of $203.3 million for 1998. The 1999 loss
includes a writedown of our Tunisian oil and gas properties of $5.4 million and
the 1998 loss includes writedowns of our United States crude oil and natural gas
properties of $188.0 million.
1998 COMPARED WITH 1997
Operating Revenues. During 1998, production revenues increased 9% to $68.8
million as compared to $63.1 million in 1997. This increase was principally due
to an 80% increase in crude oil production and a 6% increase in natural gas
production, substantially offset by decreases of 36% in the prices received for
crude oil and decreases of 11% in the prices received for natural gas including
hedging gains and losses discussed below.
The 6% increase in daily natural gas production is primarily due to a 26%
increase in production as a result of the December 1997 acquisition of the
Oklahoma properties, substantially offset by production declines on our
Brookhaven, Martinville, North Padre and Monroe fields. Additionally, the Monroe
field was sold to an unaffiliated third party on December 2, 1998, resulting in
lower gas production for 1998 as compared to 1997. The Monroe field represented
85% of our gas production in 1997 and 67% of our gas production in 1998. The 80%
increase in daily crude oil production during 1998 is primarily due to a 76%
increase in production as a result of the acquisition of the Oklahoma
properties. Although we increased crude oil production during the first three
quarters of 1998 as compared to the same period in 1997 in the Martinville and
Brookhaven fields, these increases were substantially offset by fourth quarter
1998 crude oil production declines of 21% on our Mississippi fields as compared
to the fourth quarter of 1997 and overall crude oil production declines in the
Soso and Summerland fields throughout 1998 as compared to 1997.
Crude oil and natural gas production declined in the fourth quarter of 1998
from an average of 18,495 BOE per day during the first nine months of 1998 to
14,939 BOE per day during the fourth quarter of 1998 due to the December 1998
sale of the Monroe field natural gas properties and to overall production
declines in the operated Mississippi and Oklahoma properties. Due to our capital
restraints caused by the decline in crude oil prices, we significantly reduced
both minor and major well repairs on our operated properties during the last
five months of 1998 and ceased all well repairs in December 1998, resulting in
overall production declines.
Average crude oil prices realized in 1998, including hedging gains and
losses discussed below, decreased from 1997 due to declining oil prices which
can be attributed to several factors, including:
- a lack of cold weather in the 1998 winter months,
- increased storage inventories, and
- perceptions of the effects of increased quotas or lack of adherence to
quotas from the Organization of Petroleum Exporting Countries.
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<PAGE> 45
The posted price for our crude oil averaged $11.32 per Bbl in 1998, a 38%
decrease over the average posted price of $18.34 per Bbl experienced in 1997.
The price per Bbl we received is adjusted for the quality and gravity of the
crude oil and is generally lower than the posted price.
The realized price for our natural gas, including hedging gains and losses
discussed below, decreased 11% from $2.23 per Mcf in 1997 to $1.98 per Mcf in
1998 due to a lack of cold weather and market volatility.
Production revenues for 1998 did not include crude oil hedging gains or
losses compared to crude oil hedging losses of $0.3 million ($0.11 per Bbl) in
1997. Production revenues in 1998 included natural gas hedging gains of $0.5
million ($0.06 per Mcf) compared with natural gas hedging gains of $0.1 million
($0.01 per Mcf) for 1997.
Interest and other income decreased to $214,000 in 1998 from $646,000 in
1997 primarily due to a decline of interest received on cash investments in
1998. In 1997, we received $137,000 of interest in the first quarter on a
federal tax refund and earned $465,000 of interest in the fourth quarter on cash
investments.
Expenses. Production expenses, including production taxes, were $26.9
million for 1998 compared to $16 million for 1997. On a BOE basis, production
costs increased to $4.18 per BOE in 1998 compared to $3.90 per BOE in 1997. The
increase in expenses between years is primarily due to an increase of
approximately $11.8 million relating to the December 1997 acquisition of the
Oklahoma properties. This increase was partially offset by reduced operating
costs on our Mississippi properties due to the improved operating efficiencies
and due to our reduction of repairs during the last half of 1998 because of the
decline in crude oil prices.
General and administrative costs increased 8% from $7.2 million in 1997 to
$7.8 million in 1998. This increase resulted primarily from increased personnel
costs due to staff additions to handle the increased capital activities in
Mississippi during the first half of 1998 and the December 1997 acquisition of
the Oklahoma properties. In addition, this increase resulted from the accrual of
a $0.4 million fee related to the termination of a drilling contract which
extended through mid-year 1999, partially offset by an increase in
capitalization of salaries and other general and administrative costs directly
associated with our exploration and development activities.
Allowance for bad debt in 1998 represents an allowance for uncollectible
accounts receivable from working interest owners and an allowance for director
and employee receivables as discussed in Note 11 to the consolidated financial
statements contained elsewhere in this prospectus.
Unsuccessful transaction costs of $2.1 million incurred in 1998 relate to
the termination of an agreement in which we were to issue $250 million of
equity. These costs are comprised of $1.2 million for financial advisory
services in conjunction with this transaction, $0.5 million for an outside
financial advisor regarding the fairness of the agreement and $0.4 million for
legal, accounting and other services.
Interest expense increased 296% in 1998 compared to 1997, due to higher
borrowing levels during 1998 as compared to 1997 and to the sale of $150 million
of senior notes on October 3, 1997, which bear a higher interest rate than our
revolving credit facility. The average interest rate paid on outstanding
indebtedness was 8.07% in 1998, compared to 7.84% in 1997. Our borrowing levels
increased throughout 1997 and 1998 due to additional borrowings to fund our
capital expenditure program and the December 1997 acquisition of the Oklahoma
properties.
Depletion and depreciation expense increased 46% to $28.1 million in 1998
from $19.2 million in 1997. These increases are primarily the result of
increased production volumes partially offset by a decreased rate per BOE, which
decreased to $4.38 in 1998, compared with $4.69 in 1997. The depletion and
depreciation rate per BOE decreased between 1997 and 1998 because of the
writedowns of oil and gas properties in 1998 as discussed below.
During 1998, the carrying values of our crude oil and natural gas
properties exceeded the cost center ceilings, resulting in non-cash writedowns
of the crude oil and natural gas properties, aggregating
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<PAGE> 46
$188 million, including $32 million recognized in the first quarter of 1998, $41
million recognized in the second quarter of 1998 and $115 million recognized in
the fourth quarter of 1998.
Current tax expense of $4.1 million in 1998 primarily relates to state
income taxes due on the December 1998 sale of the Monroe field natural gas
properties and related gas gathering systems.
Our net loss for 1998 was $203.3 million, as compared to net earnings of
$6.3 million for 1997, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Capital Sources. During 1999, cash flow provided by operating activities
was $14.9 million compared with $1.0 million during 1998. Operating revenues,
net of lease operating expenses, production taxes and general and administrative
expenses, decreased $7.9 million during 1999 as compared to 1998. This decrease
resulted primarily from a 42% decline in production on a BOE basis between
comparable periods, partially offset by price increases between comparable
periods of 48% for crude oil and 13% for natural gas. In addition, due to the
cessation of exploration and development of crude oil and natural gas reserves,
no overhead expenditures were capitalized during 1999 as compared to $5.7
million of capitalized overhead during 1998. We also incurred costs totaling
$4.2 million in 1999 related to state income tax penalties and reorganization
costs and additional interest expense of $1.0 million in 1999 over 1998. Changes
in operating assets and liabilities provided $25.8 million of cash for operating
activities for 1999, compared to $4.6 million provided for 1998, primarily due
to an increase in accrued interest payable. See the subsection called "Results
of Operations" for a discussion of operating results.
As discussed more fully under "Results of Operations," operating revenues
declined during 1998 and the first half of 1999 due to crude oil and natural gas
price declines. Additionally, our crude oil and natural gas production declined
from an average of 17,599 BOE per day during 1998 to 10,350 BOE per day during
1999. We do not anticipate a significant improvement in production over the
production in 1999 until substantial additional funds are available for well
repairs and additional development activity. See "Results of Operations -- 1999
Compared to 1998" for a discussion of production declines.
Based on the December 1999 production level of approximately 10,320 BOE per
day and the average price received in December 1999 of approximately $21.78 per
barrel of crude oil and $2.25 per Mcf of natural gas, our operating revenues are
adequate to cover lease operating expenses, production taxes, general and
administrative expenses and current interest accruing on the borrowings under
the old bank group loan but are not sufficient to cover past due interest on our
old bonds or on the borrowings under the old bank group loan.
Our working capital deficit, including $423.7 million of liabilities
subject to compromise, was $407.5 million at December 31, 1999 compared to a
working capital deficit of $388.3 million at December 31, 1998. The increase in
the working capital deficit relates to several factors. Accrued interest
increased by $24.2 million primarily because we were unable to make interest
payments when due prior to filing bankruptcy on August 23, 1999 and because
interest had been accruing on the old bank group loan at the default rate of
prime plus 4% since August 23, 1999. We also borrowed an additional $4.6 million
under the old bank group loan in January 1999 that is reflected in the current
portion of long term debt. Cash balances on hand increased from $6.9 million at
December 31, 1998 to $18.8 million at December 31, 1999, partially offsetting
the increase in current liabilities. The increase in cash occurred as a result
of our Chapter 11 filing and reductions in spending under limitations imposed by
the bankruptcy court.
Subsequent to August 23, 1999 we filed three motions with the bankruptcy
court to seek the use of the bank group's cash collateral in on-going
operations. From August 26, 1999 to March 31, 2000, we operated under three
interim orders authorizing the use of cash collateral as approved by the
bankruptcy court. Under these orders, we could pay for ordinary course of
business goods and services incurred after August 23, 1999 that were within the
court approved budgets attached to each order. We had
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<PAGE> 47
accumulated, as of December 31, 1999, $18.8 million in cash, an increase of
$12.8 million since August 23, 1999, that could be used for operations under the
terms of the cash collateral orders.
We and the bank group agreed to an extension of the cash collateral order
through March 31, 2000. We paid additional interest payments of $1.8 million on
February 1, 2000 and March 1, 2000.
On February 22, 1999, we were informed by the bank group that our borrowing
base was reduced from $242 to $150 million effective January 31, 1999 creating
an over advance of $89.6 million under the new borrowing base. Under the terms
of the old bank group loan, we were required to cure the over advance amount by
March 2, 1999 by either:
- providing collateral with value and quantity in amounts equal to the
excess,
- prepaying, without premium or penalty, the excess plus accrued interest,
or
- paying the first of five equal monthly installments to repay the over
advance.
We were unable to cure the over advance as required by the old bank group loan
and received written notice from the bank group on March 8, 1999, that we were
in default under the terms of the old bank group loan and the bank group
reserved all rights, remedies and privileges as a result of the payment default.
Additionally, we were unable to pay the second installment due at the beginning
of April, the third installment due at the beginning of May, the fourth
installment due at the beginning of June and the fifth installment due at the
beginning of July, 1999. We have made aggregate interest payments of
approximately $3.4 million during the period between March and July 1999. As a
result of the payment defaults, advances under the old bank group loan bore
interest at the prime rate, and the loan agreement provided that past due
installments to repay the over advance and past due interest would bear interest
at the default interest rate of prime plus 4%. On August 19, 1999, the bank
group accelerated the full amount outstanding under the old bank group loan. The
bank group contended that the default rate of interest was owed on all amounts,
not only the over advance, since the date of acceleration. Under a cash
collateral order approved by the bankruptcy court in November 1999, we made an
interest payment of $878,000 to the bank group in December 1999 and were
required to make monthly interest payments of approximately $1.8 million. Due to
the default, the outstanding advances of $239.6 million have been included in
liabilities subject to compromise as of December 31, 1999. The total amounts
related to the installment payments due on the over advance and past due
interest were approximately $108.8 million as of December 31, 1999, including
approximately $19.2 million of past due interest, $10.2 million included in
liabilities not subject to compromise, and $89.6 million related to installments
due on the over advance.
The old bank group loan contained financial and other covenants including:
- the maintenance of minimum amounts of shareholders' equity -- $108
million plus 50% of accumulated consolidated net income beginning in 1998
for the cumulative period excluding adjustments for any writedown of
property, plant and equipment, plus 75% of the cash proceeds of any sales
of our capital stock,
- maintenance of minimum ratios of cash flow to interest expense of 1.5 to
1.0 as well as current assets including unused borrowing base to current
liabilities of 1.0 to 1.0,
- limitations on our ability to incur additional debt, and
- restrictions on the payment of dividends.
At December 31, 1999, we were not in compliance with the minimum shareholders'
equity, cash flow to interest expense and current asset to current liability
covenants.
We did not pay the April 15, 1999 interest payment of approximately $6.7
million due on our old bonds and were in default under the terms of the old bond
indenture. Under the old bond indenture, the trustee under the old bond
indenture by written notice to us, or the holders of at least 25% in principal
amount of the outstanding old bonds by written notice to the trustee and us,
could declare the principal
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<PAGE> 48
and accrued interest on all the old bonds due and payable immediately. However,
we could not pay the principal of, any premium or interest on the old bonds so
long as any required payments due on the old bank group loan remained
outstanding and had not been cured or waived. On May 19, 1999, we received a
written notice of acceleration from two holders of the old bonds, which owned in
excess of 25% in principal amount of the outstanding old bonds. Both the
accelerated principal and the past due interest payment bore interest at the
default rate of 9.875%, which is 1% in excess of the stated rate for the old
bonds, from the date of acceleration to August 23, 1999. As a result of our
bankruptcy filing we ceased accruing interest on unsecured debt, including the
old bonds. Approximately $5.7 million of additional old bond interest expense,
including $2.2 million of old bond interest expense that would have been due on
October 15, 1999, would have been recognized by us in 1999 if not for the
discontinuance of the interest expense accruals. All amounts outstanding under
the old bonds as of December 31, 1999 have been included in liabilities subject
to compromise.
We did not pay approximately $4 million in Louisiana state income taxes
which were due on April 15, 1999, related to the gain on the December 1998 sale
of the Monroe gas field. The past due taxes accrue a monthly penalty of 10% not
to exceed 25% of the taxes due. The maximum penalty of $1.0 million was expensed
during the second and third quarters of 1999. We anticipate that these taxes and
penalties will be paid under the plan of reorganization with a five year
promissory note bearing interest at 6% per annum, unless the bankruptcy court
chooses another rate, or paid on other agreed terms.
On December 2, 1998, we sold our natural gas assets, including our natural
gas properties and the related gas gathering systems, located in Monroe,
Louisiana for approximately $61.5 million. Proceeds from the sale were used to
reduce borrowings under the old bank group loan.
Plan of Reorganization. We filed our plan of reorganization with the
bankruptcy court on November 30, 1999, subsequently amended and modified, and a
confirmation hearing was held beginning on March 15, 2000 for final approval of
the plan of reorganization. On March 20, 2000, the bankruptcy court entered a
confirmation order confirming our plan of reorganization and on March 31, 2000,
the effective date of our plan, our plan of reorganization was consummated. For
more information about our plan or reorganization, see the section of this
prospectus called "The Plan of Reorganization."
Under the plan of reorganization, we established a new senior revolving
credit facility from a syndicate of new lenders led by The Chase Manhattan Bank,
as agent for the new lenders, for a principal amount of up to $250 million.
Additionally, we are attempting to raise up to $90 million of new investment by
the rights offering. We also borrowed $72 million under the standby loan. For
more information, see the section of this prospectus called "The Plan of
Reorganization -- The New Debt and Equity."
Cash on hand as of the effective date, together with borrowings under the
new credit facility and borrowings under the standby loan will be used to:
- repay amounts due under the old bank group loan, including accrued
interest and reasonable fees and expenses,
- pay administrative expenses associated with the bankruptcy proceeding,
and
- provide working capital for future operations.
Proceeds from the rights offering will be used to pay down indebtedness under
either the standby loan or the new credit facility, and to provide working
capital and for general corporate purposes. See the section of this prospectus
called "Use of Proceeds" for more information. General unsecured creditors will
be paid in full in four equal quarterly installments from working capital during
the year following the effective date and tax claims will receive five-year
promissory notes bearing interest at a rate of 6% per annum, unless a different
rate is chosen by the bankruptcy court, or paid on other agreed terms. For more
information, see the section of this prospectus called "The Plan of
Reorganization -- Classification and Treatment Summary."
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The holders of our old bonds received shares representing 96% of our new
common stock as of the effective date without giving effect to dilution from
shares issued under this rights offering or the standby loan. For more
information, see the section of this prospectus called "The Plan of
Reorganization -- 2. Old Bondholders."
Old shareholders received shares representing 4% of our new common stock on
a basis of one share of new common stock for 40 shares of old common stock as of
the effective date without giving effect to dilution from shares issued under
this rights offering or the standby loan and rights to purchase additional
shares of our new common stock at $10.40 per share. Additionally, old
shareholders are eligible to receive 20% of any proceeds from the Hicks Muse
lawsuit after fees and expenses, and 40% of any proceeds from the disposition of
our interest in, or the assets of, Coho Anaguid, Inc. For more information, see
the section of this prospectus called "The Plan of Reorganization -- 3. Old
Shareholders."
Dividends. It is unlikely that we will pay dividends in the foreseeable
future. The terms of the new credit facility and the standby loan restrict our
paying dividends.
Capital Expenditures. During 1999, we incurred capital expenditures of $6.3
million, which includes $2.1 million spent on the Tunisian well drilled in
mid-1999, compared with $70.1 million for 1998. We ceased substantially all of
our capital projects in 1999 due to our liquidity problems and our bankruptcy
filing. No general and administrative costs associated with our exploration and
development activities were capitalized for 1999, compared with $5.7 million of
capitalized costs for 1998.
During 1998, we incurred capital expenditures of $70.1 million compared
with $72.7 million in 1997. The capital expenditures incurred during 1998 were
largely in connection with the continuing development efforts, including
recompletions, workovers and waterfloods, on existing wells in the following
fields:
<TABLE>
<S> <C>
- - Brookhaven - Tatums
- - Laurel - East Fitts
- - Martinville - North Alma Deese
- - Summerland - Sholem Alechem
- - Bumpass
</TABLE>
In addition, during 1998, we drilled 42 wells which include the following:
<TABLE>
<S> <C> <C>
- - Mississippi fields - Oklahoma fields - Louisiana fields
-- 16 producing oil wells -- 11 producing oil wells -- 2 producing gas wells
-- 1 producing gas well -- 5 producing gas wells -- 3 dry holes
-- 3 dry holes -- 1 dry hole
</TABLE>
General and administrative costs directly associated with our exploration
and development activities were $4.1 million and $5.7 million for the years
ended December 31, 1997 and 1998, respectively, and were included in total
capital expenditures.
Hedging Activities. Crude oil and natural gas prices are subject to
significant seasonal, political and other variables which are beyond our
control. In an effort to reduce the effect of the volatility of the prices
received for crude oil and natural gas, we have entered, and expect to continue
to enter, into crude oil and natural gas hedging transactions. It is unlikely
that we will be able to enter into any forward sales agreements or other similar
arrangements until we remedy our current liquidity problems because of the
associated credit risks of the counterparty to these agreements. Our hedging
program is intended to stabilize cash flow and thus allow us to minimize our
exposure to price fluctuations. Because all hedging transactions are tied
directly to our crude oil and natural gas production, we do not believe that
these 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. We had no natural gas or crude oil
production hedges during 1999.
We will be required to adopt Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities" for the
fiscal year ended 2001. If we had adopted this
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<PAGE> 50
standard during 1999, there would be no effect as we had no hedges outstanding
at December 31, 1999. Although the future impact of adopting this standard has
not yet been determined, we believe that the impact will not be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We use financial instruments which inherently have some degree of market
risk. The primary sources of market risk include fluctuations in commodity
prices and interest rate fluctuations.
Price Fluctuations. Our results of operations are highly dependent upon the
prices received for crude oil and natural gas production. We have entered, and
expect to continue to enter, into forward sale agreements or other arrangements
for a portion of our crude oil and natural gas production to hedge our exposure
to price fluctuations. At December 31, 1999, we were not a party to any forward
sale agreements or other arrangements. It is unlikely that we will be able to
enter into any forward sales agreements or other similar arrangements until we
remedy our current liquidity problems because of the associated credit risks of
the counterparty to these agreements. For more information see the section of
this prospectus called "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Interest Rate Risk. Total debt as of December 31, 1999, included $239.6
million of floating-rate debt attributed to the old bank group loan. As a
result, our annual interest cost in 2000 will fluctuate based on short-term
interest rates. Additionally, due to the current payment defaults under the old
bank group loan discussed under the section of this prospectus called
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the old bank group loan borrowings and the past due interest will
bear interest at the default interest rate of prime plus 4%. The impact on
annual cash flow of a ten percent change in the floating interest rate
(approximately 125 basis points) would be approximately $3.0 million assuming
outstanding debt of $239.6 million throughout the year.
Total debt as of December 31, 1999, also included $149 million, net of
$900,000 of unamortized original issue discount, of fixed rate old bonds with an
estimated fair market value of $83 million based on quoted prices from market
sources.
On the effective date of the plan of reorganization, the old bank group
loan was paid in full in cash and the old bonds were converted to our new common
stock. A new line of credit has been established with the new lenders and Chase,
as agent for the new lenders. We have also obtained additional funds under the
standby loan in the amount of $72 million. The establishment of the new debt
instruments, as discussed above, is expected to change our interest rate risk.
47
<PAGE> 51
BUSINESS
GENERAL
Coho Energy, Inc. 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. Our crude oil activities are concentrated
principally in Mississippi and Oklahoma. At December 31, 1999, our total proved
reserves were 113.9 MMBOE with a present value of proved reserves of $790.2
million, approximately 69% of which were proved developed reserves. At December
31, 1999, approximately 94% of our total proved reserves were comprised of crude
oil. At December 31, 1999, our operations were conducted in 21 major producing
fields, 17 of which we operated. Our average working interest in the fields we
operate was approximately 77%.
We were incorporated in June 1993 under the laws of the State of Texas and
conduct a majority of our operations through our subsidiary Coho Resources, Inc.
References in this Prospectus to "Coho," "we," "our," or "us," except as
otherwise indicated, refer to Coho Energy, Inc. and our subsidiaries. Our
principal executive office is located at 14785 Preston Road, Suite 860, Dallas,
Texas 75240, and our telephone number is (972) 774-8300.
BANKRUPTCY PROCEEDINGS
Our ability to effect a successful reorganization through our bankruptcy
proceedings depended on our ability to consummate our plan of reorganization. At
this time, it is not possible to predict the effect of our bankruptcy
proceedings on our business or on the interests of our creditors or
shareholders. For more information regarding the bankruptcy proceedings, see the
sections of this prospectus called "Oil and Gas Operations -- Legal Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
OUR HISTORY
We commenced operations in Mississippi in the early 1980s and have focused
most of our development efforts in that area. We believe that the salt basin in
central Mississippi offers significant long-term potential due to the basin's
large number of mature fields with multiple oil and gas producing sands. 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 our experience in exploiting fields in
the area, we have accumulated a large inventory of potential development
drilling, secondary recovery and exploration projects in this basin.
Our focus in the onshore Gulf Coast and Mid-Continent regions has resulted
in significant growth in production and reserves. Our average net daily
production has increased over the last six years from 5,203 BOE in 1993 to
10,350 BOE in 1999, representing a compound annual growth rate of 12.1%;
however, our crude oil and natural gas production has declined from the average
of 17,599 BOE per day produced during 1998. This decline was due in part to the
sale of the Monroe field gas properties in December 1998, which contributed
approximately 2,452 BOE per day during 1998. Further, we experienced overall
production declines on our operated properties in Oklahoma and Mississippi as a
result of:
- the natural production decline,
- the decrease and ultimate cessation of well repair work and drilling
activity during the last five months of 1998 and the first four months of
1999, and
- the halting of production on wells which were uneconomical due to
depressed crude oil prices.
Over the five-year period ended December 31, 1999, we discovered or
acquired approximately 90.9 MMBOE of proved reserves at an average finding cost
of $4.83 per BOE. Over the same period, we
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have replaced over 428% of our production. This increase in reserves from 44.2
MMBOE at year-end 1994 to 113.9 MMBOE at year-end 1999 represents a five-year
compound annual growth rate of 21.0%.
Effective December 31, 1997, we acquired from Amoco Production Company:
- approximately 50 MMBbls of crude oil and natural gas liquid reserves,
- approximately 33 Bcf of natural gas reserves, and
- interests in more than 40,000 gross acres, concentrated primarily in
southern Oklahoma, including 14 principal producing fields.
Daily net production from these properties during December 1997 was
approximately 7,300 BOE. To acquire these properties, we paid $257.5 million in
cash and issued warrants to purchase one million of our common shares at $10.425
per share for a period of five years.
In August 1998, we announced an agreement to issue $250 million of our
common stock at $6.00 per share, approximately 41.7 million shares, to HM4 Coho
L.P., a limited partnership managed by Hicks, Muse, Tate & Furst Incorporated,
giving HM4 an ownership interest in Coho of approximately 62%. On December 15,
1998, we announced that HM4 was terminating the agreement reached in August
1998, which had received shareholder approval, and that we were working on
revising the HM4 agreement to lower the $6.00 price per share to $4.00 on the
$250 million purchase price. After working through all of the issues and
reaching a verbal agreement with all of the interested parties regarding the
proposed restructuring, HM4 informed us on February 12, 1999 that they were no
longer interested in the investment.
On May 27, 1999, we filed a lawsuit against HM4 in the District Court of
Dallas County, Texas. The lawsuit alleges:
- breach of the written contract terminated by HM4 in December 1998,
- breach of the oral agreements reached with HM4 on the restructured
transaction in February 1999, and
- promissory estoppel.
In the lawsuit, we seek monetary damages of approximately $500 million. The
lawsuit is currently in the discovery phase. We filed a motion for summary
judgment on December 22, 1999. While we believe that the lawsuit has merit and
that the actions of HM4 in December 1998 and February 1999 were the primary
cause of our current liquidity crisis, there can be no assurances as to the
outcome of this litigation.
On February 22, 1999, the bank group under our old bank credit facility
notified us that they had decided to reduce our borrowing capacity at January
31, 1999, from $242 million to $150 million, creating an $89.6 million over
advance. The bank group's decision to change our borrowing capacity was based on
the then-current decline in crude oil prices. We were unable to cure the over
advance, and on March 8, 1999, we received written notice from the bank group
that we were in default under the old credit facility, and the bank group
reserved all rights, remedies and privileges as a result of the payment default.
On August 19, 1999, the bank group accelerated the full amount outstanding under
the old bank group loan. For more information about the default under the old
credit facility, see the section of this prospectus called "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Additionally, our $150 million 8 7/8% bond indenture includes cross-default
provisions, which would effect a default under the terms of our $150 million
8 7/8% bonds if indebtedness under the old bank group loan was not repaid within
the applicable grace period after final maturity. We were unable to make the
$6.7 million interest payment to the holders of our old bonds which was due on
April 15, 1999. On May 19, 1999, we received a written notice of acceleration
from two holders of old bonds, which own in excess of 25% in principal amount of
the outstanding old bonds. As a result, on May 19, 1999, one of the holders of
old bonds filed a lawsuit against us and each of our subsidiaries who is a
guarantor of old bonds
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in the Supreme Court of the State of New York. On January 5, 2000, this lawsuit
was dismissed without prejudice to the plaintiff's ability to refile the lawsuit
in the future, if appropriate. For more information about the default under the
old bonds, see the section of this prospectus called "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We explored our alternatives to resolve the problems created by the bank
group's actions, including:
- the conversion of a portion or all of our old bonds to equity,
- raising additional equity,
- cost reduction programs to enhance cash flow from operations, and
- refinancing our old bank credit facility to:
- make overdue principal and interest payments on our indebtedness,
- provide additional capital to fund well repairs, and
- provide additional capital to fund the continued development of our
properties.
However, on August 23, 1999, we made the Chapter 11 filing since we believed
that the resolution of our restructuring could not be completed without the
protection and assistance of the bankruptcy court.
BUSINESS STRATEGY
While we remain committed in the long term to our multifaceted growth
strategy, as discussed below, oil prices and cash flow estimates dictate our
near-term business strategy. Most of our near-term capital expenditures are
expected to be made in Oklahoma and Mississippi. Our Oklahoma properties offer
numerous shallow oil and gas recompletion and drilling opportunities with
favorable economics.
In the past we have pursued a multifaceted growth strategy, as follows:
Relatively Low-Risk Field Development. We maximize production and increase
reserves through relatively low-risk activities such as:
- recompletions,
- enhancement of production facilities,
- multi-zone completions,
- development/delineation drilling, including high-angle and horizontal
drilling, and
- secondary recovery projects.
Since 1994, we have drilled 94 development wells, of which 87% were completed
successfully.
Use of Technology. We identify exploration prospects and develop reserves
in the vicinity of our existing fields using technologies that include 3-D
seismic technology. 3-D seismic technology is a tool that allows us to look at
vertical cross-sections as well as horizontal cross-sections beneath the
prospective area of our properties on a very small grid pattern. We first began
using 3-D seismic technology in the Laurel field in Mississippi in 1983, and
have shot two large 3-D seismic programs in and around our existing properties
in Mississippi within the last four years. At the time of purchase, we acquired
four 3-D seismic programs in and around our Oklahoma properties. These programs
have produced an attractive inventory of exploration projects that can be
pursued in the future.
Acquire Properties with Underdeveloped Reserves. We acquire underdeveloped
crude oil and natural gas properties which have geological complexity and
multiple producing horizons. We believe that our extensive experience in
Mississippi developed over the past 15 years should enable us to efficiently
increase reserves and improve production rates in similar geologically complex
environments. Additionally, we believe that this experience gives us a
competitive advantage in evaluating similarly situated acquisition
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prospects. For more information about our experience in Mississippi, see "Oil
and Gas Operations -- Principal Areas of Activity -- Gulf Coast Area."
Significant Control of Operations. Our long-term strategy of increasing
production and reserves through acquiring and developing multiple-zone fields
requires us to develop a thorough understanding of the complex geological
structures and to maintain operational control of field development. Therefore,
we strive to operate and obtain high working interests in all of our properties.
As of December 31, 1999, we operated 17 of the 21 major fields in which we have
production. Of the operated properties, our average working interest is
approximately 77%. Operating control, combined with our significant technical
and geological expertise, enables us to control the magnitude and timing of our
capital expenditures and field development.
Geographic Focus. We have been able to maintain a low cost structure
through asset concentration. At December 31, 1999, approximately 89% of our Gulf
Coast reserves were concentrated in five fields, and 80% of our Mid-Continent
reserves were concentrated in six fields. Asset concentration permits operating
economies of scale and leverages operational, technical and marketing
capabilities.
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OIL AND GAS OPERATIONS
General. We have focused our operations on three main activities:
conventional exploitation, secondary recovery and exploration. Each of these
interrelated activities plays an important role in our continuing production and
reserve growth. Our 1998 and 1999 operations have been conducted primarily in
the following fields:
- Mississippi -- Brookhaven, Laurel, Martinville, Soso, and Summerland
fields.
- Oklahoma -- Bumpass, Sholem Alechem, and East Fitts fields.
Our capital expenditures totaled $70.1 million in 1998 and $6.3 million in 1999.
The substantial reduction in 1999 capital expenditures was due to budget
constraints resulting from the substantial decline in crude oil prices in 1998
and early 1999, as well as expenditure constraints imposed by the bankruptcy
court subsequent to August 23, 1999.
Conventional Exploitation. Our properties are 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.
Acquisition of mature underdeveloped and underexplored fields has been one
of the key elements of our strategy of building reserves and creating
shareholder value. By capitalizing on our operating knowledge and technical
expertise, we have been able to acquire properties and develop substantial
additional low-cost reserves through conventional development drilling and
exploration opportunities. This strategy is illustrated by our 1995 acquisition
of the Brookhaven field in Mississippi. Since acquiring this property in 1995,
we increased total daily field production, by successful exploitation and
exploration, to approximately 1,123 net BOE by year end 1998 from approximately
230 net BOE at the time of acquisition. However, due to natural reservoir
decline and limited well activity, production in the Brookhaven field declined
to 560 BOE per day in 1999. In addition, we increased the proved reserves
associated with our Mid Continent properties to 74.6 MMBOE at December 31, 1999
from 55.5 MMBOE at the time of their acquisition in December 1997, due to our
acquisition of additional working interest in the Mid Continent properties and
the successful exploitation of the Springer, Deese, Viola, Hunton and Bromide
reservoirs in 1998 and 1999.
Secondary Recovery. Over the last five years, we have 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. Since the acquisition of our Oklahoma properties, we have
identified 11 new secondary recovery projects to be developed. These projects
are currently in the study or planning phases. Facilities and wellbores are
being evaluated to begin pilot waterfloods in three of these projects. The
current waterflood operations have been part of our efforts to lower operating
expenses and improve production enhancement opportunities through low cost
waterflood conformance work. 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. We believe opportunities exist
for adding secondary recovery projects throughout our current field inventory.
Exploration. The many productive formations located within our producing
properties substantially reduce dry hole risks, which improves exploration
economics. We have drilled several successful exploration wells in the
Brookhaven, Laurel, Martinville and Eola fields. In 1995, we 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. We
have identified additional opportunities in the Martinville field; however,
lower oil prices and budget constraints did not allow us to pursue these
opportunities in 1998 and 1999. We may pursue these drilling opportunities as
oil prices and cash flow allow. In 1996, we completed a 37 square mile 3-D
seismic survey encompassing the Laurel field, our largest crude oil producing
field, which currently has producing properties covering less than one square
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mile within the survey area. Based on initial interpretations, several
exploration wells are planned in the future, and a prospect which has similar
geological properties west of the Laurel field has been identified. We believe
each of these fields has significant exploration reserve potential relative to
our reserve base.
Along with the producing properties acquired in Oklahoma in 1997, we
acquired approximately 95 square miles of 3-D seismic data and 2,750 miles of
2-D seismic data. 2-D seismic data is a tool that allows us to look at vertical
cross-sections beneath the prospective area of our properties typically on a
much wider grid pattern. A large portion of the 3-D seismic data is over areas
of future reserve potential. The 3-D data will be useful in enhancing waterflood
development and exploration of the deeper objectives.
PRINCIPAL AREAS OF ACTIVITY
The following table sets forth, for our major producing areas, 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, 1999, and the number of
productive wells producing at December 31, 1999. The Oklahoma properties were
acquired effective December 31, 1997, with no production being recorded in 1997.
The Louisiana properties were sold December 2, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AT DECEMBER 31, 1999
------------------------ -----------------------------------
1997 1998 1999 NET
------ ------ ------ PRODUCTIVE
WELLS AVERAGE
BOE/ BOE/ BOE/ ----------- PERCENTAGE WORKING
STATE DAY DAY DAY(A) OIL GAS OPERATED INTEREST
- ----- ------ ------ ------ ---- ---- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Mississippi......................... 8,178 8,202 4,621 116 1 95% 91%
Oklahoma............................ -- 6,345 5,414 572 51 50% 41%
Louisiana........................... 2,848 2,452 -- -- -- -- --
Other............................... 201 600 315 1 3 8% 14%
------ ------ ------ --- --
Total.......................... 11,227 17,599 10,350 689 55
====== ====== ====== === ==
</TABLE>
- ---------------
(a) In response to depressed crude oil prices during 1998 and early 1999, we
significantly reduced minor and major repairs and drilling activity on our
operated properties beginning in August 1998, ceased all repair work and
drilling activity in December 1998 and halted production on wells which
were uneconomical. We restarted repairs and maintenance on the properties
we operate and began doing limited recompletion and workover activity in
the second half of 1999.
Gulf Coast Area
Brookhaven Field, Mississippi. In 1995, we purchased a 93% working interest
in the unitized Brookhaven field covering more than 13,000 acres. Unitized means
that the royalty and working interests are pooled within a given geological
and/or geographical area. 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.
As with other fields, we acquired the Brookhaven field in anticipation of
additional field-wide recoveries through development drilling, recompletions,
secondary recovery and exploration. During our first year of ownership, we
focused our efforts on expanding our understanding of the Tuscaloosa reservoir.
Our mapping suggested less than 25% of the oil in place from the Tuscaloosa
reservoir had been recovered. As a result of our study, we identified and have
drilled six new Tuscaloosa well bores in the field to date. The six penetrations
found remaining crude oil reserves due to structural and stratigraphic
complexity. Four of these penetrations have been completed as commercial
producers and two wells will be used as injectors to aid our secondary recovery
operations. In 1998 and 1999, we continued our detailed study and mapping of the
stratigraphically complex Tuscaloosa reservoirs and initiated several waterflood
pilot areas.
In addition to our exploitation success, we have had significant
exploration success. In 1997 and early 1998, we had successful deep exploratory
results in the Washita Fredricksburg, Paluxy and Rodessa formations, with
initial production from these horizons in excess of 1,600 gross BOE per day. Due
to deep
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structural complexity realized with the 1997 and early 1998 drilling, additional
drilling was halted until new seismic data was acquired. In 1998, 35 miles of
2-D seismic data was acquired and interpreted. This 2-D seismic data has
improved the structural definition of the deep drilling potential in these
formations which assists us in selecting drilling locations.
Production in Brookhaven in 1999 averaged 560 BOE per day and proved
reserves at December 31, 1999 were 6.4 MMBOE. Daily production was 50% below
1998 levels and reserves were 10% below 1998 levels as a result of the reduced
capital activity and natural reservoir decline.
Cranfield Field, Mississippi. As a result of the exploration success at
Brookhaven, we leased approximately 7,900 net acres on a similar geologic
structure near the Brookhaven field in the Cranfield field. In 1998, detailed
mapping using subsurface data from existing well bores and existing 2-D seismic
data was performed. Drilling prospects were generated at depths from 6,000 feet
to 11,000 feet in four different horizons:
- the Wilcox formations,
- the Eutaw formations,
- the Tuscaloosa formations, and
- the Washita Fredricksburg formations.
Two existing wellbores were reentered during the second half of 1998. The
Hosston and Mooringsport formations were tested unsuccessfully in one deep
existing wellbore; however, excellent reservoir quality rock was found in the
Mooringsport formation, which we believe remains a future exploitation
opportunity. A re-entry of an existing shallow wellbore proved successful in
both the Washita Fredricksburg and Wilcox formations. The Washita Fredricksburg
formation tested at a rate of 700 Mcf per day and turned to sales in early 1999.
Production in Cranfield in 1999 averaged 378 Mcf per day and proved reserves at
December 31, 1999 were 0.6 MMBOE.
Laurel Field, Mississippi. The Laurel field is a multi-pay geological
setting with producing horizons from the Eutaw formation at approximately 7,500
feet, to the Hosston formation at approximately 13,500 feet. It is our largest
oil producing property and represented approximately 50% of our total
Mississippi production on a BOE basis in 1999. At December 31, 1999, the field
contained 47 wells producing from the Stanley, Christmas, Tuscaloosa, Washita
Fredricksburg, Paluxy, Mooringsport, Rodessa, Sligo and Hosston reservoirs.
We consider 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 producing
only 47 BOPD. We employed 3-D seismic technology to assist in defining the
multi-pay zones in the field and began an extensive drilling program to increase
primary production, using a combination of vertical, high-angle and horizontal
drilling techniques.
We have also implemented successful secondary recovery programs 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 production response from the secondary recovery projects has
been strong.
In addition to the continued exploitation program, we have continued an
active exploration program at Laurel. In 1996 and 1997, much of our focus at
Laurel was directed toward a mineral leasing program and the permitting and
surveying associated with shooting a 37 square mile 3-D seismic program. In 1998
and 1999, we evaluated the 3-D seismic data to better understand 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 average net daily production in 1999 from Laurel was 2,300 BOE, down
35% from 1998 levels due to our scaled back operating and capital program. These
programs were scaled back because of the
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substantial decline in commodity prices in 1998 and early 1999 and the resulting
budget constraints. At December 31, 1999, proved reserves were 12.5 MMBOE, up
approximately 33% over year end 1998. The reserve increase is attributable
primarily to improved crude oil prices experienced at year end 1999 relative to
year end 1998.
Martinville Field, Mississippi. We acquired the Martinville field in April
1989; it was originally discovered in 1957. At the time of acquisition,
Martinville was producing only 80 net BOE per day; the average production for
1999 was 776 net BOE per day. The field covers more than 7,400 acres and
currently has 17 producing wells. Like Laurel, the field is characterized by
highly complex faulting and produces from multiple horizons. We currently have
an average working interest of 98% in the field.
In late 1995, we conducted a 3-D seismic shoot over a 24 square mile area
to enhance our ability to exploit primary reserves through continued reservoir
delineation and to develop secondary recovery projects in the Mooringsport,
Rodessa and Sligo formations.
Since 1996, we have successfully drilled wells to the Hosston, Sligo,
Rodessa, Mooringsport and Washita Fredricksburg formations, including two
successful development wells drilled and completed in 1998 in the Sligo and
Washita Fredricksburg reservoirs.
Because declining oil prices in 1998 and early 1999 made property
development less economical, we spent much of the year refining our
interpretation of the 3-D seismic data of Martinville. We currently have defined
six exploration prospects along with numerous development drilling
opportunities. Proved reserves at year end 1999 totaled 5.4 MMBOE, a 13% decline
from year end 1998. This decline is due to the lack of development of the
Martinville properties in 1999 due to low oil prices during the first half of
1999, reduced capital activity and the natural reservoir decline.
Soso Field, Mississippi. In mid-1990, we acquired a 90% working interest in
the Soso field, which was originally discovered in 1945 and covers approximately
6,500 acres. At the time we acquired it, the field produced 225 BOPD. For 1999,
the average daily production was 354 BOE, a decrease of 56% from 1998 average
daily production. Reserves at December 31, 1999 totaled 5.6 MMBOE, a 12%
increase over year end 1998. The decline in average daily production is due to
reduced development activity on the properties as a result of capital budget
constraints, while the increase in reserves is due to improved crude oil prices
experienced at year end 1999 relative to year end 1998.
Soso is a large, geologically complex field which had already produced over
75 MMBOE at the time we acquired it in 1990. Also, like Brookhaven, our detailed
mapping of the field suggested that less than 25% of the total crude oil had
been recovered. We acquired Soso primarily to increase total recoverable
reserves by another 5% to 15% through recompletions in existing wellbores,
development drilling and secondary recovery projects.
Most of our early production growth at Soso was associated with workovers
and recompletions on existing wells, with some development drilling taking
place. Because of the success of secondary recovery projects at Laurel and
Martinville, we took a fresh look at the field in 1997, and since then,
secondary recovery projects have been initiated in the Cotton Valley, Sligo and
Rodessa formations.
In 1998, we acquired 35 miles of new 2-D seismic data across the Soso
field. This 2-D seismic data should enhance our development of the Hosston and
Cotton Valley formations. We believe many more exploitation opportunities exist
for primary as well as secondary reserves in the multi-reservoir field.
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, 1999, we operated 18 producing wells and had an
average working interest of 90% in this unitized field.
We assumed operating control of the Summerland field in November 1989. At
the date of acquisition, net crude oil production was 415 BOE per day, of which
only 200 BOE per day were economic. Recompletions, development drilling and the
installation of higher volume artificial lift equipment increased net crude oil
production to 1,019 BOE per day in 1998. For 1999, however, daily production
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averaged 494 BOE, down from 1998 as a result of the natural decline of the
reservoirs, low oil prices during the first half of 1999 and reduced capital
activity.
At December 31, 1999, the Summerland field had proved reserves of 5.6
MMBOE, up approximately 6% over year end 1998 due to improved crude oil prices.
Mid-Continent Area
In December 1997, we acquired interests in approximately 40,000 gross acres
concentrated primarily in southern Oklahoma, including 14 principal producing
fields. Of the 14 principal producing fields, we are the operator of eleven
fields. At December 31, 1999, we had an average working interest in the eleven
fields we operate of approximately 74%.
These properties are very similar to our Mississippi salt basin operations
and we believe that our substantial knowledge base should benefit in the
development of these properties. In 1998, we began an exploration and
exploitation program which resulted in the drilling of 19 gross wells, 18 of
which were completed successfully. Additionally, we began interpreting 3-D
seismic information on two fields in 1998 and have identified several drilling
opportunities as a direct result of this seismic information. In 1999, activity
on these properties was very limited due to capital budget constraints.
Bumpass Unit, Oklahoma. The Bumpass Unit, located in Carter County,
Oklahoma, was discovered in 1924. Production is primarily from both structural
and stratigraphic traps within the Deese and Springer reservoirs. The Deese
reservoirs are typically encountered at depths between 3,500 and 4,500 feet with
the Springer reservoirs located from 4,500 to 6,700 feet.
Currently, our primary focus at Bumpass is to exploit the Flattop and
Goodwin sands located in the Springer formation, which we believe to be
underdeveloped. In 1998 and 1999, we drilled one well, deepened one well and
recompleted two wells in these lower Springer sands. All four of these jobs were
successful and resulted in a combined initial production rate in excess of 3,000
net Mcf per day. We intend to continue this exploitation program in 2000.
Additionally, we are studying the Humphrey sands, which are in the upper portion
of the Springer formation, to determine their waterflood potential. At December
31, 1999, we had an average working interest of approximately 65% in the Bumpass
field.
Average net daily production in 1999 was 451 BOE compared with 623 BOE per
day in 1998. Proved reserves at December 31, 1999 totaled 4.5 MMBOE, a decrease
of 10% from the 5.0 MMBOE at the end of 1998. The decrease in both production
and reserves is due to the reduced development activity on the property as a
result of capital budget constraints experienced during 1999.
Sholem Alechem Fault Block "A" Unit, Oklahoma. Located in Stephens County,
Oklahoma, the Sholem Alechem Fault Block "A" Unit was discovered in 1947. As
with the Bumpass Unit, production at Sholem Alechem originates primarily from
the Deese and Springer reservoirs.
In 1998 and 1999, we deepened eight wells and recompleted one well into the
Flattop and Goodwin sands located in the Springer formation. Six of these nine
jobs were successful and resulted in a combined initial production rate of 240
net BOE per day and 1,630 net Mcf per day. Exploitation of the Springer
formation will continue into 2000. At December 31, 1999, we had an average
working interest in Sholem Alechem of approximately 89%.
Net production in 1999 averaged 705 BOE per day, down from the 843 BOE per
day in 1998 as a result of our limited development activity during the year.
Proved reserves at December 31, 1999 totaled 7.0 MMBOE, basically unchanged from
year end 1998.
East Fitts Unit, Oklahoma. The East Fitts Unit was discovered in 1933, with
production originating from the Cromwell, Hunton and Viola reservoirs, at depths
ranging from 2,400 to 5,000 feet.
Our current emphasis at East Fitts is to take the Viola reservoir from ten
acre spacing to five acre spacing. We believe that this development will not
only increase existing production but prove up additional reserves. In 1998, we
drilled five wells to the Viola reservoir, all of which were successful,
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increasing production by 200 BOE per day and adding approximately 600 MBOE in
reserves. No significant activity occurred in the East Fitts Unit in 1999 due to
capital budget constraints. However, additional wells to the Viola reservoir are
planned in 2000, and we are planning to initiate pilot waterflood projects in
the Chimney Hill formation, a lower member of the Hunton reservoir, and the
Bromide formation. At December 31, 1999, our average working interest in East
Fitts was approximately 83%.
Average net daily production in 1999 was 997 BOE and proved reserves at
December 31, 1999 totaled 23.7 MMBOE. This is down marginally from the average
1998 production of 1,174 BOE per day and 1998 proved reserves of 24.6 MMBOE.
Other Oklahoma. We operate eight other fields in Oklahoma:
- East Velma Middle Block,
- North Alma Deese,
- Tatums,
- Jennings Deese,
- Graham Deese,
- Eola S.E.,
- Eola N.W., and
- Cox Penn.
Total average net daily production in 1999 from these fields was 2,169 BOE. East
Velma Middle Block has significant upside potential through secondary recovery.
Similar reservoirs have been successfully waterflooded along the Velma complex.
East Velma Middle Block is the remaining block along this complex which has not
been enhanced through secondary recovery. Tatums is a shallow Deese producing
unit which has been evaluated to have significant upside potential through down
spacing. Currently the unit is developed on a ten acre spacing with some areas
of the field underexploited. A five acre drilling program and adjustments to
current waterflood injection could provide substantial upside potential. At year
end, net proved reserves from these properties totaled 33.6 MMBOE, essentially
unchanged from year end 1998.
We also have non-operating working interests in three fields in Oklahoma.
At December 31, 1999, year-end proved reserves in these three fields were
estimated at 3.0 MMBOE.
Since the acquisition of the Oklahoma properties, we have identified 11 new
secondary recovery projects to be developed. These projects are currently in the
study or planning phases. Facilities and wellbores are being evaluated to begin
pilot waterfloods. In addition, these projects should incur low capital and
production costs due to existing field infrastructures. We believe opportunities
exist for adding secondary recovery projects throughout our current field
inventory. Additionally, we believe that substantial Springer through Simpson
gas potential exists in and around our currently operated properties. This
potential will be a focal point of low-risk exploration through the deepening of
existing wellbores or through recompletions, both of which require less capital
as compared to drilling for these objectives. Historically in these areas, gas
has not been the primary focus of exploitation; however, improved technology has
now allowed commercial development of these deeper, tighter objectives.
Other Domestic Properties
We also have working interests in other producing properties in Mississippi
and Texas. We operate the Bentonia and Frio properties in Mississippi and own
non-operated working interests in the Glazier property in Mississippi, the
Clarksville field in Texas and a field in state waters offshore North Padre
Island, Texas. As of December 31, 1999, these fields had combined net proved
reserves of 4.9 MMBOE.
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Tunisia, North Africa
We have a 45.8% interest in a permit covering 1.1 million gross acres in
Tunisia, North Africa that we acquired from our former Canadian parent company.
During 1994, we and our joint interest partners conducted a seismic survey on
the Anaguid permit in Tunisia. In October 1995, we and our partners drilled an
unsuccessful exploratory well on the Anaguid permit in southern Tunisia. In
early 1997, we and our partners conducted a 465 kilometer 2-D seismic program in
a new area of the Anaguid permit. In June 1999, we commenced drilling an
exploratory well on this permit. In September 1999, we tested the well and
determined that the well would not produce sufficient quantities of crude oil to
justify further completion work on the well. As a result, we wrote down our
Tunisian properties by $5.4 million during the third quarter of 1999. Anadarko
Tunisia Anaguid Company, one of the working interest partners in this permit,
has assumed responsibility as operator and plans to continue exploration of this
permit.
In June 1999, we extended our Anaguid permit in Tunisia through June 2001.
We have a commitment to drill two additional wells during that two-year period.
PRODUCTION
The following table contains information regarding our production volumes,
average prices received and average production costs associated with our sales
of crude oil and natural gas for each of the years in the three-year period
ended December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
CRUDE OIL:
Volumes (MBbls).......................................... 2,820 5,069 3,343
Average sales price (per Bbl)(a)......................... $16.31 $10.40 $15.40
NATURAL GAS:
Volumes (MMcf)........................................... 7,666 8,124 2,608
Average sales price (per Mcf)(b)......................... $ 2.23 $ 1.98 $ 2.24
AVERAGE PRODUCTION COST (PER BOE)(c)....................... $ 3.90 $ 4.18 $ 5.60
</TABLE>
- ---------------
(a) Includes the effects of crude oil price hedging contracts. Price per Bbl
before the effect of hedging was $16.42 for the year ended December 31,
1997, $10.40 for the year ended December 31, 1998 and $15.40 for the year
ended December 31, 1999.
(b) Includes the effects of natural gas price hedging contracts. Price per Mcf
before the effect of hedging was $2.22 for the year ended December 31,
1997, $1.92 for the year ended December 31, 1998 and $2.24 for the year
ended December 31, 1999.
(c) Includes lease operating expenses and production taxes.
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DRILLING ACTIVITIES
During the periods indicated, we drilled or participated in the drilling of
the following wells:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
------------ ------------ -----------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY:
Crude oil................................... 3 2.8 1 1.0 -- --
Natural gas................................. 1 .8 -- -- -- --
Dry holes(1)................................ 1 1.0 2 2.0 1 0.5
DEVELOPMENT:(2)
Crude oil................................... 10 9.3 26 21.7 -- --
Natural gas................................. 11 9.8 8 6.5 3 3.0
Dry holes................................... 2 2.0 5 4.9 2 1.5
Service wells............................... -- -- 2 1.0 -- --
-- ---- -- ---- --- ---
Total............................... 28 25.7 44 37.1 6 5.0
== ==== == ==== === ===
</TABLE>
- ---------------
(1) 1999 well was drilled in Tunisia, North Africa.
(2) Included in drilling activities are wells deepened to a lower reservoir
through existing well bores. In 1999, all wells under "Development" were
deepenings within existing well bores.
At December 31, 1999, we were not participating in the drilling or
completion stages of a well.
RESERVES
The following table summarizes our net proved crude oil and natural gas
reserves as of December 31, 1999, which have been reviewed by Ryder Scott
Company with regard to our Mississippi properties and Sproule Associates, Inc.
with regard to our Oklahoma properties. The other properties in the table are
related to our crude oil and natural gas reserves located in Texas which have
been audited, depending on location, by the independent engineers named in the
preceding sentence.
<TABLE>
<CAPTION>
CRUDE NATURAL NET PROVED
OIL GAS RESERVES
(MBBLS) (MMCF) (MBOE)
------- ------- ----------
<S> <C> <C> <C>
Mississippi............................................ 36,736 2,978 37,232
Oklahoma............................................... 68,533 25,863 72,844
Other.................................................. 1,844 11,797 3,810
------- ------ -------
Total........................................ 107,113 40,638 113,886
======= ====== =======
</TABLE>
At December 31, 1999, we had net proved developed reserves of 78,047 MBOE
and net proved undeveloped reserves of 35,839 MBOE. The present value of proved
reserves was $790.2 million, which represented $543.7 million for the proved
developed reserves and $246.5 million for the proved undeveloped reserves. At
December 31, 1998, we reported total proved reserves of 111,059 MBOE, and the
present value of proved reserves was $269.3 million.
There are numerous uncertainties inherent in estimating quantities of
proved crude oil and natural gas reserves, including many factors beyond our
control. The estimates of the reserve engineers are based on several
assumptions, including the following:
- actual future production,
- revenues,
- taxes,
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- production costs,
- development expenditures and
- quantities of recoverable crude oil and natural gas reserves.
Any significant variance in these assumptions could materially affect the
estimated quantity and value of reserves set forth herein. In addition, our
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 decline as reserves are depleted. Except to the extent we acquire
additional properties containing proved reserves or conduct successful
exploration and development activities, or both, our proved reserves 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
14 to our consolidated financial statements included in this prospectus.
ACREAGE
The following table summarizes the developed and undeveloped acreage we
owned or leased at December 31, 1999:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
--------------- ---------------
GROSS NET GROSS NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
Mississippi........................................ 24,126 22,881 26,901 22,640
Oklahoma........................................... 38,463 28,301 40 40
Texas.............................................. 4,276 3,428 1,691 1,691
Offshore Gulf of Mexico............................ 5,760 2,269 -- --
------ ------ ------ ------
Total.................................... 72,625 56,879 28,632 24,371
====== ====== ====== ======
</TABLE>
At December 31, 1999, we also held a 45.8% working interest in an
exploratory permit in Tunisia, North Africa, covering approximately 1,130,000
gross acres.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, in many circumstances, we make
only a limited review of title to undeveloped crude oil and natural gas leases
at the time we acquire them. However, before we acquire developed crude oil and
natural gas properties, and before drilling commences on any leases, we cause 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, we, rather than the seller of the
undeveloped property, are typically obligated to cure any title defects at our
expense. We could lose our entire investment in any property we drill, if we
have a title defect of a nature that makes it prudent to commence drilling upon
but which we could not remedy or cure. We believe that we have good title to our
crude oil and natural gas properties, some of which are subject to immaterial
encumbrances, easements and restrictions. The crude oil and natural gas
properties we own are also typically subject to
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royalty and other similar non-cost bearing interests customary in the industry.
We do not believe that any of these encumbrances or burdens will materially
affect our ownership or use of our properties.
COMPETITION
The crude oil and natural gas industry is highly competitive. We encounter
strong competition from major oil companies and independent operators in
acquiring properties and leases for the exploration for, and production of,
crude oil and natural gas. Competition is particularly intense with respect to
the acquisition of desirable undeveloped crude oil and natural gas properties.
The principal competitive factors in the acquisition of desirable undeveloped
crude oil and natural gas properties include the staff and data necessary to
identify, investigate and purchase these properties, and the financial resources
necessary to acquire and develop these properties. Many of our competitors have
financial resources, staff and facilities substantially greater than ours. In
addition, the producing, processing and marketing of crude oil and natural gas
is affected by a number of factors which are beyond our control, the effect of
which cannot be accurately predicted.
The principal resources necessary for the exploration and production of
crude oil and natural gas are:
- leasehold prospects under which crude oil and natural gas reserves may be
discovered,
- drilling rigs and related equipment to explore for these reserves, and
- knowledgeable personnel to conduct all phases of crude oil and natural
gas operations.
We compete for these resources with both major crude oil and natural gas
companies and independent operators. Although we believe our current operating
and financial resources will be adequate to preclude any significant disruption
of our operations in the immediate future if our plan of reorganization is
consummated, the continued availability of these materials and resources to us
cannot be assured.
CUSTOMERS AND MARKETS
Substantially all of our crude oil is sold at the wellhead at posted
prices, as is customary in the industry. In some circumstances, natural gas
liquids are removed from our natural gas production and are sold by us at posted
prices. During 1999, EOTT Energy Operating Limited Partnership accounted for 39%
of our revenues and Amoco Production Company accounted for 41% of our revenues.
While we believe our relationships with EOTT and Amoco are good, any loss of
revenue from these customers due to nonpayment would have an adverse effect on
our net income and earnings per share on our income statement and, ultimately,
may affect our share price. In addition, any significant late payment may
adversely affect our short term liquidity position.
We have a three-year crude oil purchase agreement with EOTT which was
effective March 1, 1996. Under the crude oil purchase agreement, we committed
the majority of our crude oil production in Mississippi to EOTT for a period of
three years on a pricing basis of posting plus a premium. This contract is
currently on a month-to-month basis. As part of this contract, we have agreed to
sell to EOTT approximately 50% of our heavy Mississippi crude oil with a minimum
well head price of $8.50 per barrel.
The majority of crude oil production in Oklahoma is sold to Amoco on a
NYMEX pricing basis minus a discount. Beginning January 1, 1999 and for a
nine-year period thereafter, Amoco has a right of first refusal to match, in all
respects, a competitive bid. The crude contract was a component of the original
Amoco purchase and sale agreement and provides for a competitive annual review
of the pricing mechanism.
The price we receive for crude oil and natural gas may vary significantly
during 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, we
periodically enter into forward sale agreements or other arrangements for a
portion of our crude oil and natural gas production to hedge our 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
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<PAGE> 65
the related hedged production. While intended to reduce the effects of the
volatility of the prices received for crude oil and natural gas, these hedging
transactions may limit our potential gains 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 our consolidated financial statements for
more information related to hedging.
OFFICE AND FIELD FACILITIES
We currently lease 47,942 square feet for our executive and administrative
offices in Dallas, Texas, under a lease that continues through October 2000. We
are considering a renewal of some portion of this lease as well as other
available square footage. We also lease field offices in Laurel, Mississippi,
covering approximately 5,000 square feet under a non-cancelable lease extending
through June 2000. We are currently evaluating the renewal of the Laurel lease
as well as other alternatives. We also lease office space in Ratliff City,
Oklahoma, covering approximately 10,000 square feet through January 2003.
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. These
regulations include:
- requiring permits for the drilling of wells,
- maintaining bonding requirements in order to drill or operate wells,
- regulating the location of wells,
- regulating the method of drilling and casing wells,
- regulating the surface use and restoration of properties upon which wells
are drilled, and
- regulating the plugging and abandonment of wells.
Our operations are also subject to various conservation laws and regulations in
which our properties are located, including those of Mississippi, Oklahoma and
Texas. These laws and regulations include the regulation of :
- the size of drilling and spacing units or proration units,
- regulation of the density of wells that may be drilled,
- regulation of unitization or pooling of crude oil and natural gas
properties,
- maximum rates of production from crude oil and natural gas wells,
- restrictions on the venting or flaring of natural gas, and
- requirements regarding the ratability of production.
Some states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of land and leases. The
effect of these regulations is to limit the amount of crude oil and natural gas
we can produce from our wells and to limit the number of wells or the locations
at which we 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, we are subject to
production tax rates of up to 6% in Mississippi and 7% in Oklahoma. In addition,
we have been active in the adoption of legislation dealing with production and
severance tax relief in Mississippi, specifically where severance tax is either
waived for a fixed period of time, as in renewed production from inactive wells,
or reduced to
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50% of regular rates for enhanced recovery projects. The state of Oklahoma has
adopted severance tax relief, adjusting tax rates to:
- 1% for posted crude oil priced less than $14.00 per barrel,
- 4% for posted crude oil priced between $14.00 and $17.00 per barrel, and
- the regular tax rate of 7% for prices over $17.00 per barrel.
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 these rules and regulations carry
substantial penalties for failure to comply. The regulatory burden on the crude
oil and natural gas industry increases our cost of doing business and,
consequently, affects our profitability.
Offshore Leasing. Some of our operations are located on federal crude oil
and natural gas leases, which are administered by the United States Minerals
Management Service. These leases are issued through competitive bidding, contain
relatively standardized terms and require compliance with detailed regulations
and orders, which are subject to change by the Minerals Service. For offshore
operations, lessees must obtain approval from the Minerals Service for
exploration plans and development and production plans before the commencement
of 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 Minerals Service before the
commencement of drilling. The Minerals Service has promulgated regulations
requiring offshore production facilities located on the outer continental shelf
to meet stringent engineering and construction specifications. Similarly, the
Minerals Service has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the removal of all production
facilities. Under some circumstances, the Minerals Service may require any
operations on federal leases to be suspended or terminated. To cover the various
obligations of lessees on the outer continental shelf, the Minerals Service
generally requires that lessees or operators post substantial bonds or other
acceptable assurances that these obligations will be met. The cost of these
bonds or other surety can be substantial and there is no assurance that we can
obtain bonds or other surety in all cases.
Gas Royalty Valuation Regulations. In December 1997, the Minerals Service
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 for gas transportation are
calculated. The final rule became effective February 1, 1998. The rule purports
to continue the commitment of the Minerals Service to assure that lessees deduct
only the actual, reasonable costs of transportation and not any marketing costs.
The rule identifies specific allowable and nonallowable costs of transportation.
The rule is, however, under judicial review. In August 1999, the Minerals
Service published a final rule amending its regulations governing the valuation
for royalty purposes of natural gas produced from Indian leases. The changes add
alternative valuation methods to the existing regulations, to ensure that Indian
lessors receive maximum revenues from their mineral resources. The final rule
became effective January 1, 2000.
Crude Oil Sales and Transportation Rates. Sales of crude oil and condensate
can be made by us at market prices not subject at this time to price controls.
In January 1997, the Minerals Service published a proposed rule to amend the
current federal crude oil royalty valuation regulations. In July 1997, the
Minerals Service published a supplementary proposed rule concerning the proposed
regulations. In February 1998, the Minerals Service published another
supplementary proposed rule. The intent of the rule is to decrease reliance on
posted prices and to 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. On July 16, 1998, the
Minerals Service proposed additional changes to its second supplementary
proposed rule. On March 12,
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1999, the Minerals Service published a notice reopening the public comment
period on the second supplementary proposed rule until April 12, 1999. On April
13, 1999, the Minerals Service published a notice extending the comment period
until April 27, 1999. On December 30, 1999, the Minerals Service published
additional changes, inviting public comment by January 31, 2000. In February
1998, the Minerals Service also published a notice of a proposed rule 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. On January 5, 2000, the Minerals
Service published additional proposed changes to the regulations regarding
Indian leases, inviting public comment by March 6, 2000. We cannot predict what
action the Minerals Service will take on these matters, nor can we predict at
this stage of the rulemaking proceedings how we might be affected by amendments
to these regulations.
The price that we receive 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 Federal Energy Regulatory Commission to establish a simplified and
generally applicable rate-making methodology for crude oil pipeline rates.
Effective as of January 1, 1995, the Federal Energy Regulatory Commission
implemented regulations establishing an indexing system for transportation rates
for crude oil pipelines, which would generally index these rates to inflation.
We are not able to predict with certainty what effect, if any, these regulations
will have on us, but other factors being equal, the regulations may tend to
increase transportation costs or reduce wellhead prices for these commodities.
Future Legislation and Regulation. Our 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,
- changes in these laws, and
- constantly changing administrative regulations.
For example, the price at which natural gas may lawfully be sold has
historically been regulated under the Natural Gas Act. Only since the
deregulation of the last remaining regulated price categories of natural gas on
January 1, 1993, have free market forces been allowed to control the sales price
of natural gas. There is no guarantee that new regulations, similar or
otherwise, will not be imposed on the production or 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 legislation or regulations on us.
ENVIRONMENTAL REGULATIONS
Numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection affect our
operations. These laws and regulations may:
- require us to obtain permits before drilling,
- restrict the types, quantities and concentration of various substances
that can be released into the environment through drilling and production
activities,
- limit or prohibit drilling activities on some lands lying within
wilderness, wildlife refuges or preserves, wetlands and other protected
areas, and
- impose substantial liabilities for pollution resulting from our
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 may significantly impact our operating costs, as well as the oil
and gas industry in general. We believe that we substantially comply with
current applicable environmental laws and regulations and that continued
compliance with existing requirements will not result in material adverse
impacts to us.
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The Oil Pollution Act of 1990 attempts to prevent crude oil spills by
imposing on "responsible parties" liability for damages resulting from crude oil
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, and the lessee or permittee of the
area in which an offshore facility is located. The Oil Pollution Act requires
the lessee or permittee to establish and maintain evidence of financial
responsibility in the amount of $35.0 million, $10.0 million if the offshore
facility is located landward of the seaward boundary of a state, to cover
liabilities that result from a crude oil spill for which that person is
statutorily responsible. The minimum amount of financial responsibility may be
increased to $150.0 million depending on the risks posed by the quantity or
quality of crude oil handled by the facility. The Minerals Service has
promulgated regulations that implement the financial responsibility requirements
of the Oil Pollution Act. The regulations use an offshore facility's worst case
oil-spill discharge volume to determine if the responsible party must maintain
increased financial responsibility. We are not presently subject to the
financial responsibility requirement because our only offshore well is a natural
gas well that does not produce oil.
The Oil Pollution Act subjects responsible parties to strict, joint and
several and potentially unlimited liability for removal costs and other damages
caused by an oil spill covered by the statute. It also imposes other
requirements on responsible parties, including the preparation of a crude oil
spill contingency plan. We maintain a crude oil spill contingency plan. A
responsible party may face civil or criminal enforcement actions if it fails to
comply with the Oil Pollution Act's ongoing requirements or inadequately
cooperates during a spill event. We are not the subject of any civil or criminal
enforcement actions under the Oil Pollution Act and we are not aware of any
basis for a civil or criminal enforcement action against us.
The Federal Water Pollution Control Act of 1972 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. We must obtain permits to discharge pollutants into state and federal
waters. State discharge regulations and general permits under the Federal
National Pollutant Discharge Elimination System prohibit the discharge of
produced water and sand, drilling fluids, drill cuttings and other substances
related to the oil and gas industry into coastal waters. The Federal Water
Pollution Control Act allows civil, criminal and administrative penalties for
any unauthorized discharges of oil and any other hazardous substances in
reportable quantities. The Federal Water Pollution Control Act and the Oil
Pollution Act also impose potential liability for the costs of removal,
remediation and damages. State laws for the control of water pollution also
provide 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,
also known as the "Superfund" law, imposes liability, without regard to fault or
the legality of the original conduct, on classes of persons 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 the companies that disposed or arranged for the disposal of
the hazardous substances found at the site. Persons who are responsible for
releases of hazardous substances under Superfund 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. We do not own or operate any Superfund-identified sites and have
not received notice that we are liable for response or remediation costs at any
Superfund site.
The Resource Conservation and Recovery Act is the principal federal statute
governing the treatment, storage and disposal of hazardous wastes. The Resource
Conservation and Recovery Act imposes stringent operating requirements, and
liability for failure to meet these 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, the
Resource Conservation and Recovery Act 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 the Resource
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Conservation and Recovery Act. Proposals have been made to amend the Resource
Conservation and Recovery Act and the various state statutes to rescind the
exemption that excludes crude oil and natural gas exploration and production
wastes from regulation as hazardous waste. Repeal or modification of this
exemption by administrative, legislative or judicial process, or through changes
in applicable state statutes, could increase the volume of hazardous waste that
we must manage and dispose of. Hazardous wastes are subject to more rigorous and
costly disposal requirements than are non-hazardous wastes. Any change in the
applicable statutes may require us to make additional capital expenditures or
incur increased operating expenses.
A significant portion of our operations in Mississippi is conducted within
city limits. Each year we are required to meet tests of financial responsibility
to obtain permits to conduct new drilling operations. We are conducting a
voluntary program to remove inactive aboveground storage tanks from our well
sites and to replace them, as necessary, with newer aboveground storage tanks.
Some states have enacted statutes governing the handling, treatment,
storage and disposal of waste containing naturally occurring radioactive
material. Naturally occurring radioactive material 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 and natural gas production and processing streams. Mississippi
legislation prohibits the transfer of property for residential or other
unrestricted use if the property evidences concentrations of naturally occurring
radioactive material above prescribed levels because of crude oil and natural
gas production activities. We are voluntarily remediating naturally occurring
radioactive material concentrations identified at several fields in Mississippi.
In addition, we are a defendant in several lawsuits brought by landowners
alleging personal injury and property damage from naturally occurring
radioactive material at various wellsite locations. See the subsection below
called "Legal Matters" for more information concerning these lawsuits.
Because our strategy is to acquire interests in underdeveloped crude oil
and natural gas properties, many of which have been operated by others for many
years, we may incur liability for damages or pollution caused by the former
operators of these crude oil and natural gas properties. We provide for future
site restoration charges on a unit-of-production basis by including these
charges in depletion and depreciation expense. In addition, we may continue to
be responsible for environmental contamination on properties we transferred to
others. Our operations are also subject to all the risks related to the
operation and development of crude oil and natural gas properties and the
drilling of crude oil and natural gas wells. These risks include encountering
unexpected formations or pressures, blowouts, cratering and fires, any of which
could result in personal injuries, loss of life, pollution damage and other
damage to our properties and that of 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. Offshore operations also
involve extensive governmental regulations, including regulations that may
impose strict liability for pollution damage, and interruptions or terminations
of operations by governmental authorities based on environmental or other
considerations. We maintain insurance against losses or liabilities arising from
our operations in accordance with customary industry practices and in amounts
that we believe reasonable. However, insurance is often not available against
all operational risks or is not economically feasible for us to obtain. If a
significant event occurs that imposes liability on us that is either not insured
or not fully insured, a material adverse effect on our financial condition and
results of operations could result.
EMPLOYEES
At April 10, 2000, we had 99 employees associated with our operations,
including 20 field personnel in Mississippi and 28 field personnel in Oklahoma.
None of our employees is represented by a union. We consider our employee
relations to be satisfactory.
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LEGAL MATTERS
The Bankruptcy Proceedings.
On August 23, 1999, we and our consolidated subsidiaries filed a voluntary
Chapter 11 petition with the bankruptcy court. Consistent with bankruptcy cases
involving large, publicly traded companies and their affiliates, a number of
proceedings have occurred since August 23, 1999, the most significant of which
are discussed below.
The bankruptcy court approved Fulbright & Jaworski L.L.P. as our counsel
and Arthur Andersen LLP as our financial consultants and auditors. The
bankruptcy court also approved our retention of oil and gas reserve engineers,
special counsel for litigation, and ordinary course of business professionals.
All of these professionals are assisting us in our efforts to reorganize our
businesses.
Official committees for the unsecured creditors and equity holders were
formed by the Office of the United States Trustee. The bankruptcy court approved
counsel for the Official Unsecured Creditors Committee and the Official Equity
Committee. The Unsecured Creditors Committee retained its own financial
consultants. The committees were actively involved in our bankruptcy
proceedings.
The bankruptcy court approved our use of cash collateral in the continued
operations of our business, including its use in our capital expenditure
programs. Our use of cash collateral was extended through March 31, 2000. In
December 1999, under the Third Interim Order to Use Cash Collateral, we began
paying the bank group monthly payments of $1.8 million per month as adequate
protection payments. We paid additional interest payments of $1.8 million on
February 1, 2000 and $1.8 million on March 1, 2000.
Immediately following the commencement of our bankruptcy case, we obtained
permission from the bankruptcy court to pay working and royalty interest owners
to insure that payments to them were not interrupted. As a result, working and
royalty interest owners have continued to receive all payments to which they are
entitled throughout the pendency of our bankruptcy cases.
In October, 1999, one of our shareholders filed a motion to compel our
holding an annual shareholders' meeting. Our annual shareholders' meeting is
historically held between May and August. We decided not to hold the annual
shareholders' meeting by August 23, 1999, the date we filed for bankruptcy
protection, because of extensive, ongoing negotiations between us, the bank
group and the holders of our old bonds concerning the restructuring of our debt
and operations. Rather than incur the significant expenses associated with
holding the annual meeting, and then having to incur additional significant
expenses to hold a special shareholders' meeting to approve a restructuring of
the debt to the bank group and holders of our old bonds, we elected to postpone
the annual meeting and combine it with a special meeting once an agreement with
the bank group and holders of our old bonds was reached. Although we reasonably
believed that we would reach an agreement with the bank group and the holders of
our old bonds before August 23, 1999, an agreement was not reached and we filed
for bankruptcy protection.
The bankruptcy court denied the shareholders' request to compel a
shareholders' meeting provided that we permit representatives of the Equity
Committee to attend and participate, in a non-voting capacity, at a future board
meeting to discuss our plan of reorganization. We complied with the bankruptcy
court's directive. The bankruptcy court also issued an order for us to show
cause as to why our exclusive period to file a plan of reorganization under
Section 1121 of the Bankruptcy Code should not be terminated to allow other
parties to file plans of reorganization in the case. The bank group moved for a
termination of this exclusivity period as well. Exclusivity was terminated as to
the bank group, the Equity Committee and the Unsecured Creditors Committee.
On March 20, 2000, the bankruptcy court entered an order confirming our
plan of reorganization, as amended and restated. On March 31, 2000, our plan of
reorganization became effective and was consummated.
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Other Proceedings.
Hicks Muse Lawsuit. We are the plaintiff in a lawsuit styled Coho Energy,
Inc. v. Hicks, Muse, et al, which was filed in the District Court of Dallas
County, Texas, 68th Judicial District. This lawsuit has been removed to the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division, where it currently is pending.
We allege in the Hicks Muse lawsuit that Hicks Muse reneged on a commitment
to inject $250 million dollars of equity capital into our operations, which
would have given Hicks Muse control of Coho through the purchase of 41,666,666
shares of newly-issued common stock at $6 per share.
We further allege that Hicks Muse waited until after our shareholders
approved the commitment, then reneged on the commitment at the last minute to
renegotiate the price down to $4 per share to increase the number of shares that
Hicks Muse would receive for the $250 million. We also allege that Hicks Muse
reneged on this new commitment to purchase stock. We seek damages against Hicks
Muse in excess of $500 million. This description is only a general description
of the Hicks Muse lawsuit and should not be relied on as conclusively stating
all the alleged facts, claims or circumstances surrounding the lawsuit. We are
not able to evaluate the recovery we might receive in the lawsuit.
Brookhaven Lawsuits. Coho Resources, Inc., was named a defendant in a
number of individual lawsuits in Mississippi, which allege environmental damage
to property and personal injury, resulting from our drilling and production
operations and those of our predecessors in the Brookhaven field, located in
Lincoln County, Mississippi. The plaintiffs alleged that their damages were
caused by naturally occurring radioactive material resulting from petroleum
exploration and production operations. Our predecessors on the Brookhaven field
were Florabama Associates, Inc., and Chevron Corp. or Chevron USA. Inc.
Florabama and Chevron filed claims for indemnification for any liability they
may have to the Brookhaven field plaintiffs, including claims for monetary and
punitive damages, as well as clean-up costs associated with the properties, and
costs of defense. We have settled the indemnity claim of Chevron, as discussed
in the next paragraph, and are vigorously defending against the indemnity claim
of Florabama. The Florabama claim is asserted at $3,671,953.33, but given our
success in settling with Chevron, all parties now agree that our liability to
Florabama will be resolved at less than $803,000.
The plaintiffs have compromised and settled their $250 million claim
against Coho Resources, Inc. for the cash sum of $900,000 to be paid in
installments over the 180 days following the effective date of our confirmed
plan of reorganization. The court has approved this settlement. We have also
settled the claims of Chevron Corp. and Chevron USA, Inc. by agreeing to
contribute $2.5 million over the next two years to a common fund to be used to
finance the implementation of a thorough remediation plan for the Brookhaven
field. Chevron USA will contribute at least $3 million to that fund as well, and
will supervise the implementation of the remediation plan. The remediation plan
was filed with the court and circulated to numerous parties in interest. This
Coho-Chevron settlement also calls for Chevron to withdraw its claims in the
Florabama bankruptcy in Mississippi. As stated above, that will have the effect
of greatly reducing the dollar amount of Florabama's claim in the Coho
bankruptcy to less than $803,000, subject to further negotiations and final
resolution.
Insurance Coverage Disputes with United National Insurance Company Involving
Pending Litigation.
We have notified United National Insurance Company of those claims asserted
in the Brookhaven lawsuit.
United National has submitted detailed reservations of rights letters to
us, outlining the grounds upon which coverage will not or may not be available
for the claims included in this lawsuit. United National has also informed us
about limitations to potential coverage, including applicable deductibles
chargeable to us.
We are assessing the coverage issue and, if we pursue coverage, the
disputed coverage issues raised by these lawsuits may require judicial
resolution through declaratory judgment litigation.
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<PAGE> 72
(a) THE BROOKHAVEN LAWSUITS
United National has informed us that United National reserves its
rights to decline coverage on grounds that we had not adequately disclosed
the pending prior suits, including the Brookhaven litigation, during the
underwriting process before the issuance of the United National insurance
policies.
We have conducted some operations at particular locations within the
Brookhaven field since mid-1995. The primary claims in the Brookhaven
lawsuits arise out of radioactive waste material and alleged contamination
of drinking water aquifers in and around the Brookhaven field. Operations
at the Brookhaven field date back into the 1940's.
(b) UNITED NATIONAL POLICIES
United National has issued two primary liability policies and two
umbrella liability policies in effect from June 5, 1998 through June 5,
1999, and June 5, 1999 through June 5, 2000, respectively subject to
various deductible and limits.
There are two basic coverage parts in the policies, commercial general
liability and energy industries pollution liability, both of which are
modified by various endorsements included in the policies. The energy
industries pollution liability form is issued on a claims made basis.
(c) GENERAL LIABILITY COVERAGE ISSUES
United National has informed us of its position that potential
coverage is not available for the claims in the Brookhaven lawsuit under
the general liability provisions of the policies. In particular, United
National has informed us that the lawsuits do not seek damages because of
"bodily injury" and "personal injury" defined in the policies, although the
suits include claims for "property damage." United National has also
advised that the Brookhaven lawsuit may be seeking recovery for damage
occurring before the issuance of the United National policies. United
National has also informed us that the policy exclusions would preclude
potential coverage under the general liability provisions, including, but
not limited to, pollution exclusions, health hazard exclusions, and
exclusions applicable to liability arising from waste disposal sites owned,
operated or used by an insured.
Other general liability policy provisions, exclusions and coverage
positions have been outlined and reserved by United National.
(d) ENERGY INDUSTRIES POLLUTION LIABILITY COVERAGE ISSUES
United National has also informed us of its position that the claims
in the Brookhaven lawsuit also may not be subject to potential coverage
under the energy industries pollution liability provisions. United National
has informed us that United National reserves its rights to decline
potential coverage under the energy industries pollution liability
provisions of the policies. Grounds to avoid coverage include the fact that
some of the lawsuits do not include allegations of a pollution incident,
that any pollution incidents may not have commenced before the policy
retroactive date, that property damage to waste facilities is excluded; and
that bodily injury or property damage arising out of a pollution incident
which results from a deliberate failure to comply with applicable statutes
or regulations is excluded from potential coverage. Other energy industries
pollution liability provisions, exclusions and coverage positions have been
outlined and reserved by United National.
(e)COVERAGE POSITIONS APPLICABLE TO BOTH GENERAL LIABILITY AND ENERGY
INDUSTRIES POLLUTION LIABILITY PROVISIONS
United National has also informed us of its position that the claims
in the Brookhaven lawsuit also may not be subject to potential coverage
under both the general liability and the energy industries pollution
liability provisions based on one or more of exclusions or other grounds
applicable to both coverage forms, including damage expected or intended
from the standpoint of the insured, or damage which the insured is
obligated to pay by reason of the assumption of liability in a contract or
agreement, liability arising out of the actual, alleged or threatened
properties of any "radioactive
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material"; and any loss, cost or expense arising out of any request, demand
or order to respond to or assess the effects or presence of radioactive
material; and property damage or personal injury arising from known damages
or an occurrence or offense known to any insured before the inception of
the policies. Other policy provisions, exclusions and coverage positions
applicable to both coverage forms have been outlined and reserved by United
National.
United National also has maintained that:
- its policies do not extend potential coverage to punitive damages
sought in the lawsuits,
- there is a per occurrence deductible applicable to pollution claims
in the amount of $50,000 per occurrence, and
- each lawsuit is subject to a minimum of one $50,000-per-occurrence
pollution deductible for which we would be liable before policy
proceeds attaching.
We believe that there is no merit to United National's various positions
described above and we have reserved all rights with respect to these policies
and United National's conduct in connection therewith.
Unasserted Causes of Action.
We have an unasserted claim against Texaco Exploration and Production, Inc.
regarding imbalances in gas volume from wells in which we have an interest.
The Equity Committee in our bankruptcy proceedings contends that causes of
action may exist against one or more of our management team as it existed on
August 23, 1999. We contend that these claims lack merit.
We believe that we have been damaged as a result of the actions of some
members of the Equity Committee, including communications by those members on
the internet. The Equity Committee contends that these claims lack merit.
We are 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, we believe that the resolution of these
matters will not have a material adverse effect, either individually or in
aggregate, on our financial position or results of operations.
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MANAGEMENT
DIRECTORS
The names of our directors and other information with respect to each of
them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR AGE SINCE
- -------- --- -----
<S> <C> <C>
Michael McGovern(a)......................................... 48 2000
Eugene Davis(a)............................................. 45 2000
John G. Graham(a)(b)........................................ 61 2000
James E. Bolin.............................................. 41 2000
Michael E. Salvati(c)....................................... 47 2000
Ronald M. Goldstein......................................... 45 2000
</TABLE>
- ---------------
(a) Member of the Executive Committee.
(b) Chairman of the Audit Committee. Our board of directors has not yet
appointed other members of the Audit Committee.
(c) Chairman of the Compensation Committee. Our board of directors has not yet
appointed other members of the Compensation Committee.
Michael McGovern. Mr. McGovern has served as our President and Chief
Executive Officer since March 31, 2000. Mr. McGovern served as Managing Director
of Pembrook Capital Corporation, an energy investment and advisory services
company, since 1998 and served as Chairman and Chief Executive Officer for
Edisto Resources Corporation, a publicly held oil and gas company, from 1993 to
1997. Mr. McGovern is a director of Greystar Corporation, a private production
management service company; Century Seismic LLC, a private seismic data library
service; and Goodrich Petroleum Corporation, a public oil and gas company.
Eugene Davis. Mr. Davis has served as Chairman and Chief Executive Officer
of Pirinate Consulting Group, L.L.C., a consulting firm specializing in crisis
and turn-around management advisory services for public and private businesses,
since 1999. Mr. Davis served as Chief Operating Officer of Total-Tel USA
Communications, Inc., an integrated telecommunications provider, from 1998 to
1999. He also served in various officer positions, lastly as Vice Chairman and
Director, of Emerson Radio Corporation, an international distributor of consumer
electronics products, since 1990.
John G. Graham. Mr. Graham has served as President and Chief Executive
Officer of Utilities Mutual Insurance Company, a mutual provider of workers'
compensation and other insurance lines, since May 1999. Mr. Graham also served
as Senior Vice President and Chief Financial Officer of GPU Service Corporation,
a domestic and international electric utility, from 1976 to April 1999. Mr.
Graham is a director of Viatel Inc., a publicly held telecommunications company.
James E. Bolin. Mr. Bolin has served as Vice President and Secretary of
Appaloosa Partners, Inc., an investment firm and one of our principal
shareholders, since 1995. Mr. Bolin served as a Vice President and Analyst for
Goldman, Sachs & Company, an investment banking firm, from 1989 to 1995, and as
Director of Corporate Bond Research from 1992 to 1995.
Michael E. Salvati. Mr. Salvati is an independent financial consultant. Mr.
Salvati served as Executive Vice President and Chief Operating Officer of
National Financial Partners Corp., a financial services firm, from 1998 to
February 2000. Mr. Salvati served as Vice President and Chief Financial Officer
of Culligan Water Technologies, Inc., from 1996 to 1998, and was a Partner with
KPMG Peat Marwick LLP, a public accounting firm, prior to 1996.
Ronald M. Goldstein. Mr. Goldstein currently serves as Vice President and
Chief Financial Officer of Appaloosa Partners, Inc., an investment firm and one
of our principal shareholders. Prior to joining
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Appaloosa Partners, Inc. in 1993, Mr. Goldstein was a Senior High Yield Trader
for Bear Stearns & Company, an investment banking firm.
There is no family relationship between any director, executive officer or
person nominated or chosen by the registrant to become a director or executive
officer.
EXECUTIVE OFFICERS
The names of our executive officers and other information with respect to
them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Michael McGovern..................... 48 Chairman, President, Chief Executive Officer and
Director
Gary L. Pittman...................... 44 Chief Financial Officer and Corporate Secretary
Gerald E. Ruley...................... 59 Vice President -- Operations
</TABLE>
For information concerning Michael McGovern, see the table under the
caption "Directors," above.
Gary L. Pittman has served as our Chief Financial Officer and Corporate
Secretary since April 1, 2000. Mr. Pittman served as Chief Financial Officer of
Bell Geospace, Inc., a privately held technology-based provider of high
resolution gradient data to the oil and gas industry, since 1999. Mr. Pittman
also served as a financial consultant to a privately held company from 1998 to
1999, and as Executive Vice President and Chief Financial Officer of Convest
Energy Corporation, a publicly traded independent energy company, from 1995 to
1997.
Gerald E. Ruley has served as our Vice President -- Operations since April
1, 2000 and as a Production Manager for Coho since 1996. Mr. Ruley also served
as Exploration and Production Manager of Winchester Production Company, an
independent energy company, from 1994 to 1995.
Under our plan of reorganization, for the first year after the
confirmation, our board of directors will consist of seven members. Four members
of the board of directors will be selected by the principal holders of the old
bonds. One member of the board of directors will be selected by the
post-confirmation board of directors from our post-confirmation management. Two
members of the board of directors will be selected by the entities whose funding
is used after the confirmation of our plan of reorganization, based upon their
relative contributions of capital.
Three of the four members of the board of directors selected by the
principal holders of old bonds are Eugene Davis, John G. Graham, and James E.
Bolin. The one member of the board of directors selected from our
post-confirmation management is Michael McGovern. The two members selected by
the entities whose funding was used after confirmation of our plan of
reorganization are Ronald Goldstein and Michael Salvati. Information about each
of the persons named in this paragraph is set forth under the caption
"Directors," above.
We are not currently aware of the identity of the remaining board member
for the one-year period after confirmation that will be nominated in accordance
with our plan of reorganization.
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EXECUTIVE COMPENSATION
The following tables contain information about our five most highly
compensated executive officers, including our Chief Executive Officer, in 1997,
1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)(7) COMPENSATION
- --------------------------- ---- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Jeffrey Clarke........................ 1999 $300,000 $ 0 -- $ 53,194
President and Chief 1998 300,000 0 -- 378,060
Executive Officer(1)(6) 1997 265,000 250,000 300,000 52,539
R.M. Pearce........................... 1999 $225,000 $ 0 -- $ 17,508
Executive Vice President and 1998 225,000 0 -- 17,171
Chief Operating Officer(2) 1997 195,000 140,000 160,000 13,954
Eddie M. LeBlanc, III................. 1999 $175,000 $ 0 -- $ 13,042
Senior Vice President and 1998 175,000 0 -- 12,835
Chief Financial Officer(3) 1997 161,650 85,000 150,000 11,170
Anne Marie O'Gorman................... 1999 $175,000 $ 0 -- $ 11,511
Senior Vice President 1998 175,000 0 -- 83,106
Corporate Development and 1997 161,650 85,000 100,000 10,516
Corporate Secretary(4)(6)
Larry L. Keller....................... 1999 $163,000 $ 0 -- $ 10,481
Vice President, Mid Continent 1998 163,000 0 -- 83,685
Division(5)(6) 1997 143,100 65,000 45,000 10,050
</TABLE>
- ---------------
(1) Mr. Clarke's All Other Compensation includes our contributions to a 401(k)
savings plan of $8,000 in each year of 1999, 1998 and 1997; premiums paid on
a disability and life insurance policy of $33,118, $32,656 and $32,463 in
1999, 1998 and 1997, respectively; and $12,076 in each year of 1999, 1998
and 1997 of imputed interest on a loan from Coho. Mr. Clarke ceased to serve
as President, Chief Executive Officer and Chairman on March 31, 2000, and is
no longer employed by us.
(2) Mr. Pearce's All Other Compensation includes our contributions to a 401(k)
savings plan of $8,000 in each year of 1999, 1998 and 1997; and premiums
paid on a disability policy of $9,508, $9,171 and $5,954 in 1999, 1998 and
1997, respectively. Mr. Pearce ceased to serve as Executive Vice President
and Chief Operating Officer on April 4, 2000, and is no longer employed by
us.
(3) Mr. LeBlanc's All Other Compensation includes our contributions to a 401(k)
savings plan of $8,000 in each year of 1999, 1998 and 1997; and premiums
paid on a disability policy of $5,042, $4,835 and $3,171 in 1999, 1998 and
1997, respectively. In late 1999, we proposed a work force reduction. In
connection with the proposed work force reduction, Mr. LeBlanc is no longer
employed by us.
(4) Ms. O'Gorman's All Other Compensation includes our contributions to a 401(k)
savings plan of $8,000, in each year of 1999, 1998 and 1997; and premiums
paid on a disability policy of $3,511, $3,429 and $2,050 in 1999, 1998 and
1997, respectively. Ms. O'Gorman ceased to serve as Senior Vice President,
Corporate Development and Corporate Secretary on April 1, 2000.
(5) Mr. Keller's All Other Compensation includes our contributions to a 401(k)
savings plan of $8,000 in each year of 1999, 1998 and 1997; and premiums
paid on a disability policy of $2,481, $2,345 and $2,050 in 1999, 1998 and
1997, respectively. Mr. Keller ceased to serve as Vice President, Mid
Continent Division on April 4, 2000.
(6) Included in All Other Compensation for Messrs. Clarke and Keller and Ms.
O'Gorman for 1998 are $324,992, $73,331 and $71,678, respectively. The
amounts represent our payment on January 22, 1998 of the difference of the
guaranteed price of $10.50 and the strike price of stock options exercised
in
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October 1997. For more information, see the section of this prospectus
called "Certain Relationships and Related Transactions."
(7) Upon consummation of our plan of reorganization, all options were canceled.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT FISCAL YEAR-END(1) AT FISCAL YEAR-END(2)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
- ---- -------- -------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Clarke(3)........... -- $-- 482,023 0 $0 $0
R.M. Pearce(4).............. -- $-- 380,000 0 $0 $0
Eddie M. LeBlanc, III(5).... -- $-- 250,000 0 $0 $0
Anne Marie O'Gorman(6)...... -- $-- 203,432 0 $0 $0
Larry L. Keller(7).......... -- $-- 78,333 15,000 $0 $0
</TABLE>
- ---------------
(1) Upon consummation of our plan of reorganization, all options were canceled.
(2) Computed based upon the difference between the market price on December 31,
1999 of $7/16 per share and the exercise price per share.
(3) Mr. Clarke ceased to serve as President, Chief Executive Officer and
Chairman on March 31, 2000, and is no longer employed by us.
(4) Mr. Pearce ceased to serve as Executive Vice President and Chief Operating
Officer on April 4, 2000, and is no longer employed by us.
(5) In late 1999, we proposed a work force reduction. In connection with the
proposed work force reduction, Mr. LeBlanc is no longer employed by us.
(6) Ms. O'Gorman ceased to serve as Senior Vice President, Corporate Development
and Corporate Secretary on April 1, 2000.
(7) Mr. Keller ceased to serve as Vice President, Mid Continent Division on
April 4, 2000.
EMPLOYMENT AGREEMENTS
Our board of directors has proposed that our plan of reorganization provide
for a retention plan under which key employees are provided with additional
incentives to continue their employment with Coho throughout our bankruptcy
reorganization. The amount of cash awards that will be granted under the
retention plan is approximately $1.5 million, 33% of which is paid shortly after
the confirmation of our plan of reorganization and 67% of which is paid on the
first business day following the 270th day after the effectiveness of the
confirmation.
We have entered into employment agreements with each of Messrs. McGovern,
Ruley and Pittman, which provide for minimum annual compensation in the amount
of $350,000, $250,000, and $200,000, respectively. Each employment agreement is
for a term of two years, which term automatically renews daily for a term to
extend two years from the renewal date until either party gives notice.
Additionally, each employment agreement automatically terminates on the date of
a "Change of Control," as defined below. Each employment agreement entitles the
officer to participate in the bonus, incentive compensation and other programs
that are created by our board of directors. If any of Messrs. McGovern, Ruley or
Pittman is terminated by Coho without "Cause" (as defined below), or if the
employment agreements are automatically terminated because of a "Change of
Control," Coho would:
- pay that individual a cash lump sum payment equal to two times the
executive's then-current annual rate of total compensation, and
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- continue, until the second anniversary of the employment termination,
health and life insurance coverage under our plans or the equivalent
thereof on the same basis as our other senior executives.
If any of Messrs. McGovern, Ruley or Pittman becomes disabled or dies during the
term of the respective employment agreement, the employment agreement may be
terminated by us, and we will pay the executive or his estate any unpaid
compensation and other benefits under the employment agreement until the date of
termination.
The term "Cause" is defined in each employment agreement generally to mean:
- any material failure of the executive after written notice to perform his
or her duties,
- commission of fraud, embezzlement or misappropriation by the executive
against Coho,
- a material breach by the executive of the employment agreement or of the
fiduciary duty owed to Coho, or
- conviction of the executive of a felony offense or a crime involving
moral turpitude.
Under each employment agreement, a "Change of Control" of Coho is deemed to
have occurred if:
- there is a sale, lease or other transfer of all or substantially all of
the assets of Coho,
- our shareholders adopt a plan relating to the liquidation or dissolution
of Coho,
- any person or group of persons acting in concert becomes the beneficial
owner of more than 50 percent of the voting power of our securities
generally entitled to vote in the election of directors, with certain
exceptions, or
- there occurs a merger or consolidation of Coho unless, after the
transaction, all of those persons who were the beneficial owners of our
common stock before the transaction beneficially own 50 percent or more
of the total voting power of all securities generally entitled to vote in
the election of directors, managers or trustees of the surviving entity.
We had employment agreements with each of Jeffrey Clarke, R. M. Pearce, and
Anne Marie O'Gorman. Additionally, we had a severance agreement with Larry L.
Keller. Each of these people is a former officer of Coho, and Mr. Clarke is also
a former director. We rejected each of these agreements under our plan of
reorganization, and each of these people filed proofs of claim in our bankruptcy
case. We have negotiated settlement agreements with Messrs. Clarke and Keller
and Ms. O'Gorman, which agreements are described below. We are currently
negotiating an agreement with Mr. Pearce.
We have entered into an executive employment severance agreement with
Jeffrey Clarke, our former president and chief executive officer. The purpose of
this agreement is to compromise and settle any claims Mr. Clarke may have had
under his prior employment agreement and to secure Mr. Clarke's assistance in
the Hicks Muse lawsuit. In addition, Mr. Clarke has agreed to serve us as a
consultant for up to two days per week through June 30, 2000. Under the
compromise and settlement agreement, Mr. Clarke is entitled to receive a total
of $875,000 as a cash settlement, $412,500 of which was paid as of the effective
date of the plan of reorganization and $462,500 of which is to be paid on the
270th day following the effective date.
In addition, under the agreement Mr. Clarke will receive the following
non-cash benefits:
- payment of two years of medical insurance, life insurance and disability
insurance,
- release of any claims we may have in connection with the non-interest
bearing sole recourse loan made to Mr. Clarke in October 1997 to assist
him in the exercise of expiring options,
- forebearance of the interest-free loan from us to Mr. Clarke in the
amount of $205,000 used to purchase a house, in exchange for Mr. Clarke's
assistance in the Hicks Muse lawsuit, which loan will be forgiven on the
date the Hicks Muse lawsuit is settled or otherwise completed,
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- a three year directors and officers insurance policy as described in the
plan of reorganization, covering actions prior to the effective date, and
- our agreement not to assign any claims we may have against Mr. Clarke, if
any.
Our agreement with Mr. Clarke also includes a one-year non-compete clause and
confidentiality provisions.
We entered into an agreement with Anne Marie O'Gorman, our former Senior
Vice President Corporate Development and Corporate Secretary, to compromise and
settle her claims under her employment agreement, which was rejected under our
plan of reorganization. Under the compromise and settlement agreement, Ms.
O'Gorman is entitled to receive $175,000 as a cash settlement, payable in four
equal quarterly installments, with the first payment made on the date of the
agreement. Ms. O'Gorman is also eligible to participate in the retention plan
described above, and is entitled to a pro rata portion of the retention bonus if
she is terminated prior to the 270th day after the effective date of the plan of
reorganization.
In addition, under the agreement Ms. O'Gorman will receive the following
benefits:
- payment of medical and dental coverage for one year after her
termination,
- release of any claims we may have in connection with the non-interest
bearing sole recourse loan made to Ms. O'Gorman in October 1997 to assist
her in the exercise of expiring options, and
- upon termination, payment of two weeks severance for each year or
fraction of year of employment.
We entered into an agreement with Larry L. Keller, our former Vice
President, Mid-Continent Division, to compromise and settle his claims under his
severance agreement, which was rejected under our plan of reorganization. Under
the compromise and settlement agreement, Mr. Keller is entitled to receive a
$163,000 cash settlement, payable in four equal quarterly installments, with the
first payment made on the date of the agreement. Mr. Keller is also eligible to
participate in the retention plan described above, and is entitled to a pro rata
portion of the retention bonus if he is terminated prior to the 270th day after
the effective date of the plan of reorganization.
In addition, under the agreement Mr. Keller will receive the following
benefits:
- payment of medical and dental coverage for one year after his
termination, and
- release of any claims we may have in connection with the non-interest
bearing sole recourse loan made to Mr. Keller in October 1997 to assist
him in the exercise of expiring options.
We are currently negotiating settlement agreements with our other former
officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 1999 the members of our compensation committee were Douglas
R. Martin, Alan Edgar and Jake Taylor. No member of our compensation committee
was an officer or employee of Coho at any time during 1999. Mr. Martin was the
Chief Financial Officer of Coho Resources Limited from April 1990 through August
1993.
During 1999 no executive officer of Coho served as:
- a member of the compensation committee or other board committee
performing equivalent functions of another entity, one of whose executive
officers served on the compensation committee of our board of directors,
- director of another entity, one of whose executive officers served on the
compensation committee of our board of directors, or
- a member of the compensation committee or other board committee
performing equivalent functions of another entity, one of whose executive
officers served as a director of Coho.
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<PAGE> 80
COMPENSATION OF DIRECTORS
Directors who are not our employees receive an annual retainer of $15,000
plus a fee of $1,000 for each meeting of our board of directors or meeting of a
committee of our board of directors attended in person. Additionally, members of
the Audit, Compensation and Executive Committees will receive an annual fee of
$2,000, with the exception of the chairman of each Committee, who will receive
an annual chairman fee of $3,500. Eugene Davis has also entered into a month to
month contract with us for consulting services at $15,000 per month. All
directors are reimbursed for expenses incurred in attending meetings of our
board of directors or meetings of committees of our board of directors. Our
employees who are also directors do not receive a retainer or fees for attending
meetings of our board of directors or meetings of committees of our board of
directors.
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<PAGE> 81
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to persons or entities who,
to our knowledge based on information received from those persons or entities,
were the beneficial owners of more than 5% of the outstanding shares of common
stock as of April 1, 2000. Unless otherwise specified, these persons have sole
voting power and sole dispositive power with respect to all shares attributable
to them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
- ------------------- -------------------- -------------------
<S> <C> <C>
PPM America, Inc.(2)..................................... 5,254,353 32.8%
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
Appaloosa Management, L.P.(3)............................ 4,765,083 29.8%
26 Main Street
Chatham, New Jersey 07928
Oaktree Capital Management, LLC(4)....................... 4,102,707 25.6%
333 South Grand Avenue, 28th Floor
Los Angeles, California 90071
</TABLE>
- ---------------
(1) Based on 16,002,195 shares issued and outstanding as of April 1, 2000.
(2) Based on information contained in a Schedule 13D dated April 3, 2000 filed
with the Commission. PPM America, Inc. has shared voting and dispositive
power with respect to 5,254,253 shares of new common stock that are owned by
it.
(3) Based on information contained in a Schedule 13D dated April 3, 2000 filed
with the Commission. Appaloosa Management, L.P. is a limited partnership and
has sole voting and dispositive power with respect to 4,765,083 shares of
new common stock that are owned by the partnership.
(4) Based on information available to us. To our knowledge, Oaktree Capital
Management, LLC has sole voting and dispositive power with respect to
4,102,707 shares of Common Stock that are owned by it.
The following table sets forth information with respect to common stock
beneficially owned as of April 1, 2000 by each of our directors, by each
executive officer named in the Summary Compensation Table and by all directors
and officers as a group. Unless otherwise specified, these persons have sole
voting power and sole dispositive power with respect to all shares attributable
to him or her.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
OWNERSHIP(1) OF CLASS
-------------------- --------
<S> <C> <C>
James E. Bolin(2)........................................... 4,765,083 29.8
Jeffrey Clarke(3)........................................... 1,745 *
Eugene L. Davis............................................. -- --
Ronald Goldstein(4)......................................... 4,765,083 29.8
John G. Graham.............................................. -- --
Larry L. Keller(5).......................................... 379 *
Eddie M. LeBlanc, III(6).................................... 25 *
Michael McGovern............................................ -- --
Anne Marie O'Gorman(7)...................................... 408 *
R. M. Pearce(8)............................................. 125 *
Michael Salvati............................................. -- --
All directors and executive officers as a group (16
persons).................................................. 4,767,765 29.8%
</TABLE>
- ---------------
* Less than 1%
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<PAGE> 82
(1) On the effective date of our plan of reorganization, all options were
canceled.
(2) Mr. Bolin, one of our directors, is a vice president and secretary of
Appaloosa Partners, Inc. and, as such, may be deemed to beneficially own the
shares owned by Appaloosa Partners, Inc.
(3) Mr. Clarke ceased to serve as President, Chief Executive Officer and
Chairman on March 31, 2000, and is no longer employed by us.
(4) Mr. Goldstein, one of our directors, is a vice president and chief financial
officer of Appaloosa Partners, Inc. and, as such, may be deemed to
beneficially own the shares owned by Appaloosa Partners, Inc.
(5) Mr. Keller ceased to serve as Vice President, Mid-Continent Division, on
April 4, 2000.
(6) In late 1999, we proposed a work force reduction. In connection with the
proposed work force reduction, Mr. LeBlanc's employment relationship with us
was severed effective December 31, 1999.
(7) Ms. O'Gorman ceased to serve as Senior Vice President, Corporate Development
and Corporate Secretary on April 1, 2000.
(8) Mr. Pearce ceased to serve as Executive Vice President and Chief Operating
Officer on April 4, 2000, and is no longer employed by us.
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<PAGE> 83
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under the terms of a Financial Advisory Agreement entered into between us
and Hicks, Muse & Co. Partners, L.P., on August 21, 1998, we paid Hicks, Muse &
Co. Partners $1,250,000 as compensation for its services as our financial
advisor in connection with an agreement to issue shares of our common stock to
HM4 Coho L.P., an affiliate of Hicks, Muse & Co. Partners. John R. Muse and
Lawrence D. Stuart, Jr., are limited partners in Hicks, Muse & Co. Partners and
limited partners of a limited partner in HM4, and at the time of the payment to
Hicks, Muse & Co. Partners, were two of our directors under an agreement with
EIP. For more information regarding EIP, see the section of this prospectus
called "Management." On March 18, 1999, Messrs. Muse and Stuart resigned from
our board of directors.
In May 1990 we made a non-interest bearing loan in the amount of $205,000
to Mr. Jeffrey Clarke, our former Chairman, President and Chief Executive
Officer, to assist him in the purchase of a house in Dallas, Texas. We have
agreed to forgive this loan when the Hicks Muse lawsuit is settled or otherwise
completed in exchange for Mr. Clarke's continued cooperation in pursuing the
litigation.
In October 1997 we made non-interest bearing sole recourse loans to Jeffrey
Clarke, our former Chairman, President and Chief Executive Officer; Anne Marie
O'Gorman, our former Senior Vice President, Corporate Development; Larry Keller,
our former Vice President Exploitation; and Kenneth Lambert, one of our former
directors, in the amounts of $383,064; $84,006; $66,665 and $88,375,
respectively, to assist them in the exercise of expiring options. At the time of
the expiration of these options all of our officers and directors were subject
to a 90-day lock up agreement with the underwriters of our 1997 equity offering.
Under the terms of this agreement, the officers and directors were not able to
sell any of their shares and would not have had the funds necessary to purchase
the stock without the loan. In addition to the loan, we also provided a
guaranteed price of $10.50, which was the price of the common stock in the 1997
equity offering, to be received by Messrs. Clarke, Keller and Lambert and Ms.
O'Gorman. These loans were forgiven in connection with our restructuring.
In 1999, we entered into an agreement with Alan Edgar, one of our former
directors, that provided for Mr. Edgar to receive a percentage of the net
proceeds received by us from the lawsuit we commenced against Hicks Muse up to a
maximum of $5.75 million, in consideration of Mr. Edgar's extensive and ongoing
involvement in working with our special litigation counsel in prosecuting the
lawsuit. When the plan of reorganization was consummated, this agreement was
rejected.
In April 2000, we entered into a consulting services agreement with Eugene
Davis, one of our directors, on a month to month basis. Under the agreement, Mr.
Davis is to receive $15,000 per month.
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<PAGE> 84
DESCRIPTION OF EXISTING INDEBTEDNESS
The Credit Facility.
On the effective date, we established a new credit facility with a group of
lenders and The Chase Manhattan Bank, as agent for the new lenders, for a
principal amount of up to $250 million. The new credit facility limits advances
to the amount of the borrowing base, which has been set initially at $205
million. The borrowing base is the loan value to be assigned to the proved
reserves attributable to our oil and gas properties. The borrowing base is
subject to semiannual review based on reserve reports. The initial borrowing
base was subject to Chase's review of the January 1, 2000 reserve report, which
was prepared and audited by independent petroleum engineering firms acceptable
to the new lenders. The principal amount currently outstanding under the new
credit facility is $183.0 million.
The new credit facility is subject to semiannual borrowing base
redeterminations, each April 1 and October 1, and will be made in the sole
discretion of the lenders. We will deliver to the lenders by March 1 of each
year a reserve report prepared as of the immediately preceding January 1 and by
September 1 of each year a reserve report prepared as of the immediately
preceding July 1. The January 1 reserve report will be prepared internally by us
and audited by an independent petroleum engineering firm, acceptable to Chase,
and the July 1 reserve report will be prepared internally by us, in a form
acceptable to Chase. Based in part on the reserve report, the lenders will
redetermine the borrowing base in their sole discretion. For an increase in the
borrowing base, consent of 100% of the lenders will be required. To maintain the
borrowing base, or to reduce the borrowing base, consent of the lenders holding
75% of outstanding loans and letter of credit exposure or, if no loans or
letters of credit are outstanding, the lenders of 75% of the current loan
commitments under the new credit facility, will be required. We or Chase may
request one additional borrowing base determination during any calendar year.
Interest on advances under the new credit facility will be payable on the
earlier of the expiration of any interest period under the new credit facility
or quarterly, beginning the first quarter after the effective date. Amounts
outstanding under the new credit facility will accrue interest at our option at
either the Eurodollar rate, which is the annual interest rate equal to the
London interbank offered rate for deposits in United States dollars that is
determined by reference to the Telerate Service or offered to Chase plus an
applicable margin, or the prime rate, which is the floating annual interest rate
established by Chase from time to time as its prime rate of interest and which
may not be the lowest or best interest rate charged by Chase on loans similar to
the new credit facility, plus an applicable margin. All outstanding advances
under the new credit facility are due and payable in full three years from the
effective date.
The new credit facility has been secured by granting Chase the following
collateral for the benefit of the lenders:
- first and prior security interests in our issued and outstanding capital
stock and other equity interests of our material subsidiaries,
- first and prior mortgage liens and security interests covering proved
mineral interests selected by Chase having a present value, as determined
by Chase, of not less than 85% of the present value of all of our proved
mineral interests evaluated by the lenders for purposes of determining
the borrowing base, and
- first and prior security interests in our other tangible and intangible
assets.
The rights and responsibilities of Chase, the lenders and us are governed by a
new senior revolving credit agreement and related documents, which, in part,
permit the lenders to enforce their rights to the collateral on the occurrence
of an event of default under the new credit agreement.
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<PAGE> 85
The new credit agreement contains financial and other covenants including:
- maintenance of minimum ratios of cash flow to interest expense, senior
debt to cash flow, and current assets to current liabilities as of the
end of each fiscal quarter, commencing as of the initial fiscal quarter
to commence after the effective date,
- restrictions on the payment of dividends and
- limitations on the incurrence of additional indebtedness, the creation of
liens and the incurrence of capital expenditures.
Fees for the lenders contained in the Chase commitment letter to us dated
December 9, 1999 were approved by the bankruptcy court at a hearing on the fees
held on January 27, 2000. These fees include an initial due diligence fee of
$200,000. Because the lenders funded under the new credit facility on the
effective date, they are entitled to an additional aggregate $5.8 million of
closing fees. All fees paid by us in connection with the new credit facility are
non-refundable and are in addition to reimbursements to be paid for expenses
incurred by Chase in connection with the preparation of the new credit agreement
and related documentation.
The Standby Loan.
The majority of the funds necessary for the payment of the allowed bank
group claim were obtained through an advance under the new credit facility with
Chase of $183.0 million of the initial borrowing base. The remaining amount of
the allowed bank group claim has been paid with the standby loan. The standby
loan has been made under a senior subordinated note facility under which we
issued, and PPM America, Inc., Appaloosa Management, L.P., Oaktree Capital
Management, L.L.C. and Pacholder Associates, Inc. and their assignees,
purchased, $72 million of senior subordinated notes. Our rights and
responsibilities and those of the standby lenders are governed by a standby loan
agreement which was executed and delivered on March 31, 2000.
Debt under the standby loan agreement is evidenced by notes, maturing seven
years after the effective date, and bearing interest at a minimum annual rate of
15% and payable in cash semiannually. After the first anniversary of the
effective date, additional semiannual interest payments will be payable in an
amount equal to 1/2% for every $0.25 that the "actual price" for our oil and
gas production exceeds $15 per barrel of oil equivalent during the applicable
semiannual interest period, up to a maximum of 10% additional interest per year.
The "actual price" for our oil and gas production is the weighted average price
received by us for all of our oil and gas production, including hedged and
unhedged production, net of hedging costs, in dollars per barrel of oil
equivalent using a 6:1 conversion ratio for natural gas. The actual price will
be calculated over a six-month measurement period ending on the date two months
before the applicable interest payment date. Additionally, upon an event of
default occurring under the standby loan, interest will be payable in cash,
unless otherwise required to be paid-in-kind, at a rate equal to 2% per year
over the applicable interest rate. Interest payments under the standby loan may
be paid-in-kind subject to the requirements of the new credit agreement.
"Paid-in-kind" refers to the payment of interest owed under the standby loan by
increasing the amount of principal outstanding under the standby loan notes,
rather than paying the interest in cash.
Payment of the standby loan notes is expressly subordinate to payments in
full in cash of all obligations arising in connection with the new credit
facility. After the initial 12-month period, cash interest payments may be made
only to the extent by which EBITDA, or earnings before interest, tax,
depreciation and amortization expense, on a trailing four-quarter basis exceed
$65 million. The new credit agreement also prohibits us from making any cash
interest payments on the standby loan indebtedness if the outstanding
indebtedness under both the new credit facility and the standby loan exceeds
3.75 times the EBITDA for the trailing four quarters. We may prepay the standby
loan notes at the face amount, in whole or in part, in minimum denominations of
$1,000,000, plus either a standard make-whole payment at 300 basis points over
the "treasury rate" for the first four years. Beginning in the fifth year, the
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<PAGE> 86
prepayment fee is 7.5% of the principal amount being prepaid; in the sixth year,
the prepayment fee is 3.75% of the principal amount being prepaid; and in the
seventh year there is no prepayment fee. The "treasury rate" is the yield of
U.S. Treasury securities with a term equal to the then-remaining term of the
standby loan notes that has become publicly available on the third business day
before the date fixed for repayment.
When the standby loan notes were issued, the standby lenders became
entitled to receive a percentage of our fully diluted new common stock. Because
$72 million in principal amount of the standby loan notes were issued, the
standby lenders will receive 14.4% of the fully diluted new common stock. The
shares of new common stock issued to the standby lenders will be in addition to
the shares of new common stock issued to holders of the old bonds, to our
shareholders prior to reorganization and to persons participating in this rights
offering. See the section of this prospectus called "Dilution" for an
illustration of the dilution of the new common stock.
Fees for the standby lenders contained in the standby lender fee letter to
us dated January 24, 2000 were approved by the bankruptcy court at a hearing on
the fees held on January 27, 2000. These fees include a due diligence fee of
$200,000, payable immediately, and a closing fee in an amount equal to the
greater of $1.0 million or 3 1/2% of the aggregate principal amount of the
standby loan notes purchased. Our obligation to pay the closing fee was an
administrative expense claim having priority over all administrative expenses in
accordance with Section 364(c)(1) of the bankruptcy code. We have paid the
closing fee of $2.52 million.
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<PAGE> 87
DESCRIPTION OF OUR CAPITAL STOCK
OUR AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of new common
stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par
value $0.01 per share. At April 1, 2000, 16,002,195 shares of new common stock
were outstanding and no shares of preferred stock were outstanding.
DESCRIPTION OF OUR NEW COMMON STOCK
Holders of shares of new common stock
- are entitled to one vote per share in the election of directors and on
all other matters submitted to a vote of shareholders;
- do not have the right to cumulate their votes in the election of
directors;
- have no redemption or conversion rights and no preemptive or other rights
to subscribe for our other securities in the event of our liquidation,
dissolution or winding up;
- upon our liquidation, dissolution or winding up, are entitled to share
equally and ratably in all of the assets remaining, if any, after
satisfaction of all of our debts and liabilities and the preferential
rights of any series of preferred stock then outstanding; and
- have an equal and ratable right to receive dividends, when, as and if
declared by the board of directors out of funds legally available
therefor and only after payment of, or provision for, full dividends on
all outstanding shares of any series of preferred stock and after we have
made provision for any required sinking or purchase funds for series of
preferred stock.
The shares of new common stock outstanding are fully paid and
non-assessable.
DESCRIPTION OF OUR PREFERRED STOCK
The preferred stock may be issued, from time to time, in one or more
series, and our board of directors, without further approval of the
shareholders, is authorized to fix the dividend rights and terms, redemption
rights and terms, liquidation preferences, conversion rights, voting rights and
sinking fund provisions applicable to each series of preferred stock. If we
issue a series of preferred stock in the future that has voting rights or
preferences over the new common stock with respect to the payment of dividends
and upon our liquidation, dissolution or winding up, the rights of the holders
of the new common stock offered may be adversely affected. The issuance of
shares of preferred stock could be used in an attempt to prevent an acquisition
of us. We have no present intention to issue any shares of preferred stock.
LIMITATION OF DIRECTOR LIABILITY
Our articles of incorporation contain a provision that limits the liability
of our directors as permitted under Texas law. The provision eliminates the
liability of a director to us or our shareholders for monetary damages for
negligent or grossly negligent acts or omissions in the director's capacity as a
director. The provision does not affect the liability of a director
- for breach of his duty of loyalty to us or to our shareholders,
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
- for acts or omissions for which the liability of a director is expressly
provided by an applicable statute, or
- in respect of any transaction from which a director received an improper
personal benefit.
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<PAGE> 88
Under the articles of incorporation, the liability of directors will be further
limited or eliminated without action by shareholders if Texas law is amended to
further limit or eliminate the personal liability of directors.
OTHER FEATURES OF OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION
In accordance with Section 1123(a)(6) of the United States Bankruptcy Code,
our amended and restated articles of incorporation prohibit the issuance of any
shares of non-voting equity securities. The shares of common stock resulting
after the effectiveness of our amended and restated articles of incorporation
are referred to in this prospectus as the new common stock.
In addition, our amended and restated articles of incorporation deny
cumulative voting in the election of directors and provide that if an
affirmative vote of shareholders is required for any matter, the required vote
shall be the greater of the vote required under the Texas Business Corporation
Act and the vote required under the amended and restated articles of
incorporation.
DIVIDENDS
Our standby loan agreement prohibits our paying of dividends, except share
dividends, until all principal and interest has been paid, except as otherwise
required in the plan of reorganization. Our plan of reorganization requires us
to pay shareholders of record on February 7, 2000, 20% of the proceeds available
from the Hicks Muse lawsuit after expenses and 40% of any proceeds from the
disposition of our interest in Coho Anaguid, Inc. or the disposition of
substantial assets of Coho Anaguid, Inc.; these payments are expressly permitted
by the standby loan agreement. For more information about these potential
payments, see the section of this prospectus called "The Plan of
Reorganization -- 3. Old Shareholders."
Our new credit facility contains similar provisions prohibiting our payment
of dividends.
REGISTRATION AND NOMINATION RIGHTS
Under our plan of reorganization we entered into a registration rights
agreement with the principal holders of our old bonds under which the shares of
new common stock issued to them under our plan of reorganization will be
registered under federal securities laws under prescribed circumstances.
TRANSFER AGENT AND REGISTRAR
The transfer agents for the new common stock are ChaseMellon Shareholder
Services L.L.C. and Montreal Trust Company of Canada and the registrar is
ChaseMellon Shareholder Services L.L.C.
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<PAGE> 89
DILUTION
Under our plan of reorganization, our shareholders as of February 7, 2000,
the date the bankruptcy court entered its order approving our disclosure
statement, received 640,088 shares of the new common stock and the holders of
old bonds received 15,362,107 shares of the new common stock. Before taking into
account shares issued under this rights offering or the standby loan, the
bondholder group received 96%, and the shareholders received 4%, of the total
number of outstanding shares of new common stock. These percentages may not be
exact, as cash is being distributed in lieu of fractional shares upon the
exchange of old common stock for new common stock. THESE PERCENTAGES ARE SUBJECT
TO DILUTION UNDER SOME FEATURES OF OUR PLAN OF REORGANIZATION, AS DISCUSSED
BELOW.
Under the rights offering, each of our shareholders as of the record date
of this rights offering is being given the opportunity to purchase additional
new common stock at an initial purchase price of $10.40 per share. For each
share of old common stock held as of the record date of this rights offering, a
shareholder will have the right to buy initially 0.338 shares of new common
stock. To the extent the shareholders do not purchase their allocable portion of
these offered shares, those shareholders who do purchase their allocable portion
of these offered shares may elect to purchase any number of additional shares of
the new common stock, up to the maximum number of shares offered under this
rights offering, for $10.40 per share. To the extent some shares of the new
common stock were allocated for purchase by the shareholders but were not
purchased by them, those unsubscribed shares will be distributed to the fully
subscribed shareholders who have elected to purchase the unsubscribed shares on
a pro rata basis.
The total number of shares offered to shareholders under the rights
offering, including any "gross-up" shares as described below, is 11,121,343. If
all of these shares are sold under the rights offering, excluding the additional
10,000 shares of new common stock we are registering in this prospectus to
account for the effect of rounding of rights being granted to the shareholders
but taking into account the shares to be issued under the standby loan, the
shareholders will have received a total of 11,761,481 shares of the new common
stock, constituting 37.1% of the total number of shares outstanding, and the
bondholder group will have received 15,362,107 shares of the new common stock,
constituting 48.5% of the total number of shares outstanding. We do not know
whether we will be able to sell all of the shares offered under the rights
offering.
Under the terms of the standby loan, we must issue to the standby lenders a
number of shares sufficient to give them a specified percentage of the total
outstanding shares of the new common stock as of the effective date of the
confirmation of our plan of reorganization. Because we borrowed $72 million on
the effective date, that percentage will be 14.4%.
Also under the terms of the standby loan, any shares issued to the standby
lenders will dilute the percentage ownership but not the actual number of shares
issued to the bondholder group and the shareholders in exchange for their shares
of the old common stock. However, shares issued to the standby lenders may not
dilute the percentage ownership issued to the shareholders for shares purchased
under the rights offering. To assure that these results are achieved, we will
issue additional shares of the new common stock to the purchasers under the
rights offering sufficient to assure those purchasers that they will maintain
their relative percentage ownership interests before taking into account the
shares to be issued under the standby loan. This "gross-up" feature will have
the effect of further diluting the percentage ownership interests represented by
shares issued to the shareholders in exchange for their old common stock and of
the bondholder group in exchange for their claims. It will also have the effect
of reducing the per-share purchase price under this rights offering because the
gross-up feature will not require those purchasing shares under this rights
offering to make any additional payments for the additional gross-up shares.
Because the number of shares that will be purchased under the rights
offering cannot be predicted, it is not possible to state accurately the
relative percentage ownership interests that ultimately will be held by the
shareholders who elect not to participate in the rights offering, the bondholder
group and the standby
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lenders. However, for illustrative purposes, the following table indicates what
those percentages would be under the stated assumptions.
<TABLE>
<CAPTION>
ASSUMING 20% OF THE
ASSUMING ALL SHARES SHARES OF NEW
OF NEW COMMON STOCK COMMON STOCK
OFFERED IN THIS RIGHTS OFFERED IN THIS RIGHTS
OFFERING ARE PURCHASED OFFERING ARE PURCHASED
---------------------- ----------------------
<S> <C> <C>
Shareholders (solely in exchange for their shares of
the old common stock)............................... 2.0% 3.0%
Bondholder group...................................... 48.5% 72.8%
Purchasers under this rights offering................. 35.1% 9.8%
Standby lenders....................................... 14.4% 14.4%
</TABLE>
LEGAL MATTERS
Legal matters related to the rights offered by this prospectus are being
passed upon for us by Fulbright & Jaworski L.L.P., Dallas, Texas.
INDEPENDENT AUDITORS
Our consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been audited by Arthur Andersen LLP, independent auditors,
as set forth in their reports appearing in this prospectus.
ENGINEERS
The historical reserve information prepared by Ryder Scott Company and
Sproule Associates, Inc. included in this prospectus has been included in
reliance upon the authority of each firm as experts with respect to matters
contained in their respective reserve reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read, or copy,
any document we file at the public reference room maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: New York Regional Office, Seven World Trade Center,
13th Floor, New York, New York 10048; and Chicago Regional Office, Citicorp
Center, 5000 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
this information can be obtained by mail from the Commission's Public Reference
Branch at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, our
filings with the Commission are also available to the public on the Commission's
internet website at http://www.sec.gov.
We have filed with the Commission a registration statement on Form S-1
under the Securities Act of 1933 with respect to the rights offered in this
rights offering and the shares of our new common stock to be issued upon
exercise of the rights or otherwise under this rights offering. This prospectus
does not contain all of the information set forth in the registration statement
and its exhibits and schedules. Statements made by us in this prospectus as to
the contents of any contract, agreement or other document referred to in this
prospectus are not necessarily complete. For a more complete description of
these contacts, agreements or other documents, you should carefully read the
exhibits to the registration statement.
The registration statement, together with its exhibits and schedules, which
we filed with the Commission, may also be reviewed and copied at the public
reference facilities of the Commission located at the addresses set forth above.
Please call the Commission at 1-800-SEC-0330 for further information on its
public reference facilities.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets, December 31, 1998 and 1999..... F-3
Consolidated Statements of Operations, Years Ended December
31, 1997, 1998 and 1999................................... F-4
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1997, 1998
and 1999.................................................. F-5
Consolidated Statements of Cash Flows, Years Ended December
31, 1997, 1998 and 1999................................... F-6
Notes to Consolidated Financial Statements, Years Ended
December 31, 1997, 1998 and 1999.......................... F-7
</TABLE>
F-1
<PAGE> 92
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Coho Energy, Inc. (debtor-in-possession)
We have audited the accompanying consolidated balance sheets of Coho
Energy, Inc. (a Texas corporation debtor-in-possession) and subsidiaries as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, shareholders' investments and cash flows for each of the three years
in the period ended December 31, 1999. 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 as of December 31, 1998 and 1999, and the results of our operations
and our cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations, has received a notice of default from its lenders
under its existing bank credit facility and is in default under the terms of its
8 7/8% Senior Subordinated notes, that raise substantial doubt about the
Company's ability to continue as a going concern. On August 23, 1999, the
Company, together with certain of its wholly owned subsidiaries, filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code and
is currently operating as a debtor-in-possession subject to the bankruptcy
court's supervision and orders. As discussed in Note 2 to the financial
statements, management believes that it may not be possible to satisfy all
claims against the Company if the reorganization plan filed with the Bankruptcy
Court is not approved. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Arthur Andersen LLP
Dallas, Texas
March 3, 2000 (Except with respect to
the matters discussed in Note 15, as to
which the date is April 17, 2000.)
F-2
<PAGE> 93
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 6,901 $ 18,805
Cash in escrow............................................ 1,505 78
Accounts receivable, principally trade.................... 9,960 11,158
Other current assets...................................... 948 1,428
--------- ---------
19,314 31,469
Property and equipment, at cost net of accumulated depletion
and depreciation, based on full cost accounting method
(note 3).................................................. 324,574 311,788
Other assets................................................ 6,180 5,544
--------- ---------
$ 350,068 $ 348,801
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities not subject to compromise:
Current liabilities
Accounts payable, principally trade.................... $ 5,577 $ 1,294
Accrued liabilities and other payables................. 6,656 3,751
Accrued interest....................................... 7,302 10,175
Accrued state income taxes payable..................... 4,045 --
Current portion of long term debt (note 4)............. 384,031 --
--------- ---------
Total current liabilities......................... 407,611 15,220
Liabilities subject to compromise:
Accounts payable, principally trade....................... -- 4,166
Accrued liabilities and other payables.................... -- 5,373
Accrued interest.......................................... -- 21,379
Accrued state income taxes payable........................ -- 4,136
Current portion of long term debt (note 4)................ -- 388,685
--------- ---------
Total liabilities subject to compromise........... -- 423,739
--------- ---------
407,611 438,959
--------- ---------
Commitments and contingencies (note 9)...................... 3,700 1,800
Shareholders' deficit (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 and outstanding 25,603,512 shares............... 256 256
Additional paid-in capital................................ 137,812 137,812
Retained deficit.......................................... (199,311) (230,026)
--------- ---------
Total shareholders' deficit....................... (61,243) (91,958)
--------- ---------
$ 350,068 $ 348,801
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 94
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Operating revenues
Net crude oil and natural gas production.................. $ 63,130 $ 68,759 $ 57,323
-------- --------- --------
Operating expenses
Crude oil and natural gas production...................... 13,747 23,475 18,218
Taxes on oil and gas production........................... 2,223 3,384 2,937
General and administrative (note 3)....................... 7,163 7,750 9,905
State income tax penalties................................ -- -- 1,048
Allowance for bad debt.................................... -- 894 --
Unsuccessful transaction costs............................ -- 2,129 --
Depletion and depreciation................................ 19,214 28,135 13,702
Writedown of crude oil and gas properties................. -- 188,000 5,433
-------- --------- --------
Total operating expenses.......................... 42,347 253,767 51,243
-------- --------- --------
Operating income (loss)..................................... 20,783 (185,008) 6,080
-------- --------- --------
Other income and expenses
Interest and other income................................. 646 214 246
Interest expense (note 4)................................. (11,120) (32,935) (33,944)
-------- --------- --------
(10,474) (32,721) (33,698)
-------- --------- --------
Earnings (loss) from operations before reorganization costs
and income taxes.......................................... 10,309 (217,729) (27,618)
-------- --------- --------
Reorganization costs
Professional fees......................................... -- -- 3,319
Interest income........................................... -- -- (210)
Other..................................................... -- -- 14
-------- --------- --------
-- -- 3,123
-------- --------- --------
Earnings (loss) from operations before income taxes......... 10,309 (217,729) (30,741)
-------- --------- --------
Income taxes (note 5)
Current (benefit) expense................................. 163 4,111 (26)
Deferred (benefit) expense................................ 3,858 (18,494) --
-------- --------- --------
4,021 (14,383) (26)
-------- --------- --------
Net earnings (loss)......................................... $ 6,288 $(203,346) $(30,715)
======== ========= ========
Basic earnings (loss) per common share (note 1)............. $ .29 $ (7.94) $ (1.20)
======== ========= ========
Diluted earnings (loss) loss per common share (note 1)...... $ .28 $ (7.94) $ (1.20)
======== ========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE> 95
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
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, 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
Net loss................................... -- -- -- (203,346) (203,346)
---------- ---- -------- --------- ---------
Balance at December 31, 1998................. 25,603,512 256 137,812 (199,311) (61,243)
Net loss................................... -- -- -- (30,715) (30,715)
---------- ---- -------- --------- ---------
Balance at December 31, 1999................. 25,603,512 $256 $137,812 $(230,026) $ (91,958)
========== ==== ======== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE> 96
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss)...................................... $ 6,288 $(203,346) $(30,715)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depletion and depreciation............................... 19,214 28,135 13,702
Writedown of crude oil and natural gas properties........ -- 188,000 5,433
Deferred income taxes.................................... 3,858 (18,488) --
Amortization of debt issue costs and other............... 591 1,756 679
Changes in:
Cash in escrow........................................... -- (1,505) 1,427
Accounts receivable...................................... 1,160 (1,150) (1,194)
Other assets............................................. (351) (628) (454)
Accounts payable and accrued liabilities................. 4,346 7,917 25,981
Investment in marketable securities...................... 1,962 -- --
--------- --------- --------
Net cash provided by operating activities.................. 37,068 691 14,859
--------- --------- --------
Cash flows from investing activities
Acquisitions............................................. (259,355) -- --
Property and equipment................................... (72,667) (70,143) (6,349)
Changes in accounts payable and accrued liabilities
related to exploration and development................ 3,559 (2,986) (1,186)
Proceeds on sale of property and equipment............... -- 61,452 --
--------- --------- --------
Net cash used in investing activities...................... (328,463) (11,677) (7,535)
--------- --------- --------
Cash flows from financing activities
Increase in long term debt............................... 402,894 76,113 4,600
Debt issuance costs...................................... (4,275) -- --
Repayment of long term debt.............................. (155,989) (62,043) (20)
Proceeds from exercised stock options.................... 1,495 -- --
Issuance of common stock................................. 49,223 -- --
--------- --------- --------
Net cash provided by financing activities.................. 293,348 14,070 4,580
--------- --------- --------
Net increase in cash and cash equivalents.................. 1,953 3,084 11,904
Cash and cash equivalents at beginning of year............. 1,864 3,817 6,901
--------- --------- --------
Cash and cash equivalents at end of year................... $ 3,817 $ 6,901 $ 18,805
========= ========= ========
Cash paid (received) during the period for:
Interest................................................. $ 7,774 $ 28,426 $ 8,936
Income taxes............................................. $ 603 $ (256) $ 33
Reorganization costs (including prepayments)............. $ -- $ -- $ 3,352
Reorganization costs (interest income)................... $ -- $ -- $ (210)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 97
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(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").
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.
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.
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.
Cash in Escrow
Substantially all of the cash at December 31, 1998 was held pending
completion of the April 1999 post closing review by the buyer of the Monroe
field natural gas properties, as discussed in Note 6.
Accounts Receivable
The Company performs ongoing reviews with respect to accounts receivable
and maintains an allowance for doubtful accounts receivable ($929,000 and
$885,000 at December 31, 1998 and 1999, respectively) based on expected
collectibility.
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
F-7
<PAGE> 98
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
Impairment of Long-Lived Assets
During fiscal year 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived-Assets To Be Disposed Of." The Company has
no long-lived assets which are subject to the impairment test requirements of
SFAS No. 121. The Company's only long-lived assets are oil and gas properties
which are subject to the full cost ceiling test in accordance with the full cost
method of accounting, as discussed above.
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
SFAS 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 SFAS
No. 128, "Earnings Per Share." Under SFAS No. 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
F-8
<PAGE> 99
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common shares plus, when their effect is dilutive, common stock equivalents
consisting of stock options and warrants.
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------- ------------------------------------ ---------------------------
COMMON COMMON COMMON
INCOME SHARES EPS LOSS SHARES EPS LOSS SHARES
-------------- ---------- ---- -------------- ---------- ------ -------------- ----------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings per
Share................... $6,288 21,692,804 $.29 $(203,346) 25,603,512 $(7.94) $(30,715) 25,603,512
==== ======
Stock Options............. 641,099 -- --
------ ---------- --------- ---------- -------- ----------
Diluted Earnings Per
Share................... $6,288 22,333,903 $.28 $(203,346) 25,603,512 $(7.94) $(30,715) 25,603,512
====== ========== ==== ========= ========== ====== ======== ==========
<CAPTION>
1999
------
EPS
------
<S> <C>
Basic Earnings per
Share................... $(1.20)
======
Stock Options.............
Diluted Earnings Per
Share................... $(1.20)
======
</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 average number of common shares outstanding
during the year including common stock equivalents, consisting of stock options
and warrants, when their effect is dilutive. In 1998 and 1999, conversion of the
stock equivalents would have been anti-dilutive and, therefore, was not
considered in diluted EPS.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
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.
The Company will be required to adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" for fiscal year ended 2000. If
the Company had adopted SFAS No. 133 during 1999, there would be no effect on
the Company's financial statements as the Company had no hedges outstanding at
December 31, 1999. Although the future impact of adopting SFAS No. 133 has not
been determined yet, the Company believes that the impact will not be material.
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
F-9
<PAGE> 100
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Business Segments
In June 1997, the Financial Accounting Standards Board issued SFAS 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. BANKRUPTCY PROCEEDINGS
On August 23, 1999 (the "Petition Date"), the Company and its wholly-owned
subsidiaries, Coho Resources, Inc., Coho Oil & Gas, Inc., Coho Exploration,
Inc., Coho Louisiana Production Company and Interstate Natural Gas Company,
filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code (the "Chapter 11 filing") in the U.S. District Court for the Northern
District of Texas (the "Bankruptcy Court"). The Company is currently operating
as a debtor-in-possession subject to the Bankruptcy Court's supervision and
orders. Schedules were filed by the Company on September 21, 1999 with the
Bankruptcy Court, which were subsequently amended on December 14, 1999, setting
forth the unaudited, and in some cases estimated, assets and liabilities of the
Company as of the date of the Chapter 11 filing, as shown by the Company's
accounting records.
The bankruptcy petitions were filed in order to facilitate the
restructuring of the Company's long term debt and to protect the Company while
it develops a solution to its capital needs with the banks, bondholders and
potential investors. On November 30, 1999, the Company filed a plan of
reorganization with the Bankruptcy Court. On February 15, 2000, the Company and
the Official Unsecured Creditors Committee filed the First Amended and Restated
Joint Plan of Reorganization (which, as amended, is referred to as the "Plan of
Reorganization") with the Bankruptcy Court. At a hearing on February 4, 2000,
the Bankruptcy Court approved the Company's disclosure statement (which, as
amended is referred to as the "Disclosure Statement"). In that hearing, the
Bankruptcy Court also scheduled the confirmation hearing to consider the Plan of
Reorganization for March 15, 2000 ("Confirmation Hearing"). The Disclosure
Statement and Plan of Reorganization were mailed to holders of interests in the
Chapter 11 filing for a vote on February 14, 2000. The Company has requested
that all votes be submitted by March 10, 2000. The Plan of Reorganization sets
forth the means for satisfying claims, including liabilities subject to
compromise, and interests in the Company. The Plan of Reorganization includes
the cancellation of the existing common stock of the Company and the issuance of
a new class of common stock in exchange for such existing common stock and debt
of the Company which materially dilutes the current equity interests.
The ability of the Company to effect a successful reorganization will
depend upon the Company's ability to obtain approval for the Plan of
Reorganization. At this time, it is not possible to predict the outcome of the
bankruptcy proceedings, in general, or the effect on the business of the Company
or on the interests of creditors or shareholders. The Company believes, however,
that it may not be possible to satisfy in full all of the claims against the
Company if the Plan of Reorganization is not approved. As a result of the
bankruptcy filing, all of the Company's liabilities incurred before the Petition
Date, including secured debt, are subject to compromise. Under the Bankruptcy
Code, payment of these liabilities may not be made except under a Plan of
Reorganization or Bankruptcy Court approval.
F-10
<PAGE> 101
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The December 31, 1999 financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts
(including $311.8 million in net property, plant and equipment) or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern. The ability of the Company to continue as a
going concern is dependent upon confirmation of a plan of reorganization,
adequate sources of capital and the ability to sustain positive results of
operations and cash flows sufficient to continue to explore for and develop oil
and gas reserves. These factors, among others, raise substantial doubt
concerning the ability of the Company to continue as a going concern.
As a result of the Chapter 11 filing, the Company has incurred and will
continue to incur significant costs for professional fees as the Plan of
Reorganization is developed. The Company has incurred approximately $3.1 million
in reorganization costs during 1999 which relate to professional fees for
consultants and attorneys assisting in the negotiations associated with
financing and reorganization alternatives, partially offset by interest income
earned since the Petition Date on accumulated cash.
The Chapter 11 filing included the Company's wholly-owned subsidiaries Coho
Resources, Inc., Coho Oil & Gas, Inc., Coho Exploration, Inc., Coho Louisiana
Production Company and Interstate Natural Gas Company. The following information
summarizes the combined results of operations for the Company and these
subsidiaries. This information has been prepared on the same basis as the
consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Current assets.............................................. $ 30,929
Accounts receivable from affiliates......................... 3,023
Property and equipment...................................... 309,262
Other assets................................................ 5,515
--------
Total assets................................................ $348,729
========
Current liabilities not subject to compromise............... $ 15,149
Liabilities subject to compromise........................... 423,739
Commitments and contingencies............................... 1,800
Shareholder's equity........................................ (91,959)
--------
$348,729
========
Operating revenues.......................................... $ 57,323
Operating expenses.......................................... $ 48,923
Net loss.................................................... $(30,716)
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Crude oil and natural gas leases and rights including
exploration, development and equipment thereon, at cost... $ 678,547 $ 684,896
Accumulated depletion and depreciation...................... (353,973) (373,108)
--------- ---------
$ 324,574 $ 311,788
========= =========
</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.
F-11
<PAGE> 102
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Such charges totaled $4,081,000, $5,749,000 and $-0- in 1997, 1998 and 1999,
respectively. Due to the cessation of exploration and development of crude oil
and natural gas reserves in 1998, all overhead expenditures during 1999 have
been charged to general and administrative expense.
During 1997, 1998 and 1999, 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 totaling $58,854,000 and
$56,296,000 at December 31, 1998 and 1999, 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
$4.69, $4.38 and $3.63 in 1997, 1998 and 1999, respectively.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Revolving credit facility................................... $ 235,000 $ 239,600
8 7/8% Senior Subordinated Notes Due 2007................... 150,000 150,000
Other....................................................... 24 3
--------- ---------
385,024 389,603
Unamortized original issue discount on senior subordinated
notes..................................................... (993) (918)
Current maturities on long term debt........................ (384,031) (388,685)
--------- ---------
$ -- $ --
========= =========
</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 "Existing Bank Group Loan Agreement"),
provided a maximum commitment amount available to the Company ("Borrowing Base")
of $242 million for general corporate purposes at December 31, 1998. Outstanding
advances as of December 31, 1998, were $235 million, and increased to $239.6
million as of January 5, 1999. The average effective interest rates for 1998 and
1999 were 7.38% and 9.91%, respectively. The Existing Bank Group Loan 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 Existing Bank Group Loan Agreement up to $220 million 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%), with amounts outstanding in excess
of $220 million bearing interest, at the option of the Company at (i) the prime
rate plus 1.0% or (ii) LIBOR plus 2.50%. Loans under the Existing Bank Group
Loan Agreement 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 (a) provide collateral with
value equal to such excess, (b) prepay, without premium or penalty, such excess
plus accrued interest or (c) 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.
F-12
<PAGE> 103
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 22, 1999, the Company was informed by the lenders under the
Company's Existing Bank Group Loan Agreement that its borrowing base was reduced
to $150 million effective January 31, 1999 creating an over advance of $89.6
million under the new Borrowing Base. The Company was unable to cure the over
advance as required by the Existing Bank Group Loan Agreement by March 2, 1999
by either (a) providing collateral with value and quantity in amounts equal to
such excess, (b) prepaying, without premium or penalty, such excess plus accrued
interest or (c) paying the first of five equal monthly installments to repay the
over advance. The Company has received written notice from the lenders under the
Existing Bank Group Loan Agreement that it is in default under the terms of the
Existing Bank Group Loan Agreement and the lenders reserved all rights, remedies
and privileges as a result of the payment default. Additionally, the Company was
unable to pay the second, third, fourth and fifth installments, which were due
at the beginning of April, May, June and July 1999, respectively, and has been
unable to make interest payments when due, although the Company has made
aggregate interest payments of $4.3 million during March, April, May, July and
December 1999. As a result of the payment defaults, the lenders accelerated the
full amount outstanding under the Existing Bank Group Loan Agreement. Advances
under the Existing Bank Group Loan Agreement and the past due interest payments
bear interest at the default interest rate of prime plus 4%. The outstanding
advances of $239.6 million as of December 31, 1999 have been included in
Liabilities Subject to Compromise as of December 31, 1999. The total arrearage
related to the installment payments due on the over advance and past due
interest was approximately $108.8 million as of December 31, 1999, including
approximately $19.2 million of past due interest ($10.2 million included in
Liabilities Not Subject to Compromise) and $89.6 million related to installments
due on the over advance.
The Existing Bank Group Loan Agreement contains certain financial and other
covenants including, among other covenants, (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. At December 31, 1999, the Company
was not in compliance with the shareholder's equity, cash flow to interest
expense and current assets to current liabilities covenants.
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 ("Existing Bonds").
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 Existing Bank Group Loan Agreement and for general
corporate purposes.
The Existing Bonds 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 Existing Bonds 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 Existing Bonds on a senior
subordinated basis.
The indenture issued in conjunction with the Existing Bonds (the
"Indenture") contains certain covenants, including, among other covenants,
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.
F-13
<PAGE> 104
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company did not pay the April 15, 1999 interest payment of $6.7 million
due on its Existing Bonds and currently is in default under the terms of the
Indenture. Under the Indenture, the trustee under the Indenture by written
notice to the Company, or the holders of at least 25% in principal amount of the
outstanding Existing Bonds by written notice to the trustee and the Company, may
declare the principal and accrued interest on all the Existing Bonds due and
payable immediately. However, the Company may not pay the principal of, premium
(if any) or interest on the Existing Bonds so long as any required payments due
on the Existing Bank Group Loan Agreement remain outstanding and have not been
cured or waived. On May 19, 1999, the Company received a written notice of
acceleration from two holders of the Existing Bonds, which own in excess of 25%
in principal amount of the outstanding Existing Bonds. Both the accelerated
principal and the past due interest payment bore interest at the default rate of
9.875% (1% in excess of the stated rate for the Existing Bonds) from the date of
acceleration to the Petition Date. As a result of the Chapter 11 filing the
Company has ceased accruing interest on unsecured debt, including the Existing
Bonds. Approximately $5.7 million of additional Existing Bond interest expense,
including $2.2 million of Existing Bond interest expense that would have been
due on October 15, 1999, would have been recognized by the Company in 1999 if
not for the discontinuation of such interest expense accruals. All amounts
outstanding under the Existing Bonds as of December 31, 1999 have been included
in Liabilities Subject to Compromise.
Debt Repayments
Based on the balances outstanding and current default under the Existing
Bank Group Loan Agreement and the Existing Bonds indenture, estimated aggregate
principal repayments for each of the next five years are as follows:
2000 -- $389,603,000 and $0 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, 1998 and 1999, were as follows:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards.......................... $ 25,283 $46,614
Property and equipment, due to differences in depletion,
depreciation, amortization and writedowns.............. 35,442 20,822
Alternative minimum tax credit carryforwards.............. 1,467 1,466
Employee benefits......................................... 58 61
Reorganization costs...................................... -- 1,062
Other..................................................... 182 502
-------- -------
Total gross deferred tax assets........................... 62,432 70,527
Less valuation allowance.................................. (62,432) (70,527)
-------- -------
Net deferred tax assets................................... -- --
-------- -------
DEFERRED TAX LIABILITIES
Property and equipment, due to differences in depletion,
depreciation, amortization and writedowns.............. -- --
-------- -------
NET DEFERRED TAX LIABILITY.................................. $ -- $ --
======== =======
</TABLE>
F-14
<PAGE> 105
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets as of December 31, 1998 and
1999 includes $2,051,000 and $248,314, 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.
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>
1997 1998 1999
------- --------- --------
<S> <C> <C> <C>
Earnings (loss) before income taxes................. $10,309 $(217,729) $(30,742)
======= ========= ========
Expected income tax expense (recovery)
(statutory rate - 34%)............................ $ 3,505 $ (74,028) $(10,452)
State taxes -- deferred............................. 552 (6,242) (913)
Federal benefit of state taxes...................... (188) 2,122 310
Permanent differences............................... -- -- 367
Expiring NOLs....................................... -- 1,043 2,390
Change in valuation allowance....................... 444 57,838 8,095
Other............................................... (293) 4,884 177
------- --------- --------
$ 4,020 $ (14,383) $ (26)
======= ========= ========
</TABLE>
At December 31, 1999, 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.................................................. 2000 $ 4,253
2001 3,015
2002 211
2003 4,697
2004-2019 111,540
--------
$123,716
========
Operating loss carryforwards for Canadian income tax
purposes.................................................. 2000-2003 $ 653
========
Operating loss carryforwards for federal alternative minimum
tax purposes.............................................. 2010-2019 $ 71,973
========
Federal alternative minimum tax credit carryforwards........ -- $ 1,466
========
Operating loss carryforwards for Mississippi income tax
purposes.................................................. 2010-2014 $ 85,081
========
Operating loss carryforwards for Oklahoma income tax
purposes.................................................. 2012-2013 $ 45,290
========
</TABLE>
6. ACQUISITIONS AND DISPOSITIONS
Effective December 31, 1997, the Company acquired from Amoco Production
Company ("Amoco") interests in certain crude oil and natural gas properties
("Oklahoma 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 Oklahoma 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
F-15
<PAGE> 106
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On December 2, 1998, the Company sold its natural gas assets, including its
natural gas properties and the related gas gathering systems, located in Monroe,
Louisiana to an unaffiliated third party for net proceeds of approximately $61.5
million. The proved reserves attributable to such natural gas properties were
approximately 94 billion cubic feet of natural gas and represented approximately
14% of the Company's year end 1997 proved reserves.
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 Existing Bond offering discussed
in Note 4, were used to repay indebtedness outstanding under the Company's
Existing Bank Group Loan 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.
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 reorganization of the Company's subsidiaries in 1993. 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. All options outstanding available for grant pursuant to the
Company's existing stock option plans will be terminated according to the Plan
of Reorganization if the Plan of Reorganization is confirmed. A summary of the
status of the Company's stock option plans at December 31, 1997, 1998 and 1999
and changes during the years then ended follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
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... 1,815,784 $5.55 2,823,815 $6.96 2,631,260 $6.98
Granted.................. 1,286,000 8.73 14,000 6.88 -- --
Exercised................ (256,386) 5.82 -- -- -- --
Canceled................. (21,583) 6.50 (75,000) 8.90 (30,000) 8.42
Expired.................. -- -- (131,555) 5.40 (363,159) 5.97
--------- ----- --------- ----- --------- -----
Outstanding at December
31....................... 2,823,815 6.96 2,631,260 6.98 2,238,101 7.13
--------- ----- --------- ----- --------- -----
Exercisable at December
31....................... 2,250,903 6.31 2,310,438 6.60 2,112,445 6.94
Available for grant at
December 31.............. 36,419 189,919 437,668
</TABLE>
F-16
<PAGE> 107
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant option groups outstanding at December 31, 1999 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>
May 12, 1998.............................. 4,000 4,000 $ 6.88 4
December 2, 1997.......................... 361,000 240,677 10.50 5
August 22, 1997........................... 16,000 10,667 9.38 5
May 12, 1997.............................. 8,000 8,000 8.13 3
March 3, 1997............................. 799,000 799,000 7.88 2
June 13, 1996............................. 12,000 12,000 6.63 2
February 22, 1996......................... 150,000 150,000 5.13 3
January 8, 1996........................... 40,000 40,000 5.00 3
September 25, 1995........................ 50,000 50,000 5.00 2
September 12 ,1995........................ 29,666 29,666 5.00 3
August 3, 1995............................ 24,000 24,000 4.88 2
April 14, 1995............................ 32,500 32,500 5.00 2
December 4, 1994.......................... 105,000 105,000 5.01 3
November 10, 1994......................... 240,000 240,000 5.00 2
June 7, 1994.............................. 63,167 63,167 5.49 1
October 22, 1993.......................... 252,056 252,056 6.00 1
September 29, 1993........................ 11,689 11,689 6.52 1
October 19, 1992.......................... 40,023 40,023 6.52 1
</TABLE>
The weighted average fair value of options at date of grant for options
granted during 1997 and 1998 was $4.02 and $3.12 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>
1997 1998 1999
----- ----- ----
<S> <C> <C> <C>
Expected life (years)....................................... 5 5 --
Interest rate............................................... 6.44% 5.67% --
Volatility.................................................. 43.76% 42.01% --
Dividend yield.............................................. -- -- --
</TABLE>
Had compensation cost for these plans been determined consistent with SFAS
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>
1997 1998 1999
------ --------- --------
<S> <C> <C> <C> <C>
Net income (loss) As reported......... $6,288 $(203,346) $(30,715)
Pro forma........... $4,385 $(204,108) $(31,321)
Basic earnings (loss) per share As reported......... $ 0.29 $ (7.94) $ (1.20)
Pro forma........... $ 0.20 $ (7.97) $ (1.22)
Diluted earnings (loss) per share As reported......... $ 0.28 $ (7.94) $ (1.20)
Pro forma........... $ 0.20 $ (7.97) $ (1.22)
</TABLE>
F-17
<PAGE> 108
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
(a) Coho Resources, Inc., is a defendant in a number of individual lawsuits
in Mississippi, which allege environmental damage to property, and personal
injury, in connection with drilling and production operations of the Company and
its predecessors in Lincoln County, Mississippi (the "Brookhaven Field"). The
plaintiffs allege that their damages were caused by "naturally occurring
radioactive materials" resulting from petroleum exploration and production
operations. The Company's predecessors on the Brookhaven Field were Florabama
Associates, Inc. ("Florabama"), and Chevron Corp. or Chevron USA. Inc.
("Chevron"). The Company is vigorously defending against these claims. Florabama
and Chevron allege claims for indemnification for any liability they may have to
the Brookhaven Field plaintiffs (the "Plaintiffs"), including claims for
monetary and punitive damages, as well as clean-up costs associated with the
properties. The Company is also vigorously defending against the indemnity
claims of Florabama and Chevron. The Plaintiffs, Florabama and Chevron have
filed proofs of claim in the Company's bankruptcy cases. The Company has
objected to these claims and has requested that they be disallowed. The Company
has also requested that these claims be estimated pursuant to Section 502 of the
Bankruptcy Code. The claims of Chevron are unliquidated, except for a contingent
claim in the amount of $2,349,275 which is subject to a pending appeal, and
cannot be quantified at this time. The Florabama claim is asserted at
$3,671,953.33. The Plaintiffs' claim is alleged at a combined amount of $250
million.
The Plaintiffs have compromised and settled their $250,000,000 claim for
the cash sum of $900,000 to be paid in installments over the 180 days following
the effective date of a confirmed chapter 11 plan of reorganization. We have
agreed to that settlement subject to court approval. The court will take up the
question of approval of this settlement on March 15, 2000. We have also settled
the claims of Chevron Corp. and Chevron USA, Inc., subject to court approval, by
agreeing to contribute $2.5 million over the next two years to a fund to be used
to finance the implementation of a thorough remediation plan for the Brookhaven
Field. Chevron USA will contribute at least $3 million to that fund as well, and
will supervise the implementation of the remediation plan. The remediation plan
has been filed with the court and circulated to numerous parties in interest.
This Coho-Chevron settlement arrangement is opposed by the Plaintiffs, and the
court will take up the question of approval of the Coho-Chevron settlement on
March 10, 2000. The Coho-Chevron settlement also calls for Chevron to withdraw
its claims in the Florabama bankruptcy in Mississippi. That will have the effect
of greatly reducing the dollar amount of Florabama's claim in the bankruptcy to
less than $1.3 million, subject to further negotiations and final resolution.
The feasibility of the Plan of Reorganization is dependent upon the court's
approval of these settlements.
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 position or results
of operations. The Company has accrued $4.0 million, including $2.2 million
which has been reflected in current accrued liabilities, for the proposed
settlements discussed in the preceding paragraph and for future remediation
costs.
On May 27, 1999, the Company filed a lawsuit (the "Hicks Muse Lawsuit")
against HM4 Coho L.P. ("HM4") and affiliated persons. The lawsuit alleges (1)
breach of the written contract terminated by HM4 in December 1998, (2) breach of
the oral agreements reached with HM4 on the restructured transaction in February
1999 and (3) promissory estoppel. In the lawsuit, the Company seeks monetary
damages of approximately $500 million. The lawsuit is currently in the discovery
stages. While the Company believes that the lawsuit has merit and that the
actions of HM4 in December 1998 and February 1999 were the primary cause of the
Company's current liquidity crisis, there can be no assurance as to the outcome
of this litigation.
F-18
<PAGE> 109
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) During June 1999, the Company extended its Anaguid permit in Tunisia,
North Africa through June 2001. The Company has a commitment to drill two
additional wells during this two year period.
(c) The Company has leased (i) 47,942 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, (iii) various vehicles under non-cancellable
leases extending through February 2000, and (iv) surface leases in Laurel,
Mississippi with expiration dates extending through the year 2018. Rental
expense totaled $1,196,000, $1,668,000 and $1,798,000 in 1997, 1998 and 1999,
respectively. Minimum rentals payable under these leases for each of the next
five years are as follows: 2000 -- $1,225,000; 2001 -- $441,000; 2002 -$437,000;
2003 -- $418,000 and 2004 -$416,000. Total rentals payable over the remaining
terms of the leases are $8,765,000.
(d) 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. A total of $1,589,000 has been included in depletion
and depreciation expense with respect to such costs as of December 31, 1998.
(e) 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 above described employment agreements
will be modified according to the terms of the Plan of Reorganization if the
Plan of Reorganization is confirmed.
The officers' aggregate base salary and bonus portion of total annual
compensation covered under such employment agreements is approximately $1.4
million.
(f) 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 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. These severance rights will be terminated according to the
terms of the Plan of Reorganization if the Plan of Reorganization is confirmed.
The highest salary plus bonus paid to the officers covered under such
severance agreements during the preceding five year period would aggregate
approximately $1.2 million.
(g) In conjunction with the acquisition of the Oklahoma Properties, the
acquisition of ING and the 1993 reorganization of the Company, 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, 1999, is approximately
3,324,000. These registration rights will be terminated according to the terms
of the Plan of Reorganization if the Plan of Reorganization is confirmed.
F-19
<PAGE> 110
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $(232,000), $488,000 and
$-0- for 1997, 1998 and 1999, respectively, resulting from these hedging
programs. At December 31, 1998 and 1999, the Company had no deferred hedging
gains or losses. As of December 31, 1999, the Company had no crude oil or
natural gas hedged.
Fair values of the Company's financial instruments are estimated through a
combination of management's estimates and by reference to quoted prices from
market sources and financial institutions, if available. As of December 31,
1999, the fair market value of the Company's Existing Bonds was $83 million
compared to the related carrying value of $149 million. The fair value of the
Existing Bonds at December 31, 1998 was $57 million compared to the related
carrying value of $149 million. The carrying value of the Existing Bank Group
Loan Agreement approximated fair market value at December 31, 1998 and 1999
since the applicable interest rate approximated the market rate. On the
effective date of the Plan of Reorganization, the Existing Bonds will be
converted to new common stock of the reorganized company and the Existing Group
Loan Agreement will be paid in full in cash.
During 1998, three purchasers of our crude oil and natural gas, EOTT Energy
Corp. ("EOTT"), Amoco Production Company, and Mid Louisiana Marketing Company,
accounted for 42%, 28% and 14%, respectively, of the Company's revenues. During
1999, EOTT and Amoco Production Company accounted for 39% and 41%, respectively,
of the Company's revenue. Included in accounts receivable is $2,969,000,
$1,965,000 and $114,000 from these customers at December 31, 1997, 1998 and
1999, respectively.
11. RELATED PARTY TRANSACTIONS
(a) 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 and is repayable on the date Mr. Clarke ceases employment with the
Company, unless Mr. Clarke's employment is terminated as a result of the
Company's current restructuring process, at which time the loan will be
forgiven, and is included in other assets at December 31, 1998 and December 31,
1999.
(b) 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 sole recourse,
non-interest bearing loans of $622,111, payable on demand, secured by the
related Company's common stock 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. During 1998, the Company has provided
an allowance for bad debt for the entire amount of such loans due to the
decrease in the share price of the Company's common stock provided by such
officers and directors as collateral.
(c) During 1997, certain of the Company's hedging agreements were 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 its 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.
F-20
<PAGE> 111
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Under the terms of a Financial Advisory Agreement entered into between
the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo"), on August 21, 1998,
the Company paid HMCo $1,250,000 as compensation for HMCo's services as a
financial advisor to the Company and its subsidiaries in connection with an
agreement to issue common stock of the Company to HM4. John R. Muse and Lawrence
D. Stuart, Jr., are each limited partners in HMCo and limited partners of a
limited partner in HM4, and at the time of the payment to HMCo, were directors
of the Company under an agreement with Energy Investment Partnership No. 1, L.P.
On March 18, 1999, Messrs, Muse and Stuart resigned from the board of directors
of the Company.
(e) In 1999, the Company entered into a contract with Alan Edgar, a
director of the Company, that provides for Mr. Edgar to receive a percentage of
the net proceeds received by the Company from the Hicks Muse Lawsuit up to a
maximum of $5.75 million, in consideration of Mr. Edgar's extensive and ongoing
involvement in working with the special litigation counsel for the Company in
prosecuting the Hicks Muse Lawsuit.
12. 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
-----------------------------
1997 1998 1999
------ --------- --------
<S> <C> <C> <C>
Net earnings (loss) based on US GAAP.................. $6,288 $(203,346) $(30,715)
Canadian writedown of oil and natural gas
properties(i)....................................... -- (109,000) --
Adjustment to depletion based on difference in
carrying value of oil and gas properties related to:
ING acquisition (ii)................................ 562 483 358
Business combination with Odyssey Exploration, Inc.
in 1990.......................................... (168) (135) (94)
Application of Canadian full cost ceiling test...... (455) (364) 4,410
Deferred tax effect of differences in US GAAP and
Canadian GAAP....................................... 21 (4,790) --
------ --------- --------
Net earnings (loss) based on Canadian GAAP............ $6,248 $(317,152) $(26,041)
====== ========= ========
Net earnings (loss) per common share based on Canadian
GAAP................................................ $ 0.29 $ (12.39) $ (1.02)
====== ========= ========
</TABLE>
- ---------------
(i) Canadian GAAP requires a ceiling test to ensure that capitalized costs
relating to oil and gas properties are recoverable in the future. The net
book value of capitalized costs, less related deferred income taxes, is
compared to the future net revenue plus the cost of major development
projects and unproved properties, less future expenditures, which include
removal and site restoration costs, income taxes, general and
administrative costs and interest expense. General and administrative costs
were calculated on a per barrel basis and calculated over the life of the
reserves. Interest expense was calculated through the year 2013 based on
the Company's current debt at December 31, 1998, assuming all future
positive cash flow from future net revenue, net of general and
administrative costs, income taxes and interest expense, was used for
retirement of existing debt.
F-21
<PAGE> 112
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Under SFAS No. 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. Under Canadian GAAP this adjustment is not required.
The effect on the consolidated balance sheets of the differences between
United States GAAP and Canadian GAAP is as follows:
<TABLE>
<CAPTION>
UNDER
AS INCREASE CANADIAN
REPORTED (DECREASE) GAAP
-------- ---------- ---------
<S> <C> <C> <C>
DECEMBER 31, 1999
Property and Equipment................................... $311,788 $(102,211) $ 209,577
Shareholder's Equity..................................... (91,958) (102,211) (194,169)
DECEMBER 31, 1998
Property and Equipment................................... $324,574 $(106,885) $ 217,689
Shareholder's Equity..................................... (61,243) $(106,885) (168,128)
</TABLE>
13. SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
1999
Operating revenues................. $ 8,967 $ 12,161 $ 16,829 $ 19,366 $ 57,323
Operating income (loss)............ (1,127) 428 (675) 7,454 6,080
Net loss........................... (8,987) (10,102) (10,733) (893) (30,715)
Basic loss per share............... $ (0.35) $ (0.40) $ (0.41) $ (0.04) $ (1.20)
Diluted loss per share............. $ (0.35) $ (0.40) $ (0.41) $ (0.04) $ (1.20)
1998
Operating revenues................. $ 21,143 $ 18,147 $ 16,539 $ 12,930 $ 68,759
Operating income (loss)............ $(28,206) (38,306) 1,344 (119,840) (185,008)
Net loss........................... (22,301) (41,611) (7,168) (132,266) (203,346)
Basic loss per share............... $ (0.87) $ (1.63) $ (0.28) $ (5.16) $ (7.94)
Diluted loss per share............. $ (0.87) $ (1.63) $ (0.28) $ (5.16) $ (7.94)
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
</TABLE>
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.
F-22
<PAGE> 113
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. 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>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Property acquisitions
Proved............................................. $199,485 $ 8,432 $ --
Unproved........................................... 73,281 4,646 --
Exploration.......................................... 13,374 5,061 2,198
Development.......................................... 53,542 51,049 4,101
Other................................................ 729 955 50
-------- -------- --------
$340,411 $ 70,143 $ 6,349
======== ======== ========
Property and equipment, net of accumulated
depletion.......................................... $531,409 $324,574 $311,788
======== ======== ========
</TABLE>
(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, 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
Revisions of previous estimates............................. (7,645) 4,459
Purchase of reserves in place............................... 6,842 480
Sales of reserves in place.................................. -- (94,106)
Extensions and discoveries.................................. 10,792 16,114
Production.................................................. (5,069) (8,124)
------- -------
Estimated reserves at December 31, 1998..................... 100,004 66,328
Revisions of previous estimates............................. 9,718 (25,257)
Purchase of reserves in place............................... -- --
Sales of reserves in place.................................. -- --
Extensions and discoveries.................................. 734 2,175
Production.................................................. (3,343) (2,608)
------- -------
Estimated reserves at December 31, 1999..................... 107,113 40,638
======= =======
Proved developed reserves at December 31,
1997...................................................... 62,663 129,392
1998...................................................... 66,869 48,176
1999...................................................... 73,748 25,794
</TABLE>
F-23
<PAGE> 114
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Standardized Measure of Oil and Gas Reserves (unaudited)
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 SFAS 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 this use.
The following tabulation reflects the Company's estimated discounted future
cash flows from crude oil and natural gas production:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Future cash inflows.............................. $1,764,924 $1,081,003 $2,562,981
Future production costs.......................... (607,114) (419,820) (642,024)
Future development costs......................... (114,294) (112,165) (136,589)
Future income taxes.............................. (233,945) (55,008) (435,311)
---------- ---------- ----------
Future net cash flows............................ 809,571 494,010 1,349,057
Annual discount at 10%........................... (341,378) (224,712) (656,182)
---------- ---------- ----------
Standardized measure of discounted future net
cash flows..................................... $ 468,193 $ 269,298 $ 692,875
========== ========== ==========
Crude oil posted reference price ($ per
Bbl)(a)........................................ $ 16.17 $ 12.05 $ 25.60
Estimated December 31 Company average realized
price
$/Bbl.......................................... $ 15.06 $ 9.36 $ 21.78
$/Mcf.......................................... $ 2.26 $ 2.10 $ 2.25
</TABLE>
- ---------------
(a) 1997 and 1998 prices were based on West Texas Intermediate posted prices and
1999 was based on the NYMEX posted price.
F-24
<PAGE> 115
COHO ENERGY, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the significant sources of changes in discounted future
net cash flows relating to proved reserves:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Crude oil and natural gas sales, net of production
costs............................................ $ (47,392) $ (41,412) $(36,168)
Net changes in anticipated prices and production
costs............................................ (176,309) (184,445) 582,297
Extensions and discoveries, less related costs..... 73,565 39,510 7,683
Changes in estimated future development costs...... (6,393) (905) (19,335)
Development costs incurred during the period....... 10,817 22,040 2,212
Net change due to sales and purchase of reserves in
place............................................ 224,579 (53,534) --
Accretion of discount.............................. 41,708 52,628 26,930
Revision of previous quantity estimates............ 11,737 (20,178) 45,605
Net changes in income taxes........................ 21,780 58,084 (97,279)
Changes in timing of production and other.......... (23,118) (70,683) (88,368)
--------- --------- --------
Net increase (decrease)............................ 130,974 (198,895) 423,577
Beginning of year.................................. 337,219 468,193 269,298
--------- --------- --------
Standardized measure of discounted future net cash
flows............................................ $ 468,193 $ 269,298 $692,875
========= ========= ========
</TABLE>
15. SUBSEQUENT EVENTS
The confirmation hearing for the bankruptcy court to consider the plan of
reorganization commenced on March 15, 2000. On March 20, 2000, the bankruptcy
court entered a confirmation order confirming our plan of reorganization. The
effective date of confirmation of our plan of reorganization was March 31, 2000.
As of the effective date of our plan of reorganization we anticipate
significant adjustments will be made to our first quarter 2000 financial
statements to effect the reorganization.
F-25
<PAGE> 116
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy these securities in any state where the offer or sale is not
permitted. This prospectus is not an offer to sell or a solicitation of an offer
to buy these securities in any circumstance under which the offer or
solicitation is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
---------------------
UP TO 11,355,804 SHARES
COHO ENERGY, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
APRIL 28, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 31,180
Blue Sky Registration Fees.................................. 4,025
Legal Fees and Expenses..................................... 200,000
Accounting Fees and Expenses................................ 30,000
Printing Expenses........................................... 200,000
Subscription Agent Fees..................................... 30,000
Miscellaneous............................................... 54,795
--------
TOTAL............................................. $550,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by him
in connection with or in defending any action, suit or proceeding in which he is
a party by reason of his position. With respect to any proceeding arising from
actions taken in his official capacity as a director or officer, he may be
indemnified so long as it shall be determined that he conducted himself in good
faith and that he reasonably believed that his conduct was in the corporation's
best interests. In cases not concerning conduct in his official capacity as a
director or officer, a director may be indemnified as long as he reasonably
believed that his conduct was not opposed to the corporation's best interests.
In the case of any criminal proceeding, a director or officer may be indemnified
if he had no reasonable cause to believe his conduct was unlawful. If a director
or officer is wholly successful, on the merits or otherwise, in connection with
this type of proceeding, indemnification is mandatory. The Amended and Restated
Bylaws of Coho Energy, Inc. provide for indemnification of its present and
former directors and officers to the fullest extent provided by Article 2.02-1.
Coho's amended and restated articles of incorporation contain a provision
that limits the liability of Coho's directors as permitted under Texas law. The
provision eliminates the liability of a director to Coho or its shareholders for
monetary damages for negligent or grossly negligent acts or omissions in the
director's capacity as a director. The provision does not affect the liability
of a director (i) for breach of his duty of loyalty to Coho or to shareholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) for acts or omissions for which
the liability of a director is expressly provided by an applicable statute, or
(iv) in respect of any transaction from which a director received an improper
personal benefit. Under the amended and restated articles of incorporation, the
liability of directors will be further limited or eliminated without action by
shareholders if Texas law is amended to further limit or eliminate the personal
liability of directors.
The above discussion of Texas law and the amended and restated articles of
incorporation is not intended to be exhaustive and is qualified in its entirety
by Texas law and the amended and restated articles of incorporation.
Texas corporations are also authorized to obtain insurance to protect
officers and directors from specified liabilities, including liabilities against
which the corporation cannot indemnify its directors and officers. Coho Energy,
Inc. currently has in effect a director's and officer's liability insurance
policy, which provides coverage in the maximum amount of $40,000,000, subject to
a $250,000 deductible. This policy also provides "tail" insurance covering the
former members of the board of directors with the same maximum and deductible
amounts.
II-1
<PAGE> 118
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Coho under the
foregoing provisions, Coho has been informed that in the opinion of the
Commission this type of indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1997, Coho issued warrants, valued at $3.4 million, to purchase
one million shares of Coho old common stock at $10.425 per share for a period of
five years to Amoco Production Company as partial consideration for the purchase
of crude oil and natural gas properties. This transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933, as no public
offering was involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Exhibits designated by the symbol * were filed with the original
Registration Statement. Exhibits designated by the symbol ** were filed with
Amendment No. 1 to Registration Statement. Exhibits designated by the symbol ***
are filed with this Amendment No. 2 to Registration Statement. All exhibits not
so designated are incorporated by reference to a prior filing as indicated.
<TABLE>
<C> <S>
2.1** -- Debtor's First Amended and Restated Chapter 11 Plan of
Reorganization as filed with the United States Bankruptcy
Court for the Northern District of Texas on February 14,
2000 (included as Exhibit A to Exhibit 2.2 below).
2.2** -- Debtor's First Amended and Restated Disclosure Statement
with Respect to the Joint Plan of Reorganization under
Chapter 11 of the United States Bankruptcy Code as filed
with the United States Bankruptcy Court for the Northern
District of Texas on February 14, 2000.
2.3 -- Findings of Fact, Conclusions of Law, and Order
Confirming Debtors' First Amended and Restated Chapter 11
Plan of Reorganization as filed with the United States
Bankruptcy Court for the Northern District of Texas on
March 20, 2000 (incorporated by reference to the
Company's Report on Form 8-K dated March 20, 2000).
3.1*** -- Amended and Restated Articles of Incorporation of the
Company.
3.2*** -- Amended and Restated Bylaws of the Company.
4.1 -- Amended and Restated Articles of Incorporation (included
as Exhibit 3.1 above).
4.2 -- Amended and Restated Bylaws of the Company (included as
Exhibit 3.2 above).
5.1*** -- Opinion of Fulbright & Jaworski L.L.P.
10.1*** -- Executive Employment Severance Agreement dated April 3,
2000, by and between Jeffrey Clarke and Coho Energy, Inc.
10.2 -- 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 Form 10-K for the year ended December 31,
1995).
10.3*** -- Credit Agreement dated as of March 31, 2000, among Coho
Energy, Inc., The Chase Manhattan Bank, Meespierson
Capital Corp., Fleet National Bank, Chase Securities
Inc., Credit Lyonnais, New York Branch, ABN AMRO Bank
N.V., General Electric Capital Corporation, CIBC Inc.,
Credit Agricole Indosuez, and Natexis Banque BFCE.
</TABLE>
II-2
<PAGE> 119
<TABLE>
<S> <C>
10.4*** -- Registration Rights Agreement dated as of March 31, 2000, among Coho Energy, Inc., PPM
America Special Investments Fund, L.P., PPM America Special Investments CBO II, L.P.,
Appaloosa Management L.P., as agent and on behalf of certain funds including Appaloosa
Investment Limited Partnership I, Palomino Fund Ltd., and Tersk LLC; Pacholder
Associates, Inc., as agent and on behalf of certain funds including Pacholder Value
Opportunity Fund, L.P., High Yield Fund, Inc., One Group High Yield Bond and
Evangelical Lutheran Church In America Board of Pensions; and Oaktree Capital
Management, LLC, as general partner of and investment manager for the entities set
forth therein.
10.5*** -- Note Agreement dated as of March 31, 2000, among Coho Energy, Inc., Coho Resources,
Inc., Coho Louisiana Production Company, Coho Exploration, Inc., Coho Oil & Gas, Inc.,
Interstate Natural Gas Company, PPM America Special Investments Fund, L.P., PPM America
Special Investments CBO II, L.P., Appaloosa Investment Limited Partnership I, Palomino
Fund Ltd., Tersk LLC, Oaktree Capital Management, LLC, Pacholder Value Opportunity
Fund, L.P., Pacholder High Yield Fund, Inc., One Group High Yield Bond Fund, and
Evangelical Lutheran Church in America Board of Pensions.
10.6*** -- Securities Purchase Agreement dated as of March 31, 2000, among Coho Energy, Inc., Coho
Resources, Inc., Coho Louisiana Production Company, Coho Exploration, Inc., Coho Oil &
Gas, Inc., Interstate Natural Gas Company, PPM America Special Investments Fund, L.P.,
PPM America Special Investments CBO II, L.P., Appaloosa Management, L.P., Oaktree
Capital Management, LLC, and Pacholder Associates, Inc.
10.7 -- 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).
10.8 -- Adoption Agreement for Coho Resources, Inc.'s Amended and Restated 401(k) Savings Plan
dated July 1, 1995 (incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.9** -- Letter Agreement dated March 5, 1999, by and between Coho Marketing and Transportation,
Inc. and EOTT Energy Operating Limited Partnership, amending the Crude Oil Purchase
Contract dated January 25, 1996, by and between Coho Marketing and Transportation, Inc.
and EOTT Energy Operating Limited Partnership (filed as Exhibit 10.27 to Amendment No.
1 to Registration Statement).
10.10*** -- Agreement dated as of April 13, 2000 by and among Anne Marie O'Gorman and Coho Energy,
Inc.
10.11*** -- Agreement dated as of April 13, 2000 by and among Larry L. Keller and Coho Energy, Inc.
10.12*** -- Employment Agreement dated as of April 1, 2000 by and among Michael Y. McGovern and
Coho Energy, Inc.
10.13*** -- Employment Agreement dated as of April 1, 2000 by and among Gary L. Pittman and Coho
Energy, Inc.
10.14*** -- Employment Agreement dated as of April 1, 2000 by and among Gerald E. Ruley and Coho
Energy, Inc.
21.1* -- List of Subsidiaries of the Company.
23.1*** -- Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE> 120
<TABLE>
<C> <S>
23.2*** -- Consent of Ryder Scott Company, L.P.
23.3*** -- Consent of Sproule Associates, Inc.
23.4*** -- Consent of Fulbright & Jaworski L.L.P. (included in
Exhibit 5.1 above).
27.1** -- Financial Data Schedule.
99.1*** -- Form of Notice of Exercise of Rights and related
documents.
</TABLE>
(b) Financial Statement Schedules.
All schedules for which provision is made in applicable accounting
regulations of the Securities and Exchange Commission have been omitted as the
schedules are either not required under the related instructions or are not
applicable, or the information required thereby is set forth in the Financial
Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of Coho
pursuant to the foregoing provisions, or otherwise, Coho has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Coho of expenses incurred or paid by a director, officer or
controlling person of Coho in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Coho will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether this type of
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act, Coho Energy, Inc. has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on April 26, 2000.
COHO ENERGY, INC.
By: /s/ MICHAEL MCGOVERN
----------------------------------
Michael McGovern
President
and Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Michael McGovern, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same and all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
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
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL MCGOVERN President, Chief Executive Officer April 26, 2000
- ----------------------------------------------------- (Principal Executive Officer)
Michael McGovern
/s/ GARY L. PITTMAN Chief Financial Officer (Principal April 26, 2000
- ----------------------------------------------------- Financial Officer)
Gary L. Pittman
/s/ SUSAN J. MCADEN Controller (Principal Accounting April 26, 2000
- ----------------------------------------------------- Officer)
Susan J. McAden
/s/ EUGENE L. DAVIS Director April 26, 2000
- -----------------------------------------------------
Eugene L. Davis
/s/ JOHN G. GRAHAM Director April 26, 2000
- -----------------------------------------------------
John G. Graham
/s/ JAMES E. BOLIN Director April 26, 2000
- -----------------------------------------------------
James E. Bolin
</TABLE>
II-5
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD GOLDSTEIN Director April 26, 2000
- -----------------------------------------------------
Ronald Goldstein
/s/ MICHAEL SALVATI Director April 26, 2000
- -----------------------------------------------------
Michael Salvati
</TABLE>
II-6
<PAGE> 123
INDEX TO EXHIBITS
Exhibits designated by the symbol * were filed with the original
Registration Statement. Exhibits designated by the symbol ** were filed with
Amendment No. 1 to Registration Statement. Exhibits designated by the symbol ***
are filed with this Amendment No. 2 to Registration Statement. All exhibits not
so designated are incorporated by reference to a prior filing as indicated.
<TABLE>
<C> <S>
2.1** -- Debtor's First Amended and Restated Chapter 11 Plan of
Reorganization as filed with the United States Bankruptcy
Court for the Northern District of Texas on February 14,
2000 (included as Exhibit A to Exhibit 2.2 below).
2.2** -- Debtor's First Amended and Restated Disclosure Statement
with Respect to the Joint Plan of Reorganization under
Chapter 11 of the United States Bankruptcy Code as filed
with the United States Bankruptcy Court for the Northern
District of Texas on February 14, 2000.
2.3 -- Findings of Fact, Conclusions of Law, and Order
Confirming Debtors' First Amended and Restated Chapter 11
Plan of Reorganization as filed with the United States
Bankruptcy Court for the Northern District of Texas on
March 20, 2000 (incorporated by reference to the
Company's Report on Form 8-K dated March 20, 2000).
3.1*** -- Amended and Restated Articles of Incorporation of the
Company.
3.2*** -- Amended and Restated Bylaws of the Company.
4.1 -- Amended and Restated Articles of Incorporation (included
as Exhibit 3.1 above).
4.2 -- Amended and Restated Bylaws of the Company (included as
Exhibit 3.2 above).
5.1*** -- Opinion of Fulbright & Jaworski L.L.P.
10.1*** -- Executive Employment Severance Agreement dated April 3,
2000, by and between Jeffrey Clarke and Coho Energy, Inc.
10.2 -- 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 Form 10-K for the year ended December 31,
1995).
10.3*** -- Credit Agreement dated as of March 31, 2000, among Coho
Energy, Inc., The Chase Manhattan Bank, Meespierson
Capital Corp., Fleet National Bank, Chase Securities
Inc., Credit Lyonnais, New York Branch, ABN AMRO Bank
N.V., General Electric Capital Corporation, CIBC Inc.,
Credit Agricole Indosuez, and Natexis Banque BFCE.
10.4*** -- Registration Rights Agreement dated as of March 31, 2000,
among Coho Energy, Inc., PPM America Special Investments
Fund, L.P., PPM America Special Investments CBO II, L.P.,
Appaloosa Management L.P., as agent and on behalf of
certain funds including Appaloosa Investment Limited
Partnership I, Palomino Fund Ltd., and Tersk LLC;
Pacholder Associates, Inc., as agent and on behalf of
certain funds including Pacholder Value Opportunity Fund,
L.P., High Yield Fund, Inc., One Group High Yield Bond
and Evangelical Lutheran Church in America Board of
Pensions; and Oaktree Capital Management, LLC, as general
partner of and investment manager for the entities set
forth therein.
</TABLE>
<PAGE> 124
<TABLE>
<S> <C>
10.5*** -- Note Agreement dated as of March 31, 2000, among Coho Energy, Inc., Coho Resources,
Inc., Coho Louisiana Production Company, Coho Exploration, Inc., Coho Oil & Gas, Inc.,
Interstate Natural Gas Company, PPM America Special Investments Fund, L.P., PPM America
Special Investments CBO II, L.P., Appaloosa Investment Limited Partnership I, Palomino
Fund Ltd., Tersk LLC, Oaktree Capital Management, LLC, Pacholder Value Opportunity
Fund, L.P., Pacholder High Yield Fund, Inc., One Group High Yield Bond Fund, and
Evangelical Lutheran Church in America Board of Pensions.
10.6*** -- Securities Purchase Agreement dated as of March 31, 2000, among Coho Energy, Inc., Coho
Resources, Inc., Coho Louisiana Production Company, Coho Exploration, Inc., Coho Oil &
Gas, Inc., Interstate Natural Gas Company, PPM America Special Investments Fund, L.P.,
PPM America Special Investments CBO II, L.P., Appaloosa Management, L.P., Oaktree
Capital Management, LLC, and Pacholder Associates, Inc.
10.7 -- 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).
10.8 -- Adoption Agreement for Coho Resources, Inc.'s Amended and Restated 401(k) Savings Plan
dated July 1, 1995 (incorporated by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.9** -- Letter Agreement dated March 5, 1999, by and between Coho Marketing and Transportation,
Inc. and EOTT Energy Operating Limited Partnership, amending the Crude Oil Purchase
Contract dated January 25, 1996, by and between Coho Marketing and Transportation, Inc.
and EOTT Energy Operating Limited Partnership (filed as Exhibit 10.27 to Amendment No.
1 to Registration Statement).
10.10*** -- Agreement dated as of April 13, 2000 by and among Anne Marie O'Gorman and Coho Energy,
Inc.
10.11*** -- Agreement dated as of April 13, 2000 by and among Larry L. Keller and Coho Energy, Inc.
10.12*** -- Employment Agreement dated as of April 1, 2000 by and among Michael Y. McGovern and
Coho Energy, Inc.
10.13*** -- Employment Agreement dated as of April 1, 2000 by and among Gary L. Pittman and Coho
Energy, Inc.
10.14*** -- Employment Agreement dated as of April 1, 2000 by and among Gerald E. Ruley and Coho
Energy, Inc.
21.1* -- List of Subsidiaries of the Company.
23.1*** -- Consent of Arthur Andersen LLP.
23.2*** -- Consent of Ryder Scott Company, L.P.
23.3*** -- Consent of Sproule Associates, Inc.
23.4*** -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1).
27.1** -- Financial Data Schedule.
99.1*** -- Form of Notice of Exercise of Rights and related documents.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COHO ENERGY, INC.
ARTICLE I
The name of the Corporation is Coho Energy, Inc.
ARTICLE II
The period of the Corporation's duration is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to transact any
or all lawful business for which corporations may be organized under the Texas
Business Corporation Act.
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall be authorized to issue is 60,000,000 shares, divided into the
following: (i) 10,000,000 shares of Preferred Stock, of the par value of $.01
per share (hereinafter called "Preferred Stock"), and (ii) 50,000,000 shares of
common stock, of the par value of $.01 per share (hereinafter called "Common
Stock").
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<PAGE> 2
A description of the respective classes of stock and a statement of the
designations, preferences, limitations and relative rights of such classes of
stock and the limitations on or denial of the voting rights of the shares of
such classes of stock are as follows:
A. PREFERRED STOCK
1. Authority of Board of Directors. The Preferred Stock may be divided
into and issued in one or more series. The board of directors is hereby vested
with authority from time to time to establish and designate such series and,
within the limitations prescribed by law or set forth herein, to fix and
determine the preferences, limitations and relative rights of the shares of any
series so established, but all shares of Preferred Stocks shall be identical
except as to the following preferences, limitations and relative rights as to
which there may be variations between different series: (a) the rate and form of
dividend; (b) the price at and the terms and conditions on which shares may be
redeemed; (c) the amount payable upon shares in event of involuntary
liquidation; (d) the amount payable upon shares in event of liquidation; (e)
sinking fund provisions for the redemption or purchase or shares; (f) the terms
and conditions in which shares may be exchanged, if the shares of any series are
issued with an exchangeable privilege; (g) the terms and conditions on which
shares may be converted if the shares of any series are issued with a conversion
privilege; and (h) voting rights. The board of directors shall exercise such
authority by the adoption of a resolution or resolutions as prescribed by law.
2. Restriction on Non-Voting Securities. Notwithstanding the provisions
of paragraph A.1 above relating to the authority of the board of directors of
the Corporation to fix the preferences, limitations and relative rights of the
shares of Preferred Stock, and to establish and fix variations in the relative
rights as between series of Preferred Stock, the board of directors of the
Corporation (a) may not authorize the issuance of any class or series of
Preferred Stock without voting rights and (b) shall provide with respect to each
class or series of Preferred Stock for an appropriate distribution of the voting
power of the Corporation, including, in the case of any class or series of
Preferred Stock having a preference over the Common Stock or any other class or
series of Preferred Stock with respect to dividends, adequate provision for the
election of directors representing such class or series of Preferred Stock in
the event of default in the payment of such dividends.
B. COMMON STOCK
1. Dividends. Subject to all the rights of the Preferred Stock or any
series thereof, and on the conditions set forth in any resolution of the board
of directors providing for the issuance of any series of Preferred Stock, the
holders of Common Stock shall be entitled to receive, when, as and if declared
by the board of directors, out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
2. Voting Rights. Each holder of Common Stock shall be entitled to one
vote for each share held.
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<PAGE> 3
C. PROVISIONS APPLICABLE TO ALL CLASSES
1. Preemptive Rights. No holder of securities of the Corporation shall
be entitled as a matter of right, preemptive or otherwise, to subscribe for or
purchase any securities of the Corporation now or hereafter authorized to be
issued, or securities held in the treasury of the Corporation, whether issued or
sold for cash or other consideration or as a share dividend or otherwise. Any
such securities may be issued or disposed of by the board of directors to such
persons and on such terms as in its discretion it shall deem advisable.
2. Cumulative Voting. No shareholder shall be entitled to cumulate his
votes in the election of directors of the Corporation, but each share shall be
entitled to one vote in the election of each director.
ARTICLE V
If, with respect to any matter for which the affirmative vote or
concurrence of the shareholders of the Corporation is required, any provision of
the Texas Business Corporation Act would require the affirmative vote or
concurrence of a greater amount of shares or holders of shares than required by
the Articles of Incorporation of the Corporation, then such greater amount
provided in the Texas Business Corporation Act shall be required with respect to
any such matter.
ARTICLE VI
A quorum shall be present at a meeting of shareholders of the
Corporation if the holders of a majority of the shares entitled to vote are
represented at the meeting in person or by proxy.
ARTICLE VII
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of
shareholders of the Corporation any may not be effected by any consent in
writing by such shareholders. Special meetings of shareholders of the
Corporation may be called by the President, the board of directors, or such
other person or persons as may be authorized in the bylaws or by the holders of
at least fifty percent of all the shares entitled to vote at the proposed
meeting.
ARTICLE VIII
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of not less than One
Thousand Dollars ($1,000), consisting of money, labor done or property actually
received.
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<PAGE> 4
ARTICLE IX
A. No director of the Corporation shall be liable to the Corporation or
any of its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Article IX shall not
authorize the elimination or limitation of liability of a director of the
Corporation to the extent the director is found liable for: (i) a breach of such
director's duty of loyalty to the corporation or its shareholders; (ii) an act
or omission not in good faith that constitutes a breach of duty of such director
to the Corporation or an act or omission that involves intentional misconduct or
a knowing violation of the law; (iii) a transaction from which such director
received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; or (iv) an act or omission for
which the liability of a director is expressly provided;
B. If the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Laws Act or any other applicable Texas statute hereafter is amended
to authorize the further elimination or limitation of the liability of directors
of the Corporation, then the liability of a director of the Corporation shall be
limited to the fullest extent permitted by the Texas Business Corporation Act,
the Texas Miscellaneous Corporation Laws Act and such other applicable Texas
statute, as so amended, and such limitation of liability shall be in addition
to, and not in lieu of, the limitation on the liability of a director of the
Corporation provided by the foregoing provisions of this Article IX.
C. Any repeal of or amendment to this Article IX shall be prospective
only and shall not adversely affect any limitation on the liability of a
director of the Corporation existing at the time of such repeal or amendment.
ARTICLE X
The post office address of the Corporation's registered office is 811
Dallas Street, Houston, Texas 77002, and the name of its initial registered
agent is CT Corporation System.
ARTICLE XI
The number of directors constituting the current board of directors is
six, and the names and addresses of the persons currently serving as directors
of the Corporation are:
<TABLE>
<CAPTION>
Name: Address:
---- --------
<S> <C>
Jeffrey Clarke 3829 Bryn Mawr
------------------------- Dallas, Texas 75225
---------------------------------
Louis F. Crane Orleans Capital Management
------------------------- 200 Corondelet Street, Suite 1800
New Orleans, Louisiana 70130
---------------------------------
Alan Edgar 3454 Potomac
------------------------- Dallas, Texas 75205-2282
---------------------------------
Kenneth H. Lambert 755, 255-5th Avenue, SW
------------------------- Calgary, Alberta Canada T2P 366
---------------------------------
Douglas R. Martin 4707 Charles Avenue, SW
------------------------- Calgary, Alberta Canada T2F 1N
---------------------------------
Jake Taylor 1100 Louisiana Street, Suite 5400
------------------------- Houston, Texas 77002
---------------------------------
</TABLE>
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<PAGE> 5
EIGHTH: This instrument accurately copies the Articles of
Incorporation of the Corporation and all amendments thereto that are in effect
to date and as further amended by these amended and restated Articles of
Incorporation, and this instrument contains no other change in any other
provision thereof.
IN WITNESS WHEREOF, the Corporation, as authorized and directed by
order of the Bankruptcy Court confirming the Plan, has caused these Amended and
Restated Articles of Incorporation of the Corporation to be signed by its
designated officer, on March 30, 2000.
COHO ENERGY, INC.
By:
--------------------------------------------
Anne Marie O'Gorman
Senior Vice President
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<PAGE> 1
EXHIBIT 3.2
COHO ENERGY, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
SECTION 1.01. PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the corporation and the office of its transfer agent or registrar may be
located outside the State of Texas.
SECTION 1.02. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Texas as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.01. TIME AND PLACE OF MEETINGS. Meetings of shareholders for any
purpose may be held at such time and place within or without the State of Texas
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
SECTION 2.02. ANNUAL MEETING. The annual meeting of shareholders shall be
held annually at such date and time as shall be designated from time to time by
the board of directors and stated in the notice of meeting.
SECTION 2.03. SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes may be called by the president and shall be called by
the president, the chief executive officer or the chairman of the board, or by
the secretary at the request in writing of a majority of the board of directors,
or at the request in writing of shareholders owning at least ten percent of all
the shares entitled to vote at the meetings. A request for a special meeting
shall state the purpose or purposes of the proposed meeting, and business
transacted at any special meeting of shareholders shall be limited to the
purposes stated in the notice.
SECTION 2.04. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the president, the secretary, or the officer or
persons calling the meeting, to each shareholder entitled to vote at such
meeting.
<PAGE> 2
If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder at his address as it appears
on the stock transfer books of the corporation.
SECTION 2.05. QUORUM. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
articles of incorporation. If, however, a quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. After an
adjournment, at any reconvened meeting any business may be transacted that might
have been transacted if the meeting had been held in accordance with the
original notice thereof, provided a quorum shall be present or represented
thereat.
SECTION 2.06. VOTE REQUIRED. With respect to any matter, other than the
election of directors, the affirmative vote of the holders of a majority of the
shares entitled to vote on that matter and represented in person or by proxy at
a meeting of shareholders at which a quorum is present, shall decide such
matter, unless the matter is one upon which a different vote is required by law
or by the articles of incorporation. Unless otherwise required by law or by the
articles of incorporation, directors shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of shareholders at which a quorum is present.
SECTION 2.07. VOTING; PROXIES. Each outstanding share having voting power
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Any shareholder may vote either in person or by proxy executed in
writing by the shareholder. A telegram, telex, cablegram or similar transmission
by the shareholder, or a photographic, photostatic, facsimile or similar
reproduction of a writing executed by the shareholder shall be treated as an
execution in writing for purposes of this Section 2.07.
ARTICLE III
DIRECTORS
SECTION 3.01. POWERS. The powers of the corporation shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the board of directors.
SECTION 3.02. NUMBER, ELECTION AND TERM. The number of directors that shall
constitute the whole board of directors shall be not less than one. Such number
of directors shall from time to time be fixed and determined by the directors
and shall be set forth in the notice of any meeting of shareholders held for the
purpose of electing directors. The directors shall be elected at the annual
meeting of shareholders, except as provided in Section 3.03 of these bylaws, and
each director elected shall hold office until his successor shall be elected and
qualify. Directors need not be residents of Texas or shareholders of the
corporation.
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<PAGE> 3
SECTION 3.03. VACANCIES. Any vacancy occurring in the board of directors
may be filled by a majority of the remaining directors though less than a quorum
of the board of directors. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office.
SECTION 3.04. CHANGE IN NUMBER. The number of directors may be increased or
decreased from time to time as provided in these bylaws but no decrease shall
have the effect of shortening the term of any incumbent director. Any
directorship to be filled by reason of an increase in the number of directors
may be filled by election at an annual or special meeting of shareholders or may
be filled by the board of directors for a term of office continuing only until
the next election of one or more directors by the shareholders; provided that
the board of directors may not fill more than two such directorships during the
period between any two successive annual meetings of shareholders. When the
number of directors is changed, any newly created directorship or any decrease
in directorships shall be so assigned among the classes by a majority of the
directors then in office, though less than a quorum, as to make all classes as
equal in number as may be feasible.
SECTION 3.05. REMOVAL. Any director may be removed either for or without
cause by the holders of either (i) a majority of the shares of common stock
outstanding or (ii) 66 2/3% of the shares present and entitled to vote at a
meeting of shareholders called for such purpose. This Section 3.05 may not be
amended except upon the affirmative vote of the holders of a majority of the
shares of common stock outstanding.
SECTION 3.06. PLACE OF MEETINGS. Meetings of the board of directors,
regular or special, may be held either within or without the State of Texas.
SECTION 3.07. REGULAR MEETINGS. The first meeting of each newly elected
board of directors shall be held at such time and place as shall be fixed by the
vote of the shareholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event that the
shareholders fail to fix the time and place of such first meeting, it shall be
held without notice immediately following the annual meeting of shareholders,
and at the same place, unless by the unanimous consent of the directors then
elected and serving such time or place shall be changed.
SECTION 3.08. NOTICE OF REGULAR MEETINGS. Regular meetings of the board of
directors may be held upon such notice, or without notice, and at such time and
at such place as shall from time to time be determined by the board.
SECTION 3.09. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by the chairman of the board of directors or the president and
shall be called by the secretary on the written request of a majority of the
directors. Notice of each special meeting of the board of directors shall be
given to each director at least two days before the date of the meeting.
SECTION 3.10. WAIVER AND REQUIREMENTS OF NOTICE. Attendance of a director
at any meeting shall constitute a waiver of notice of such meeting, except where
a director attends for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully
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<PAGE> 4
called or convened. Except as may be otherwise provided by law or by the
articles of incorporation or by these bylaws, neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 3.11. QUORUM; VOTE REQUIRED. At all meetings of the board of
directors a majority of the directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, unless otherwise specifically provided by law, the articles of
incorporation or these bylaws. If a quorum shall not be present at any meeting
of directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 3.12. COMMITTEES. The board of directors, by resolution passed by a
majority of the full board, may from time to time designate a member or members
of the board to constitute committees that shall in each case consist of one or
more directors and may designate one or more of its members as alternate members
of any committee, who may, subject to any limitations imposed by the board of
directors, replace absent or disqualified members at any meeting of that
committee. Any such committee shall have and may exercise such powers, as the
board may determine and specify in the respective resolutions appointing them. A
majority of all the members of any such committee may determine its action and
fix the time and place of its meetings, unless the board of directors shall
otherwise provide. The board of directors shall have power at any time to change
the number, subject as aforesaid, and members of any such committee, to fill
vacancies and to discharge any such committee.
SECTION 3.13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the board of directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the board of directors or committee, as the case
may be.
SECTION 3.14. COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors, or a meeting of a committee thereof, and may be paid a
fixed sum for attendance at each meeting of the board of directors, or a meeting
of a committee thereof, or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
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<PAGE> 5
ARTICLE IV
NOTICES
SECTION 4.01. FORM OF NOTICE, DELIVERY. Any notice to directors or
shareholders shall be in writing and shall be delivered personally or mailed to
the directors or shareholders at their respective addresses appearing on the
books of the corporation. Notice by mail shall be deemed to be given at the time
when the same shall be deposited in the United States mail, postage prepaid.
Notice to directors may also be given by telegram, telex, cablegram, facsimile
or other similar transmission.
SECTION 4.02. WAIVER. Whenever any notice is required to be given under the
provisions of the statutes or of the articles of incorporation or of these
bylaws, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE V
OFFICERS
SECTION 5.01. OFFICERS. The officers of the corporation shall be elected by
the board of directors and shall consist of a president and a secretary, neither
of whom need be a member of the board of directors. Two or more offices may be
held by the same person.
SECTION 5.02. ADDITIONAL OFFICERS. The board of directors may also elect a
chairman of the board, a chief executive officer who may, but need not be,
either the chairman of the board or president, a treasurer, and one or more vice
presidents, assistant secretaries and assistant treasurers. The board of
directors may appoint such other officers and assistant officers and agents as
it shall deem necessary, who shall hold their offices for such terms and shall
have such authority and exercise such powers and perform such duties as shall be
determined from time to time by the board by resolution not inconsistent with
these bylaws.
SECTION 5.03. COMPENSATION. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors. The board of directors
shall have the power to enter into contracts for the employment and compensation
of officers for such terms as the board deems advisable.
SECTION 5.04. TERM; REMOVAL; VACANCIES. The officers of the corporation
shall hold office until their successors are elected or appointed and qualify,
or until their death or until their resignation or removal from office. Any
officer elected or appointed by the board of directors may be removed at any
time by the board, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights. Any vacancy occurring in
any office of the corporation by death, resignation, removal or otherwise shall
be filled by the board of directors.
SECTION 5.05. CHAIRMAN OF THE BOARD. The chairman of the board, if one is
elected, shall preside at all meetings of the board of directors and shall have
such other powers and duties as may
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<PAGE> 6
from time to time be prescribed by the board of directors, upon written
directions given to him pursuant to resolutions duly adopted by the board of
directors.
SECTION 5.06. CHIEF EXECUTIVE OFFICER. The chief executive officer, if one
is elected, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. He shall preside at all meetings of the
shareholders.
SECTION 5.07. PRESIDENT. If a chief executive shall not have been elected,
the president shall be the chief executive officer of the corporation and shall
perform the duties and have the authority and exercise the powers of such
office. If, a chief executive shall have been elected or the board of directors
shall have designated the chairman of the board as the chief executive officer,
the president shall perform such duties and have such authority and powers as
the board of directors may from time to time prescribe or as the chief executive
officer may from time to time delegate.
SECTION 5.08. VICE PRESIDENTS. The vice presidents in the order of their
seniority, unless otherwise determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall perform such
other duties and have such other authority and powers as the board of directors
may from time to time prescribe or as the president may from time to time
delegate.
SECTION 5.09. SECRETARY. The secretary shall attend all meetings of the
board of directors and all meetings of shareholders and record all of the
proceedings of the meetings of the board of directors and of the shareholders in
a minute book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall keep in
safe custody the seal of the corporation and, when authorized by the board of
directors, shall affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of an
assistant secretary or of the treasurer. The secretary shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe or as the president may from time to time delegate.
SECTION 5.10. ASSISTANT SECRETARIES. The assistant secretaries in the order
of their seniority, unless otherwise determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary. They shall perform such other duties and
have such other powers as the board of directors may from time to time prescribe
or as the president may from time to time delegate.
SECTION 5.11. TREASURER. The treasurer, if one is elected, shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts and records of receipts, disbursements and other transactions in books
belonging to the corporation, and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated from time to time by the board of directors. The treasurer
shall disburse the funds of the corporation as may be ordered by the board of
directors, taking proper vouchers for such
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<PAGE> 7
disbursements, and shall render the president and the board of directors, when
so directed, an account of all his transactions as treasurer and of the
financial condition of the corporation. The treasurer shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe or as the president may from time to time delegate. If required
by the board of directors, the treasurer shall give the corporation a bond of
such type, character and amount as the board of directors may require.
SECTION 5.12. ASSISTANT TREASURERS. The assistant treasurers in the order
of their seniority, unless otherwise determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer. They shall perform such other duties and
have such other powers as the board of directors may from time to time prescribe
or the president may from time to time delegate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
SECTION 6.01. CERTIFICATES. The shares of the corporation shall be
represented by certificates signed by the president or a vice president and the
secretary or an assistant secretary of the corporation, and may be sealed with
the seal of the corporation or a facsimile thereof.
SECTION 6.02. FACSIMILE SIGNATURES. The signatures of the president or a
vice president and the secretary or an assistant secretary upon a certificate
may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer at the date of its issue.
SECTION 6.03. LOST CERTIFICATES. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost or destroyed. When authorizing such issue
of a new certificate, the board of directors, in its discretion and as a
condition precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient and may require such indemnities as it deems
adequate to protect the corporation from any claim that may be made against it
with respect to any such certificate alleged to have been lost or destroyed.
SECTION 6.04. TRANSFERS. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate representing shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto and
the old certificate canceled and the transaction recorded upon the transfer
records of the corporation.
SECTION 6.05. FIXING RECORD DATES. For the purpose of determining
shareholders (i) entitled to notice of or to vote at any meeting of
shareholders, or, after an adjournment thereof, at any reconvened meeting, (ii)
entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the corporation of any of its own shares) or a share
dividend or (iii) for
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<PAGE> 8
any other proper purpose (other than determining shareholders entitled to
consent to action by shareholders proposed to be taken without a meeting of
shareholders), the board of directors may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case,
sixty days. If the share transfer records shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such records shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the share transfer records, the board
of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days and, in the case of a meeting of shareholders, not less than ten days,
prior to the date on which the particular action requiring such determination of
shareholders, is to be taken. If the share transfer records are not closed and
no record date is fixed for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or shareholders entitled to receive
a distribution (other than a distribution involving a purchase or redemption by
the corporation of any of its own shares) or a share dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the board
of directors declaring such distribution or share dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 6.05, such determination
shall apply to any adjournment thereof. The stock transfer books shall not be
closed for the foregoing or any other purpose.
SECTION 6.06. REGISTERED SHAREHOLDERS. Except as otherwise required by law,
the corporation shall be entitled to regard the person in whose name any shares
are registered in the share transfer records at any particular time as the owner
of those shares at that time for purposes of voting those shares, receiving
distributions, share dividends or notices in respect thereof, transferring those
shares, exercising rights of dissent with respect to those shares, exercising or
waiving any preemptive right with respect to those shares, entering into
agreements with respect to those shares or giving proxies with respect to those
shares. Except as otherwise required by law, neither the corporation nor any of
its officers, directors, employees or agents shall be liable for regarding that
person as the owner of those shares at that time for those purposes, regardless
of whether that person does not possess a certificate for those shares.
SECTION 6.07. LIST OF SHAREHOLDERS. The officer or agent having charge of
the transfer books for shares shall make, at least ten days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting, arranged in alphabetical order, with the address of each and the number
of shares held by each, which list, for a period of ten days prior to such
meeting, shall be kept on file at the registered office or principal place of
business of the corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share ledger or transfer book, or a duplicate thereof, shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
share ledger or transfer book or to vote at any meeting of the shareholders.
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<PAGE> 9
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01. DISTRIBUTIONS AND SHARE DIVIDENDS. Subject to the provisions
of the articles of incorporation relating thereto, if any, distributions and
share dividends may be declared by the board of directors, in its discretion, at
any regular or special meeting, pursuant to law. Subject to any provisions of
the articles of incorporation, distributions may be made by the transfer of
money or other property (except the corporation's own shares or rights to
acquire such shares) or by the issuance of indebtedness of the corporation, and
share dividends may be paid in the corporation's own authorized but unissued
shares or in treasury shares.
SECTION 7.02. RESERVE FUNDS. Before payment of any distribution or share
dividend, there may be set aside out of any funds of the corporation available
for distributions or share dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve fund for
meeting contingencies, or for equalizing distributions or share dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 7.03. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
SECTION 7.04. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the board of directors; provided, that if such fiscal
year is not fixed by the board of directors it shall be the calendar year.
SECTION 7.05. SEAL. The corporate seal shall be in such form as may be
prescribed by the board of directors. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
SECTION 7.06. BOOKS AND RECORDS. The corporation shall keep books and
records of account and shall keep minutes of the proceedings of its
shareholders, its board of directors and each committee of its board of
directors. The corporation shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of the original issuance of shares issued by the corporation and a record of
each transfer of those shares that have been presented to the corporation for
registration of transfer. Such records shall contain the names and addresses of
all past and current shareholders of the corporation and the number and class or
series of shares issued by the corporation held by each of them. Any books,
records and minutes may be in written form or in any other form capable of being
converted into written form within a reasonable time.
SECTION 7.07. INVALID PROVISIONS. If any provision of these bylaws is held
to be illegal, invalid, or unenforceable under present or future laws, such
provision shall be fully severable; these
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<PAGE> 10
bylaws shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of these bylaws a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
SECTION 7.08. HEADINGS. The headings used in these bylaws are for reference
purposes only and do not affect in any way the meaning or interpretation of
these bylaws.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act (the "Article")
permits the corporation to indemnify its present and former directors and
officers to the extent and under the circumstances set forth therein. In
addition, in some instances, indemnification is required by the Article. The
corporation hereby elects to and does hereby indemnify all such persons to the
fullest extent permitted or required by the Article promptly upon request of any
such person making a request for indemnity hereunder. Such obligation to so
indemnify and to so make such determinations may be specifically enforced by
resort to any court of competent jurisdiction. Further, the corporation shall
pay or reimburse the reasonable expenses of such persons covered hereby in
advance of the final disposition of any proceeding to the fullest extent
permitted by the Article and subject to the conditions thereof. A person's right
to request, or entitlement to claim, indemnification, payment or reimbursement
pursuant to this Article VIII shall not be deemed exclusive of any other right
to request, or entitlement to claim, indemnification, payment or reimbursement
pursuant to any contract of insurance or any other law, contract, arrangement or
understanding.
ARTICLE IX
AMENDMENTS
Except as otherwise provided herein, these bylaws may be altered, amended,
or repealed or new bylaws may be adopted by the affirmative vote of a majority
of the whole board of directors at any regular or special meeting; provided,
that these bylaws may not be altered, amended, or repealed so as to be
inconsistent with law or any provision of the articles of incorporation;
provided further, that the last sentence of Section 3.11 of these bylaws may not
be altered, amended or repealed without the affirmative vote of at least five of
the members of the board of directors of the corporation.
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<PAGE> 1
EXHIBIT 5.1
[FULBRIGHT & JAWORSKI L.L.P. LETTERHEAD]
April 26, 2000
Coho Energy, Inc.
14785 Preston Road, Suite 860
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel for Coho Energy, Inc., a Texas
corporation (the "Company"), in connection with its filing with the Securities
and Exchange Commission of a Registration Statement on Form S-1 (Registration
Number 333-96331) (the "Registration Statement") with respect to (i) rights to
purchase up to an aggregate of 8,663,846 shares of the Company's common stock,
$.01 par value (the "Common Stock"), to be offered by the Company pursuant to
its Plan of Reorganization confirmed by the United States Bankruptcy Court for
the Northern District of Texas (the "Plan") and (ii) the offering of 2,691,958
shares of Common Stock to certain standby lenders in connection with the
standby loan entered into pursuant to the Plan.
We have examined (i) the amended and restated articles of
incorporation and the amended and restated bylaws of the Company and (ii) such
certificates, statutes and other instruments and documents as we considered
appropriate for purposes of the opinions hereafter expressed. In connection
with this opinion, we have assumed that (i) the Registration Statement, and any
amendments thereto (including post-effective amendments), will have become
effective and (ii) the shares of Common Stock will be issued and sold in
compliance with applicable federal and state securities laws and in the manner
stated in the Registration Statement.
Based upon and subject to the foregoing, and having regard for
such legal considerations as we have deemed relevant, we are of the opinion
that the shares of Common Stock proposed to be offered by the Company have been
duly authorized and, when issued in the manner set forth in the Registration
Statement against payment therefor, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the statements made with respect to us under
the caption "Legal Matters" in the Prospectus included as part of the
Registration Statement.
Very truly yours,
Fulbright & Jaworski L.L.P.
<PAGE> 1
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT SEVERANCE AGREEMENT
THIS EXECUTIVE EMPLOYMENT SEVERANCE AGREEMENT (this "Severance
Agreement") dated as of April 3, 2000 by and between Coho Energy, Inc., a Texas
Corporation (the "Company"), and Jeffrey Clarke (the "Executive").
WITNESSETH:
WHEREAS, the Executive has been providing services to the Company and
the Company has been compensating the Executive in accordance with an
Employment Agreement dated as of November 11, 1994, as amended (the "Employment
Agreement");
WHEREAS, the Company is a debtor-in-possession, in a bankruptcy case
styled "In re Coho Energy, Inc., et al.," pending before the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division (the
"Bankruptcy Case");
WHEREAS, the Company has filed a Plan of Reorganization (the "Plan");
WHEREAS, the Employment Agreement provides that if the Executive is
terminated he would be entitled to benefits totalling in excess of $1.6 million;
WHEREAS, the Company and the Executive wish to compromise and settle
the entitlements of the Executive under the Employment Agreement by entering
into this Severance Agreement;
WHEREAS, the Employment Agreement is being modified and restated
pursuant to this Severance Agreement which will be approved as an integral part
of the Plan; and
WHEREAS, the Company desires to enter into this Severance Agreement
since it is imperative that the Company be able to receive and rely upon the
Executive's advice, if requested, as to the best interest of the Company;
NOW, THEREFORE, to assure that the Company will have the continued
dedication of the Executive and availability of Executive's advice and counsel,
and to induce Executive to remain in the employ of the Company, and for other
good and valuable consideration, the Company and Executive agree as follows:
1. Employment and Term of Employment. Subject to the terms and
conditions of this Severance Agreement, the Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company in the role of
consultant, for up to two (2) days per week for a period of three (3) months
following the Effective Date (as that term is defined in the Plan)("Term of
Employment"). Executive shall cooperate with and make himself reasonably
available to consult with and to support the Company's prosecution of the HM4
lawsuit until such time as the HM4 lawsuit is fully litigated either through
final non-appealable judgement or settlement.
<PAGE> 2
2. Scope of Employment. During the term of Employment, the Executive
agrees to provide consulting services reasonably requested by the Company's
Board of Directors.
3. Compensation. In consideration of the consulting services to be
provided by the Executive and the compromise of the Employment Agreement, the
Executive shall receive cash payment in the following amounts:
(i) $600,000 (representing two times his previous annual
salary of $300,000 per annum)
(ii) $125,000 (representing payment of the average
aggregate bonus received by Executive during his
previous four years of employment with the Company);
and
(iii) $150,000 (representing one-half of his previous
annual salary, hereinafter referred to as the "Stay
Bonus"). (This shall not be a duplication of the
amount referenced in the Disclosure Statement.)
The Stay Bonus shall be paid as follows: thirty-three percent (33%) shall be
paid on the first business day following the Effective Date (as defined in the
Plan); with remaining sixty-seven percent (67%) being paid on the two hundred
seventieth (270th) day following the Effective Date. The balance of the cash
payments shall be paid as follows: $362,500 on the Effective Date, and $362,500
on the two hundred seventieth (270th) day following the Effective Date.
4. Additional Compensation and Benefits. As additional compensation for
the Executive's services under this Severance Agreement, the Executive's
covenant regarding confidentiality in Section 5 hereof and non-competition in
Section 7 hereof, the Company agrees to provide the Executive with the following
non-cash benefits:
(i) payment of two years of medical, life insurance and
disability payments, the cost of which is estimated
as follows:
(a) annual life insurance premiums ($18,200);
(b) annual disability insurance premiums
($14,456); and
(c) annual medical cost (COBRA)(in the
approximate of $10,918).
(ii) Executive shall be released by the Company for any
claims the Company may have in connection with the
sole stock purchase loan previously made to the
Executive.
(iii) the Company shall forgive the interest-free housing
loan from the Company to the Executive in the amount
of $205,000 in return for the Executive's continued
cooperation with the HM4 lawsuit as set forth in
Paragraph 1
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<PAGE> 3
above. Such forgiveness shall occur on the date the HM4 lawsuit
is fully litigated either through final non-appealable judgement
or settled.
(iv) the Company shall provide tail directors and officers
insurance as set forth in the plan of reorganization.
(v) in addition to the benefits afforded Executive pursuant to the
plan, Company's By-Laws and other constituent documents, the
Company agrees that it will not assign to any other person or
entity any claims that the Company may have against Executive,
if any.
5. Confidentiality. The Executive shall hold in a fiduciary capacity for
the benefit of the Company all maps, data, reports, including results of
exploration, drilling, drill cores, cuttings and other samples, and other
information relating to the business of the Company (such information being
collectively referred to herein as the "Confidential Information"). During the
term of the Employment and after termination of the Executive's employment
hereunder, the Executive agrees:
(i) to take all such precautions as may be reasonably necessary to
prevent the disclosure to any third party of any of the
Confidential Information;
(ii) not to use for the Executive's own benefit any of the
Confidential Information; and
(iii) not to aid any other person or entity in the use of the
Confidential Information in competition with the Company.
Notwithstanding any provision contained herein to the contrary,
the term Confidential Information shall not be deemed to include
any general knowledge, skills or experience acquired by the
Executive or any knowledge or information known to the public in
general. The Executive further agrees that upon termination of
his employment for any reason, he shall surrender to the Company
all Confidential Information, and any copies thereof, produced
by him or coming into his possession and agrees that all such
materials, and copies thereof, are at all times the property of
the Company. The Executive further agrees that he shall not
otherwise knowingly act or conduct himself (i) to the material
detriment of the Company, its subsidiaries or affiliates, or
(ii) in a manner which is inimical or contrary to the interests
thereof.
6. Definitions; Remedies. For purposes of this Section 6, the Company
shall be defined as the Company and its affiliated companies including (without
limitation) its successors and assigns and its subsidiaries and each of their
respective successors and assigns. In the event of a breach or threatened
breach by the Executive of the provisions of this Section 6, the Company shall
be entitled to an injunction restraining the Executive from violating such
provisions without the necessity of posting a bond therefor. Nothing herein
shall be construed as prohibiting the Company from
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<PAGE> 4
pursuing any other remedies available to it at law or in equity. Except as
specifically set forth herein, the parties agree that the provisions of this
Section 6 shall survive the earlier termination of the Executive's employment
with the Company, as the continuation of this covenant is necessary for the
protection of the Company.
7. Noncompetition
(a) Noncompetition Activities. The Executive acknowledges that the
nature of the employment under this Agreement is such as will bring the
Executive in personal contact with patrons or customers of the Company and will
enable him to acquire valuable information as to the nature and character of
the business of the Company, thereby enabling him, by engaging in a competing
business in his own behalf, or for another, to take advantage of such knowledge
and thereby gain an unfair advantage. Accordingly, the Executive covenants and
agrees that he will not, without the prior written consent of the Company
during the Term of Employment and for the period of one (1) year thereafter,
engage directly or indirectly for himself, or as an agent, representative,
officer, director or employee of others, in the exploration for hydrocarbons in
areas covered by plays or prospects on which the Executive worked or of which
the Executive had knowledge at the time of the cessation of the Executive's
employment hereunder.
(b) Scope. In the event that the provisions of this Section 7 should
ever be deemed to exceed the time, geographic or actively related limitations
permitted by applicable law, then such provisions shall be reformed to the
maximum time, geographic or activity related limitations permitted by applicable
law. In the event of a breach or threatened breach by Executive of the
provisions of this Section 7, the Company shall be entitled to an injunction
restraining the Executive from violating such provisions without the necessity
of posting a bond therefor. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to it at law or in equity.
Except as specifically set forth herein, the parties agree that this Section 7
shall remain in effect for its full term notwithstanding the earlier termination
of the Executive's employment with the Company, as the continuation of his
covenant is necessary for the protection of the Company. For purposes of this
Section 7, the Company shall be defined as the Company and its affiliated
companies including (without limitation) its successors and assigns and its
subsidiaries and each of their respective successors and assigns.
8. Expenses. In the event any litigation is initiated after the date of
this Severance Agreement with respect to this Severance Agreement or its
subject matter, any prevailing party as determined by a court of competent
jurisdiction shall be entitled to recover such party's reasonable attorney's
fees from and against any non-prevailing party.
9. Governing Law. This Severance Agreement shall be governed by and
construed in accordance with the internal laws of the State of Texas. Venue
and jurisdiction of any action relating to this Agreement shall lie in Dallas
County, Texas.
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<PAGE> 5
10. Notice. Any notice, payment, demand or communication required or
permitted to be given by this Severance Agreement shall be deemed to have
sufficiently given or served for all purposes if delivered personally or if
sent by registered or certified mail, return receipt requested, postage
prepaid, addressed to such party at its address set forth below such party's
signature to this Agreement or to such other address as shall have been
furnished in writing by such party for whom the communication is intended. Any
such notice shall be deemed to be given on the date so delivered.
11. Severability. In the event any provisions hereof shall be modified or
held ineffective by any court, such adjudication shall not invalidate or render
ineffective the balance of the provisions hereof.
12. Entire Agreement. Other than the Release of even date herewith by and
between Executive and the Company, Coho Resources, Inc., its employees,
officers, agents, subsidiaries, affiliates and all related entities, this
Severance Agreement constitutes the sole agreement between the parties with
respect to the employment of the Executive by the Company and the terms and
conditions of executive's severance, and supersedes any and all other
agreements, oral or written, between the parties. This Severance Agreement may
not be modified or amended except by a writing signed by the parties.
13. Waiver. Any waiver or breach of any of the terms of this Severance
Agreement shall not operate as a waiver of any other breach of such terms or
conditions, or any other terms or conditions, nor shall any failure to enforce
any provisions hereof operate as a waiver of such provision or any other
provision hereof.
14. Assignment. This Severance Agreement is a personal employment
contract and the rights and interests of the Executive hereunder may not be
sold, transferred, assigned or pledged. Subject to Section 7(d) hereof, the
Company may assign its rights under this Agreement to (i) any entity into or
with which the Company is merged or consolidated or to which the Company
transfers all or substantially all of its assets or (ii) any entity, which at
the time of such assignment, controls, is under the common control with, or is
controlled by the Company.
15. Successors. This Severance Agreement shall be binding upon and inure
to the benefit of the Executive and his heirs, executors, administrators and
legal representatives. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
16. Section Headings. The section headings in this Severance Agreement
have been inserted for convenience and shall not be used for interpretative
purposes or to otherwise construe this Agreement.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Severance
Agreement as of the date first written above and intend that this Severance
Agreement have the effect of a sealed instrument.
COHO ENERGY, INC., Debtor and
14785 Preston Road, Suite 860 Debtor-in-Possession
Dallas, Texas 75240
By: /s/ MICHAEL Y. McGOVERN
--------------------------
Name: MICHAEL Y. McGOVERN
------------------------
Title: PRESIDENT
-----------------------
/s/ JEFFREY CLARKE
-----------------------------
JEFFREY CLARKE
<PAGE> 1
Exhibit 10.3
CREDIT AGREEMENT
dated as of
MARCH 31, 2000
among
COHO ENERGY, INC.,
as Borrower
THE CHASE MANHATTAN BANK,
as Administrative Agent
THE CHASE MANHATTAN BANK,
as Issuing Bank
MEESPIERSON CAPITAL CORP.,
as Documentation Agent
FLEET NATIONAL BANK,
as Syndication Agent
and
THE LENDERS PARTY HERETO
---------------------------
CHASE SECURITIES INC.,
as Arranger
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS........................................................................2
SECTION 1.1 Defined Terms......................................................................2
SECTION 1.2 Classification of Loans and Borrowings............................................26
SECTION 1.3 Terms Generally...................................................................26
SECTION 1.4 Accounting Terms; GAAP............................................................26
ARTICLE II THE CREDITS.......................................................................27
SECTION 2.1 Commitments.......................................................................27
SECTION 2.2 Loans and Borrowings..............................................................27
SECTION 2.3 Requests for Borrowings...........................................................28
SECTION 2.4 Funding of Borrowings.............................................................29
SECTION 2.5 Interest Elections................................................................29
SECTION 2.6 Termination and Reduction of Commitments..........................................31
SECTION 2.7 Repayment of Loans; Evidence of Debt..............................................31
SECTION 2.8 Borrowing Base....................................................................32
SECTION 2.9 Prepayment of Loans...............................................................35
SECTION 2.10 Fees..............................................................................37
SECTION 2.11 Interest..........................................................................38
SECTION 2.12 Alternate Rate of Interest........................................................39
SECTION 2.13 Illegality........................................................................39
SECTION 2.14 Increased Costs...................................................................40
SECTION 2.15 Break Funding Payments............................................................41
SECTION 2.16 Taxes.............................................................................42
SECTION 2.17 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.......................43
SECTION 2.18 Mitigation Obligations............................................................45
SECTION 2.19 Letters of Credit.................................................................45
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................................49
SECTION 3.1 Organization; Powers..............................................................49
SECTION 3.2 Authorization; Enforceability.....................................................50
SECTION 3.3 Approvals; No Conflicts...........................................................50
SECTION 3.4 Financial Condition; No Material Adverse Change...................................50
SECTION 3.5 Properties........................................................................51
SECTION 3.6 Litigation Matters................................................................52
SECTION 3.7 Compliance with Laws and Agreements...............................................52
SECTION 3.8 Investment and Holding Company Status.............................................52
SECTION 3.9 Taxes.............................................................................52
SECTION 3.10 ERISA Matters.....................................................................52
SECTION 3.11 Disclosure........................................................................53
SECTION 3.12 Subsidiaries......................................................................53
SECTION 3.13 Insurance.........................................................................53
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 3.14 Labor Matters.....................................................................53
SECTION 3.15 Priority; Security Interest.......................................................53
SECTION 3.16 Environmental Matters.............................................................54
SECTION 3.17 Solvency..........................................................................55
SECTION 3.18 Year 2000.........................................................................55
SECTION 3.19 Claims and Liabilities............................................................55
SECTION 3.20 Delivery of Alternative Financing Documentation...................................55
SECTION 3.21 Plan of Reorganization............................................................56
ARTICLE IV CONDITIONS........................................................................56
SECTION 4.1 Effective Date....................................................................56
SECTION 4.2 Each Credit Event.................................................................63
ARTICLE V AFFIRMATIVE COVENANTS.............................................................64
SECTION 5.1 Financial Statements and Other Information........................................64
SECTION 5.2 Notices of Material Events........................................................65
SECTION 5.3 Information Regarding Collateral..................................................67
SECTION 5.4 Existence; Conduct of Business....................................................67
SECTION 5.5 Payment of Obligations............................................................67
SECTION 5.6 Maintenance of Properties.........................................................68
SECTION 5.7 Insurance.........................................................................69
SECTION 5.8 Casualty and Condemnation.........................................................69
SECTION 5.9 Books and Records; Inspection and Audit Rights....................................69
SECTION 5.10 Compliance with Laws..............................................................70
SECTION 5.11 Use of Proceeds and Letters of Credit.............................................70
SECTION 5.12 Additional Subsidiaries...........................................................70
SECTION 5.13 Further Assurances................................................................71
SECTION 5.14 Commodity Hedging.................................................................72
SECTION 5.15 Environmental Covenant............................................................72
SECTION 5.16 Title Matters.....................................................................73
SECTION 5.17 Settlement........................................................................73
ARTICLE VI NEGATIVE COVENANTS................................................................74
SECTION 6.1 Indebtedness; Certain Equity Securities...........................................74
SECTION 6.2 Liens.............................................................................75
SECTION 6.3 Fundamental Changes...............................................................76
SECTION 6.4 Investments, Loans, Advances, Guaranties and Acquisitions.........................76
SECTION 6.5 Asset Sales.......................................................................77
SECTION 6.6 Sale and Leaseback Transactions...................................................78
SECTION 6.7 Hedging Agreements................................................................78
SECTION 6.8 Restricted Payments; Certain Payments of Indebtedness.............................78
SECTION 6.9 Transactions with Affiliates......................................................79
SECTION 6.10 Restrictive Agreements............................................................79
SECTION 6.11 Amendment of Material Documents...................................................79
SECTION 6.12 Minimum EBITDA to Total Interest Expense Ratio....................................79
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 6.13 Maximum Leverage Ratio............................................................80
SECTION 6.14 Minimum Current Ratio.............................................................80
SECTION 6.15 Subsidiaries......................................................................80
SECTION 6.16. Take or Pay Contracts.............................................................80
ARTICLE VII EVENTS OF DEFAULT.................................................................80
ARTICLE VIII THE AGENTS........................................................................83
ARTICLE IX MISCELLANEOUS.....................................................................85
SECTION 9.1 Notices...........................................................................85
SECTION 9.2 Waivers; Amendments...............................................................87
SECTION 9.3 Expenses; Indemnity; Damage Waiver................................................89
SECTION 9.4 Successors and Assigns............................................................90
SECTION 9.5 Survival..........................................................................93
SECTION 9.6 Counterparts; Integration; Effectiveness..........................................93
SECTION 9.7 Severability......................................................................93
SECTION 9.8 Right of Setoff...................................................................94
SECTION 9.9 GOVERNING LAW.....................................................................94
SECTION 9.10 JURISDICTION......................................................................94
SECTION 9.11 CONSENT TO SERVICE OF PROCESS.....................................................95
SECTION 9.12 WAIVER OF JURY TRIAL..............................................................95
SECTION 9.13 Headings..........................................................................95
SECTION 9.14 Confidentiality...................................................................95
SECTION 9.15 Chapter 15 Not Applicable.........................................................96
SECTION 9.16 Limitation of Interest............................................................96
SECTION 9.17 Collateral Matters; Hedging Agreements............................................97
SECTION 9.18 Arranger; Documentation Agent; Syndication Agent..................................97
SECTION 9.19 Entire Agreement..................................................................98
</TABLE>
<PAGE> 5
SCHEDULES AND EXHIBITS
Schedules
Schedule 2.1 -- Commitments
Schedule 3.3 -- Approvals
Schedule 3.4 -- Material Adverse Change
Schedule 3.5 -- Real Property
Schedule 3.6 -- Disclosed Matters
Schedule 3.9 -- Taxes
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Required Insurance
Schedule 3.16 -- Environmental Matters
Schedule 3.19 -- Claims and Liabilities
Schedule 4.1(g) -- UCC Jurisdictions
Schedule 4.1(s) -- Preferred Stock and Other Indebtedness
Schedule 6.1 -- Existing Indebtedness
Schedule 6.2 -- Existing Liens
Schedule 6.4 -- Existing Investments
Schedule 6.10 -- Existing Restrictions
Exhibits
Exhibit A -- Form of Assignment and Acceptance Agreement
Exhibit B-1 -- Form of Borrowing Request
Exhibit B-2 -- Form of Interest Rate Election
Exhibit C-1 -- Form of Opinion of Borrower's Counsel
Exhibit C-2 -- Form of Opinion of Borrower's Local Counsel
Exhibit D -- Form of Guaranty
Exhibit E -- Form of Pledge Agreement
Exhibit F -- Form of Security Agreement
Exhibit G -- Form of Mortgage
<PAGE> 6
This CREDIT AGREEMENT, dated as of March 31, 2000, among COHO ENERGY,
INC., a Texas corporation (the "Borrower"), the financial institutions as are or
may become parties hereto (collectively, the "Lenders"), THE CHASE MANHATTAN
BANK ("Chase"), as administrative agent for the Lenders (in such capacity
together with its successors and permitted assigns in such capacity, the
"Administrative Agent"), THE CHASE MANHATTAN BANK, as letter of credit issuing
bank (in such capacity together with its successors and permitted assigns in
such capacity, the "Issuing Bank"), MEESPIERSON CAPITAL CORP., as documentation
agent for the Lenders (in such capacity together with its successors and
permitted assigns in such capacity, the "Documentation Agent"), and FLEET
NATIONAL BANK, as syndication agent for the Lenders (in such capacity together
with its successors and permitted assigns in such capacity, the "Syndication
Agent").
W I T N E S S E T H:
WHEREAS, the Borrower is an independent energy company engaged,
directly and indirectly through its Subsidiaries, in the development and
production of, and the exploration for, crude oil and natural gas; and
WHEREAS, on August 23, 1999, the Borrower and certain of its
Subsidiaries, Coho Resources, Inc., a Nevada corporation ("CRI"); Coho Louisiana
Production Company, a Delaware corporation ("CLP"); Coho Exploration, Inc., a
Delaware corporation ("CEX"); Coho Oil & Gas, Inc., a Delaware corporation
("COG"); Interstate Natural Gas Company, a Delaware corporation ("INGC")
(collectively, the "Coho Bankruptcy Entities"); each commenced a case under
Chapter 11 of the U.S. Bankruptcy Code (as consolidated for administrative
purposes pursuant to order of the "Bankruptcy Court" as hereinafter defined, the
"Bankruptcy Case"); and
WHEREAS, the United States Bankruptcy Court for the Northern District
Court of Texas (the "Bankruptcy Court") issued on March 20, 2000 that certain
"Finding of Fact, Conclusions of Law and Order Confirming the Debtors' First
Amended and Restated Chapter 11 Plan of Reorganization" (the "Confirmation
Order") confirming that certain Debtors' First Amended and Restated Chapter 11
Plan of Reorganization, dated February 15, 2000, as amended by (i) that certain
First Modification and Clarification to Debtors' First Amended and Restated
Chapter 11 Plan of Reorganization, dated March 15, 2000, and (ii) that certain
"Second Modification" (as defined in the Confirmation Order) (the "Plan of
Reorganization"); and
WHEREAS, the Coho Bankruptcy Entities were, as of the date of the
commencement of the Bankruptcy Case, parties to that certain Fourth Amended and
Restated Credit Agreement dated December 18, 1997 (the "Existing Loan
Agreement"); and
WHEREAS, pursuant to the terms of the Plan of Reorganization, the
allowed amount of the claims of the bank parties to the Existing Loan Agreement
are to be paid in cash in full on the effective date of the Plan of
Reorganization (the "Allowed Bank Group Claim"); and
<PAGE> 7
WHEREAS, the Coho entities have requested that the Lenders make loans
to the Borrower upon the Effective Date hereunder in an aggregate amount up to
$250,000,000 to refinance the indebtedness owing under the Existing Loan
Agreement to provide working capital and for general corporate purposes; and
WHEREAS, the Lenders have agreed to make such loans to the Borrower on
the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" has the meaning assigned to such term in the
Preamble.
"Administrative Questionnaire" means an Administrative Questionnaire in
a form supplied by the Administrative Agent to the Lenders.
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agent" means, individually, any of the Administrative Agent, the
Documentation Agent or the Syndication Agent; and "Agents" means, collectively,
all of them.
"Allowed Bank Group Claim" has the meaning assigned to such term in the
Fifth Recital.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the
2
<PAGE> 8
Federal Funds Effective Rate shall be effective from and including the effective
date of such change in the Prime Rate or the Federal Funds Effective Rate,
respectively. If for any reason Administrative Agent shall have determined
(which determination shall be conclusive and binding, absent manifest error)
that it is unable to ascertain the Federal Funds Effective Rate for any reason,
including, without limitation, the inability or failure of Administrative Agent
to obtain sufficient bids or publications in accordance with the terms hereof,
the Alternate Base Rate shall be the Prime Rate until the circumstances giving
rise to such inability no longer exist.
"Amoco Properties" means the Hydrocarbon Interests and other real and
personal property purchased by Coho Acquisitions Company from Amoco Production
Company pursuant to that certain Purchase and Sale Agreement between Amoco
Production Company and Coho Acquisitions Company, dated November 26, 1997.
"Applicable Lending Office" shall mean, for each Lender and for each
Type of Loan, such office of such Lender (or of an affiliate of such Lender) as
such Lender may from time to time specify to Administrative Agent and the
Borrower as the office by which its Loans of such Type are to be made and/or
issued and maintained.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day with respect to any ABR Loan or
Eurodollar Loan, as the case may be, the applicable rate per annum set forth
below under the caption "ABR Spread" or "Eurodollar Spread", as the case may be,
based upon the Borrowing Base Usage as of the date of determination:
<TABLE>
<CAPTION>
========================================================================================
ABR Eurodollar
Borrowing Base Usage Spread Spread
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Category 1: 200.0 bps 300.0 bps
>75%
- ----------------------------------------------------------------------------------------
Category 2: 175.0 bps 275.0 bps
>50% but
<=75%
- ----------------------------------------------------------------------------------------
Category 3: 150.0 bps 250.0 bps
>25% but
<=50%
- ----------------------------------------------------------------------------------------
Category 4: 125.0 bps 225.0 bps
<=25%
========================================================================================
</TABLE>
3
<PAGE> 9
;provided, however, during any time when (A) the sum of principal amount of all
outstanding Loans plus the current LC Exposure exceeds (B) the Borrowing Base as
then in effect at such time, then the "ABR Spread" and the "Eurodollar Spread"
set forth above shall be increased by 100 bps.
"Approved Engineer" means Ryder Scott Company Petroleum Consultants,
Sproule & Associates or any other independent engineer reasonably satisfactory
to the Administrative Agent.
"Assignment and Acceptance Agreement" means an assignment and
acceptance entered into by a Lender and an assignee (with the consent of any
party whose consent is required by Section 9.4), and accepted by the
Administrative Agent, substantially in the form of Exhibit A, or any other form
approved by the Administrative Agent.
"Authorized Officer" means: (a) with respect to any Person that is a
corporation or a limited liability company, the Chairman, the President, Vice
President, Treasurer, Assistant Treasurer, Attorney-In-Fact, Secretary or
Assistant Secretary of such Person or, in the case of a limited liability
company, the managing member thereof and (b) with respect to any person that is
a partnership, the Chairman, the President, Vice President, Treasurer, Assistant
Treasurer, Attorney-In-Fact, Secretary or Assistant Secretary of the general
partner of such Person.
"Availability Period" means the period from and including the Effective
Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Bankruptcy Case" has the meaning assigned to such term in the Second
Recital.
"Bankruptcy Court" has the meaning assigned to such term in the Third
Recital.
"Bankruptcy Disclosure Statement" means that certain First Amended and
Restated Disclosure Statement with Respect to the Plan of Reorganization under
Chapter 11 of the United States Bankruptcy Code, with respect to the Coho
Bankruptcy Entities, filed with the Bankruptcy Court on February 14, 2000.
"Benefit Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV or ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Board" means the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrower" has the meaning assigned to such term in the Preamble and
shall include its successors.
4
<PAGE> 10
"Borrowing" means Loans of the same Type, made, converted or continued
on the same date and, in the case of Eurodollar Loans, as to which a single
Interest Period is in effect.
"Borrowing Base" means the "Borrowing Base" as determined from time to
time pursuant to Section 2.8.
"Borrowing Base Deficiency" means the amount by which (a) the aggregate
outstanding principal amount of all Loans exceeds (b) the then current Borrowing
Base.
"Borrowing Base Deficiency Notification Date" means the date on which
any notice of a Borrowing Base Deficiency is received by the Borrower.
"Borrowing Base Excess" means the amount by which (a) the amount of the
then current Borrowing Base exceeds (b) the amount of the aggregate Exposures of
the Lenders.
"Borrowing Base Properties" means those Mortgaged Properties and those
other Oil and Gas Properties owned by the Borrower or its Subsidiaries, if any,
that are given value by the Lenders in their determination of the then current
Borrowing Base.
"Borrowing Base Required Lenders" means, at any time, the
Administrative Agent and the Lenders having Exposures and unused Commitments
representing more than 75% of the sum of the total Exposures and unused
Commitments at such time.
"Borrowing Base Usage" means, at the time of determination, the
percentage equivalent of a fraction, the numerator of which is the sum of the
aggregate principal amount of all outstanding Loans plus the current LC Exposure
at such time and the denominator of which is the Borrowing Base as then in
effect at such time.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.3.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in Houston, Texas or New York City, New York are
authorized or required by law to remain closed; provided that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capital Expenditures" means, for any period, (a) the additions to
Property, plant and equipment and other capital expenditures of the Borrower and
its consolidated Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower for such period prepared in accordance
with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its
consolidated Subsidiaries during such period.
5
<PAGE> 11
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal Property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601, et. seq., as amended from
time to time.
"Change in Control" means a change resulting when any Unrelated Person
or any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also constituting
Unrelated Persons) shall at any time either (i) Beneficially Own more than
49.99% of the aggregate voting power of all classes of Voting Stock of the
Borrower or (ii) during any period of two consecutive years ending on or after
the Effective Date, as determined as of the last day of each calendar quarter
after the Effective Date, the individuals and their successors nominated by any
of the Standby Lenders (the "Incumbent Directors") who at the beginning of such
period constituted the Board of Directors of the Borrower (other than additions
thereto or removals therefrom from time to time thereafter approved by a vote of
the Board of Directors in accordance with the Borrower's by-laws) shall cease
for any reason to constitute 50% or more of the Board of Directors of the
Borrower. As used herein (a) "Beneficially Own" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto; provided, however, that, for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates until such tendered securities are accepted for
purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means
at any time any Person other than the Borrower or any Subsidiary or the holders
of the Voting Stock of the Borrower as of the Effective Date, including, without
limitation, PPM America Special Investments Fund, L.P., PPM America Special
Investments CBO II, L.P., Appaloosa Management, L.P., Pacholder Associates Inc.,
and Oaktree Capital Management, L.L.C., and other than any trust for any
employee benefit plan of the Borrower or any Subsidiary of the Borrower; (d)
"Related Person" of any Person shall mean any other Person owning (1) 5% or more
of the outstanding common stock of such Person or (2) 5% or more of the Voting
Stock of such Person; and (e) "Voting Stock" of any Person shall mean capital
stock of such Person which ordinarily has voting power for the election of
directors (or persons performing similar functions) of such Person, whether at
all times or only so long as no senior class of securities has such voting power
by reason of any contingency.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.14(b), by any lending office of such Lender or by such
Lender's
6
<PAGE> 12
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.
"Chapter 1D" shall mean Chapter 1D of Article 5069 of the Texas Credit
Title, Title 79, Vernon's Texas Civil Statutes, as amended (formerly Article
5069-1.04, Vernon's Texas Civil Statutes, as amended).
"Chase" has the meaning assigned to such term in the Preamble.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Coho Bankruptcy Entities" has the meaning assigned to such term in the
Second Recital.
"Collateral" means any and all "Mortgaged Property" and "Collateral",
as defined in all Security Documents.
"Commitment" means, with respect to each Lender, the obligation, if
any, of such Lender to make Loans, and to acquire participations in Letters of
Credit, hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender's Exposure hereunder, as such commitment may be (a)
reduced from time to time pursuant to Section 2.6 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.4. The initial amount of each Lender's Commitment shall be set forth
on Schedule 2.1, or in the Assignment and Acceptance Agreement pursuant to which
such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $250,000,000.
"Confirmation Order" means the order pursuant to Section 1129 of the
Bankruptcy Code confirming Borrower's Plan of Reorganization.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Current Ratio" means, as of any date a determination thereof is to be
made, the ratio of
(a) the sum of (i) the amount of the consolidated current assets of the
Borrower and its Subsidiaries plus (ii) the amount of the Borrowing Base Excess
to
(b) the amount of the consolidated current liabilities of the Borrower
and its Subsidiaries.
7
<PAGE> 13
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and
environmental matters disclosed in Schedule 3.6.
"Documentation Agent" has the meaning assigned to such term in the
Preamble.
"dollars" or "$" refers to lawful money of the United States of
America.
"EBITDA" means, for any period, the consolidated net income of Borrower
and its Subsidiaries for such period (excluding material gains and losses on
sales and retirement of assets, non-cash write downs, charges resulting from
accounting convention changes and deductions for exploration expenses) before
deduction for federal and state taxes, interest expense (including capitalized
interest), depreciation, depletion and amortization expense, costs associated
directly with the reorganization of the Coho Bankruptcy Entities in accordance
with the Plan of Reorganization, and any severance payments or other
bankruptcy-related costs relating to the reorganization of the Coho Bankruptcy
Entities incurred by Borrower and its Subsidiaries during the period from the
Effective Date until the date 90 days following such Effective Date.
"EBITDA to Total Interest Expense Ratio" means, on any date, the ratio
of EBITDA (calculated for the last four consecutive fiscal quarter period then
most recently ended) to Total Interest Expense (calculated for the last four
consecutive fiscal quarter period then most recently ended).
"Effective Date" means the date on which the conditions specified in
Section 4.1 are satisfied (or waived in accordance with Section 9.2).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c)
exposure to any Hazardous Materials, (d) the release or threatened release of
any Hazardous Materials into the environment or (e) any contract, agreement or
other consensual arrangement pursuant to which liability is assumed or imposed
with respect to any of the foregoing.
"Equity Financing" means the Rights Offering and/or the Private
Placement.
8
<PAGE> 14
"Equity Financing Documents" means the agreements and documents
executed and delivered in connection with the Equity Financing.
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations and interpretations by the
Internal Revenue Service or the Department of Labor thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Benefit
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Benefit Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Benefit Plan; (d) the incurrence by the Borrower or
any of its ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Benefit Plan; (e) the receipt by the Borrower
or any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Benefit Plan or Benefit Plans or to
appoint a trustee to administer any Benefit Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Benefit Plan or Multiemployer Plan; or
(g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the
receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of
any notice, concerning the imposition of Withdrawal Liability or a determination
that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
VII.
"Excluded Taxes" means, with respect to the Administrative Agent, any
other Agent, the Issuing Bank, any Lender or any other recipient of any payment
to be made by or on account of any obligation of the Borrower hereunder, (a)
income or franchise taxes imposed on (or measured by) its net income by the
United States of America, or by the jurisdiction under the laws of which such
9
<PAGE> 15
recipient is organized or in which its principal office is located or, in the
case of any Lender, in which its applicable lending office is located, (b) any
branch profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower is located and (c) in
the case of a Foreign Lender (other than an assignee pursuant to a request by
the Borrower under Section 2.18(b)), any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes a
party to this Agreement (or designates a new lending office) or is attributable
to such Foreign Lender's failure to comply with Section 2.16(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.16(a).
"Existing Loan Agreement" has the meaning assigned to such term in the
Fourth Recital.
"Exposure" means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lender's Loans and its LC Exposure at
such time.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fee Letter" means that certain Fee Letter dated as of December 9,
1999, by and among the Borrower, the Administrative Agent and Chase Securities
Inc., as such letter may be amended, supplemented, restated or otherwise
modified from time to time in accordance with the Loan Documents.
"Final Order" means an order that is no longer subject to appeal,
certiorari proceeding or other proceeding for review or rehearing, and as to
which no appeal, certiorari proceeding, or other proceeding for review or
rehearing shall then be pending.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer, assistant treasurer or comptroller of the
Borrower.
"Financing Transactions" means (a) the execution, delivery and
performance by each Subsidiary of the Loan Documents to which it is to be a
party, the borrowing of Loans and the use of the proceeds thereof, and (b) (i)
the execution, delivery and performance by each Subsidiary of the Standby Debt
Documents to which it is to be a party, the issuance of the Standby Debt and the
use of the proceeds thereof and/or (ii) the Equity Financing.
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"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"G&A Expenses" means the general and administrative expenses of the
Borrower and its Subsidiaries not attributable to any particular Oil and Gas
Property or Properties, including without limitation, salaries, office rent and
operating expenses, overhead and outside contractors.
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Approval" means (a) any authorization, consent, approval,
license, ruling, permit, tariff, rate, certification, waiver, exemption, filing,
variance, claim, order, judgment or decree of, or with, (b) any required notice
to, (c) any declaration of or with, or (d) any registration by or with, any
Governmental Authority.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Governmental Rule" means any statute, law, regulation, ordinance,
rule, judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, requirement of, or other governmental restriction or any
similar binding form of decision of or determination by, or any binding
interpretation or administration of any of the foregoing by, any Governmental
Authority, whether now or hereafter in effect.
"guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease Property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term "guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
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"Guaranty" means a Guaranty, dated as of the Effective Date, between
the Administrative Agent and a Subsidiary (other than a Foreign Subsidiary) of
the Borrower, substantially in the form of Exhibit D, as amended, supplemented,
restated or otherwise modified from time to time in accordance with the terms of
this Agreement and the other Loan Documents. The term "Guaranties" shall include
each and every Guaranty executed and delivered by a Subsidiary (other than a
Foreign Subsidiary) hereunder.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of
any nature regulated pursuant to any Environmental Law and any petroleum,
petroleum products or petroleum distillates and associated oil or natural gas
exploration, production and development wastes that are not exempted or excluded
from being defined as "hazardous substances", "hazardous materials", "hazardous
wastes" and "toxic substances" under such Environmental Laws.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement
between Borrower or its Subsidiaries and any Lender or an Affiliate of a Lender.
"Hedging Obligations" means, with respect to any Person, all
liabilities (including but not limited to obligations and liabilities arising in
connection with or as a result of early or premature termination of a Hedging
Agreement, whether or not occurring as a result of a default thereunder) of such
Person under a Hedging Agreement.
"Hicks Muse Lawsuit" means that certain lawsuit styled Coho Energy,
Inc. v. Hicks, Muse, et al., which was filed in the District Court of Dallas
County, Texas, 68th Judicial District, as removed to the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division, and any
subsequent case related thereto, arising in connection therewith or which is a
continuation thereof.
"Highest Lawful Rate" shall mean, on any day, the maximum nonusurious
rate of interest permitted for that day by whichever of applicable federal or
Texas law permits the higher interest rate, stated as a rate per annum. On each
day, if any, that Chapter 1D establishes the Highest Lawful Rate, the Highest
Lawful Rate shall be the "applicable interest rate ceiling" (as defined in
Chapter 1D) for that day.
"Hydrocarbon Interests" means all rights, titles and interests in and
to oil and gas leases, oil, gas and mineral leases, other Hydrocarbon leases,
mineral interests; mineral servitudes, overriding royalty interests, royalty
interests, net profits interests, production payment interests, and other
similar interests.
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"Hydrocarbons" means, collectively, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate and all other liquid or
gaseous hydrocarbons and related minerals and all products therefrom, in each
case whether in a natural or a processed state.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
Property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of Property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
Property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, (k)
all obligations of such Person with respect to any arrangement, directly or
indirectly, whereby such Person or its Subsidiaries shall sell or transfer any
material asset, and whereby such Person or any of its Subsidiaries shall then or
immediately thereafter rent or lease as lessee such asset or any part thereof,
(l) all recourse and support obligations of such Person or any of its
Subsidiaries with respect to the sale or discount of any of its accounts
receivable, (m) all obligations of such Person or any of its Subsidiaries with
respect to any arrangement for the purchase of materials, supplies, other
Property or services if such arrangement by its express terms requires that
payment be made by Borrower or such Subsidiary regardless of whether such
materials, supplies, other Property or services are delivered or furnished to
it, (n) all obligations of such Person with respect to Production Payments, (o)
net liabilities of such Person under all Hedging Obligations, (p) all
obligations of such Person under any prepayment for oil and gas production or
other similar agreement, and (q) all obligations of such Person under operating
leases which require such Person or any of its Affiliates to make payments over
the term of such lease based on the purchase price or appraised value of the
Property subject to such lease plus a marginal interest rate, and used primarily
as a financing vehicle for, or to monetize, such Property. The Indebtedness of
any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes and Other
Taxes.
"Initial Reserve Report" means the report delivered to the
Administrative Agent dated as of January 1, 2000, with respect to the Borrower's
Oil and Gas Properties, a true and correct copy of which has been delivered to
the Administrative Agent and the Lenders.
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"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of March 31, 2000, by and between the Administrative Agent, as
Administrative Agent for the Lenders, and the Standby Lenders, as amended,
supplemented, restated or otherwise modified from time to time in accordance
with the Loan Documents.
"Interest Election Request" means a request by the Borrower to convert
or continue a Borrowing in accordance with Section 2.5.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period.
"Interest Period" means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter, as the
Borrower may elect; provided, that (i) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (ii) any
Interest Period pertaining to a Eurodollar Borrowing that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing, (iii) Interest Periods
commencing on the same dates for Loans comprising part of the same Borrowing
shall be of the same duration, and (iv) no Interest Period may end later than
the last day of the Availability Period.
"Issuing Bank" shall have the meaning set forth in the Preamble;
provided, that the Issuing Bank may, in its discretion, arrange for one or more
Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case
the term "Issuing Bank" shall include any such Affiliate with respect to Letters
of Credit issued by such Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that
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have not yet been reimbursed by or on behalf of the Borrower at such time. The
LC Exposure of any Lender at any time shall be its Applicable Percentage of the
total LC Exposure at such time.
"Legal Requirement" shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, now or hereafter in effect.
"Lenders" has the meaning assigned to such term in the Preamble, and
shall include the Persons listed on Schedule 2.1 and any other Person that shall
have become a party hereto pursuant to an Assignment and Acceptance Agreement,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance Agreement.
"Letter of Credit" means any letter of credit issued pursuant to this
Agreement.
"Leverage Ratio" means, on any date, the ratio of Total Senior Debt
outstanding on such date to EBITDA (calculated for the last four consecutive
fiscal quarter period then most recently ended) as of the end of the most recent
fiscal quarter; provided, however, that for purposes of calculating the Leverage
Ratio (except for calculating the Leverage Ratio used in (i) the definition of
"Prepayment Event" and (ii) in the first proviso of Section 6.13) for any period
ending on or before December 31, 2000, the appropriate EBITDA to be used in such
calculation of the Leverage Ratio shall not be calculated based on the last four
consecutive fiscal quarter period then most recently ended but instead shall be
calculated by (a) for period of calculation ending on or before June 30, 2000,
multiplying the EBITDA for the fiscal quarter ending June 30, 2000 by 4, (b) for
period of calculation commencing July 1, 2000 and ending on or before September
30, 2000, multiplying the EBITDA for the last two consecutive fiscal quarter
period then most recently ended, by 2, and (c) for period of calculation
commencing October 1, 2000 and ending on or before December 31, 2000,
multiplying the EBITDA for the last three consecutive fiscal quarter period then
most recently ended, by 4/3.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate (rounded upwards, if necessary, to the next 1/16 of
1%) appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits in the London interbank market) at approximately 11:00 a.m., New
York City time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period. In the event that such rate is not available at such time for
any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate (rounded upwards, if necessary, to the
next 1/16 of 1%) at which dollar deposits of $5,000,000 and for a maturity
comparable to such Interest Period are offered by the principal London office of
the Administrative Agent in immediately available funds in the London interbank
market at
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approximately 11:00 a.m., New York City time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge, collateral assignment
or security interest in, on or of such asset, (b) the interest of a vendor or a
lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
"Loan Documents" means (i) this Agreement, the Security Documents, the
Fee Letter, the Intercreditor Agreement and the Hedging Agreements, and (ii) all
instruments, certificates and agreements now or hereafter executed or delivered
to Administrative Agent or any Lender pursuant to any of the foregoing, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations or condition (financial or otherwise) of the
Borrower, or of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower or any other Subsidiary to perform any of its respective
obligations under any Loan Document to which it is a party or (c) the rights of
or benefits available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), including, without limitation, obligations in respect of one
or more Hedging Agreements, or obligations in respect of the Standby Debt, of
any one or more of the Borrower and its Subsidiaries in an aggregate principal
amount exceeding $2,500,000. For purposes of determining Material Indebtedness,
the "principal amount" of the obligations of the Borrower or any Subsidiary in
respect of any Hedging Agreement at any time shall be the maximum aggregate
amount (giving effect to any netting agreements) that the Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Maturity Date" means March 31, 2003.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a Mortgage, Deed of Trust, Assignment, Security
Agreement, Financing Statement and Fixture Filing, dated as of the Effective
Date or otherwise delivered pursuant to the Loan Documents, in substantially the
form of Exhibit G, executed and delivered by the Borrower or any of its
Subsidiaries (other than Foreign Subsidiaries), as the case may be, as amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms of this Agreement and the other Loan Documents. The term
"Mortgage" shall include each Mortgage
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Supplement after execution and delivery of such Mortgage Supplement. The term
"Mortgages" shall include each and every Mortgage executed and delivered by each
of the Borrower and its Subsidiaries hereunder.
"Mortgage Supplement" means a supplement to any Mortgage, in form and
substance reasonably satisfactory to the Administrative Agent, pursuant to which
the Borrower or any of its Subsidiaries (other than Foreign Subsidiaries) will
grant a lien on additional Property subject to the terms of such Mortgage, as
amended, supplemented, restated or otherwise modified from time to time in
accordance with the terms of this Agreement and the other Loan Documents.
"Mortgaged Property" means, initially, each Oil and Gas Property or
parcel of real Property and the improvements thereto owned by any Subsidiary and
identified on Schedule 3.5, and includes each other Oil and Gas Property or
parcel of real Property and improvements thereto with respect to which a
Mortgage is granted pursuant to Sections 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event (a) the cash proceeds
received in respect of such event including (i) any cash received in respect of
any non-cash proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds, and (iii) in the case of a condemnation or similar
event, condemnation awards and similar payments, net of (b) the sum of (i) all
reasonable fees and out-of-pocket expenses paid by the Borrower and the
Subsidiaries to third parties (other than Affiliates) in connection with such
event, (ii) in the case of a sale, transfer or other disposition of an asset
(including pursuant to a sale and leaseback transaction or a casualty or a
condemnation or similar proceeding), the amount of all payments required to be
made by the Borrower and the Subsidiaries as a result of such event to repay
Indebtedness (other than Loans) secured by such asset or otherwise subject to
mandatory prepayment as a result of such event, and (iii) the amount of all
taxes paid (or reasonably estimated to be payable) by the Borrower and the
Subsidiaries, and the amount of any reserves established by the Borrower and the
Subsidiaries to fund contingent liabilities reasonably estimated to be payable,
in each case during the year that such event occurred or the next succeeding
year and that are directly attributable to such event (as determined reasonably
and in good faith by the chief financial officer of the Borrower).
"Obligations" means all obligations (monetary or otherwise) of the
Borrower and each other Obligor arising under or in connection with this
Agreement and each other Loan Document.
"Obligor" means the Borrower or any other Person (other than the
Administrative Agent or any Lender) obligated under any Loan Document.
"Oil and Gas Properties" means the Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including without
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limitation all units created under orders, regulations and rules of any
Governmental Authority having jurisdiction) which may affect all or any portion
of the Hydrocarbon Interests; all operating agreements, joint venture
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of Hydrocarbons from or attributable to such Hydrocarbon Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, the lands covered thereby and all oil in tanks and
all rents, issues, profits, proceeds, products, revenues and other incomes from
or attributable to the Hydrocarbon Interests; all tenements, profits a prendre,
hereditaments, appurtenances and Properties in anywise appertaining, belonging,
affixed or incidental to the Hydrocarbon Interests, Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, water wells, injection wells or
other wells, buildings, structures, fuel separators, liquid extraction plants,
plant compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Organic Documents" means, relative to any Person, its articles of
organization, formation or incorporation (or comparable document), its by-laws
or operating agreement and all shareholder agreements, partnership agreements,
limited liability company or operating agreements, voting trusts and similar
arrangements applicable to ownership.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or Property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.5;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 5.5;
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(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII; and
(f) easements, zoning and deed restrictions, rights-of-way and similar
encumbrances on real Property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected Property or interfere with the ordinary
conduct of business of the Borrower or any Subsidiary;
(g) with respect to any Property (other than Borrowing Base Properties)
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 the Borrower or any Subsidiary
determines in good faith to be necessary for the economic development of such
Property (other than Borrowing Base Properties) and are customary and usual for
the area in which such Property (other than Borrowing Base Properties) is
located;
(h) with respect to any Borrowing Base 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 the Borrower or any Subsidiary determines in good faith to be
necessary for the economic development of such Borrowing Base Property and are
customary and usual for the area in which such Borrowing Base Property is
located; provided, however, that with respect to any such Liens created after
the Effective Date on Property which constitutes Collateral, such Liens shall be
expressly made subordinate to the Liens created by the Security Documents on
terms and conditions reasonably satisfactory to the Administrative Agent and the
Required Lenders;
(i) production payments, advance payment obligations and other similar
burdens now existing or hereafter created on oil, gas or mineral leases or
interests now owned or hereafter acquired by the Borrower or any of its
Subsidiaries; provided, however, that with respect to any such production
payments, advance payment obligations and other similar burdens owned or
acquired after the Effective Date on Property which constitutes Collateral, such
production payments, advance payment obligations and similar burdens shall be
expressly made subordinate to the Liens created by the Security Documents on
terms and conditions reasonably satisfactory to the Administrative Agent and the
Required Lenders;
(j) royalties, overriding royalties, revenue interests, net revenue
interest and other similar burdens now existing or hereafter acquired on oil,
gas or mineral leases or interests now owned or
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hereafter acquired by the Borrower or any of its Subsidiaries and, with respect
to any Borrowing Base Property, are reflected in the most recent Reserve Report;
(k) rights reserved to or vested in any 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 Borrower or any of its Subsidiaries;
(l) rights reserved to or vested in any Governmental Authority to
control or regulate any Property of the Borrower or of any of its Subsidiaries,
or to use such Property in a manner which does not materially impair the use of
such Property for the purposes for which it is held by the Borrower or any such
Subsidiary;
(m) any obligations or duties affecting the Property of the Borrower or
of any of its Subsidiaries to any municipality or other Governmental Authority
with respect to any franchise, grant, license or permit; and
(n) rights of a common owner of any interest in real estate, right of
way or easement held by the Borrower or any of its Subsidiaries and such common
owner as tenants in common or through other common ownership.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within one
year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market or other deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof
which has a combined capital and surplus and undivided profits of not less than
$500,000,000; and
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in clause (c) above.
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"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any Benefit Plan or Multiemployer Plan.
"Plan of Reorganization" has the meaning assigned to such term in the
third Recital paragraph hereof.
"Pledge Agreement" means a Pledge Agreement dated as of the Effective
Date or otherwise delivered pursuant to the Loan Documents, substantially in the
form of Exhibit E, as amended, supplemented, restated or otherwise modified from
time to time in accordance with the Loan Documents. The term "Pledge Agreements"
shall include each and every Pledge Agreement executed and delivered pursuant to
the Loan Documents.
"Prepayment Event" means:
(a) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceeding of, any Property or
asset of the Borrower or any Subsidiary, but only to the extent that the Net
Proceeds therefrom have not been applied to repair, restore or replace such
Property or asset within 30 days after such event; or
(b) unless and until the Leverage Ratio of the Borrower and its
Subsidiaries on a pro forma basis after giving effect to the proposed issuance
or receipt (and after giving effect to any prepayments of Loans to be made in
connection with or immediately following such issuance or receipt) is less than
3.50 to 1.00 following the relevant issuance or receipt, (i) the issuance by the
Borrower or any of its Subsidiaries of any Equity Interests, (ii) the receipt by
the Borrower or any Subsidiary of any capital contribution (other than any such
issuance of Equity Interests to, or receipt of any such capital contribution
from, the Borrower or a Subsidiary) or (iii) the receipt by the Borrower or any
of its Subsidiaries of any proceeds or other amounts relating to the Hicks Muse
Lawsuit.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City. Without notice to the Borrower or any other
Person, the Prime Rate shall change automatically from time to time as and in
the amount by which said prime rate shall fluctuate. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Administrative Agent may make commercial loans
or other loans at rates of interest at, above or below the Prime Rate. For
purposes of this Agreement any change in the Alternate Base Rate due to a change
in the Prime Rate shall be effective on the date such change in the Prime Rate
is announced.
"Private Placement" shall have the meaning ascribed to such term in the
Plan of Reorganization.
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"Production Payments" means a production payment (whether volumetric or
dollar denominated) or similar royalty, overriding royalty, net profits interest
or other similar interest in Oil and Gas Properties, or the right to receive all
or a portion of the production or the proceeds from the sale of production
attributable to such Oil and Gas Properties where the holder of such interest
has recourse solely to such interest and the grantor or transferor thereof has
an express contractual obligation to produce and sell Hydrocarbons from such Oil
and Gas Properties, or to cause such Oil and Gas Properties to be so operated
and maintained, in each case in a reasonably prudent manner.
"Property" means any interest in any kind of Property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proven Reserves" means collectively, "proved oil and gas reserves,"
"proved developed producing oil and gas reserves," "proved developed
non-producing oil and gas reserves" (consisting of proved developed shut-in oil
and gas reserves and proved developed behind pipe oil and gas reserves), and
"proved undeveloped oil and gas reserves," as such terms are defined by the U.S.
Securities and Exchange Commission in its standards and guidelines.
"Register" has the meaning set forth in Section 9.4(c).
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Release" means a "release," as such term is defined in CERCLA.
"Remedial Action" means any action under Environmental Laws required to
(a) clean up, remove, treat, dispose of, abate, or in any other way address
pollutants (including Hazardous Materials) in the environment, (b) prevent the
Release or threat of a Release or minimize the further Release of pollutants, or
(c) investigate and determine if a remedial response is needed and to design
such a response and any post-remedial investigation, monitoring, operation, and
maintenance and care.
"Required Lenders" means, at any time, the Administrative Agent and the
Lenders having Exposures and unused Commitments representing more than 66-2/3%
of the sum of the total Exposures and unused Commitments at such time.
"Reserve Report" means the Initial Reserve Report and any other report
delivered pursuant to Section 2.8, in form and substance reasonably satisfactory
to the Administrative Agent, prepared at the sole cost and expense of the
Borrower by an Approved Engineer, which shall evaluate the Proven Reserves and
probable reserves attributable to the Hydrocarbon Interests owned directly by
the Borrower and/or its Subsidiaries and constituting part of the Borrowing Base
Properties, as of the immediately preceding January 1 or July 1. Each Reserve
Report shall set forth volumes, projections of the future rate of production,
Hydrocarbons prices, escalation rates, discount rate
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assumptions, and net proceeds of production, present value of the net proceeds
of production, estimated costs of Remedial Action, operating expenses and
capital expenditures, in each case based upon updated economic assumptions
reasonably acceptable to the Administrative Agent.
"Restricted Payment" means any dividend or other distribution (whether
in cash, securities or other Property, real, personal or mixed) with respect to
any Equity Interests in the Borrower or any Subsidiary, or any payment (whether
in cash, securities or other Property, real, personal or mixed), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Equity Interests in
the Borrower or any Subsidiary or any option, warrant or other right to acquire
any such Equity Interests in the Borrower or any Subsidiary on or account of the
complete or partial liquidation or otherwise of the Borrower or any Subsidiary.
"Rights Offering" shall have the meaning ascribed to such term in the
Plan of Reorganization.
"S&P" means Standard & Poor's Ratings Service, a division of
McGraw-Hill Companies, Inc., and any successor thereto that is a nationally
recognized statistical rating organization.
"Security Agreement" means a Security Agreement, dated as of the
Effective Date or otherwise delivered pursuant to the Loan Documents, between
the Administrative Agent and the Borrower or a Subsidiary (other than a Foreign
Subsidiary) of the Borrower, substantially in the form of Exhibit F, as amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms of this Agreement and the other Loan Documents. The term
"Security Agreements" shall include each and every Security Agreement executed
and delivered by the Borrower or a Subsidiary.
"Security Documents" means each of the Security Agreements, each of the
Guaranties, each of the Mortgages, each of the Pledge Agreements and each other
security agreement or other instrument or document executed and delivered
pursuant to Section 5.12 or 5.13 hereof or pursuant to the Loan Documents to
secure any of the Obligations.
"Solvent" means, with respect to any Person at any time, a condition
under which (a) the fair saleable value of such Person's assets is, on the date
of determination, greater than the total amount of such Person's liabilities
(including contingent and unliquidated liabilities) at such time; and (b) such
Person is able to pay all of its liabilities as such liabilities mature. For
purposes of this definition (i) the amount of a Person's contingent or
unliquidated liabilities at any time shall be that amount which, in light of all
the facts and circumstances then existing, represents the amount which can
reasonably be expected to become an actual or matured liability, (ii) the "fair
saleable value" of an asset shall be the amount which may be realized within a
reasonable time either through collection or sale of such asset at its regular
market value, and (iii) the "regular market value" of an asset shall be the
amount which a capable and diligent business person could obtain for such asset
from an interested buyer who is willing to purchase such asset under ordinary
selling conditions.
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"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Standby Debt" means the promissory notes, including, without
limitation, the "Notes"(as defined in Standby Debt Documents) and the "PIK
Notes" (as defined in Standby Debt Documents), which may be issued collectively
by the Borrower, Coho Resources, Inc., Coho Louisiana Production Company, Coho
Exploration, Inc., Coho Oil & Gas, Inc., and Interstate Natural Gas Company in
the aggregate principal amount of approximately $72,000,000 and the Indebtedness
represented thereby, which notes and Indebtedness shall be subordinated to the
Obligations on terms and conditions, and to purchasers, acceptable to the
Administrative Agent in accordance with the Intercreditor Agreement.
"Standby Debt Documents" means the Standby Note Agreement, the Standby
Securities Purchase Agreement, the Standby Registration Rights Agreement, the
Intercreditor Agreement and any other indenture(s) or loan agreement(s) under
which the Standby Debt is issued and all other instruments, agreements and other
documents evidencing or governing the Standby Debt or providing for any
guarantee or other right in respect thereof.
"Standby Lender" shall have the meaning ascribed to the term
"Subordinated Lender" in the Intercreditor Agreement.
"Standby Note Agreement" means that certain Standby Note Agreement of
even date herewith between Borrower, Coho Resources, Inc., a Nevada corporation,
Coho Louisiana Production Company, a Delaware corporation, Coho Exploration,
Inc., a Delaware corporation, Coho Oil & Gas, Inc., a Delaware corporation, and
Interstate Natural Gas Company, a Delaware corporation, and the Standby Lenders.
"Standby Registration Rights Agreement" means that certain Standby
Registration Rights Agreement of even date herewith between Borrower and the
Standby Lenders.
"Standby Securities Purchase Agreement" means that certain Standby
Securities Purchase Agreement of even date herewith between Borrower, Coho
Resources, Inc., a Nevada corporation, Coho Louisiana Production Company, a
Delaware corporation, Coho Exploration, Inc., a Delaware
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corporation, Coho Oil & Gas, Inc., a Delaware corporation, and Interstate
Natural Gas Company, a Delaware corporation, and the Standby Lenders.
"Subordinated Debt" means the Standby Debt and any unsecured
Indebtedness of the Borrower which is subordinated, upon terms and conditions
satisfactory to the Administrative Agent and the Required Lenders, in right of
payment to the payment in full in cash of all Obligations.
"Subordinated Debt Documents" means the Standby Debt Documents and any
indenture(s) or loan agreement(s) under which any Subordinated Debt is issued
and all other instruments, agreements and other documents evidencing or
governing any Subordinated Debt or providing for any guarantee or other right in
respect thereof.
"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Syndication Agent" has the meaning assigned to such term in the
Preamble.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Total Debt" means all Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis.
"Total Interest Expense" means, with respect to any period for which a
determination thereof is to be made, the sum, without duplication, of (a) the
aggregate amount of all cash interest accrued (whether or not paid) on all
Indebtedness of the Borrower and its Subsidiaries on a consolidated basis plus
(b) the portion of any Capitalized Lease Obligations allocable to cash interest
expense in accordance with GAAP.
"Total Senior Debt" means Total Debt less Subordinated Debt.
"Tunisia Assets" means all rights and interests of Coho Anaguid, Inc.,
a Delaware corporation, in that certain "Permis Anaguid - Convention Cahier Des
Charges et Annexes Entre
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L'etat Tunisien et L'Entreprise Tunisienne D'Activites Petrolieres et Coho
International Limited", as such agreement may be amended, supplemented, restated
or otherwise modified from time to time.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"UCC Searches" shall mean central and local current financing statement
searches from each state in which any Collateral or a Borrowing Base Property is
located, and such other jurisdictions as Administrative Agent may request,
covering the Borrower and each Subsidiary, together with copies of all financing
statements listed in such searches.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2 Classification of Loans and Borrowings. For purposes of
this Agreement, Loans may be classified and referred to by Type (e.g., a
"Eurodollar Loan"). Borrowings also may be classified and referred to by Type
(e.g., a "Eurodollar Borrowing").
SECTION 1.3 Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, provided such successors and assigns are permitted by the Loan
Documents, (c) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e)
the words "asset" and "Property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.4 Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change
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occurring after the date hereof in GAAP or in the application thereof on the
operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.1 Commitments. Subject to the terms and conditions set forth
herein, each Lender agrees to make Loans to the Borrower from time to time
during the Availability Period in an aggregate principal amount that will not
result in (a) such Lender's Exposure exceeding such Lender's Commitment or (b)
the sum of the Exposures exceeding the lesser of (i) the Borrowing Base then in
effect and (ii) the aggregate amount of all the Lenders' Commitments. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Loans; provided, however, that,
notwithstanding the foregoing, without the Borrower first terminating all of the
Lenders' Commitments, the Borrower may never prepay any Loans in such an amount
as to reduce the aggregate principal amount of the Borrower's Exposure to less
than one dollar ($1).
SECTION 2.2 Loans and Borrowings.
(a) Each Loan shall be made as part of a Borrowing consisting of Loans
of the same Type made by the Lenders ratably in accordance with their respective
Commitments. The failure of any Lender to make any Loan required to be made by
it shall not relieve any other Lender of its obligations hereunder; provided
that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Sections 2.12 and 2.13, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith; provided that all Borrowings made on the Effective Date
must be made as ABR Borrowings. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $100,000 and not less than $1,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $100,000 and not less than $1,000,000; provided that an ABR
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total
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Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.19(c). Borrowings of more than one
Type may be outstanding at the same time; provided that there shall not at any
time be more than a total of six (6) Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
SECTION 2.3 Requests for Borrowings. To request a Borrowing the
Borrower shall notify the Administrative Agent of such request by telephone
(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
New York City time, three Business Days before the date of the proposed
Borrowing or
(b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time, one Business Day before the date of the proposed Borrowing;
provided that any such notice of an ABR Borrowing to finance the reimbursement
of an LC Disbursement as contemplated by Section 2.19(e) may be given not later
than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request substantially in the form of Exhibit B-1 or otherwise in a
form approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.2:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.5.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section 2.3,
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the Administrative Agent shall advise each Lender of the details thereof and of
the amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.4 Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds by 12:00
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
2.4 and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.5 Interest Elections.
(a) Each Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different Type
or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may
elect Interest Periods therefor, all as provided in this Section 2.5. The
Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section 2.5, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.3 if the Borrower
were requesting a Borrowing of the Type resulting from
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such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Interest Election Request substantially in the form of Exhibit B-2 or otherwise
in a form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.2:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of
the Required Lenders, so notifies the Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
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SECTION 2.6 Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments shall terminate on
the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1,000,000 and not less
than $5,000,000 and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.9, the sum of the Exposures would exceed the total
Commitments.
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section 2.6
at least three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section 2.6 shall be irrevocable; provided that a notice of termination
of the Commitments delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied. Any termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.
SECTION 2.7 Repayment of Loans; Evidence of Debt.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Loan of such Lender on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section 2.7 shall be prima facie evidence of the existence
and amounts of the obligations recorded therein; provided that the failure of
any Lender or the Administrative Agent to maintain such
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accounts or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.4) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.8 Borrowing Base.
(a) Determination of the Borrowing Base. During the period from the
date hereof to the date of the first determination of the Borrowing Base
pursuant to the further provisions of this Section 2.8, the initial amount of
the Borrowing Base has been set by the Administrative Agent and acknowledged by
the Borrower and agreed to by the Lenders to be $205,000,000.
(b) Annual Scheduled Determinations of the Borrowing Base. Promptly
after January 1 of each calendar year (commencing January 1, 2001), and in any
event prior to March 1 of each calendar year, the Borrower shall furnish to the
Administrative Agent and the Lenders a report in form and substance reasonably
satisfactory to the Administrative Agent, prepared by an Approved Engineer,
which report shall be dated as of January 1 of such calendar year and shall set
forth the proven and producing oil and gas reserves attributable to the
Mortgaged Properties which the Borrower wishes to include in the Borrowing Base
and a projection of the rate of production and net operating income with respect
thereto, as of such date, together with additional data concerning pricing,
hedging, operating costs, quantities and purchasers of production, and other
information and engineering and geological data as the Administrative Agent or
any Lender may reasonably request. Within thirty (30) days after receipt of such
report and information, the Administrative Agent shall make an initial
determination of the amount of credit to be made available to the Borrower
hereunder, and upon such initial determination shall promptly notify the Lenders
in writing of its initial determination of the Borrowing Base. Such initial
determination of the Borrowing Base made by the Administrative Agent shall be so
made by the Administrative Agent in the exercise of its sole discretion in
accordance with the Administrative Agent's customary practices and standards for
oil and gas loans. The Borrowing Base Required Lenders shall approve or reject
the Administrative Agent's initial determination of the Borrowing Base by
written notice to the Administrative Agent; provided, however that failure by
any Lender to confirm in writing, the Administrative Agent's determination of
the Borrowing Base shall be and shall be deemed, a rejection of such
determination. If the Borrowing Base Required Lenders fail to approve any such
determination of the Borrowing Base made by the Administrative Agent hereunder
then, the Borrowing Base shall be determined as soon as practicable by the
Borrowing Base Required Lenders in their sole discretion in accordance with
their respective customary practices and standards for oil and gas loans. Upon
agreement by
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the Administrative Agent and the Borrowing Base Required Lenders of the amount
of credit to be made available to the Borrower hereunder, the Administrative
Agent shall, by written notice to the Borrower and the Lenders, designate the
new Borrowing Base available to the Borrower. Anything herein contained to the
contrary notwithstanding, any determination or redetermination of the Borrowing
Base resulting in any increase of the Borrowing Base in effect immediately prior
to such determination or redetermination shall be approved by all of the Lenders
in their sole and absolute discretion.
(c) Semi-Annual Scheduled Determination of the Borrowing Base. In
addition, promptly after July 1 of each calendar year (commencing July 1, 2000),
and in any event prior to September 1st of each calendar year, the Borrower will
make available for review by the Administrative Agent a report in form and
substance reasonably satisfactory to the Administrative Agent, prepared by the
Borrower' petroleum engineers, which report shall be dated as of July 1 of such
calendar year and shall set forth the proven and producing oil and gas reserves
attributable to the Mortgaged Properties which the Borrower wishes to include in
the Borrowing Base and a projection of the rate of production and net operating
income with respect thereto, as of such date, together with additional data
concerning pricing, hedging, operating costs, quantities and purchasers of
production, and other information and engineering and geological data as the
Administrative Agent or any Lender may reasonably request. Within thirty (30)
days after receipt of such report and information, the Administrative Agent
shall make an initial determination of the new Borrowing Base as of the
preceding July 1. Such initial determination shall be made in the same manner
and be subject to the same approvals as prescribed above with respect to the
annual review, and likewise the Administrative Agent shall communicate the
results of such initial determination to the Lenders. The Borrowing Base
Required Lenders shall approve such determination by written notice to the
Administrative Agent; provided, however that failure by any Lender to confirm in
writing the Administrative Agent's determination of the Borrowing Base shall be,
and shall be deemed, a rejection of such determination. If the Borrowing Base
Required Lenders fail to approve such initial determination of the Borrowing
Base made by the Administrative Agent pursuant to this Section 2.8(c), then the
Borrowing Base Required Lenders shall as soon as practicable make a
determination of the Borrowing Base based on their sole discretion in accordance
with their respective customary practices and standards for oil and gas loans.
Upon agreement by the Administrative Agent and the Borrowing Base Required
Lenders of the amount of credit to be made available to the Borrower hereunder,
the Administrative Agent shall, by written notice to the Borrower and the
Lenders, designate the new Borrowing Base available to the Borrower. Anything
herein contained to the contrary notwithstanding, any determination or
redetermination of the Borrowing Base resulting in any increase of the Borrowing
Base in effect immediately prior to such determination or redetermination shall
be approved by all of the Lenders in their sole and absolute discretion.
(d) Discretionary Determination of the Borrowing Base.
(i) If the Borrower or any of its Subsidiaries either (A)
issues any Equity Interests, (B) receives any capital contribution (other than
any such issuance of Equity Interests to, or receipt of any such capital
contribution from, the Borrower or a Subsidiary) or (C) receives any
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proceeds or other amounts relating to the Hicks Muse Lawsuit, the Borrowing Base
shall be immediately redetermined by the Administrative Agent and the Borrowing
Base Required Lenders, in their reasonable discretion. If such redetermination
shall result in a Borrowing Base Deficiency, then in lieu of any other provision
of this Section, the Borrower shall immediately make a payment with respect to
the Obligations in an amount equal to such Borrowing Base Deficiency.
(ii) In addition to the foregoing determinations or
redeterminations of the Borrowing Base, the Borrowing Base Required Lenders
shall have the right to redetermine the Borrowing Base at their sole discretion
at any time and from time to time but not more often than one (1) time during
any calendar year. If the Borrowing Base Required Lenders shall elect to make a
discretionary redetermination of the Borrowing Base pursuant to the provisions
of this Section 2.8(d), the Borrower shall within thirty (30) days of receipt of
a request therefor from the Administrative Agent, deliver to the Administrative
Agent such updated engineering, production, operating and other data as the
Administrative Agent or any Lender may reasonably request. The Administrative
Agent and the Borrowing Base Required Lenders shall approve and designate the
new Borrowing Base in accordance with the procedures and standards described in
Section 2.8(b).
(e) Discretionary Determination of the Borrowing Base by the Borrower.
In addition to the foregoing determinations of the Borrowing Base, the Borrower
may request a redetermination of the Borrowing Base at any time and from time to
time, but not more often than one (1) time during any calendar year, by
delivering a written request to the Administrative Agent, together with such
updated engineering, production, operating and other data as the Administrative
Agent or any Lender may reasonably request. Each such discretionary
redetermination of the Borrowing Base shall be made in the same manner and in
accordance with the procedures and standards set forth above by adjusting the
Borrowing Base then in effect. The Administrative Agent shall have thirty (30)
days following receipt of such requested information to make an initial
redetermination of the Borrowing Base, and the Administrative Agent and the
Borrowing Base Required Lenders shall approve and designate the new Borrowing
Base in accordance with the procedures and standards described in Section
2.8(b).
(f) General Provisions With Respect to the Borrowing Base. For the
purposes of this Agreement, the Borrowing Base to be certified by the
Administrative Agent and the Lenders from time to time shall be the lesser of
(i) the aggregate principal amount of the Loans that the Administrative Agent
and the Lenders (or the Borrowing Base Required Lenders, as applicable) are
willing to have outstanding to the Borrower, and (ii) the amount requested by
the Borrower. The determination of the Borrowing Base shall be made by the
Administrative Agent and the Lenders (or the Borrowing Base Required Lenders, if
applicable), taking into consideration the estimated value of the Hydrocarbon
Interests owned by the Borrower and its Subsidiaries as reflected in the most
recent Reserve Report delivered hereunder and any other relevant information
obtained by or delivered to the Administrative Agent or any other Lender Party
(as defined in the Security Agreement), all in accordance with the other
provisions of this Section 2.8 in the exercise of their sole and absolute
discretion in accordance with their customary practices for oil and gas loans as
in effect from time to time.
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SECTION 2.9 Prepayment of Loans.
(a) The Borrower shall have the right at any time and from time to time
to prepay any Borrowing in whole or in part, subject to the requirements of this
Section.
(b) In the event and on such occasion that the sum of the aggregate
Exposures exceeds the total Commitments, the Borrower shall forthwith prepay
Borrowings (or, if no such Borrowings are outstanding, deposit cash collateral
in an account with the Administrative Agent pursuant to Section 2.19(j) in an
aggregate amount equal to such excess.
(c) Upon the occurrence of a Borrowing Base Deficiency, the
Administrative Agent may notify the Borrower of such Borrowing Base Deficiency.
Within ten (10) days from and after the Borrowing Base Deficiency Notification
Date, the Borrower shall notify the Administrative Agent that it shall take one
of the following actions:
(i) execute and deliver to the Administrative Agent within
ninety (90) days (or 120 days with respect to any determination of the
existence of a Borrowing Base Deficiency resulting from the semi-annual
determination of the Borrowing Base scheduled for July 1, 2000) from
and after the Borrowing Base Deficiency Notification Date, supplemental
or additional Security Documents, in form and substance reasonably
satisfactory to the Administrative Agent and its counsel, securing
payment of the Obligations and covering other Properties of the
Borrower or its Subsidiaries, including additional Oil and Gas
Properties directly owned by the Borrower or one or more of the
Borrower's Subsidiaries which are not then covered by any Loan Document
and which are of a type and nature satisfactory to the Administrative
Agent and the Borrowing Base Required Lenders, and having a value (as
determined by the Administrative Agent and the Borrowing Base Required
Lenders in their sole discretion), in addition to other Oil and Gas
Properties already subject to a Mortgage, sufficient to eliminate the
Borrowing Base Deficiency, all as more particularly described in
Section 5.13(d) and (e); or
(ii) make a payment with respect to the Obligations, in an
aggregate principal amount sufficient to eliminate such Borrowing Base
Deficiency within ninety (90) days (or 120 days with respect to any
determination of the existence of a Borrowing Base Deficiency resulting
from the semi-annual determination of the Borrowing Base scheduled for
July 1, 2000) after the Borrowing Base Deficiency Notification Date
(and the Borrower shall make such payment within such 90-day (or if
applicable, 120-day) period).
If the Borrower shall elect to execute and deliver (or cause one or more of the
Borrower's Subsidiaries to execute and deliver) supplemental or additional
Security Documents to the Administrative Agent pursuant to clause (i), it shall
provide the Administrative Agent with descriptions of the additional assets to
be collaterally assigned (together with current valuations, engineering reports,
Security Documents described in clause (i) and title evidence applicable thereto
and other documents including opinions of counsel, each of which shall be in
form and substance
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reasonably satisfactory to the Administrative Agent) within ninety (90) days (or
120 days with respect to any determination of the existence of a Borrowing Base
Deficiency resulting from the semi-annual determination of the Borrowing Base
scheduled for July 1, 2000) after the Borrowing Base Deficiency Notification
Date. Such supplemental or additional Security Documents shall be subject to the
terms of Section 5.13. If the Borrower fails to give the required notice that it
shall take any of the actions described in clause (c) within such ten (10) day
period or take the applicable action in subclauses (i) or (ii) above within such
ninety (90) day (or as applicable, 120-day) period, in each case from and after
the Borrowing Base Deficiency Notification Date, then without any necessity for
notice to the Borrower or any other person, the Borrower shall become obligated
immediately to pay Obligations in an aggregate principal amount equal to the
applicable Borrowing Base Deficiency.
(d) If the Borrower or any Subsidiary sells, transfers or otherwise
disposes of Borrowing Base Properties that have been given a value in the most
recent determination of the Borrowing Base in the aggregate for the Borrower and
such Subsidiaries in excess of $5,000,000 during the period from the effective
date of the most recent determination of the Borrowing Base pursuant to Section
2.8 until the effective date of the next determination of the Borrowing Base,
the Borrowing Base shall be immediately reduced, until the effective date of the
next determination of the Borrowing Base, by an amount reflecting the Borrowing
Base valuation of the Oil and Gas Properties so sold, transferred or disposed
of, as reasonably determined by the Administrative Agent. If such reduction
shall result in a Borrowing Base Deficiency, then in lieu of the provisions of
Section 2.9(c), the Borrower shall immediately make a payment with respect to
the Obligations in an amount equal to such Borrowing Base Deficiency. In
addition to and cumulative of the foregoing, if a Borrowing Base Deficiency
exists prior to such sale, transfer or other disposition of assets, then in lieu
of the provisions of Section 2.9(c), the Borrower shall, with the written
consent of the Lenders, immediately make a payment with respect to the
Obligations in an aggregate principal amount equal to the lesser of (i) the
amount of the Borrowing Base Deficiency (after giving effect to the applicable
sale, transfer or other disposition) or (ii) 100% of the Net Proceeds realized
from the applicable sale, transfer or other disposition. Notwithstanding the
foregoing, nothing contained in this Section 2.9(d) shall be construed to permit
any sale or disposition which is otherwise prohibited under Section 6.5 of this
Agreement or any other term or provision of this Agreement or any other Loan
Document.
(e) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event, the Borrower shall, immediately after such Net Proceeds are
received, prepay Borrowings in an aggregate amount equal to such Net Proceeds.
(f) Notwithstanding anything to the contrary in this Agreement, if the
Borrower or any of its Subsidiaries raises capital through the issuance of
Equity Interests or the issuance of any Subordinated Debt, the Net Proceeds of
such issuance will first be applied to cure any existing or resulting Borrowing
Base Deficiency.
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(g) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (h) of this Section.
(h) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date, the principal amount of each
Borrowing or portion thereof to be prepaid and, in the case of a mandatory
prepayment, a reasonably detailed calculation of the amount of such prepayment;
provided that, if a notice of optional prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.6, then such notice of prepayment may be revoked if such notice of termination
is revoked in accordance with Section 2.6. Promptly following receipt of any
such notice, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of an advance of a Borrowing of the same Type as
provided in Section 2.2, except as necessary to apply fully the required amount
of a mandatory prepayment. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.12.
SECTION 2.10 Fees.
(a) The Borrower agrees to pay to the Administrative Agent for the
account of each Lender a commitment fee, which shall accrue at the rate of 50
basis points per annum on the average daily unused amount of such Lender's pro
rata portion of the Borrowing Base during the period from and including the date
hereof to but excluding the date on which such Lender's Commitment hereunder
terminates. Accrued commitment fees shall be payable in arrears on the last day
of March, June, September and December of each year and on the date on which the
Commitments terminate, commencing on the first such date to occur after the
Effective Date. All commitment fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at the same Applicable Rate then in effect
and applicable to interest on Eurodollar Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Commitment terminates and the date on which such Lender ceases to have any LC
Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the
rate of 0.125% per annum on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period
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from and including the Effective Date to but excluding the later of the date of
termination of the Commitments and the date on which there ceases to be any LC
Exposure, as well as the Issuing Bank's standard fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder. Participation fees and fronting fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all such fees
shall be payable on the date on which the Commitments terminate and any such
fees accruing after the date on which the Commitments terminate shall be payable
on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within ten (10) days after demand. All fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution in accordance with the
Fee Letter and the Loan Documents and, in the case of commitment fees and
participation fees, to the Lenders entitled thereto. Fees paid shall not be
refundable under any circumstances.
SECTION 2.11 Interest.
(a) Subject to Section 9.16, the Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) Subject to Section 9.16, the Loans comprising each Eurodollar
Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period
in effect for such Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, but subject to Section 9.16, if any
principal of or interest on any Loan or any fee or other amount payable by the
Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as
well as before judgment, at a rate per annum equal to (i) in the case of overdue
principal of any Loan, 2% plus the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section 2.11 or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Loans as provided in
paragraph (a) of this Section 2.11.
(d) Subject to Section 9.16, accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and upon
termination of the Commitments; provided that (i) interest accrued pursuant to
paragraph (c) of this Section 2.11 shall be payable on demand of the
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Administrative Agent or the Required Lenders (through the Administrative Agent),
(ii) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
(e) Subject to Section 9.16, all interest hereunder shall be computed
on the basis of a year of 360 days, except that interest computed by reference
to the Alternate Base Rate at times when the Alternate Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The applicable
Alternate Base Rate or Adjusted LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.12 Alternate Rate of Interest. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (or Lender) of making or maintaining their
Loans (or its Loan) included in such Borrowing for such Interest Period; or
(c) the Administrative Agent determines in good faith (which
determination shall be conclusive) that by reason of circumstances affecting the
interbank dollar market generally, deposits in United States dollars in the
relevant interbank dollar market are not being offered for the applicable
Interest Period and in an amount equal to the amount of the Eurodollar Loan
requested by the Borrower,
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
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SECTION 2.13 Illegality.
(a) Notwithstanding any other provision of this Agreement to the
contrary, if (i) by reason of the adoption of any applicable Legal Requirement
or any change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by any Lender
with any request or directive (whether or not having the force of law) of any
central Lender or other Governmental Authority or (ii) circumstances affecting
the relevant interbank dollar market or the position of a Lender therein shall
at any time make it unlawful or impracticable in the sole discretion of a Lender
exercised in good faith for such Lender or its Applicable Lending Office to (A)
honor its obligation to make Eurodollar Loans hereunder, or (B) maintain
Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower
thereof through Administrative Agent and such Lender's obligation to make or
maintain Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 2.13(b) hereof shall be applicable). Before giving such
notice pursuant to this Section 2.13, such Lender will designate a different
available Applicable Lending Office for the Eurodollar Loans of such Lender or
take such other action as the Borrower may request if such designation or action
will avoid the need to suspend such Lender's obligation to make Eurodollar Loans
hereunder and will not, in the sole opinion of such Lender exercised in good
faith, be disadvantageous to such Lender (provided, that such Lender shall have
no obligation so to designate an Applicable Lending Office for Eurodollar Loans
located in the United States of America).
(b) If the obligation of any Lender to make or maintain Eurodollar
Loans shall be suspended pursuant to Section 2.13(a) hereof, all Loans which
would otherwise be made by such Lender as Eurodollar Loans shall be made instead
as ABR Loans (and, if such Lender so requests by notice to the Borrower with a
copy to Administrative Agent, each Eurodollar Loan of such Lender then
outstanding shall be automatically converted into an ABR Loan on the date
specified by such Lender in such notice) and, to the extent that Eurodollar
Loans are so made as (or converted into) ABR Loans, all payments of principal
which would otherwise be applied to such Eurodollar Loans shall be applied
instead to such ABR Loans.
SECTION 2.14 Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
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and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank such additional amount or
amounts as will compensate such Lender or the Issuing Bank for such additional
costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender's capital or on the capital of such Lender's or Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made by, or participations in Letters of Credit held by, such Lender, or the
Letters of Credit issued by the Issuing Bank, to a level below that which such
Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company could have achieved but for such Change in Law (taking into
consideration such Lender's or the Issuing Bank's policies and the policies of
such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail the basis for the amount or amounts necessary to compensate
such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company, as the case may be, as specified in paragraph (a) or (b) of this
Section 2.14 shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within thirty (30)
days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section 2.14 shall not constitute a waiver
of such Lender's or the Issuing Bank's right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section 2.14 for any increased costs or reductions
incurred more than 270 days prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 270-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.15 Break Funding Payments. In the event of (a) the payment of
any principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay
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any Loan on the date specified in any notice delivered pursuant hereto
(regardless of whether such notice may be revoked under Section 2.9(f) and is
revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by the Borrower pursuant to Section 2.18, then, in any such event,
the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender shall be deemed to include an amount determined by such
Lender to be the excess, if any, of (i) the amount of interest which would have
accrued on the principal amount of such Loan had such event not occurred, at the
Adjusted LIBO Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or continue, for the
period that would have been the Interest Period for such Loan), over (ii) the
amount of interest which would accrue on such principal amount for such period
at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section 2.15 shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof.
SECTION 2.16 Taxes.
(a) Any and all payments by or on account of any obligation of the
Borrower hereunder or under any other Loan Document shall be made free and clear
of and without deduction for any Indemnified Taxes or Other Taxes; provided that
if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes
from such payments, then (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.16) the Administrative Agent and
Lender or Issuing Bank (as the case may be) and each Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each
Lender and the Issuing Bank, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent or such Lender or the Issuing Bank, as the case may be, on
or with respect to any payment by or on account of any obligation of the
Borrower hereunder or under any other Loan Document (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under
this Section 2.16) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental
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Authority. A certificate as to the amount of such payment or liability delivered
to the Borrower by a Lender or by the Administrative Agent on its own behalf or
on behalf of a Lender shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Each Lender that is not organized under the laws of the United
States of America or a state thereof agrees that it will deliver to the Borrower
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 Borrower 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 Borrower and the Administrative Agent two (2) additional copies
of such form (or a successor form) on or before 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 Borrower or the
Administrative Agent, in each case certifying that such Lender is entitled to
receive payments from the Borrower 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 Borrower and the Administrative Agent that it is not
capable of receiving such payments without any deduction or withholding of
United States federal income tax.
SECTION 2.17 Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.
(a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest or
fees, or of amounts payable under Sections 2.14, 2.15 or 2.16, or otherwise)
prior to the time expressly required hereunder or under such other Loan Document
for such payment (or, if no such time is expressly required, prior to 12:00
noon, New York City time), on the date when due, in immediately available funds,
without set-off or counterclaim. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except payments to be made
directly to the Issuing Bank as expressly provided herein and except that
payments pursuant to Sections 2.14, 2.15, 2.16 and 9.3 shall be made directly to
the Persons entitled thereto and payments pursuant to other Loan Documents shall
be made to the Persons specified therein. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person
to the
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appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made in
dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or participations in LC Disbursements resulting in
such Lender receiving payment of a greater proportion of the aggregate amount of
its Loans and participations in LC Disbursements and accrued interest thereon
than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the
Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans and participations in LC
Disbursements; provided that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by the Borrower pursuant to
and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any
assignee or participant, other than to the Borrower or any Subsidiary or
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the
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Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by
it pursuant to Sections 2.4(b), 2.17(d), 2.19(d) or (e) or 9.3(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.18 Mitigation Obligations. If any Lender requests
compensation under Section 2.14, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 2.16, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Sections 2.14 or 2.16, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
SECTION 2.19 Letters of Credit.
(a) General. Subject to the terms and conditions set forth herein, the
Borrower may request the issuance of Letters of Credit for its own account, in a
form reasonably acceptable to the Administrative Agent and the Issuing Bank, at
any time and from time to time during the Availability Period. In the event of
any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to
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prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only if
(and upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after giving effect to
such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $10,000,000 and (ii) the total Exposures shall not exceed the lesser of
the total Commitments and the Borrowing Base then in effect.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.3 that such payment be financed with an ABR
Borrowing in an equivalent amount and, to the extent so financed, the Borrower's
obligation to make such payment shall be discharged and replaced by the
resulting
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ABR Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.4 with respect to Loans made by such Lender (and Section 2.4 shall apply,
mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Loans as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Agents, the Lenders nor the Issuing Bank, nor any of their Related Parties,
shall have any liability or responsibility by reason of or in connection with
the issuance or transfer of any Letter of Credit or any payment or failure to
make any payment thereunder (irrespective of any of the circumstances referred
to in the preceding sentence), or any error, omission, interruption, loss or
delay in transmission or delivery of any draft, notice or other communication
under or relating to any Letter of Credit (including any document required to
make a drawing thereunder), any error in interpretation of technical terms or
any consequence arising from causes beyond the control of the Issuing Bank;
provided that the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or wilful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised care in each such determination. In furtherance of
the foregoing and without limiting the generality thereof, the parties agree
that, with
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respect to documents presented which appear on their face to be in substantial
compliance with the terms of a Letter of Credit, the Issuing Bank may, in its
sole discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Loans; provided that,
if the Borrower fails to reimburse such LC Disbursement when due pursuant to
paragraph (e) of this Section, then Section 2.11(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing Bank,
except that interest accrued on and after the date of payment by any Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.10(b). From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposure representing greater than 66-2/3%
of the total LC Exposure) demanding the deposit of cash collateral
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pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. The Borrower also shall
deposit cash collateral pursuant to this paragraph as and to the extent required
by Section 2.9(b). Each such deposit shall be held by the Administrative Agent
as collateral for the payment and performance of the obligations of the Borrower
under this Agreement. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Administrative Agent and
at the Borrower's risk and expense, such deposits shall not bear interest.
Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Borrower for the LC Exposure at such
time or, if the maturity of the Loans has been accelerated (but subject to the
consent of Revolving Lenders with LC Exposure representing greater than 66-2/3%
of the total LC Exposure), be applied to satisfy other obligations of the
Borrower under this Agreement. If the Borrower is required to provide an amount
of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower within three Business Days after all Events of Default have been
cured or waived. If the Borrower is required to provide an amount of cash
collateral hereunder pursuant to Section 2.9(b), such amount (to the extent not
applied as aforesaid) shall be returned to the Borrower as and to the extent
that, after giving effect to such return, the Borrower would remain in
compliance with Section 2.9(b) and no Event of Default shall have occurred and
be continuing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Administrative Agent to enter
into this Agreement and to make Loans hereunder, the Borrower represents and
warrants to the Lenders and the Administrative Agent as set forth in this
Article III.
SECTION 3.1 Organization; Powers. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
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SECTION 3.2 Authorization; Enforceability. The execution, delivery and
performance by the Borrower of this Agreement and each other Loan Document
executed or to be executed by it, and the execution, delivery and performance by
each other Obligor of each Loan Document executed or to be executed by it, are
within the Borrower's and each such Obligor's corporate, limited liability
company and/or partnership powers, and have been duly authorized by all
necessary corporate, limited liability company and/or partnership action, and if
required, stockholder, member and/or partner action. This Agreement has been
duly executed and delivered by the Borrower and constitutes, and each other Loan
Document executed or to be executed by any Obligor, when executed and delivered
by such Obligor, will constitute, a legal, valid and binding obligation of the
Borrower or such Obligor (as the case may be), enforceable in accordance with
their respective terms.
SECTION 3.3 Approvals; No Conflicts. Except as set forth in Schedule
3.3 hereto, the execution, delivery and performance by the Borrower of this
Agreement and each other Loan Document executed or to be executed by it, and the
execution, delivery and performance by each other Obligor of each Loan Document
executed or to be executed by it, (a) do not require any Governmental Approval
or third party approvals, except such as have been obtained or made and are in
full force and effect and except filings necessary to perfect Liens created
under the Loan Documents, (b) will not violate any applicable Governmental Rule
or the Organic Documents of the Borrower or any such Obligor or any order of any
Governmental Authority, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon the Borrower or any such
Obligor or its assets, or give rise to a right thereunder to require any payment
to be made by the Borrower or any such Obligor and (d) will not result in the
creation or imposition of any Lien on any asset of the Borrower or any such
Obligor except Liens created under the Loan Documents.
SECTION 3.4 Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders and the
Administrative Agent copies of its consolidated balance sheet and statements of
income, stockholders equity and cash flows as of and for the fiscal year ended
December 31, 1999, audited by Arthur Andersen LLP, independent public
accountants. Such financial statements have been prepared in accordance with
GAAP consistently applied, and present fairly, in all material respects, the
financial position and results of operations and cash flows of the Borrower and
its consolidated Subsidiaries as of such dates and for such periods in
accordance with GAAP, subject to year-end audit adjustments in the case of the
statements referred to in clause (i) above.
(b) The Borrower has heretofore furnished to the Lenders and the
Administrative Agent copies of its pro forma consolidated balance sheet as of
March 31, 2000, prepared giving effect to the Financing Transactions as if the
Financing Transactions had occurred on such date. Such pro forma consolidated
balance sheet (i) has been prepared in good faith based on the same assumptions
used to prepare the pro forma financial statements included in the consolidated
balance sheets and statements of income, stockholders equity and cash flows as
of and for the fiscal year ended December 31, 1999 described in paragraph (a)
above (which assumptions are believed by the
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Borrower to be reasonable), and (ii) is based on the best information available
to the Borrower after due inquiry.
(c) Except as set forth in Schedule 3.4 or reflected in the financial
statements and information referred to in Section 3.4(a), neither the Borrower
nor any of its Subsidiaries has any contingent liabilities, unusual long-term
commitments or unrealized losses.
(d) Since December 31, 1999, there has been no material adverse change
in the business, affairs, assets, operations or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.5 Properties.
(a) Each of the Borrower and its Subsidiaries has good and defensible
title to, or valid leasehold interests in, or has the right to use pursuant to
valid licenses all its properties and assets, real and personal, tangible and
intangible, of any nature whatsoever (including its Mortgaged Properties,
trademarks, tradenames, copyrights, patents and other intellectual Property, in
each case free and clear of all Liens, charges, encumbrances and claims
(including infringement claims with respect to patents, trademarks, copyrights
and the like), subject, in each case, only to Liens permitted by Section 6.2.
Schedule 3.5 sets forth the address of each real Property (other than Oil and
Gas Properties) that is owned or leased by the Borrower or any of its
Subsidiaries.
(b) Except as set forth in Schedule 3.5, as of the Effective Date,
neither the Borrower nor any of its Subsidiaries has received notice of, or has
knowledge of, any pending or contemplated condemnation proceeding affecting any
Mortgaged Property or any sale or disposition thereof in lieu of condemnation.
Except as set forth in Schedule 3.5, neither any Mortgaged Property nor any
interest therein is subject to any right of first refusal, option or other
contractual right to purchase such Mortgaged Property or interest therein.
After giving full effect to all Liens permitted under Section 6.2, the
Borrower and its Subsidiaries own the net interests in Hydrocarbons produced
from the Oil and Gas Properties as reflected in the most recent Reserve Report,
and neither the Borrower nor any of its Subsidiaries is obligated to bear costs
or expenses in respect of the Oil and Gas Properties in excess of its working
interest percentage as reflected in the most recent Engineering Report.
SECTION 3.6 Litigation Matters.
(a) Except for such actions, suits or proceedings set forth in Schedule
3.6 hereto and any other actions, suits or proceedings from time to time
disclosed in writing by the Borrower or its Subsidiaries to the Administrative
Agent after the Effective Date (collectively, the "Disclosed Matters"), there
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries or any of their
respective properties, businesses, assets or
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revenues, (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect or (ii)
that involve any of the Loan Documents or the transactions contemplated hereby
and thereby.
(b) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in a Material Adverse Effect.
SECTION 3.7 Compliance with Laws and Agreements. Each of the Borrower
and its Subsidiaries is in compliance with all Governmental Rules applicable to
it or its Property and all indentures, agreements and other instruments binding
upon it or its Property, except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
SECTION 3.8 Investment and Holding Company Status. Neither the Borrower
nor any of its Subsidiaries is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, as amended, or
(b) a "holding company", or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935, as amended.
SECTION 3.9 Taxes. Except as set forth in Schedule 3.9, each of the
Borrower and its Subsidiaries has timely filed or caused to be filed all Tax
returns and reports required to have been filed and has paid or caused to be
paid all Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which the Borrower or
such Subsidiary, as applicable, has set aside on its books adequate reserves or
(b) to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10 ERISA Matters. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $500,000 the fair market value of the assets of such Plan,
and the present value of all accumulated benefit obligations of all underfunded
Plans (based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $500,000 the
fair market value of the assets of all such underfunded Plans.
SECTION 3.11 Disclosure. The Borrower has disclosed to the Lenders and
the Administrative Agent all agreements, court orders, judgments, instruments
and corporate or other restrictions to which the Borrower or any of its
Subsidiaries is subject, and all other matters known
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to any of them relating to any of the foregoing, which agreements, court orders,
judgments, instruments, restrictions and other matters individually or in
aggregate could reasonably be expected to result in a Material Adverse Effect.
None of the documents, reports, financial statements, certificates or other
information furnished by or on behalf of any Subsidiary to the Administrative
Agent or any Lender in connection with the negotiation of this Agreement or any
other Loan Document or delivered hereunder or thereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12 Subsidiaries. Schedule 3.12 sets forth the name of, and
the ownership interest of the Borrower and each Subsidiary in, each Subsidiary
of the Borrower and any Subsidiary of each Subsidiary, respectively, as of the
Effective Date. As of the Effective Date, the Borrower does not have any
subsidiaries other than the Subsidiaries identified in Schedule 3.12.
SECTION 3.13 Insurance. Schedule 3.13 sets forth a description of all
insurance maintained by or on behalf of the Borrower and its Subsidiaries as of
the Effective Date. As of the Effective Date, all premiums in respect of such
insurance have been paid.
SECTION 3.14 Labor Matters. As of the Effective Date, there are no
strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by and
payments made to employees of the Borrower and the Subsidiaries have not been in
material violation of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All payments due
from the Borrower or any Subsidiary, or for which any claim may be made against
the Borrower or any Subsidiary, on account of wages and employee health and
welfare insurance and other benefits, have been paid or accrued as a liability
on the books of the Borrower or such Subsidiary.
SECTION 3.15 Priority; Security Interest. The Obligations are and shall
be at all times secured by a first priority Lien in all Collateral, except as a
result of a Permitted Encumbrance or a Lien permitted by Section 6.2(c). The
Borrower has good, sufficient and legal title to, or leasehold interest in, or
right to use (pursuant to a valid license), all Collateral and the Borrowing
Base Properties free and clear of all Liens, except Liens permitted by Section
6.2. As of the Effective Date, all filings, notices, recordings and other action
necessary to perfect the Liens in the Collateral created pursuant to the Loan
Documents have been made, given or accomplished or arrangements for the
completion thereof satisfactory to the Administrative Agent and its counsel have
been made.
SECTION 3.16 Environmental Matters. Except as set forth in Schedule
3.16 or, after the Effective Date, otherwise disclosed in writing by the
Borrower to the Administrative Agent:
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(a) All facilities and Property (including to the Borrower's knowledge
underlying groundwater) owned or leased by the Borrower or any of its
Subsidiaries have been, and continue to be, owned or leased by the Borrower or
any of its Subsidiaries in material compliance with all Environmental Laws;
(b) There are no pending or threatened (i) claims, complaints, notices
or requests for information received by the Borrower or any of its Subsidiaries
with respect to any alleged violation of any Environmental Law, or (ii)
complaints or notices to the Borrower or any of its Subsidiaries regarding
instances which have a reasonable likelihood of having potential liability under
any Environmental Law;
(c) There have been no Releases of Hazardous Materials at, on or under
any Property now or previously owned or leased by the Borrower or any of its
Subsidiaries;
(d) The Borrower and its Subsidiaries have been issued and are in
material compliance with all permits, certificates, approvals, licenses and
other authorizations required by Environmental Laws;
(e) No Property now or previously owned or leased by the Borrower or
any of its Subsidiaries is listed or proposed for listing (with respect to owned
Property only) on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any analogous state list of sites requiring investigation or
clean-up;
(f) There are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any Property now or previously
owned or leased by the Borrower or any of its Subsidiaries;
(g) Neither Borrower nor any Subsidiary of the Borrower has directly
transported or directly arranged for the transportation of any Hazardous
Material to any site which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any analogous state
list or which is the subject of federal, state or local enforcement actions or
other investigations which may lead to material claims relating to potential
liability under any Environmental Law (including CERCLA) against the Debtor, or
any such Debtor or Subsidiary for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA; and
(h) There are no polychlorinated biphenyls or friable asbestos present
at any Property now or previously owned or leased by the Borrower or any of its
Subsidiaries.
SECTION 3.17 Solvency. Immediately after the consummation of the
Financing Transactions to occur on the Effective Date and immediately following
the making of each Loan made on the Effective Date and after giving effect to
the application of the proceeds of such Loans, (a) the fair value of the assets
of each Obligor, at a fair valuation, will exceed its debts and liabilities,
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subordinated, contingent or otherwise; (b) the present fair saleable value of
the Property of each Obligor will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Obligor will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; (d) each Obligor will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date, and (e) the Borrower and the Borrower and its
Subsidiaries, on a consolidated basis, are Solvent.
SECTION 3.18 Year 2000. The Year 2000 date change has not resulted in
disruption of the Borrower's and its Subsidiaries' computer hardware, software,
databases, systems and other equipment containing embedded microchips (including
systems and equipment supplied by others or with which the Borrower's or its
Subsidiaries' systems interface), or to the Borrower's or its Subsidiaries'
operations or business systems, or to the best of the Borrower's and its
Subsidiaries' knowledge, to the operations or business systems of the Borrower's
major vendors, customers, suppliers and counterparties. Borrower has no reason
to believe that liabilities and expenditures related to the Year 2000
date-change (including, without limitation, costs caused by reprogramming
errors, the failure of others' systems or equipment, and the potential
liability, if any, of the Borrower or its Subsidiaries for Year 2000 related
costs incurred or disruption experienced by others) will result in a Default or
a Material Adverse Effect.
SECTION 3.19 Claims and Liabilities. Except as disclosed to the
Administrative Agent in Schedule 3.19, neither the Borrower nor any of its
Subsidiaries has accrued any liabilities under gas purchase contracts for gas
not taken, but for which it is liable to pay if not made up and which, if not
paid, would have a Material Adverse Effect. Except as disclosed to the
Administrative Agent in Schedule 3.19, no claims exist against the Borrower or
any of its Subsidiaries for gas imbalances which claims if adversely determined
would have a Material Adverse Effect. No purchaser of product supplied by the
Borrower or any of its Subsidiaries has any claim against the Borrower or any of
its Subsidiaries for product paid for, but for which delivery was not taken as
and when paid for, which claim if adversely determined would have a Material
Adverse Effect.
SECTION 3.20 Delivery of Alternative Financing Documentation. The
Administrative Agent has received complete copies of the Equity Financing
Documents and the Standby Debt Documents (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Agent.
SECTION 3.21 Plan of Reorganization. The Administrative Agent has
received the Confirmation Order and the Confirmation Order has become a Final
Order, unless the condition precedent set forth in Section 4.1(p) has been
waived with the consent of all Lenders. All other
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conditions precedent to the confirmation and effectiveness of the Plan of
Reorganization have been satisfied or waived.
ARTICLE IV
CONDITIONS
SECTION 4.1 Effective Date. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall become
effective on the date on which each of the following conditions shall have been
satisfied (or waived in accordance with Section 9.2):
(a) Certain Loan Documents. The Administrative Agent (or its counsel)
shall have received from each party thereto either a counterpart of each of the
following documents duly executed on behalf of such party or written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of such document) that each such party
has duly executed for delivery to the Administrative Agent a counterpart of each
of the following documents and any and all schedules, exhibits or other
attachments to any such document must be acceptable to the Administrative Agent
in its sole and absolute discretion: this Agreement; the Fee Letter; a Guaranty
from each Subsidiary of the Borrower (other than a Foreign Subsidiary); and to
the extent to which the Borrower or any of its Subsidiaries is a party, each
other Loan Document referred to in clause (i) of the definition of such term
and, to the extent requested prior to the Effective Date, each other Loan
Document referred to in clause (ii) in the definition of such term.
(b) Opinions of Counsels. The Administrative Agent shall have received
a favorable written opinion (addressed to the Administrative Agent and the
Lenders and dated the Effective Date), in form and substance satisfactory to the
Administrative Agent, of each of (i) Fulbright & Jaworski, L.L.P., counsel for
the Borrower, and (ii) local counsel in each jurisdiction where a Mortgaged
Property is located, and, in the case of each such opinion required by this
paragraph, covering such matters relating to the Obligors, the Loan Documents as
the Required Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinions.
(c) Organizational Documents. The Administrative Agent shall have
received a certificate of the Secretary, Assistant Secretary or Vice President
or other Authorized Officer of each Obligor and, in the case of clauses (i) and
(iii) below, each Subsidiary which is not an Obligor, dated as of the Effective
Date, certifying:
(i) that attached to such certificate is a true and complete
copy of the by-laws or other Organic Documents, as the case may be, of
such Subsidiary as in effect on the date of such certificate and, (A)
in the case of CRI, that attached to such certificate is a true and
complete copy of a certificate from the appropriate Governmental
Authority of the State of Mississippi and the State of Texas certifying
that CRI is duly qualified and in good standing to transact business in
the State of Mississippi or the State of Oklahoma, as the case may be,
as a foreign corporation, (B) in the case of COG, that attached to such
certificate is a true and
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complete copy of a certificate from the appropriate Governmental
Authority of the State of Oklahoma certifying that COG is duly
qualified and in good standing to transact business in the State of
Oklahoma as a foreign corporation, (C) in the case of CEX, that
attached to such certificate is a true and complete copy of a
certificate from the appropriate Governmental Authority of the State of
Mississippi certifying that CEX is duly qualified and in good standing
to transact business in the State of Mississippi as a foreign
corporation, and (D) in the case of the Borrower or any Subsidiary,
that attached to such certificate is a true and complete copy of a
certificate from the appropriate Governmental Authority of each state
(without duplication) certifying that the Borrower or such Subsidiary
is duly qualified and in good standing to transact business in such
state as a foreign corporation, if the failure to be so qualified or in
good standing could reasonably be expected to have a Material Adverse
Effect;
(ii) that attached to such certificate is a true and complete
copy of resolutions duly adopted by the board of directors or
management committee of such Obligor, as applicable, authorizing the
execution, delivery and performance of such of the Loan Documents to
which such Obligor is or is intended to be a party;
(iii) that attached thereto is a copy of the certificate of
incorporation or formation, as the case may be, of the Borrower or such
Subsidiary, in each case certified as of a recent date by the Secretary
of State (or equivalent Governmental Authority, in the case of Foreign
Subsidiaries) of its jurisdiction of incorporation or formation, and a
certificate as to the good standing of and payment of franchise taxes
by the Borrower or each such Subsidiary, if applicable, dated as of a
recent date; and that such certificate of incorporation or certificate
of formation, as the case may be, has not been amended since the date
of such certified copy;
(iv) as to the incumbency and specimen signature of each
officer of such Obligor executing such of the Loan Documents to which
such Obligor is or is intended to be a party;
(d) Officer's Certificates. The Administrative Agent shall have
received the following:
(i) A certificate of an Authorized Officer of the Borrower,
dated as of the Effective Date, certifying that: (A) the
representations and warranties of the Borrower contained in each of the
Loan Documents to which it is a party are true and correct on and as of
such date after giving effect to such funding and to the intended use
thereof) in all material respects as if made on and as of such date
(or, if stated to have been made expressly as of an earlier date, were
true and correct in all material respects as of such date); (B) no
Default or Event of Default has occurred and is continuing on such
date; (C) no act, event or circumstance affecting the Borrower or any
Subsidiary has arisen since the date of the financial statements of the
Borrower described in Section 3.4 that would reasonably be expected to
result in a Material Adverse Effect; (D) except as disclosed in
Schedule 3.6, there
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is no action, suit or proceeding at law or in equity or by or before
any Governmental Authority or arbitral tribunal now pending or, to the
best knowledge of the Borrower, threatened against the Borrower or any
Subsidiary or with respect to any Loan Document, which would reasonably
be expected to result in a Material Adverse Effect; (E) the conditions
precedent to be performed by the Borrower and its Subsidiaries
described in Sections 4.1(j), (l), (m), (n), (o), (p), (r), (t), (u),
(v), (x) and (y) have been satisfied in accordance with this Agreement
(provided that, for purposes of the certification as to the conditions
precedent set forth in Sections 4.1(j), (m), (p), (t), (u), (x) or (v),
the Borrower shall not be required to certify as to the Administrative
Agent's or its counsel's satisfaction or acceptance of such conditions
precedent); and (F) the Liens granted by the Security Documents are
effective to grant a valid first priority Lien on the Collateral
described therein, except as a result of a Permitted Encumbrance or a
Lien permitted by Section 6.2(c).
(ii) A certificate of an Authorized Officer of each of the
Obligors (other than the Borrower), dated as of the Effective Date,
certifying that the representations and warranties of such Obligor,
contained in each of the Loan Documents to which such Obligor is a
party are true and correct on and as of such date after giving effect
to funding and to the intended use thereof) in all material respects as
if made on and as of such date (or, if stated to have been made solely
as of an earlier date, were true and correct in all material respects
as of such date).
(e) Fees and Expenses. The Administrative Agent and the Lenders shall
have received all fees and other amounts due and payable pursuant to the Fee
Letter, this Agreement or any other Loan Document on or prior to the Effective
Date, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses (including reasonable fees, charges and disbursements of
counsel) required to be reimbursed or paid by any Obligor hereunder or under any
other Loan Document.
(f) Pledge Agreements. The Administrative Agent shall have received
counterparts of each Pledge Agreement, dated as of the Effective Date, duly
executed and delivered by the Borrower and all other relevant Subsidiaries,
together with the following:
(i) stock certificates representing all the outstanding shares
of capital stock of each Subsidiary owned by or on behalf of any
Subsidiary as of the Effective Date after giving effect to the
Financing Transactions (except that stock certificates representing
shares of common stock of a Foreign Subsidiary may be limited to 65% of
the outstanding shares of common stock of such Foreign Subsidiary),
promissory notes evidencing all intercompany Indebtedness owed to any
Subsidiary by any other Subsidiary as of the Effective Date after
giving effect to the Financing Transactions (if any), and stock powers
and instruments of transfer, endorsed in blank, with respect to such
stock certificates, or, if any securities pledged pursuant to the
Pledge Agreements are uncertificated securities, confirmation and
evidence satisfactory to the Administrative Agent that the security
interest in such uncertificated securities has been transferred to and
perfected by the Administrative Agent
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in accordance with Section 8-313 and Section 8-321 of the Uniform
Commercial Code, as in effect in the State of New York, and, as
applicable, with the evidence of completion (or satisfactory
arrangement for the completion) of all filings and recordings of the
Pledge Agreements as may be necessary, or in the reasonable opinion of
the Administrative Agent, desirable, effectively to create a valid,
perfected first priority lien against and security interest in the
collateral covered thereby;
(ii) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or reasonably
requested by the Administrative Agent to be filed, registered or
recorded to create or perfect the Liens intended to be created under
each Pledge Agreement.
(g) Security Agreements. The Administrative Agent shall have received
counterparts of each Security Agreement, dated as of the Effective Date, duly
executed and delivered by the Borrower and each of its Subsidiaries (other than
Foreign Subsidiaries), together with the following:
(i) executed Uniform Commercial Code Financing Statements
(Form UCC-1), dated as of the Effective Date, and such evidence of
filing or arrangements for filing as may be acceptable to the
Administrative Agent, naming such Subsidiary as the debtor and the
Administrative Agent as the secured party, or other similar instruments
or documents, filed or to be under the Uniform Commercial Code of all
jurisdictions listed on Schedule 4.1(g) or as may be necessary or, in
the opinion of the Administrative Agent, desirable to perfect the
security interest of the Administrative Agent pursuant to such Security
Agreement;
(ii) executed copies of proper Uniform Commercial Code Form
UCC-3 termination statements, if any, necessary to release all Liens
and other rights of any Person in any collateral or assigned Property
described in the Security Agreement previously granted by any Person,
and together with such other Uniform Commercial Code Form UCC-3
termination statements as the Administrative Agent may reasonably
request; and
(iii) evidence that all filing fees and all other expenses
related to such filings have been or will be paid in full by or on
behalf of each Subsidiary.
(h) Mortgages. The Administrative Agent shall have received (i)
counterparts of a duly executed Mortgage encumbering Oil and Gas Properties of
the Borrower and its Subsidiaries constituting at least 85% of value of the
Proven Reserves to which value is given in the determination of the Initial
Reserve Report duly executed on behalf of each record owner of such Mortgaged
Property and evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of such Mortgage as may be necessary
or, in the reasonable opinion of the Administrative Agent, desirable effectively
to create a valid, perfected first priority Lien against the Properties
purported to be covered thereby, except as a result of a Permitted Encumbrance
or a Lien permitted by Section 6.2(c); (ii) favorable mortgagee's title opinions
in favor
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of the Administrative Agent (in form and substance satisfactory and issued by
title counsel satisfactory to the Administrative Agent, with respect to the
Property purporting to be covered by the Mortgage setting forth the working
interest and net revenue interest of the Borrower and/or its Subsidiaries in
such Properties and opining that the Borrower's and/or its Subsidiaries' title
to such Property is good and defensible and valid and that the interests created
by the Mortgage constitute valid first Liens thereon free and clear of all
defects and encumbrances other than as approved by the Administrative Agent; and
(iii) such surveys, abstracts and appraisals as may be required pursuant to such
Mortgages or as the Administrative Agent or the Required Lenders may reasonably
request.
(i) UCC Searches. The Administrative Agent shall have received (i) the
UCC Searches, all dated within thirty (30) days of the Effective Date and in
form and substance satisfactory to the Administrative Agent, and (ii) evidence
reasonably satisfactory to the Administrative Agent that the Liens indicated by
the financing statements (or similar documents) in such UCC Searches are
permitted by Section 6.2 or have been released.
(j) Priority; Security Interest. The Collateral and Borrowing Base
Properties shall be free and clear of all Liens, except Liens permitted by
Section 6.2. All filings, notices, recordings and other action necessary to
perfect the Liens in the Collateral shall have been made, given or accomplished
or arrangements for the completion thereof satisfactory to the Administrative
Agent and its counsel shall have been made.
(k) Approvals and Consents. The Administrative Agent shall have
received copies of all Governmental Approvals and third party consents and
approvals necessary or, in the sole discretion of the Administrative Agent,
advisable in connection with the operations of the Borrower and its
Subsidiaries. All such Governmental Approvals and third party consents and
approvals shall be in full force and effect.
(l) Insurance. The Administrative Agent and the Lenders shall have
received certificates, dated the Effective Date, from the Borrower's insurers
certifying (i) compliance with all of the insurance required by Section 5.7
hereof and by the Security Documents and (ii) that such insurance is in full
force and effect.
(m) Environmental Report. The Lenders and the Administrative Agent
shall have received, and shall be satisfied with the contents, results and scope
of, an environmental report prepared by an independent environmental audit firm
acceptable to the Administrative Agent covering all environmental issues related
to all Property owned, leased or operated by any Subsidiary with respect to any
Environmental Liabilities that may be attributable to such properties or
operations as have been specified by the Administrative Agent for review.
(n) Pro Forma Balance Sheet. The Lenders shall have received the pro
forma consolidated balance sheet of the Borrower and its Subsidiaries described
in Section 3.4(b), and such
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pro forma consolidated balance sheet shall be consistent in all material
respects with the forecasts and other information previously provided to the
Lenders.
(o) Financial Reports; Filings. The Administrative Agent shall have
received copies of all financial statements, reports, notices and proxy
statements sent by the Borrower to its stockholders during the period after
December 31, 1998.
(p) Plan of Reorganization; Confirmation. All conditions precedent to
the effectiveness of the Plan of Reorganization shall have been satisfied and
the terms and conditions of the Plan of Reorganization shall not have been
amended or modified without the approval of the Administrative Agent and the
Lenders. The Bankruptcy Court shall have entered the Confirmation Order in form
and substance satisfactory to the Administrative Agent and the Lenders, and such
Confirmation Order (i) shall confirm the Plan of Reorganization, and (ii) shall
have become a Final Order. The Administrative Agent shall have received
satisfactory evidence on the Effective Date that the Confirmation Order has
become a Final Order.
(q) Structure of Borrower. The capital structure, organization
structure, management team and Organic Documents of the Borrower and its
Subsidiaries shall be, as of the Effective Date, acceptable to the
Administrative Agent
(r) Implementation of the Plan of Reorganization. In accordance with
the terms of the Plan of Reorganization and simultaneously with the
effectiveness of this Agreement and the funding of the initial Loan hereunder,
(i) the Borrower shall have issued Equity Interests to all holders of "Allowed
Claims" and "Equity Interests" (as defined in the Plan of Reorganization)
entitled to receive same and (ii) the Borrower shall have distributed cash to
all holders of Allowed Claims entitled to receive same to the extent that
payment is due and owing on such Allowed Claims.
(s) No Preferred Stock or Other Indebtedness. Except as disclosed in
Schedule 4.1(s), neither the Borrower nor any of its Subsidiaries shall have
outstanding (i) any shares of preferred stock other than as otherwise provided
in the Plan of Reorganization or (ii) any Indebtedness other than Indebtedness
incurred under the Loan Documents or permitted under Section 6.1.
(t) Initial Reserve Report. The Administrative Agent and the Lenders
shall have received and shall be satisfied with the contents, results and scope
of the Initial Reserve Report.
(u) Borrowing Base Review. The Administrative Agent shall have
completed and be satisfied with the results of a review of the Borrowing Base
Properties and the status of the environmental condition of the Borrowing Base
Properties.
(v) Alternative Financing. The Borrower shall have received gross
proceeds of not less than $72,000,000 from the Equity Financing and/or the
Standby Debt, provided that such Equity Financing and/or Standby Debt shall be
on terms and conditions satisfactory to the Administrative Agent and the
Required Lenders, and provided that all conditions to effectiveness under the
various
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Equity Financing Documents and/or Standby Debt Documents, as the case may be,
have been satisfied or waived by the relevant parties thereto. The
Administrative Agent shall have received executed copies of the Equity Financing
Documents, the Standby Debt Documents (if executed) and all related agreements
and documents, each certified as of the date hereof by the Secretary or
Assistant Secretary of the Borrower (i) to be a true, correct and complete copy
of such document and (ii) not to have been amended or rescinded from the form so
certified and to be in full force and effect.
(w) Intercreditor Agreement. The Administrative Agent shall have
received the counterparts of the Intercreditor Agreement, duly executed by the
parties thereto.
(x) Hedging Agreements. The Borrower shall have delivered to the
Administrative Agent copies of any Hedging Agreements currently in existence.
(y) Confirmation Order. The Administrative Agent shall have received a
certificate of the Secretary or Assistant Secretary of the Borrower, dated as of
the Closing Date, certifying (i) that attached thereto is a true, correct and
complete copy of the Confirmation Order (including the Plan of Reorganization
attached to such Confirmation Order) and (ii) that no pending appeal or motion
for rehearing has been filed or granted in connection with such Confirmation
Order.
(z) Initial Cash Availability. The Administrative Agent shall have
received satisfactory evidence on the Effective Date that after taking into
account (A) any payments of any amounts required to be paid under the Plan of
Reorganization either on the Effective Date or on or prior to December 31, 2000,
(B) the amount of any claims which are not yet due and payable under the Plan of
Reorganization but which are required under the Plan of Reorganization to be
paid on or prior to December 31, 2000, and (c) any amounts payable pursuant to
this Agreement or the Fee Letter, the amount of (i) cash on hand of the Borrower
and its Subsidiaries plus (ii) the then current Borrowing Base Excess, shall be
equal to or greater than $15,000,000.
(aa) Environmental Settlement Agreements. The Administrative Agent
shall have received copies of (i) that certain Compromise and Settlement
Agreement, dated as of March 1, 2000, between the Borrower, Coho Resources,
Inc., Coho Oil & Gas, Inc., Coho Exploration, Inc., Coho Louisiana Production
Company and Interstate Natural Gas Company and Chevron Corp. and Chevron U.S.A.
Inc., and (ii) that certain settlement agreement between the Borrower, Coho
Resources, Inc., Coho Oil & Gas, Inc., Coho Exploration, Inc., Coho Louisiana
Production Company and Interstate Natural Gas Company and the "Plaintiffs" (as
defined in the "Disclosure Schedule" (as defined in the Plan of
Reorganization)), each certified as of the date hereof by the Secretary or
Assistant Secretary of the Borrower (i) to be a true, correct and complete copy
of such document and (ii) not to have been amended or rescinded from the form so
certified and to be in full force and effect.
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(bb) Other Documents. The Administrative Agent shall have received such
other documents consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as the Administrative Agent may reasonably
request.
SECTION 4.2 Each Credit Event. The obligation of each Lender to make a
Loan (including the initial Loan) on the occasion of any Borrowing, and of the
Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject
to receipt of the request therefor in accordance herewith and to the
satisfaction of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Borrower and each Obligor set forth in the Loan Documents (other than
those representations and warranties limited by their terms to a specific date)
shall be true and correct on and as of the date of such Borrowing.
(b) Default. At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, no Default shall have occurred and be continuing.
(c) No Material Adverse Effect. At the time of and immediately after
giving effect to such Borrowing or the issuance, amendment, renewal or extension
of such Letter of Credit,
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which could reasonably be expected to result in a
Material Adverse Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental investigation or
proceeding which could reasonably be expected to result in a Material
Adverse Effect; and
(iii) neither the Borrower nor any of its Subsidiaries are in
violation of any Governmental Rule except for any such violation which
would not reasonably be expected to result in a Material Adverse
Effect.
(d) Borrowing Request. The Administrative Agent shall have received a
Borrowing Request for such Borrowing. Each of the delivery of a Borrowing
Request and the acceptance by the Borrower of the proceeds of such Borrowing
shall constitute a representation and warranty by the Borrower that on the date
of such Borrowing (both immediately before and after giving effect to such
Borrowing and the application of the proceeds thereof) the statements and
matters made in Sections 4.2(a), (b) and (c) are true and correct.
(e) Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by and on behalf of the Borrower or any other Subsidiary shall
be in form and substance reasonably
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satisfactory to the Administrative Agent and its counsel. The Administrative
Agent and its counsel shall have received all information, approvals, documents
or instruments as the Administrative Agent or its counsel may reasonably
request.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower agrees with the Administrative Agent and each Lender that,
until the Commitments have expired or been terminated and Obligations shall have
been paid and performed in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, the Borrower
will perform the obligations set forth in this Article V.
SECTION 5.1 Financial Statements and Other Information. The Borrower
will furnish, or will cause to be furnished, to the Administrative Agent and
each Lender copies of the following financial statements, reports, notices and
information:
(a) Annual Financials. Within 90 days after the end of each fiscal year
of the Borrower, its audited consolidated and consolidating balance sheet and
related statements of operations, stockholders' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by an independent public
accountants of recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, together with a certificate
of the accounting firm that reported on such financial statements stating
whether they obtained knowledge during the course of their examination of such
financial statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
(b) Quarterly Financials. Within 45 days after the end of each of the
first three fiscal quarters of each fiscal year of the Borrower, its
consolidated and consolidating balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by one of its Financial Officers as presenting fairly
in all material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) Financial Officer's Certificate. Concurrently with any delivery of
financial statements under clause (a) or (b) above, a certificate of a Financial
Officer of the Borrower (i) certifying as to
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whether a Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with respect
thereto, (ii) setting forth reasonably detailed calculations demonstrating
compliance with Sections 6.12, 6.13 and 6.14 and (iii) stating whether any
change in GAAP or in the application thereof has occurred since the date of the
Borrower's audited financial statements referred to in Section 3.4 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(d) Certificate as to Defaults. Concurrently with any delivery of
financial statements under clause (a) above, a certificate of the accounting
firm that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements of
any Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(e) Budgets. At least thirty (30) days prior to the commencement of
each fiscal year of the Borrower, a detailed consolidated budget for such fiscal
year (including a projected consolidated balance sheet and related statements of
projected operations and cash flow as of the end of and for such fiscal year and
setting forth the assumptions used for purposes of preparing such budget) and,
promptly when available, any significant revisions of such budget;
(f) Reserve Reports. By March 1st of each year, a Reserve Report
prepared by the Borrower and audited by an Approved Engineer; and by September
1st of each year, a Reserve Report prepared by the Borrower in form acceptable
to the Administrative Agent.
(g) SEC Disclosure. Promptly after the same become publicly available,
all periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission, or
any Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by the
Borrower to its shareholders generally, as the case may be; and
(h) Other Information. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the terms of any
Loan Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.2 Notices of Material Events. Promptly, and in any event
within three (3) (or ten (10), in the case of (d) or (e) below) Business Days
upon the Borrower or any of its Subsidiaries becoming aware of the following
events, the Borrower will furnish to the Administrative Agent and each Lender
written notice of the following:
(a) the occurrence of any Default;
(b) (i) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof or
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(ii) the occurrence of any adverse development with respect to any action, suit
or proceeding previously disclosed to the Administrative Agent or the Lenders
pursuant to this Agreement, in each case if such action, suit or proceeding
could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Borrower and its Subsidiaries in an aggregate amount exceeding
$500,000; and
(d) (i) any claim by any Person against the Borrower or any of its
Subsidiaries of nonpayment of, or (ii) any attempt by any Person to collect upon
or enforce, any accounts payable (that are more than sixty (60) days past due)
of the Borrower or any of its Subsidiaries, in the case of any single account
payable in excess of $500,000, or in the case of all accounts payable in the
aggregate in excess of $500,000;
(e) (i) any and all enforcement, cleanup, removal or other governmental
or regulatory actions instituted, completed or threatened or other environmental
claims against the Borrower or any Subsidiary or any of its Properties pursuant
to any applicable Environmental Laws which could have a Material Adverse Effect,
and (ii) any environmental or similar condition on any real Property adjoining
or in the vicinity of the Property of the Borrower or any Subsidiary that could
reasonably be anticipated to cause such Property or any part thereof to be
subject to any material restrictions on the ownership, occupancy,
transferability or use of such Property under any Environmental Laws; and
(f) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 5.2 shall be accompanied by a statement
of a Financial Officer or other executive officer of the Borrower setting forth
the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.
SECTION 5.3 Information Regarding Collateral.
(a) Promptly, and in any event within five (5) Business Days upon
becoming aware of the following changes, the Borrower will furnish to the
Administrative Agent written notice of any change (i) in any Subsidiary's
corporate name or in any trade name used to identify it in the conduct of its
business or in the ownership of its properties, (ii) in the location of any
Subsidiary's chief executive office, its principal place of business, any office
in which it maintains books or records relating to Collateral owned by it or any
office or facility at which Collateral owned by it is located (including the
establishment of any such new office or facility), (iii) in any Subsidiary's
identity or corporate structure or (iv) in any Subsidiary's Federal Taxpayer
Identification Number. The Borrower agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order
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for the Administrative Agent to continue at all times following such change to
have a valid, legal and perfected security interest in all the Collateral. The
Borrower also agrees promptly to notify the Administrative Agent if any material
portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section 5.1,
the Borrower shall deliver to the Administrative Agent a certificate of a
Financial Officer and the chief legal officer of the Borrower confirming that
there has been no change in the information previously furnished and described
in Section 5.3(a) and Section 4.1(d)(i)(F).
(c) On or before the forty-fifth day after the end of each fiscal
quarter, the Borrower shall provide to the Administrative Agent and the Lenders
a report containing operational and accounting information with respect to the
Mortgaged Properties and Borrowing Base Properties for the immediately preceding
quarter, including estimated production volumes, revenues, operating costs,
drilling costs, completion costs, geological and geophysical costs, G&A
Expenses, position under Hedging Agreements, summary drilling and completion
reports and well test data, and such other information respecting the condition
or operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as the Administrative Agent or any Lender may from time to time
reasonably request.
SECTION 5.4 Existence; Conduct of Business. The Borrower will, and will
cause each of its Subsidiaries to, do or cause to be done all things necessary
to preserve, renew and keep in full force and effect (i) its legal existence and
(ii) the rights, licenses, permits, privileges, franchises, patents, copyrights,
trademarks and trade names material to the conduct of its business, except where
the failure to so preserve, renew or keep in full force and effect such rights,
licenses, permits, privileges, franchises, patents, copyrights, trademarks or
trade names could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.5 Payment of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP, (c) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such obligation and (d) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.6 Maintenance of Properties.
(a) The Borrower will, and will cause each of its Subsidiaries to,
keep, preserve, protect and maintain all Property material to the conduct of its
business in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements so that its business, and the
respective businesses of its Subsidiaries, carried on in connection therewith
may be properly
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conducted at all times in accordance with standard industry practices unless the
(i) Borrower or the respective Subsidiary determines in good faith that the
continued maintenance of any of its properties is no longer economically
desirable or (ii) the failure to so keep, preserve, protect and maintain such
Property or the failure to make such repairs, renewals or replacements could not
reasonably be expected to result in a Material Adverse Effect. In particular,
the Borrower will, and will cause each of its Subsidiaries to, operate or cause
to be operated its Oil and Gas Properties as a reasonable and prudent operator.
(b) The Borrower shall use reasonable efforts to develop and bring into
production in a prudent and businesslike manner the proved developed
non-producing reserves and projects that the Lenders have considered in their
determination of the Borrowing Base.
(c) The Borrower shall ensure that at all times it has available to it,
either through its employees or through independent contractors, petroleum
engineers with appropriate experience and expertise in the proper operation and
development of properties similar to the Mortgaged Properties and the Borrowing
Base Properties.
(d) Promptly after the drilling and completion of each well drilled on
the Oil and Gas Properties that have been considered by the Lenders in the
determination or redetermination of the Borrowing Base, the Borrower shall
promptly request assignments of any interests earned by virtue of such drilling
and, within fifteen (15) days after the earlier to occur of the receipt of such
assignments or sixty (60) days after first production from such well, shall
deliver to the Administrative Agent:
(i) true and correct copies of any such assignments of record
title of the applicable Oil & Gas Properties into the Borrower or its
Subsidiary, as applicable,
(ii) true and correct copies of all required consents and
Governmental Approvals applicable to such assignments,
(iii) original, executed and acknowledged counterparts of a
supplemental Mortgage and related amendments to financing statements
covering any such interest so earned, and
(iv) a favorable mortgagee's title opinion showing that the
Borrower or its Subsidiary, as applicable, is vested with good and
defensible title to the interests so earned consistent with the working
interests and net revenue interest for such Property shown in the most
recent Reserve Report and showing that the interests created by such
supplemental Mortgage constitute valid first Liens thereon, free and
clear of all defects and encumbrances, except as a result of a
Permitted Encumbrance or a Lien permitted by Section 6.2(c),
in each case in form and substance reasonably satisfactory to the
Administrative Agent.
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SECTION 5.7 Insurance. The Borrower will, and will cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurance
companies (a) insurance in such amounts (with no greater risk retention) and
against such risks as are customarily maintained by companies of established
repute engaged in the same or similar businesses operating in the same or
similar locations and (b) all insurance required to be maintained pursuant to
the Security Documents. The Administrative Agent, on behalf of the Lenders, will
be named as loss payees and additional insureds, as appropriate. The Borrower
will furnish to the Lenders, upon request of the Administrative Agent,
information in reasonable detail as to the insurance so maintained.
SECTION 5.8 Casualty and Condemnation. The Borrower (a) will furnish to
the Administrative Agent and the Lenders prompt written notice of any casualty
or other insured damage to any material portion of any Collateral or the
commencement of any action or proceeding for the taking of any Collateral or any
part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding and (b) will ensure that the Net Proceeds of
any such event (whether in the form of insurance proceeds, condemnation awards
or otherwise) are collected and applied in accordance with the applicable
provisions of the Security Documents.
SECTION 5.9 Books and Records; Inspection and Audit Rights.
(a) The Borrower will, and will cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities. The Borrower will, and will cause each of its Subsidiaries to,
permit any representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested. The Borrower shall
pay any reasonable fees of such independent public accountant incurred in
connection with the Administrative Agent or such Lender's exercise of its rights
pursuant to this Section. Furthermore, the Borrower will permit the
Administrative Agent or any Lender, or its agents, at the cost and expense of
the Borrower, to enter upon the Oil and Gas Properties and all parts thereof,
for the purpose of investigating and inspecting the condition and operation
thereof, and shall permit reasonable access to the field offices and other
offices, including the principal place of business, of the Borrower to inspect
and examine the Oil and Gas Properties.
(b) Without limiting the generality of Section 5.9(a), the Borrower
will, and will cause each of its Subsidiaries to, permit any representatives
designated by the Administrative Agent (including any consultants, accountants,
lawyers and appraisers retained by the Administrative Agent) to conduct
evaluations and inspections of the Oil and Gas Properties and the assets
included in the Borrowing Base or of the Borrower's or any Approved Engineer's
assessment of the condition or value thereof, all at such reasonable times and
as often as reasonably requested. The Borrower shall pay the reasonable fees and
expenses of any representatives retained by the Administrative Agent to conduct
any such evaluation or inspection.
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SECTION 5.10 Compliance with Laws. The Borrower will, and will cause
each of its Subsidiaries to, comply with all Governmental Rule applicable to it,
any Subsidiary, or their respective Property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
SECTION 5.11 Use of Proceeds and Letters of Credit. The proceeds of the
Loans, together with the proceeds of the Standby Debt, will be used only for the
payment of (a) amounts payable under the Existing Loan Agreement in accordance
with the Plan of Reorganization and (b) capital expenditures, working capital
and other general corporate purposes of Borrower and its Subsidiaries. No part
of the proceeds of any Loan will be used, whether directly or indirectly, for
any purpose that entails a violation of any of the regulations of the Board,
including Regulations G, U and X. Letters of Credit will be issued only to
support normal and customary oil and gas operations undertaken by the Borrower
and its Subsidiaries in the ordinary course of business.
SECTION 5.12 Additional Subsidiaries. If any additional Subsidiary is
formed or acquired after the Effective Date, the Borrower will notify the
Administrative Agent and the Lenders thereof and (a) the Borrower will cause
such Subsidiary (unless such Subsidiary is a Foreign Subsidiary) to execute a
Security Agreement, a Mortgage (to the extent it owns Oil and Gas Properties)
and a Guaranty within ten (10) Business Days after such Subsidiary is formed or
acquired and promptly take such actions to create and perfect Liens on such
Subsidiary's assets to secure the Obligations as the Administrative Agent or the
Required Lenders shall reasonably request and (b) if any Equity Interest in or
Indebtedness of such Subsidiary are owned by or on behalf of any Subsidiary, the
Borrower will cause such Equity Interests and promissory notes evidencing such
Indebtedness to be pledged pursuant to its Pledge Agreement within ten (10)
Business Days after such Subsidiary is formed or acquired (except that, if such
Subsidiary is a Foreign Subsidiary, shares of common stock of such Subsidiary to
be pledged pursuant to such Pledge Agreement may be limited to 65% of the
outstanding shares of common stock of such Subsidiary).
SECTION 5.13 Further Assurances.
(a) The Borrower will, and will cause each Subsidiary to, execute any
and all further documents, financing statements, agreements and instruments, and
take all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or which the Administrative
Agent or the Required Lenders may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Security Documents
or the validity or priority of any such Lien, all at the expense of the
Obligors. The Borrower also agrees to provide to the Administrative Agent, from
time to time upon reasonable request of the Administrative Agent, information
which is in the possession of the Borrower or its Subsidiaries or otherwise
reasonably obtainable by any of them, reasonably satisfactory to the
Administrative Agent as to the perfection and priority of the Liens created or
intended to be created by the Security Documents.
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(b) If any material assets (including any real Property or improvements
thereto or any interest therein) are acquired by the Borrower or any Subsidiary
after the Effective Date (other than assets constituting Collateral under the
Security Documents that become subject to the Lien of any of the Security
Documents upon acquisition thereof), the Borrower will notify the Administrative
Agent and the Lenders thereof, and, if requested by the Administrative Agent or
the Required Lenders, the Borrower will cause such assets to be subjected to a
Lien securing the Obligations and will take, and cause the Subsidiary to take,
such actions as shall be necessary or reasonably requested by the Administrative
Agent to grant and perfect such Liens, including actions described in paragraph
(a) of this Section 5.13, all at the expense of the Obligors.
(c) The Borrower hereby authorizes the Administrative Agent and the
Lenders to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower or any relevant Subsidiary where permitted by law. A carbon,
photographic or other reproduction of the Security Documents or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law. The Administrative Agent will
promptly send the Borrower any financing or continuation statements it files
without the signature of the Borrower or any other relevant Subsidiary and the
Administrative Agent will promptly send the Borrower the filing or recordation
information with respect thereto.
(d) Without limiting any other provision of this Section 5.13, the
Borrower shall, and shall cause each of its Subsidiaries to take such actions
and execute and deliver such documents and instruments as the Administrative
Agent shall reasonably require to ensure that the Administrative Agent shall, at
all times, have received currently effective, duly executed Loan Documents
encumbering Oil and Gas Properties of the Borrower and its Subsidiaries
constituting 85% of value of the Proven Reserves to which value is given in the
determination of the then current Borrowing Base (with accompanying letters in
lieu of transfer orders) and satisfactory title evidence in form and substance
reasonably acceptable to the Administrative Agent in its reasonable business
judgment as to ownership of such Oil and Gas Properties.
(e) If the Administrative Agent shall determine that, as of the date of
any Borrowing Base redetermination, the Borrower or any of its Subsidiaries
shall have failed to comply with the preceding Section 5.13(d), the
Administrative Agent may notify the Borrower in writing of such failure and,
within thirty (30) days from and after receipt of such written notice by the
Borrower, the Borrower or its Subsidiaries (as applicable) shall execute and
deliver to the Administrative Agent supplemental or additional Loan Documents,
in form and substance reasonably satisfactory to the Administrative Agent and
its counsel, securing payment of the Obligations and covering additional assets
not then encumbered by any Loan Documents (together with current valuations,
engineering reports, and title evidence applicable to the additional assets
collaterally assigned and such other documents as the Administrative Agent may
reasonably require, including opinions of counsel, each of which shall be in
form and substance reasonably satisfactory to the Administrative Agent) such
that the Administrative Agent shall have received currently effective duly
executed Loan Documents encumbering Oil and Gas Properties constituting at least
85% of the value of the Proven Reserves
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of the Borrower and its Subsidiaries to which value is given in the
determination of the then current Borrowing Base (with accompanying letters in
lieu of transfer orders) and satisfactory title evidence in form and substance
acceptable to the Administrative Agent in its reasonable business judgment as to
ownership of such Oil and Gas Properties.
SECTION 5.14 Commodity Hedging. As promptly as practicable, and in any
event within ten (10) days after the Effective Date, the Borrower will, or will
cause its Subsidiaries to, enter into, and thereafter until the Obligations have
been indefeasibly paid in full and all Commitments have terminated and all
Letters of Credit have terminated or expired, crude oil Hedging Agreements on
such terms and with such parties as shall be reasonably satisfactory to the
Administrative Agent, with respect to 75% of crude oil production as of the
Effective Date (for the period commencing as of the Effective Date and ending
not earlier than the date which is two years after the Effective Date) from the
"proved developed producing oil and gas reserves" (as defined in the standards
and guidelines of the U.S. Securities and Exchange Commission) which are
attributable to the Hydrocarbon Interests of the Borrower and its Subsidiaries
as set forth in the Borrowing Base Report delivered as of the Effective Date;
provided that at no time, until the Obligations have been indefeasibly paid in
full and all Commitments have terminated and all Letters of Credit have
terminated or expired, shall Borrower and its Subsidiaries have crude oil
Hedging Agreements in place with respect to more than 85% of crude oil
production from the "proved developed producing oil and gas reserves" (as
defined in the standards and guidelines of the U.S. Securities and Exchange
Commission) which are attributable to the Hydrocarbon Interests of the Borrower
and its Subsidiaries as set forth in the most recently delivered Reserve Report.
SECTION 5.15 Environmental Covenant. The Borrower will, and will cause
each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits, approvals,
certificates, licenses and other authorizations required by Environmental Laws
in effect and remain in material compliance therewith, and handle all Hazardous
Materials in material compliance with all applicable Environmental Laws;
(b) 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 the Borrower 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 the
Borrower or any of its Subsidiaries for an alleged or actual violation of any
Environmental Law, or which names or lists the Borrower or any of its
Subsidiaries as a potentially responsible party under Environmental Law;
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(c) shall use its best efforts to promptly cure and have dismissed with
prejudice to the satisfaction of the Administrative Agent any actions and
proceedings relating to compliance with Environmental Laws; and
(d) provide such pertinent information and certifications which the
Administrative Agent may reasonably request from time to time to evidence
compliance with this Section 5.15.
SECTION 5.16 Title Matters. Within one hundred eighty (180) days after
the Effective Date, favorable title opinions and/or title reports addressed to
the Administrative Agent and the Lenders and issued by counsel to the Borrower,
satisfactory to the Administrative Agent in its reasonable discretion, as to the
status of title to and Liens affecting the Amoco Properties containing at least
seventy-five percent (75%) of the Proven Reserves as of the Effective Date
attributable to the Amoco Properties. Such opinions and/or title reports may
contain (i) in the case of any Amoco Properties comprised of oil and gas leases
or interests therein, or participating mineral interests substantially all of
which were acquired by Amoco Production Company or any of its Affiliates or
Mobil Oil Corporation, Mobil Rocky Mountain, Inc. or any of their Affiliates or
any corporate predecessors of any of them and held by such entities for more
than twenty-five (25) years prior to the acquisition thereof by Coho
Acquisitions Company, assumptions regarding the status of title to the lands
covered by such oil and gas leases or interests therein at the time of such
lease or mineral acquisition by such predecessors in title, and (ii) subject to
the consent of the Administrative Agent, such other reasonable assumptions,
exceptions and qualifications as are customary for opinions or reports of that
type.
SECTION 5.17 Settlement. Within 60 days of the Effective Date or such
other period of time consented to by the Required Lenders, the Borrower (i)
will, and will cause Coho Resources, Inc., Coho Oil & Gas, Inc., Coho
Exploration, Inc., Coho Louisiana Production Company and Interstate Natural Gas
Company to, enter into an agreement or other settlement with Florabama
Associates, Ltd., in form and substance acceptable to the Administrative Agent
and the Required Lenders, fully resolving the claims of Florabama Associates,
Ltd. in connection with the Bankruptcy Case, and (ii) will deliver to the
Administrative Agent a copy of such agreement certified as of the date hereof by
the Secretary or Assistant Secretary of the Borrower (A) to be a true, correct
and complete copy of such document and (B) not to have been amended or rescinded
from the form so certified and to be in full force and effect.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:
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SECTION 6.1 Indebtedness; Certain Equity Securities.
(a) The Borrower will not, and will not permit any Subsidiary to,
create, incur, assume or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) the Standby Debt;
(iii) Indebtedness existing on the Effective Date and set
forth in Schedule 6.1, but not any extensions, renewals or replacements
of any such Indebtedness;
(iv) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; provided that
Indebtedness of any Subsidiary that is not a Obligor to the Borrower or
any other Obligor shall be subject to Section 6.4;
(v) guarantees by the Borrower of Indebtedness of any
Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any
other Subsidiary; provided that guarantees by the Borrower or any other
Obligor of Indebtedness of any Subsidiary that is not a Obligor shall
be subject to Section 6.4;
(vi) Indebtedness of any Person that becomes a Subsidiary
after the Effective Date; provided that (A) such Indebtedness exists at
the time such Person becomes a Subsidiary and is not created in
contemplation of or in connection with such Person becoming a
Subsidiary and (B) the aggregate principal amount of Indebtedness
permitted by this clause (vi) and clause (viii) shall not exceed
$5,000,000 at any time outstanding;
(vii) Hedging Obligations incurred pursuant to the Hedging
Agreements required or permitted pursuant to Sections 5.14 or 6.7; and
(viii) other unsecured Indebtedness in an aggregate principal
amount not exceeding $5,000,000 at any time outstanding; provided that
the aggregate principal amount of Indebtedness of the Borrower and its
Subsidiaries permitted by clause (vi) and this clause (viii) shall not
exceed $5,000,000 at any time outstanding.
(b) The Borrower will not, and will not permit any Subsidiary to, issue
any preferred stock or other preferred Equity Interests other than as in
existence as of the Effective Date and disclosed pursuant to Schedule 4.1(q).
SECTION 6.2 Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any Property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
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(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any Property or asset of the Borrower or any Subsidiary
existing on the Effective Date and set forth in Schedule 6.2; provided that (i)
such Lien shall not apply to any other Property or asset of the Borrower or any
Subsidiary and (ii) such Lien shall secure only those obligations which it
secures on the Effective Date;
(d) any Lien existing on any Property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary or existing on any Property or asset
of any Person that becomes a Subsidiary after the Effective Date prior to the
time such Person becomes a Subsidiary; provided that (i) such Lien is not
created in contemplation of or in connection with such acquisition or such
Person becoming a Subsidiary , as the case may be, (ii) such Lien shall not
apply to any other Property or assets of the Borrower or any Subsidiary and
(iii) such Lien shall secure only those obligations which it secures on the date
of such acquisition or the date such Person becomes a Subsidiary, as the case
may be; and
(e) Liens on fixed or capital assets acquired, constructed or improved
by the Borrower or any Subsidiary which do not constitute Mortgaged Property;
provided that (i) such security interests secure Indebtedness permitted by
clause (vi) or (viii) of Section 6.1(a), (ii) such security interests and the
Indebtedness secured thereby are incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement, (iii) the
Indebtedness secured thereby does not exceed 75% of the cost of acquiring,
constructing or improving such fixed or capital assets and (iv) such security
interests shall not apply to any other Property or assets of the Borrower or any
Subsidiary.
SECTION 6.3 Fundamental Changes.
(a) The Borrower will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or liquidate or dissolve, except that, if at the
time thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Subsidiary may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any
Subsidiary may merge into any Subsidiary in a transaction in which the surviving
entity is a Subsidiary and (if any party to such merger is an Obligor) is an
Obligor and (iii) any Subsidiary (other than an Obligor) may liquidate or
dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in the best interests of the Borrower and is not materially
disadvantageous to the Lenders; provided that any such merger involving a Person
that is not a wholly owned Subsidiary immediately prior to such merger shall not
be permitted unless also permitted by Section 6.4.
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(b) The Borrower will not, and will not permit any of its Subsidiaries
to, engage to any material extent in any business other than businesses of the
type conducted by the Borrower and its Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
(c) The Borrower will not engage in any business or activity other than
the ownership of all the outstanding shares of capital stock of its Subsidiaries
and activities incidental thereto. The Borrower will not own or acquire any
assets (other than shares of capital stock of its Subsidiaries, cash and
Permitted Investments).
SECTION 6.4 Investments, Loans, Advances, Guaranties and Acquisitions.
The Borrower will not, and will not permit any of its Subsidiaries to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
wholly owned Subsidiary prior to such merger) any Equity Interests in or
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments existing on the Effective Date and set forth on
Schedule 6.4;
(c) investments by the Borrower and its Subsidiaries in Equity
Interests in their respective Subsidiaries; provided that (i) any such Equity
Interests held by a Subsidiary shall be pledged pursuant to a Pledge Agreement
(subject to the limitations applicable to common stock of a Foreign Subsidiary
referred to in Section 5.12) and (ii) the aggregate amount of investments by
Subsidiaries in, and loans and advances by Subsidiaries to, and guarantees by
Subsidiaries of Indebtedness of, Foreign Subsidiaries (including all such
investments, loans, advances and guarantees existing on the Effective Date)
shall not exceed $5,000,000 at any time outstanding;
(d) loans or advances made by the Borrower to any Subsidiary and made
by any Subsidiary to the Borrower or any other Subsidiary; provided that (i) any
such loans and advances made by any Subsidiary shall be evidenced by a
promissory note and, with respect to a Subsidiary which is not a Foreign
Subsidiary, such note shall pledged pursuant to a Pledge Agreement and (ii) the
amount of such loans and advances made by Subsidiaries to Foreign Subsidiaries
shall be subject to the limitation set forth in clause (c) above;
(e) guarantees constituting Indebtedness permitted by Section 6.1;
provided that (i) a Subsidiary shall not guarantee the Subordinated Debt unless
(A) such Subsidiary also has guaranteed the Obligations pursuant to a Guaranty,
(B) such guarantee of the Subordinated Debt is subordinated to such guarantee of
the Obligations on terms no less favorable to the Lenders than the subordination
provisions of the Subordinated Debt and (C) such guarantee of the Subordinated
Debt provides for the release and termination thereof, without action by any
party, upon any release and termination
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of such guarantee of the Obligations, and (ii) the aggregate principal amount of
Indebtedness of Foreign Subsidiaries that is guaranteed by any Subsidiary shall
be subject to the limitation set forth in clause (c) above; and
(f) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business.
SECTION 6.5 Asset Sales. The Borrower will not, and will not permit any
of its Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset,
including any Equity Interest owned by it, nor will the Borrower permit any of
it Subsidiaries to issue any additional Equity Interest in such Subsidiary,
except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business and assignments of interests in
oil and gas leases in connection with customary farmout arrangements entered
into in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a Subsidiary;
provided that any such sales, transfers or dispositions involving a Subsidiary
that is not an Obligor shall be made in compliance with Section 6.9;
(c) sales, transfers and other dispositions by the Borrower or its
Subsidiaries of the Tunisia Assets;
(d) sales, transfers and other dispositions of assets (other than
Equity Interests in a Subsidiary) that are not permitted by any other clause of
this Section 6.5; provided that the aggregate fair market value of all assets
sold, transferred or otherwise disposed of in reliance upon this clause (d)
shall not exceed $5,000,000 during the last four consecutive fiscal quarter
period then most recently ended;
provided that all sales, transfers, leases and other dispositions permitted
hereby (other than those permitted by clause (b) above) shall be made for fair
value solely for cash consideration.
SECTION 6.6 Sale and Leaseback Transactions. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any arrangement, directly
or indirectly, whereby it shall sell or transfer any Property, real or personal,
used or useful in its business, whether now owned or hereinafter acquired, and
thereafter rent or lease such Property or other Property that it intends to use
for substantially the same purpose or purposes as the Property sold or
transferred.
SECTION 6.7 Hedging Agreements. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any Hedging Agreement, other than
(a) Hedging Agreements required or permitted by Section 5.14 and (b) subject to
the limitations set forth in Section 5.14, Hedging Agreements entered into in
the ordinary course of business to hedge or mitigate risks to which the
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Borrower or any Subsidiary is exposed in the conduct of its business or the
management of its liabilities.
SECTION 6.8 Restricted Payments; Certain Payments of Indebtedness.
(a) The Borrower will not, and will not permit any Subsidiary to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, except that
(i) any Subsidiary may pay dividends to the Borrower or any other Subsidiary
(other than a Foreign Subsidiary) at such times and in such amounts during any
fiscal year, as shall be necessary to permit the Borrower or any other
Subsidiary (other than a Foreign Subsidiary) to discharge its permitted
liabilities, (ii) any Subsidiary may pay dividends to a Foreign Subsidiary at
such times and in such amounts so that the aggregate amount of the dividends
paid to all Foreign Subsidiaries does not exceed $250,000 during any fiscal
year, (iii) the Borrower may make Restricted Payments in the form of dividends
to the extent payable in, or exchanges or conversions for or into, shares of
common stock of the Borrower or options or warrants to purchase common stock of
the Borrower, and (iv) the Borrower may make Restricted Payments required by the
Confirmation Order to the shareholders of the "Existing Common Stock" (as
defined in the Plan of Reorganization) with respect to (A) 20% of any proceeds
or other amounts relating to the Hicks Muse Lawsuit to which the Borrower or any
of its Subsidiaries are entitled, and (B) 40% of any Net Proceeds received by
the Borrower or any of its Subsidiaries with respect any sale, transfer or other
disposition of the Tunisia Assets.
(b) The Borrower will not, and will not permit any Subsidiary to, make
or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash securities or other Property) of or in respect of
principal of or interest on any Indebtedness not permitted under Section 6.1, or
any payment or other distribution (whether in cash, securities or other
Property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any Indebtedness not permitted under Section 6.1, except payment of regularly
scheduled interest and principal payments as and when due in respect of the
Standby Debt and prepayments in respect of the Standby Debt, provided that such
payments and prepayments are made in accordance with the terms and conditions of
the Intercreditor Agreement and are not otherwise prohibited by the
subordination provisions of such Standby Debt.
SECTION 6.9 Transactions with Affiliates. The Borrower will not and
will not permit any Subsidiary to, sell, lease or otherwise transfer any
Property or assets to, or purchase, lease or otherwise acquire any Property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business and that
are at prices and on terms and conditions not less favorable to the Borrower or
such Subsidiary than could be obtained on an arm's-length basis from unrelated
third parties, (b) transactions between or among the Borrower and the
Subsidiaries not involving any other Affiliate and (c) any Restricted Payment
permitted by Section 6.8.
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SECTION 6.10 Restrictive Agreements. The Borrower will not and will not
permit any Subsidiary to, directly or indirectly, enter into, incur or permit to
exist any agreement or other arrangement that prohibits, restricts or imposes
any condition upon (a) the ability of the Borrower or any Subsidiary to create,
incur or permit to exist any Lien upon any of its Property or assets, or (b) the
ability of any Subsidiary to pay dividends or other distributions with respect
to any shares of its capital stock or to make or repay loans or advances to the
Borrower or any other Subsidiary or to guarantee Indebtedness of the Borrower or
any other Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by any Loan Document or Standby
Debt Document, (ii) the foregoing shall not apply to restrictions and conditions
existing on the Effective Date identified on Schedule 6.10 (but shall apply to
any extension or renewal of, or any amendment or modification expanding the
scope of, any such restriction or condition), (iii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the Property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases
restricting the assignment thereof.
SECTION 6.11 Amendment of Material Documents. The Borrower will not and
will not permit any Subsidiary to, amend, modify or waive any of its rights
under (a) any Subordinated Debt Document or (b) any of its Organic Documents.
SECTION 6.12 Minimum EBITDA to Total Interest Expense Ratio. The
Borrower will not permit its EBITDA to Total Interest Expense Ratio for the last
four consecutive fiscal quarter period then most recently ended to be less than:
2.00 to 1.00 as of the end of any fiscal quarter ending on or before December
31, 2000; (b) 2.25 to 1.00 as of the end of any fiscal quarter ending between
January 1, 2001 and June 30, 2001; (c) 2.50 to 1.00 as of the end of any fiscal
quarter ending between July 1, 2001 and October 31, 2001; (d) 2.75 to 1.00 as of
the end of any fiscal quarter ending between November 1, 2001 and December 31,
2001, and (e) 3.00 to 1.00 as of the end of any fiscal quarter ending after
January 1, 2002; provided, however, that for periods of calculation ending on or
before December 31, 2000, each reference to "last four consecutive fiscal
quarter period then most recently ended" shall be deemed to be a reference to
the period from April 1, 2000 through the date of such calculation.
SECTION 6.13 Maximum Leverage Ratio. The Borrower will not permit its
Leverage Ratio to exceed: (a) 5.00 to 1.00 as of the end of any fiscal quarter
ending on or before December 31, 2000; (b) 4.50 to 1.00 as of the end of any
fiscal quarter ending between January 1, 2001 and June 30, 2001; (c) 4.25 to
1.00 as of the end of any fiscal quarter ending between July 1, 2001 and October
31, 2001; (d) 3.75 to 1.00 as of the end of any fiscal quarter ending between
November 1, 2001 and December 31, 2001, and (e) 3.50 to 1.00 as of the end of
any fiscal quarter ending after January 1, 2002; provided, however, that,
notwithstanding the foregoing, upon the occurrence of any prepayment of the
principal outstanding under the Standby Debt or any other Subordinated Debt, the
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Borrower from the time of such prepayment will not permit its Leverage Ratio to
exceed 3.50 to 1.00 as of the end of any fiscal quarter ending after the date of
such prepayment.
SECTION 6.14 Minimum Current Ratio. The Borrower will not permit its
Current Ratio to be less than 1.00 to 1.00 as of the end of any fiscal quarter.
SECTION 6.15 Subsidiaries. The Borrower will not at any time create or
acquire any Subsidiary unless the Borrower has caused such Subsidiary to comply
with the requirements of Section 5.12.
SECTION 6.16. Take or Pay Contracts. Except as disclosed pursuant to
Schedule 6.16, and except for reservation charges payable for reservations of
capacity in gathering systems and pipelines incurred in the ordinary course of
business on an arm's length basis for volumes reasonably expected to be produced
from the Borrower's or its Subsidiaries' Properties to be transported through
such systems and pipelines, the Borrower will not, and will not permit any of
its Subsidiaries to, enter into or be a party to any arrangement for the
purchase of materials, supplies, other Property (including without limitation
Hydrocarbons), or services if such arrangement requires that payment be made by
the Borrower or such Subsidiary regardless of whether such materials, supplies,
other Property, or services are delivered or furnished to it.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article VII) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with this Agreement or any
other Loan Document or any amendment or modification hereof or thereof or waiver
hereunder or thereunder, or in any report, certificate, financial statement or
other document furnished pursuant to or in connection with this Agreement or any
other Loan Document or any amendment or modification hereof or thereof or waiver
hereunder or thereunder, shall prove to have been incorrect when made or deemed
made;
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(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Sections 5.2, 5.4 (with respect to the
existence of the Borrower) or 5.11 or in Article VI of this Agreement or any
term or provision of the Intercreditor Agreement;
(e) any Obligor shall fail to observe or perform any covenant,
condition or agreement contained in this Agreement or any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article VIII), and such
failure shall continue unremedied for a period of thirty (30) days after notice
thereof from the Administrative Agent to the Borrower (which notice will be
given at the request of any Lender);
(f) [Intentionally omitted];
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled
maturity; provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the Property
or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Borrower or any Subsidiary or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article VII, (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Borrower or any Subsidiary or for a substantial part
of its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become due;
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(k) one or more judgments for the payment of money in an aggregate
amount in excess of either (i) $2,500,000 or (ii) an amount which would have a
Material Adverse Effect on the Borrower shall be rendered against the Borrower,
any Subsidiary or any combination thereof and the same shall remain undischarged
for a period of ten 10 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Borrower or any Subsidiary to enforce
any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse Effect;
(m) any Lien purported to be created under any Security Document shall
cease to be, or shall be asserted by any Subsidiary not to be, a valid and
perfected Lien on any Collateral, with the priority required by the applicable
Security Document, except (i) as a result of the sale or other disposition of
the applicable Collateral in a transaction permitted under the Loan Documents or
(ii) as a result of the Administrative Agent's failure to maintain possession of
any stock certificates, promissory notes or other instruments delivered to it
under the Collateral Agreement; or
(n) a Change in Control shall occur;
(o) any cessation of business by the Borrower shall occur;
(p) any of the Loan Documents is determined to be invalid or
unenforceable in any material respect; or
(q) The Plan of Reorganization or the Confirmation Order shall for any
reason be vacated or materially modified;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article VII), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower and (iii) exercise any
and all other remedies available under the Loan Documents and applicable law;
and in case of any event with respect to the Borrower described in clause (h) or
(i) of this Article VII, the Commitments shall automatically terminate and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without
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presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
ARTICLE VIII
THE AGENTS
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
each Agent to act as its agent hereunder and under the Letters of Credit and the
other Loan Documents and authorizes such Agent to take such actions on its
behalf and to exercise such powers as are delegated to such Agent by the terms
hereof and thereof, together with such actions and powers as are reasonably
incidental thereto.
Any financial institution serving as an Agent hereunder and which is
also a Lender shall have the same rights and powers in its capacity as a Lender
as any other Lender and may exercise the same as though it were not an Agent,
and such financial institution and its Affiliates may accept deposits from, lend
money to and generally engage in any kind of business with the Borrower or any
Subsidiary or other Affiliate thereof as if it were not an Agent hereunder.
No Agent shall have any duties or obligations except those expressly
set forth in the Loan Documents. Without limiting the generality of the
foregoing, (a) no Agent shall be subject to any fiduciary or other implied
duties, regardless of whether a Default has occurred and is continuing, (b) no
Agent shall have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated by the Loan Documents that such Agent is required to exercise in
writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 9.2
or elsewhere in the Loan Documents), and (c) except as expressly set forth in
the Loan Documents, no Agent shall have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to the Borrower or
any of its Subsidiaries that is communicated to or obtained by the financial
institution serving as an Agent or any of its Affiliates in any capacity. No
Agent shall be liable for any action taken or not taken by it with the consent
or at the request of the Required Lenders (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in Section
9.2 or elsewhere in the Loan Documents) or in the absence of its own gross
negligence or wilful misconduct; PROVIDED, HOWEVER, THAT IT IS THE INTENTION OF
THE PARTIES HERETO THAT EACH OF THE AGENTS BE INDEMNIFIED IN THE CASE OF ITS OWN
NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE
IS SOLE OR CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL. No
Agent shall be deemed to have knowledge of any Default unless and until written
notice thereof is given to such Agent by the Borrower or a Lender, and no Agent
shall be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered
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thereunder or in connection therewith, (iii) the performance or observance of
any of the covenants, agreements or other terms or conditions set forth in any
Loan Document, (iv) the validity, enforceability, effectiveness or genuineness
of any Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to such Agent.
Each of the Agents shall be entitled to rely upon, and shall not incur
any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. Each of the Agents also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. Each of the Agents may consult with legal counsel (who may be counsel
for the Borrower), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.
Each of the Agents may perform any and all its duties and exercise its
rights and powers by or through any one or more sub-agents appointed by such
Agent. Such Agent and any such sub- agent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such sub-
agent and to the Related Parties of each Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the
credit facilities provided for herein as well as activities as an Agent.
Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article VIII and Section 9.3 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
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Each Lender acknowledges that it has, independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or related agreement
or any document furnished hereunder or thereunder.
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent to act as its agent under the Intercreditor Agreement
and authorizes the Administrative Agent to execute the Intercreditor Agent on
its behalf and to take such actions on its behalf and to exercise such powers as
are delegated to the Administrative Agent by the terms hereof and thereof,
together with such actions and powers as are reasonably incidental thereto.
The Lenders identified as either the Syndication Agent or the
Documentation Agent under this Agreement shall not have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Lenders as such. Each Lender acknowledges that it has
not relied, and will not rely, on any of the Lenders so identified in deciding
to enter into this Agreement or in taking or not taking action hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower:
Coho Energy, Inc.
c/o Coho Resources, Inc.
14785 Preston Road, Suite 860
Dallas, Texas 75240
Attention: President
Telephone: (972) 774-8300
Facsimile: (972) 991-2257
(b) if to the Administrative Agent:
The Chase Manhattan Bank
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Loan and Agency Services
One Chase Manhattan Plaza, 8th floor
New York, NY 10081
Attention: Michael Cerniglia
Telephone: (212) 552-7906
Facsimile: (212) 552-5777
with a copy to:
The Chase Manhattan Bank
Global Oil & Gas Group
600 Travis, 20th Floor
Houston, Texas 77002
Attention: June Brand
Telephone: (713) 216-4327
Facsimile: (713) 216-4117
(c) if to the Issuing Bank:
The Chase Manhattan Bank
Loan and Agency Services
One Chase Manhattan Plaza, 8th floor
New York, NY 10081
Attention: Michael Cerniglia
Telephone: (212) 552-7906
Facsimile: (212) 552-5777
with a copy to:
The Chase Manhattan Bank
Global Oil & Gas Group
600 Travis, 20th Floor
Houston, Texas 77002
Attention: June Brand
Telephone: (713) 216-4327
Facsimile: (713) 216-4117
(d) if to the Documentation Agent:
MeesPierson Capital Corp.
100 Crescent Court, Suite 1777
Dallas, Texas 75201
Attention: Karlo Louman
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Telephone: (214) 953-9305
Facsimile: (214) 754-5981
(e) if to the Syndication Agent:
Fleet National Bank
100 Federal Street, MADE 10008D
Boston, MA 02110
Attention: Terry Ronan
Telephone: (617) 434-5472
Facsimile: (617) 434-3652
with a copy to:
Fleet National Bank
100 Federal Street, MADE 10008D
Boston, MA 02110
Attention: Scott Logan
Telephone: (617) 434-8297
Facsimile: (617) 434-3652
(f) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.2 Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, the Issuing Bank
or any Lender in exercising any right or power hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent, the Issuing Bank and the Lenders hereunder and under
the other Loan Documents are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Obligor therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) of this Section
9.2, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default, regardless of whether the
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Administrative Agent or any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Obligor or Obligors that are parties
thereto, in each case with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Sections 2.17(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) change any of the provisions of this Section
9.2 or the definition of "Required Lenders" or any other provision of any Loan
Document specifying the number or percentage of Lenders required to determine or
redetermine the Borrowing Base, or to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender, (vi) release any Subsidiary from its
Guaranty, or limit its liability in respect of such guarantee, without the
written consent of each Lender, (vii) except as otherwise expressly provided
herein, release any Collateral from the Liens of the Security Documents, without
the written consent of each Lender; provided further that (A) no such agreement
shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, Documentation Agent, Syndication Agent or Issuing Bank
without the prior written consent of the Administrative Agent, Documentation
Agent, Syndication Agent or Issuing Bank, respectively, and (B) any waiver,
amendment or modification of this Agreement that by its terms affects the rights
or duties under this Agreement of the Lenders may be effected by an agreement or
agreements in writing entered into by the Borrower and requisite percentage in
interest of the affected Lenders.
SECTION 9.3 Expenses; Indemnity; Damage Waiver.
(a) The Borrower shall pay (i) all reasonable legal, printing,
recording, syndication, travel, advertising and other out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, the Documentation Agent, the Syndication Agent and the Issuing Bank in
connection with the syndication of the credit facilities provided for herein,
the registration, preparation, execution, delivery and administration of this
Agreement and the other Loan Documents or any document or instrument relevant to
this Agreement or any other Loan Document or any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), (ii) the filing,
recording, refiling
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or rerecording of the Mortgages, the Security Agreements, the Pledge Agreements
and the other Security Documents and/or any Uniform Commercial Code financing
statements relating thereto and all amendments, supplements and modifications
to, and all releases and terminations of, any thereof and any and all other
documents or instruments of further assurance required to be filed or recorded
or refiled or rerecorded by the terms hereof or of the Mortgages, the Security
Agreements, the Pledge Agreements and the other Security Documents, (iii) all
reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iv) all reasonable out-of-pocket expenses
incurred by the Administrative Agent, the Documentation Agent, the Syndication
Agent, the Issuing Bank or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent or any Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section 9.3, or in
connection with the Loans made or Letters of Credit issued hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
(b) In consideration of the execution and delivery of this Agreement by
the Administrative Agent, the Issuing Bank and each Lender and the extension of
the Commitments, the Borrower shall indemnify the Administrative Agent, the
Documentation Agent, the Syndication Agent, the Issuing Bank and each Lender,
and each Related Party of any of the foregoing Persons (each such Person being
called an "Indemnitee") against, and hold each Indemnitee harmless from, any and
all losses, claims, damages, liabilities and related expenses, including the
reasonable fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of any Loan Document or
any other agreement or instrument contemplated hereby, the performance by the
parties to the Loan Documents of their respective obligations thereunder or the
consummation of the Financing Transactions or any other transactions
contemplated hereby, (ii) any Loan or Letter of Credit or the use of the
proceeds therefrom (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of
Credit), (iii) any actual or alleged presence or release of Hazardous Materials
on or from any Mortgaged Property or any other Property currently or formerly
owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory and regardless of whether any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee; PROVIDED, HOWEVER, THAT IT IS THE INTENTION OF THE PARTIES HERETO
THAT THE INDEMNITEES BE INDEMNIFIED IN THE CASE OF THEIR OWN NEGLIGENCE (OTHER
THAN GROSS NEGLIGENCE), REGARDLESS OF WHETHER SUCH NEGLIGENCE IS SOLE OR
CONTRIBUTORY, ACTIVE OR PASSIVE, IMPUTED, JOINT OR TECHNICAL. If and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Borrower
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hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the foregoing which is permissible under applicable law.
(c) To the extent that the Borrower fails to pay any amount required to
be paid by it to the Administrative Agent or the Issuing Bank under paragraph
(a) or (b) of this Section 9.3, each Lender severally agrees to pay to the
Administrative Agent or the Issuing Bank, as the case may be, such Lender's pro
rata share (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent or the Issuing Bank in its capacity as such. For purposes
hereof, a Lender's "pro rata share" shall be determined based upon its share of
the sum of the total Exposures and unused Commitments at the time.
(d) To the extent permitted by applicable law, the Borrower shall
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Financing Transactions, any Loan or the use of the proceeds thereof.
(e) All amounts due under this Section 9.3 shall be payable promptly
and in any event not later than 10 (ten) days after written demand therefor.
SECTION 9.4 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by the Borrower without
such consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the
extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it); provided that (i) except
in the case of an assignment to a Lender or an Affiliate of a Lender, each of
the Borrower (except during the occurrence and continuance of an Event of
Default) and the Administrative Agent (and, in the case of an assignment of all
or a portion any Lender's obligations in respect of its LC Exposure, the Issuing
Bank) must give their prior written consent to such assignment (which consent
shall not be unreasonably withheld), (ii) except in the
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case of an assignment to a Lender or an Affiliate of a Lender or an assignment
of the entire remaining amount of the assigning Lender's Commitment or Loans,
the amount of the Commitment or Loans of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance
Agreement with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Borrower and the
Administrative Agent otherwise consent or such amount is equal to all of such
Lender's Commitment under this Agreement, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance Agreement, together with a processing and recordation fee of $3,500,
and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section 9.4, from and after the effective date
specified in each Assignment and Acceptance Agreement the assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Acceptance Agreement, have the rights and obligations of a Lender
under this Agreement, and the assigning Lender thereunder shall, to the extent
of the interest assigned by such Assignment and Acceptance Agreement, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance Agreement covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.14,
2.15, 2.16 and 9.3). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section 9.4.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance Agreement delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register"). The
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
Agreement executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section 9.4 and any written consent to such assignment required by
paragraph (b) of this Section 9.4, the Administrative Agent shall accept such
Assignment and Acceptance Agreement and record the information contained therein
in the Register.
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No assignment shall be effective for purposes of this Agreement unless it has
been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower or the
Administrative Agent, the Issuing Bank, sell participations to one or more banks
or other entities (a "Participant") in all or a portion of such Lender's rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce the Loan Documents and to approve any amendment, modification or waiver
of any provision of the Loan Documents; provided that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 9.2(b) that affects such Participant. Subject to
paragraph (f) of this Section 9.4, the Borrower agrees that each Participant
shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same
extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section 9.4. To the extent permitted by law,
each Participant also shall be entitled to the benefits of Section 9.8 as though
it were a Lender, provided such Participant agrees to be subject to Section
2.17(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Sections 2.14 or 2.16 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section 9.4 shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
(h) Any Lender that becomes a Lender as a result of an assignment
pursuant to Section 9.4 shall be bound by the terms of the last paragraph of
Article VIII as if it were an original Lender hereto.
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SECTION 9.5 Survival. All covenants, agreements, representations and
warranties made by the Obligors in the Loan Documents and in the certificates or
other instruments delivered in connection with or pursuant to this Agreement or
any other Loan Document shall be considered to have been relied upon by the
other parties hereto and shall survive the execution and delivery of the Loan
Documents and the making of any Loans, and issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.14, 2.15, 2.16 and 9.3 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.6 Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the other
Loan Documents and any separate letter agreements with respect to fees payable
to the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.1, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
SECTION 9.7 Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.8 Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter existing
under this Agreement held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this
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Agreement and although such obligations may be unmatured. The rights of each
Lender under this Section 9.8 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAW OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW PRINCIPLES.
SECTION 9.10 JURISDICTION.
(a) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF TEXAS AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT
OF TEXAS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH TEXAS STATE OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL
AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE
TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY
COURT REFERRED TO IN PARAGRAPH (a) OF THIS SECTION. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE
OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT.
SECTION 9.11 CONSENT TO SERVICE OF PROCESS. EACH PARTY TO THIS
AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE
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<PAGE> 100
MANNER PROVIDED FOR NOTICES IN SECTION 9.1. NOTHING IN THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 9.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.13 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.14 Confidentiality. Each of the Administrative Agent, the
Documentation Agent, the Syndication Agent, the Issuing Bank and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section
9.14, to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section 9.14 or
(ii) becomes available to the Administrative Agent, the Issuing Bank, the
Documentation Agent, the Syndication Agent, the Issuing Bank or any Lender on a
nonconfidential basis from a source other than the Borrower. For the purposes of
this Section 9.14, "Information" means all information received from the
Borrower relating to the Borrower or its business, other than any such
information that is available to the Administrative Agent, the Issuing Bank, the
Documentation Agent, the Syndication Agent, the Issuing Bank or any Lender on a
95
<PAGE> 101
nonconfidential basis prior to disclosure by the Borrower; provided that, in the
case of information received from the Borrower after the Effective Date, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section 9.14 shall be considered to have complied with its obligation to do
so if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.15 Chapter 15 Not Applicable. Chapter 15, Subtitle 3, Title
79, Revised Civil Statutes of Texas, 1925, as amended, shall not apply to this
Agreement or to any Loan or Letter of Credit, nor shall this Agreement or any
Loan or Letter of Credit be governed by or be subject to the provisions of such
Chapter 15 in any manner whatsoever.
SECTION 9.16 Limitation of Interest. The Borrower, the Administrative
Agent and the Lenders intend to strictly comply with all applicable laws,
including applicable usury laws. Accordingly, the provisions of this Section
9.16 shall govern and control over every other provision of this Agreement or
any other Loan Document which conflicts or is inconsistent with this Section
9.16, even if such provision declares that it controls. As used in this Section
9.16, the term "interest" includes the aggregate of all charges, fees, benefits
or other compensation which constitute interest under applicable law, provided
that, to the maximum extent permitted by applicable law, (a) any non-principal
payment shall be characterized as an expense or as compensation for something
other than the use, forbearance or detention of money and not as interest, and
(b) all interest at any time contracted for, reserved, charged or received shall
be amortized, prorated, allocated and spread, in equal parts during the full
term of the Obligations. In no event shall the Borrower or any other Person be
obligated to pay, or any Lender have any right or privilege to reserve, receive
or retain, (a) any interest in excess of the maximum amount of nonusurious
interest permitted under the laws of the State of Texas or the applicable laws
(if any) of the United States or of any other applicable state, or (b) total
interest in excess of the amount which such Lender could lawfully have
contracted for, reserved, received, retained or charged had the interest been
calculated for the full term of the Obligations at the Highest Lawful Rate. On
each day, if any, that the interest rate (the "Stated Rate") called for under
this Agreement or any other Loan Document exceeds the Highest Lawful Rate, the
rate at which interest shall accrue shall automatically be fixed by operation of
this sentence at the Highest Lawful Rate for that day, and shall remain fixed at
the Highest Lawful Rate for each day thereafter until the total amount of
interest accrued equals the total amount of interest which would have accrued if
there were no such ceiling rate as is imposed by this sentence. Thereafter,
interest shall accrue at the Stated Rate unless and until the Stated Rate again
exceeds the Highest Lawful Rate when the provisions of the immediately preceding
sentence shall again automatically operate to limit the interest accrual rate.
The daily interest rates to be used in calculating interest at the Highest
Lawful Rate shall be determined by dividing the applicable Highest Lawful Rate
per annum by the number of days in the calendar year for which such calculation
is being made. None of the terms and provisions contained in this Agreement or
in any other Loan Document which directly or indirectly relate to interest shall
ever be construed without reference to this Section 9.16, or be construed to
create a contract to pay for the use, forbearance or detention of money at an
interest rate in excess of the Highest Lawful Rate. If the term of any
Obligation is shortened by reason of
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<PAGE> 102
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Lender at any time, including but not limited to, the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Highest Lawful Rate, then and in any such event all
of any such excess interest shall be canceled automatically as of the date of
such acceleration, prepayment or other event which produces the excess, and, if
such excess interest has been paid to such Lender, it shall be credited pro
tanto against the then-outstanding principal balance of the Borrower's
obligations to such Lender, effective as of the date or dates when the event
occurs which causes it to be excess interest, until such excess is exhausted or
all of such principal has been fully paid and satisfied, whichever occurs first,
and any remaining balance of such excess shall be promptly refunded to its
payor. Chapter 346 of the Texas Finance Code (which regulates certain revolving
credit accounts (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)) shall
not apply to this Agreement.
SECTION 9.17 Collateral Matters; Hedging Agreements. The benefit of the
Security Documents and of the provisions of this Agreement relating to the
Collateral shall also extend to and be available to those Lenders or their
Affiliates which are counterparties to the Hedging Agreements on a pro rata
basis in respect of any obligations of the Borrower which arise under any
Hedging Agreement.
SECTION 9.18 Arranger; Documentation Agent; Syndication Agent. None of
the Persons identified on the facing page or the signature pages of this
Agreement as the "Arranger" or "Documentation Agent" or the "Syndication Agent"
shall have any right, power, obligation, liability, responsibility or duty under
this Agreement or any other Loan Document other than (a) except in the case of
the Arranger, those applicable to all Lenders as such or (b) as expressly
provided for herein or therein. Without limiting the foregoing, none of the
"Arranger", the Documentation Agent or the Syndication Agent shall have or be
deemed to have any fiduciary relationship with any Lender. Each Lender
acknowledges that it has not relied, and will not rely, on either the
"Arranger", the Documentation Agent or Syndication Agent in deciding to enter
into this Agreement or in taking or not taking any action hereunder or under the
Loan Documents.
SECTION 9.19 Entire Agreement. THIS WRITTEN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
COHO ENERGY, INC.
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually as a Lender and as
Administrative Agent
By:
-------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as Issuing Bank
By:
-------------------------------
Name:
Title:
MEESPIERSON CAPITAL CORP.,
individually as a Lender and as
Documentation Agent
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
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<PAGE> 104
FLEET NATIONAL BANK, individually as
a Lender and as Syndication Agent
By:
-------------------------------
Name:
Title:
CREDIT LYONNAIS, NEW YORK
BRANCH, individually as Lender
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
ABN AMRO BANK N.V., individually as
Lender
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, individually as Lender
By:
-------------------------------
Name:
Title:
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<PAGE> 105
CIBC INC., individually as Lender
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ,
individually as Lender
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
NATEXIS BANQUE BFCE, individually as
Lender
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
100
<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT made as of the 31st day of March, 2000, by and among
Coho Energy, Inc., a Texas corporation (the "Company"), PPM America Special
Investments Fund, L.P., a Delaware limited partnership ("PPM SIF"), PPM America
Special Investments CBO II, L.P., a Delaware limited partnership ("PPM CBO", and
collectively with PPM SIF, "PPM"), Appaloosa Management L.P., a Delaware limited
partnership ("Appaloosa Management") as agent and on behalf of certain funds
including Appaloosa Investment Limited Partnership I, a Delaware limited
partnership ("AILP"), Palomino Fund Ltd., a British Virgin Islands company
("Palomino") and Tersk LLC, a Delaware limited liability company ("Tersk" and,
collectively with Palomino, AILP and Appaloosa Management, "Appaloosa"),
Pacholder Associates, Inc., an Ohio corporation ("Pacholder Associates") as
agent and on behalf of certain funds including Pacholder Value Opportunity Fund,
L.P. ("Pacholder Value"), High Yield Fund, Inc. ("Pacholder Fund"), One Group
High Yield Bond ("One Group") and Evangelical Lutheran Church In America Board
of Pensions ("ELC," and together with One Group, Pacholder Fund, Pacholder Value
and Pacholder Associates, "Pacholder") and Oaktree Capital Management, LLC, a
California limited liability company ("Oaktree Capital") as general partner of
and investment manager for the entities set forth on Schedule I (Oaktree Capital
and such entities, collectively, "Oaktree"). PPM, Appaloosa, Oaktree, and
Pacholder are collectively referred to herein as the "Investors". PPM, Appaloosa
and Oaktree are collectively referred to herein as the "Old Noteholder
Investors".
WHEREAS, pursuant to the Company's First Amended Joint Plan of
Reorganization dated March 20, 2000 under Chapter 11 of the United States
Bankruptcy Code (Case No. 399-35929-HCA-11 in the United States Bankruptcy Court
for the Northern District of Texas, Dallas Division) (the "Plan"), each of the
Old Noteholder Investors has agreed to convert on the effective date of the Plan
all of the Company's 8-7/8% Senior Subordinated Notes due 2007 (the "Old Notes")
owned by such Old Noteholder Investor into shares of the reorganized Company's
common stock, par value $.01 per share ("Common Stock"); and
WHEREAS, it is a condition precedent to the obligation of each of the
Old Noteholder Investors to convert the Old Notes owned by such Old Noteholder
Investors into shares of Common Stock pursuant to the terms of the Plan that the
Company and the Old Noteholder Investors enter into a Registration Rights
Agreement with respect to the shares of Common Stock to be acquired by the Old
Noteholder Investors either as a result of the conversion of their Old Notes in
accordance with the terms of the Plan or otherwise; and
WHEREAS, pursuant to a Note Agreement dated as of the date hereof (the
"Note Agreement") by and among the Company, certain affiliates of the Company
and the Investors, the Investors have agreed, among other things, to purchase
from the Company $72,000,000 aggregate principal amount of the Company's 15%
Senior Subordinated Notes due March 31, 2007 (the "New Notes"); and
WHEREAS, in connection with the Investors' purchase of the New Notes,
the Company has agreed pursuant to the terms of a Securities Purchase Agreement
dated as of the
<PAGE> 2
date hereof by and among the Company, certain affiliates of the Company and the
Investors (the "Securities Purchase Agreement") to issue to each of the
Investors shares of Common Stock; and
WHEREAS, it is a condition precedent to the obligation of the Investors
to purchase the New Notes pursuant to the Note Agreement that the Company and
the Investors enter into a Registration Rights Agreement with respect to the
shares of Common Stock to be acquired by the Investors, pursuant to the terms of
the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall be used in this Agreement
with the following respective meanings:
"Affiliate" means (i) any Person directly or indirectly controlling,
controlled by or under common control with another Person; (ii) any Person
owning or controlling ten (10%) percent or more of the outstanding voting
securities of such other Person; (iii) any officer, director or partner of such
Person; and (iv) if such Person is an officer, director or partner, any such
company for which such Person acts in such capacity.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Common Stock" means and includes (a) the Company's Common Stock, $.01
par value per share and (b) any other securities into which or for which the
securities described in (a) above may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, or any
successor Federal statute, and the rules and regulations of the Commission (or
of any other Federal agency then administering the Exchange Act) thereunder, all
as the same shall be in effect at the time.
"Holder" means any holder of Registrable Stock.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means any natural person, partnership, corporation or other
legal entity.
"Registrable Stock" means (a) the Common Stock issued or issuable to
any Investor in accordance with the terms of the Securities Purchase Agreement,
(b) all Common Stock issued or issuable to any Old Noteholder Investor in
accordance with the Plan, (c) all Common Stock now or hereafter owned by any
Investor which is acquired otherwise than pursuant to the terms of the
Securities Purchase Agreement or pursuant to the terms of the Plan so long as it
is held by any Investor or an Affiliate of any Investor and (d) any other shares
of Common Stock or other securities issued in respect of such shares by way of a
stock dividend, or stock split or in connection with a combination of shares,
recapitalization, merger or consolidation or reorganization; provided, however,
that such shares of Common Stock shall
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<PAGE> 3
cease to be Registrable Stock when (i) a registration statement with respect to
the sale of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, (ii) such securities
shall have been distributed in accordance with Rule 144 (or any successor
provision) under the Securities Act, or (iii) such securities shall have been
otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered in exchange therefor by
the Company and the subsequent disposition of such shares shall not require
registration or qualification under the Securities Act or any similar state law
then in force.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8, Form S-4, or successor
forms, or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, or any successor
Federal statute, and the rules and regulations of the Commission (or of any
other Federal agency then administering the Securities Act) thereunder, all as
the same shall be in effect at the time.
2. Shelf Registration.
(a) The Company shall use its best efforts to cause to be
filed pursuant to Rule 415 (or any successor provision) of the
Securities Act not later than January 31, 2001 a Shelf Registration
Statement relating to the offer and sale of the Registrable Stock by
the Holders from time to time (the "Shelf Registration Statement") in
accordance with the methods of distribution elected by such Holders and
set forth in such Shelf Registration Statement. The Company shall use
its best efforts to cause the Shelf Registration Statement to be
declared effective on or before March 31, 2001 and to cause the Shelf
Registration Statement to remain effective until the earliest of (i)
such time as all shares of Registrable Stock have been sold thereunder,
(ii) three years after its effective date and (iii) such time as all of
the Registrable Stock can be sold by the Holders thereof without
restriction under the Securities Act. In connection with the Shelf
Registration Statement, (i) the Company shall furnish to the Holders,
prior to the filing with the Commission, a copy of the Shelf
Registration Statement and shall use its best efforts to reflect in
such document when filed with the Commission, such comments as the
Holders may reasonably propose, (ii) the Company shall make available
all material customary for reasonable due diligence examinations in
connection with the Shelf Registration Statement, (iii) the Company
shall enter into such agreements as are appropriate, customary and
reasonably necessary in connection with the Shelf Registration
Statement, and (iv) the Company shall make such representations and
warranties to the Holders of Registrable Stock (and any underwriters
participating in any offering and sale to be made pursuant to the Shelf
Registration Statement) as are customary in connection with the Shelf
Registration Statement.
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<PAGE> 4
(b) During any consecutive 365-day period, the Company shall
be entitled to suspend the availability of the Shelf Registration
Statement for up to two 30 consecutive-day periods if the Company's
Board of Directors determines in its reasonable good faith judgment
that there is a valid business purpose for such suspension and provides
notice to the Holders that such determination was made by the Company's
Board; provided, however, that notwithstanding the foregoing, if the
Company shall furnish to the Holders a certificate signed by the
President of the Company stating that in the good faith reasonable
judgment of the Board of Directors of the Company after consultation
with outside counsel, the Company would be required in order to comply
with the Securities Act and the rules and regulations promulgated
thereunder to disclose in the Shelf Registration Statement or in an
amendment or supplement thereto material non-public information
relating to the Company which the Company has a bona fide business
purpose for preserving as confidential or to make any disclosure in the
Shelf Registration Statement or in an amendment or supplement thereto
that would interfere with an existing or anticipated acquisition or
financing with respect to the Company, then the Company shall have the
right to suspend the availability of the Shelf Registration Statement
until the earliest of (i) the date upon which such material information
is disclosed to the public or ceases to be material, (ii) the date upon
which such acquisition or financing is consummated or, if earlier, the
date upon which any such interference with such existing or anticipated
acquisition or financing would no longer exist, or (iii) forty-five
(45) days after the date of such written notice to the Holders;
provided, however, that the Company may not utilize this suspension
right more than once in any twelve-month period.
3. Demand Registration.
(a) At any time after March 31, 2001, the Holder or Holders of
at least ten (10%) percent of all Registrable Stock then outstanding
(the "Initiating Holders") may, subject to the provisions of Section
3(b) hereof, by notice in writing to the Company request the Company to
register under the Securities Act all or any portion of shares of
Registrable Stock held by such Initiating Holder or Holders for sale in
the manner specified in such notice. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to seek to
cause a Registration Statement to become effective pursuant to this
Section 3: (A) within a period of 90 days after the effective date of a
Registration Statement filed by the Company, provided that the Company
shall use commercially reasonably efforts to cause a registration
requested hereunder to be declared effective promptly following such
period if such request is made during such period; or (B) if the
Company shall furnish to the Initiating Holder or Holders a certificate
signed by the President of the Company stating that in the good faith
reasonable judgment of the Board of Directors of the Company after
consultation with outside counsel, the filing of a Registration
Statement would, at such time require the disclosure of material
non-public information relating to the Company which, the Company has a
bona fide business purpose for preserving as confidential or interfere
with an existing or anticipated acquisition or financing with respect
to the Company, then
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<PAGE> 5
the Company's obligations under this Section 3 shall be deferred until
the earliest of (i) the date upon which such material information is
disclosed to the public or ceases to be material, (ii) the date upon
which such acquisition or financing is consummated or, if earlier, the
date upon which any such interference with such existing or anticipated
acquisition or financing would no longer exist, or (iii) forty-five
(45) days after the date of receipt of written request from such
Initiating Holder or Holders; provided, however, that the Company may
not utilize this deferral right more than once in any twelve-month
period.
(b) Following receipt of any notice given under this Section 3
by the Initiating Holders, the Company shall immediately notify in
writing all Holders that such registration is to be effected and shall
use commercially reasonable efforts to register under the Securities
Act for public sale in accordance with the method of disposition
specified in such notice from requesting Holders, the number of shares
of Registrable Stock specified in such notice (and in all notices
received by the Company pursuant hereto). Holders, other than the
Initiating Holders, shall notify the Company of their desire to
participate in the registration within twenty (20) days of the
Company's notice to them. The Company shall use commercially reasonable
efforts to cause a Registration Statement with respect to the
Registrable Stock which Holders have requested be registered pursuant
to this Section 3 no later than forty-five (45) days after receiving
the notice pursuant to Section 3(a) of the Initiating Holders. The
Company shall designate the managing underwriter of such offering,
subject to the approval of the Holders of a majority of the shares of
Registrable Stock to be sold in such offering, which approval shall not
be unreasonably withheld or delayed. Each Investor shall have the right
to request the registration of Registrable Stock pursuant to this
Section 3 on three occasions only, provided, however, that the
Company's obligation to register the Registrable Stock pursuant to this
Section 3 in response to a particular request shall be deemed satisfied
only when a Registration Statement or Registration Statements covering
all shares of Registrable Stock, specified in notices received as
aforesaid and which have not been withdrawn by the Holders thereof, for
sale in accordance with the method of disposition specified by the
Initiating Holders, shall have become effective. A registration which
does not become effective after the Company has filed a Registration
Statement with respect thereto solely by reason of the refusal of the
Initiating Holders to proceed shall be deemed to have been effected by
the Company at the request of such Initiating Holders unless the
registration was withdrawn at the request of the Holders of a majority
of the Registrable Stock to be sold in such offering upon learning of a
material adverse change in the condition, business or prospects of the
Company from that known to such Holders at the time of their request
that makes the proposed offering unreasonable in the good faith
judgment of a majority in interest of such Holders.
(c) If the Registration Statement is to cover an underwritten
distribution and in the good faith judgment of the managing underwriter
of such public offering the inclusion of all of the Registrable Stock
requested for inclusion pursuant to this Section 3 would interfere with
the successful marketing of a
-5-
<PAGE> 6
smaller number of shares to be offered, then the number of shares of
Registrable Stock to be included in the offering shall be reduced to
the required level with the participation in such offering to be
reduced pro rata among the Holders requesting such registration, based
upon the number of shares of Registrable Stock requested to be included
in such registration owned by such Holders. Except for registration
statements on Form S-4, S-8 or any successors thereto, the Company will
not file with the Commission any other registration statement with
respect to its Common Stock, whether for its own account or that of
other stockholders, from the date of receipt of a notice from the
Initiating Holders pursuant to this Section 3 until the completion of
the period of distribution of the registration contemplated thereby.
4. Piggyback Registration. Each time the Company shall determine to
file a Registration Statement in connection with the proposed offer and sale for
money of any of its securities by it or any of its security holders, the Company
will give written notice thereof to all Holders. Upon the written request of one
or more Holder(s) given within twenty (20) days after the giving of any such
notice by the Company, the Company will use commercially reasonable efforts to
cause all shares of Registrable Stock, the Holders of which have so requested
registration thereof, to be included in such Registration Statement, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Registrable Stock to be so registered, provided that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Registration Statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each such holder of
Registrable Stock and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable Stock
in connection with such registration (but not from its obligation to pay any and
all expenses in connection therewith as specified in Section 7 hereof), and (ii)
in the case of a determination to delay registering, shall be permitted to delay
registering any Registrable Stock, for the same period as the delay in
registering such other securities. If the Registration Statement is to cover an
underwritten distribution, the Company shall cause the Registrable Stock
requested for inclusion pursuant to this Section 4 to be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the Registrable
Stock requested for inclusion pursuant to this Section 4 would interfere with
the successful marketing of a smaller number of shares to be offered, then the
number of shares of Registrable Stock and other securities to be included in the
offering shall be reduced to the required level by first excluding securities of
any securityholder (other than the Company and the Holders) who proposes to
offer or sell securities in the registered offering, and then excluding on a pro
rata basis among the Company, and each Holder of Registrable Stock requesting
such registration based on the number of shares of Registrable Stock or other
securities the Company and each such Holder proposes to offer or sell in the
registered offering.
5. Registration on Form S-3.
If at any time after the date hereof, (i) a Holder or Holders request
that the Company file a registration statement on Form S-3 or any successor
thereto for a public offering of all or any portion of the shares of Registrable
Stock held by such requesting Holder or
-6-
<PAGE> 7
Holders, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use
commercially reasonably efforts to register under the Securities Act on Form S-3
or any successor thereto, for public sale in accordance with the method of
disposition specified in such notice, the number of shares of Registrable Stock
specified in such notice. Whenever the Company is required by this Section 5 to
use commercially reasonable efforts to effect the registration of Registrable
Stock, each of the procedures, requirements and limitations of Section 3 not
otherwise addressed in this Section 5 (including but not limited to the
requirement that the Company notify all Holders from whom notice has not been
received and provide them with the opportunity to participate in the offering
and the requirements of subparagraph (b) of Section 3 but not including the
limitations on the number of registrations the Company is obligated to make
under subparagraph (b) of Section 3) shall apply to such registration. There
shall be no limit on the number of registrations of Registrable Stock which the
Company shall be obligated to effect pursuant to this Section 5.
6. Registration Procedures. If and whenever the Company is required by
the provisions of Section 2, 3, 4 or 5 hereof to effect the registration of
shares of Registrable Stock under the Securities Act, the Company will, at its
expense, as expeditiously as possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
Registration Statement with respect to the Registrable Stock and use
its best efforts to cause such Registration Statement to become
effective as promptly as possible and to remain effective until the
Registrable Stock covered by such Registration Statement has been sold,
but (other than in the case of the Shelf Registration Statement) for no
longer than twelve (12) months subsequent to the effective date of such
Registration Statement, and prepare and file with the Commission such
amendments to such Registration Statement and supplements to the
prospectus contained therein as may be necessary to keep such
Registration Statement effective and such Registration Statement and
prospectus accurate and complete until the Registrable Stock covered by
such Registration Statement has been sold, but (other than in the case
of the Shelf Registration Statement) for no longer than twelve (12)
months subsequent to the effective date of such Registration Statement;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance
reasonably satisfactory to the managing underwriter, if any, of the
public offering and the Holders participating in such offering;
(c) Furnish to the participating Holders and to the
underwriters such reasonable number of copies of the Registration
Statement, preliminary prospectus, final prospectus and such other
documents as such underwriters and participating Holders may reasonably
request in order to facilitate the public offering of such securities;
(d) Use commercially reasonable efforts to register or qualify
the Registrable Stock covered by such Registration Statement under such
state
-7-
<PAGE> 8
securities or blue sky laws of such jurisdictions (i) as shall be
reasonably appropriate for the distribution of the Registrable Stock
covered by such Registration Statement or (ii) as such participating
Holders and underwriters may reasonably request within ten (10) days
following the original filing of such Registration Statement, except
that the Company shall not for any purpose be required to execute a
general consent to service of process, to subject itself to taxation,
or to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time
when such Registration Statement and each post-effective amendment
thereto has become effective or a supplement to any prospectus forming
a part of such Registration Statement has been filed with the
Commission;
(f) Notify the Holders participating in such registration
promptly of any request by the Commission or any state securities
commission or agency for the amending or supplementing of such
Registration Statement or prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such participating Holders, any amendments or
supplements to such Registration Statement or prospectus which, in the
opinion of counsel representing the Company in such Registration (and
which counsel is reasonably acceptable to such participating Holders),
is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock
by such participating Holders, but (other than in the case of the Shelf
Registration Statement) for no longer than twelve (12) months
subsequent to the effective date of such registration;
(h) Prepare and promptly file with the Commission, and
promptly notify such participating Holders of the filing of, such
amendments or supplements to such Registration Statement or prospectus
as may be necessary to correct any statements or omissions if, at the
time when a prospectus relating to such Registrable Stock is required
to be delivered under the Securities Act, any event has occurred as the
result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(i) In case any of such participating Holders or any
underwriter for any such Holders is required to deliver a prospectus at
a time when the prospectus then in circulation is not in compliance
with the Securities Act or the rules and regulations of the Commission,
prepare promptly upon request of any such participating Holders such
amendments or supplements to such Registration Statement and such
prospectus as may be necessary in order for such prospectus
-8-
<PAGE> 9
to comply with the requirements of the Securities Act and such rules
and regulations;
(j) Advise such participating Holders promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by
the Commission or any state securities commission or agency suspending
the effectiveness of such Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(k) At the request of any such participating Holder (i)
furnish to such Holder, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting
agreement, copies of any opinion, dated such date, of the counsel
representing the Company for the purposes of such registration,
addressed to the underwriters, if any, covering such matters with
respect to the Registration Statement, the prospectus and each
amendment or supplement thereto, proceedings under state and Federal
securities laws, other matters relating to the Company, the securities
being registered and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel provided to
underwriters in underwritten public offerings or, if the offering is
not underwritten, obtain such opinions of counsel to the Company
addressed to and reasonably satisfactory to the Holders covering such
matters as are customary in connection with such offering and (ii) use
commercially reasonable efforts to furnish to such Holder letters dated
each such effective date and such closing date, from the independent
certified public accountants of the Company, addressed to the
underwriters, if any, and to the Holder or Holders making such request,
stating that they are independent certified public accountants within
the meaning of the Securities Act and dealing with such matters as the
underwriters may request, or, if the offering is not underwritten, that
in the opinion of such accountants the financial statements and other
financial data of the Company included in the Registration Statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act, and additionally covering such other financial matters,
including information as to the period ending not more than five (5)
business days prior to the date of such letter with respect to the
Registration Statement and prospectus, as such requesting Holder or
Holders may reasonably request;
(l) Apply for listing and use commercially reasonable efforts
to list the Registrable Stock being registered on any national
securities exchange on which a class of the Company's equity securities
is listed or, if the Company does not have a class of equity securities
listed on a national securities exchange, apply for qualification and
use its best efforts to qualify the Registrable Stock being registered
for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc.
-9-
<PAGE> 10
7. Expenses.
(a) With respect to each registration effected pursuant to
Section 2, 3, 4 or 5 hereof, all fees, costs and expenses of and
incidental to such registration and the public offering in connection
therewith shall be borne by the Company; provided, however, that
Holders and other holders of the Company's stock participating in any
such registration shall bear their pro rata share of any underwriting
discounts and selling commissions, and; provided, further, however,
that notwithstanding the foregoing, the Company shall not be liable for
expenses incurred in connection with any registration that shall not
have become effective due to a revocation by the Holders of Registrable
Stock except if such registration was revoked or withdrawn by the
Holders upon learning of a material adverse change in the condition,
business or prospectus of the Company from that known to such Holders
at the time of their request for or to be included in such registration
that makes the proposed offering unreasonable in the good faith
judgment of such Holders.
(b) The fees, costs and expenses of registration to be borne
as provided in paragraph (a) above shall include, without limitation,
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such
securities (if the Company and/or selling security holders are
otherwise required to bear such fees and disbursements), all legal fees
and disbursements and other expenses of complying with state securities
or blue sky laws of any jurisdictions in which the securities to be
offered are to be registered or qualified, reasonable fees and
disbursements of one counsel for the selling Holders and the other
holders of the Company's stock participating in such registration and
the premiums and other costs of policies of insurance insuring the
Company against liability arising out of such public offering.
8. Indemnification and Contribution.
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Holder whose shares of Registrable
Stock are included in a Registration Statement pursuant to the
provisions of this Agreement, each director, officer, partner, employee
and agent of such Holder, and any underwriter (as defined in the
Securities Act) for such Holder, and any Person who controls such
Holder or such underwriter within the meaning of the Securities Act,
and each of their successors, from and against, and will reimburse such
Holder, each director, officer, partner, employee and agent of such
Holder and each such underwriter, controlling Person and successor with
respect to, any and all claims, actions, demands, losses, damages,
liabilities, costs and expenses to which such Holder, such director,
officer, partner, employee or agent of such Holder or any such
underwriter, controlling Person or successor may become subject under
the Securities Act or otherwise, insofar as such claims, actions,
demands, losses, damages, liabilities, costs or expenses arise out of
or are based upon any untrue statement or allegedly untrue statement of
any material fact contained in such Registration Statement, any
prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged
-10-
<PAGE> 11
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or arise out
of any violation by the Company of any rule or regulation under the
Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with such registration;
provided, however, that the Company will not be liable in any such case
to the extent that any such claim, action, demand, loss, damage,
liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
so made in reliance upon and in conformity with information furnished
by or on behalf of any such Holder, such director, officer, partner,
employee or agent of such Holder, such underwriter, controlling Person
or successor in writing specifically for use in the preparation
thereof, and provided, further, that this indemnity shall not be deemed
to relieve any underwriter of any of its due diligence obligations; and
provided further, that if any claim, action, demand, loss, damage,
liability, cost or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
contained in any preliminary prospectus which did not appear in the
final prospectus and if the Holder delivered a copy of the preliminary
prospectus to the person alleging damage and failed to deliver a copy
of the final prospectus to such persons, the Company shall not be
liable with respect to the claims of such person.
(b) Each Holder of shares of Registrable Stock which are
included in a registration pursuant to the provisions of this Agreement
will, severally and not jointly, indemnify and hold harmless the
Company, each of its directors and officers, each underwriter, if any,
of the Company's securities covered by such registration, each person
who controls the Company or such underwriter within the meaning of the
Securities Act, and each other Holder of shares of Registrable Stock
which are included in the registration, each of the officers,
directors, partners, employees and agents of each such other Holder and
each person controlling such other Holder, from and against, and will
reimburse such parties with respect to, any and all losses, damages,
liabilities, costs or expenses to which such parties may become subject
under the Securities Act or otherwise, to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon
any untrue or alleged untrue statement of any material fact contained
therein or any amendment or supplement thereto, or arises out of or is
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of such
Holder for use in the preparation thereof, provided that the liability
of each Holder hereunder shall be limited to the proportion of any such
loss, claim, damage, liability or expense which is equal to the
proportion that the public offering price of the shares sold by such
Holder under such Registration Statement bears to the total public
offering price of all securities sold thereunder, but not in any event
to exceed the net proceeds received by such Holder from the sale of
shares of Registrable Stock covered by a Registration Statement; and
provided, further, that
-11-
<PAGE> 12
this indemnity shall not be deemed to relieve any underwriter of any of
its due diligence obligations.
(c) Promptly after receipt by a party to be indemnified
pursuant to the provisions of paragraph (a) or (b) of this Section 8
(an "indemnified party") of actual knowledge or notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of paragraph (a) or (b), notify the indemnifying party of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 8 and
shall not relieve the indemnifying party from liability under this
Section 8 unless such indemnifying party is prejudiced by such
omission. In case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of such
paragraphs (a) and (b) for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. Notwithstanding
the foregoing, an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual
or potential differing interests, as reasonably determined by either
party, between such indemnified party and any other party represented
by such counsel in such proceeding. No indemnifying party shall be
liable to an indemnified party for any settlement of any action or
claim without the consent of the indemnifying party; no indemnifying
party may unreasonably withhold its consent to any such settlement. No
indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either
(i) any Holder exercising rights under this Agreement, or any
controlling Person of any such Holder, makes a claim for
indemnification pursuant to this Section 8 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not
be enforced in such case notwithstanding the fact that this Section 8
provides for the indemnification in such case or (ii) contribution
under the Securities Act may be required on the part of any such
selling Holder or any such controlling Person in circumstances for
-12-
<PAGE> 13
which indemnification was provided under this Section 8; then, and in
each case, the Company and each such Holder, will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that
such Holder is responsible for the portion represented by the
percentage that the public offering price of its Registrable Stock
offered by the Registration Statement bears to the public price of all
securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any
such case, (A) no Person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person or
entity was not guilty of such fraudulent misrepresentation and (B) no
Holder will be required to contribute any amount in excess of the net
proceeds of such holder of such Registrable Stock offered by it
pursuant to such Registration Statement.
9. Reporting Requirements Under Securities Exchange Act of 1934. The
Company shall keep effective the registration of its Common Stock under Section
12 of the Exchange Act and shall timely file such information, documents and
reports as the Commission may require or prescribe under Section 13 or 15(d) of
the Exchange Act. The Company shall forthwith upon request furnish any Holder
(i) a written statement by the Company that it has complied with such reporting
requirements, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents filed by the Company with
the Commission as such Holder may reasonably request in availing itself of an
exemption for the sale of Registrable Stock without registration under the
Securities Act. The Company acknowledges and agrees that the purposes of the
requirements contained in this Section 9 are (a) to enable any such Holder to
comply with the current public information requirement contained in Paragraph
(c) of Rule 144 under the Securities Act should such Holder ever wish to dispose
of any of the securities of the Company acquired by it without registration
under the Securities Act in reliance upon Rule 144 (or any other similar or
successor exemptive provision), and (b) to qualify the Company for the use of
Registration Statements on Form S-3. In addition, the Company shall take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 under the Securities Act (or any similar or successor exemptive
provision hereafter in effect) and the use of Form S-3. The Company also
covenants to use its best efforts, to the extent that it is reasonably within
its power to do so, to qualify for the use of Form S-3. The Company agrees to
use its best efforts to facilitate and expedite transfers of Registrable Stock
pursuant to Rule 144 under the Securities Act (or any similar or successor
exemptive provision hereafter in effect), which efforts shall include timely
notice to its transfer agent to expedite such transfers of Registrable Stock.
10. Stockholder Information. The Company may require each Holder of
Registrable Stock as to which any registration is to be effected pursuant to
this Agreement to furnish the Company in a timely manner such information with
respect to such Holder and the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
-13-
<PAGE> 14
11. Company Lock-Up. The Company agrees, if so required by the managing
underwriter with respect to any underwritten registration hereunder, not to
sell, make any short sale of, loan, grant any option for the purchase of (other)
than pursuant to employee benefit plans), effect any public sale or distribution
of or otherwise dispose of its equity securities or securities convertible into
or exchangeable or exercisable for any such securities during the 30 days prior
to and the 90 days after any underwritten registration pursuant to Section 2, 3,
4 or 5 hereof has become effective, except as part of such underwritten
registration and except pursuant to registrations on Form S-4 or S-8.
12. Notices. Any notice required or permitted to be given hereunder
shall be in writing and shall be deemed to be properly given when sent by
registered or certified mail, return receipt requested, by Federal Express, DHL
or other guaranteed overnight delivery service or by facsimile transmission,
addressed as follows:
If to the Company: Coho Energy, Inc.
c/o Coho Resources, Inc.
14785 Preston Road, Suite 860
Dallas Texas 75240
Attn.: President
Telephone: (972) 774-8300
Telecopier: (972) 991-2257
With copies to: Fulbright & Jaworski, L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
Attn.: Harva R. Dockery, Esq.
Telephone: (214) 855-8000
Telecopier: (214) 855-8200
If to any Investor: To the address of such Investor set forth on
The signature pages hereto
With a copy to: Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, NY 10020-1182
Attn: J. Andrew Rahl, Jr.
Telephone: (972) 278-1000
Telecopier: (212) 278-1733
and if to any other Holder at such Holder's address for notice as set forth in
the register maintained by the Company, or, as to any of the foregoing, to such
other address as any such party may give the others notice of pursuant to this
Section, provided that a change of address shall only be effective upon receipt.
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of delivery thereof to
the receiving party at the address of
-14-
<PAGE> 15
such party set forth above or as so designated, (ii) if made by telecopy or
facsimile transmission, at the time that receipt thereof has been acknowledged
by electronic confirmation or otherwise, (iii) if sent by overnight courier, on
the next business day following the day such notice is delivered to the courier
service, or (iv) if sent by registered or certified mail, on the fifth business
day following the day such mailing is made.
13. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the substantive laws of the State of Illinois (without
regard to conflict of laws provisions).
14. Waivers; Amendments. No waiver of any right hereunder by any party
shall operate as a waiver of any other right, or of the same right with respect
to any subsequent occasion for its exercise, or of any right to damages. No
waiver by any party of any breach of this Agreement shall be held to constitute
a waiver of any other breach or a continuation of the same breach. All remedies
provided by this Agreement are in addition to all other remedies provided by
law. The provisions of this Agreement may not be amended except by a writing
executed by the Company and the Holders of at least a majority of the then
outstanding Registrable Stock and the securities convertible into, exchangeable
for or exercisable for Registrable Stock (calculated on an as converted,
exchanged or exercised basis).
15. Other Registration Rights. So long as any of the registration
rights under this Agreement remain in effect, the Company shall not grant to any
third party any registration rights for any securities of the Company, except
that the Company may grant piggyback registration rights to a third party
related to any registration statement covered by Section 4 hereof provided that
the rights of such third party shall be subject to the rights of the Holders
pursuant to the last sentence of Section 4 hereof.
16. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the respective legal representatives, successors
and assigns of the parties hereto; provided, however, that any person or entity
to which Registrable Shares are proposed to be transferred shall provide prompt
written notice of such proposed transfer to the Company.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Prior Understandings and Agreements. This Agreement represents the
complete agreement of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements and understandings.
19. Headings. Headings in this Agreement are included for reference
only and shall have no effect upon the construction or interpretation of any
part of this Agreement.
20. Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer, and each Investor has duly executed this
Agreement (or has caused it to be executed by a duly authorized officer,
partner, trustee or agent, as the case may be), as of the date first above
recited.
COHO ENERGY, INC.
By: /s/ Anne Marie O'Gorman
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
(See counterpart signature pages.)
<PAGE> 17
COHO ENERGY, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
PPM AMERICA SPECIAL INVESTMENTS
FUND, L.P.
By: PPM America, Inc., its attorney-in-fact
By: /s/ STUART J. LISSNER
-------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
PPM AMERICA SPECIAL INVESTMENTS
CBO II, L.P.
By: PPM America, Inc., its attorney-in-fact
By: /s/ STUART J. LISSNER
-------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
Address: c/o PPM America, Inc.
25 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Stuart Lissner
Telephone: (312) 634-2500
Telecopier: (312) 634-0741
<PAGE> 18
COHO ENERGY, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
PACHOLDER VALUE OPPORTUNITY FUND, L.P.
By: Pacholder Associates, Inc., its attorney-in-fact
By: /s/ BRUCE A. FERGUSON
-------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
PACHOLDER HIGH YIELD FUND, INC.
By: Pacholder Associates, Inc., its attorney-in-fact
By: /s/ BRUCE A. FERGUSON
-------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
ONE GROUP HIGH YIELD BOND FUND
By: Pacholder Associates, Inc., its attorney-in-fact
By: /s/ BRUCE A. FERGUSON
-------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
<PAGE> 19
EVANGELICAL LUTHERAN CHURCH
IN AMERICA BOARD OF PENSIONS
By: Pacholder Associates, Inc., its attorney-in-fact
By: /s/ BRUCE A. FERGUSON
-------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
Address: 8044 Montgomery Road
Suite 480
Cincinnati, Ohio 45236
Attention: Bruce Ferguson
Telephone: (513) 985-3200
Telecopier: (513) 985-3217
<PAGE> 20
COHO ENERGY, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
APPALOOSA INVESTMENT LIMITED PARTNERSHIP I
By: Appaloosa Management L.P., its General Partner
By: Appaloosa Partners Inc., its General Partner
By: /s/ RONALD GOLDSTEIN
------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
PALOMINO FUND LTD.
By: Appaloosa Management L.P., its Investment Advisor
By: Appaloosa Partners Inc., its General Partner
By: /s/ RONALD GOLDSTEIN
------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
<PAGE> 21
TERSK LLC
By: Appaloosa Management L.P., its Managing Member
By: Appaloosa Management L.P., its General Partner
By: /s/ RONALD GOLDSTEIN
------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
Address: 26 Main Street
Chatham, New Jersey 07928
Attention: Ronald Goldstein
Telephone: (973) 701-7000
Telecopier: (973) 701-7005
<PAGE> 22
COHO ENERGY, INC.
REGISTRATION RIGHTS AGREEMENT
*COUNTERPART SIGNATURE PAGE*
OAKTREE CAPITAL MANAGEMENT, LLC, as
general partner of and investment manager for
those entities set forth on Schedule 1 hereto
By: /s/ SHELDON STONE
-----------------------------
Sheldon Stone
Principal
By: /s/ TIMOTHY ANDREWS
-----------------------------
Timothy Andrews
Senior Vice President
Address: 333 South Grand Avenue, 28th Floor
Los Angeles, California 90071
Attention: Kenneth Liang
Telephone: (213)830-6422
Facsimile: (213)830-8522
<PAGE> 23
[REG RIGHTS AGREEMENT]
SCHEDULE I
OAKTREE CAPITAL MANAGEMENT, LLC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
FUND/ACCOUNT PERCENTAGE
- -------------------------------------------------------------------------------------------
<S> <C>
AAFES Supplemental Deferred Compensation Plan 0.2996%
- -------------------------------------------------------------------------------------------
AAFES Retiree Medical Dental & Life Insurance Plan 0.5492%
- -------------------------------------------------------------------------------------------
AAFES Retirement Annuity Basis Plan 3.0829%
- -------------------------------------------------------------------------------------------
California State Automobile Association Inter-Insurance Bureau 2.4963%
- -------------------------------------------------------------------------------------------
California State Automobile Association 0.2996%
- -------------------------------------------------------------------------------------------
The California Endowment 1.9845%
- -------------------------------------------------------------------------------------------
Canada Life Insurance Company of America 0.7489%
- -------------------------------------------------------------------------------------------
Canada Life Assurance Company - CDN 1.2481%
- -------------------------------------------------------------------------------------------
Canada Life Assurance Company - USA 0.4993%
- -------------------------------------------------------------------------------------------
Howard Hughes Medical Institute 1.4353%
- -------------------------------------------------------------------------------------------
Hughes Aircraft Company Master Retirement Trust 1.1982%
- -------------------------------------------------------------------------------------------
IBM Retirement Plan - High Yield 1.6975%
- -------------------------------------------------------------------------------------------
International Paper Company 1.4978%
- -------------------------------------------------------------------------------------------
General Board of Pension and Health Benefits of The United Methodist Church 2.4338%
- -------------------------------------------------------------------------------------------
OCM High Yield Fund II, L.P. 15.5642%
- -------------------------------------------------------------------------------------------
OCM High Yield Limited Partnership 4.2561%
- -------------------------------------------------------------------------------------------
OCM High Yield Trust 9.0364%
- -------------------------------------------------------------------------------------------
Pacific Gas & Electric Retirement Plan Master Trust 3.4448%
- -------------------------------------------------------------------------------------------
Pacific Gas & Electric Company Bargained VEBA 0.2496%
- -------------------------------------------------------------------------------------------
RK Mellon Foundation 1.4104%
- -------------------------------------------------------------------------------------------
Alexander Hamilton Life Insurance Company of America 2.5836%
- -------------------------------------------------------------------------------------------
Chrysler Corporation Master Retirement Trust 10.3595%
- -------------------------------------------------------------------------------------------
Dallas Employee Retirement Fund 2.0220%
- -------------------------------------------------------------------------------------------
The Common Fund for Nonprofit Organizations 2.4963%
- -------------------------------------------------------------------------------------------
Delta Air Lines Master Trust - (High Yield) 4.5681%
- -------------------------------------------------------------------------------------------
Integon Life Insurance Corporation 0.7988%
- -------------------------------------------------------------------------------------------
Iowa Public Employees' Retirement System 5.0050%
- -------------------------------------------------------------------------------------------
LACERA -High Yield 8.0130%
- -------------------------------------------------------------------------------------------
San Diego County Employee's Retirement Association 2.3964%
- -------------------------------------------------------------------------------------------
Southwestern Life Insurance Company 0.6116%
- -------------------------------------------------------------------------------------------
SSM Health Care 1.2731%
- -------------------------------------------------------------------------------------------
State of Connecticut Combined Investment Funds - HY 6.4403%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL 100.0000%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.5
COHO ENERGY, INC.
COHO RESOURCES, INC.
COHO LOUISIANA PRODUCTION COMPANY
COHO EXPLORATION, INC.
COHO OIL & GAS, INC.
INTERSTATE NATURAL GAS COMPANY
-------------------------------------
NOTE AGREEMENT
-------------------------------------
DATED AS OF MARCH 31, 2000
$72,000,000 15.0% SENIOR SUBORDINATED NOTES DUE MARCH 31, 2007
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. TERMS OF NOTES...................................................................2
1.1 Form of Notes; Joint and Several Obligations. ...............................2
1.2 Maturity. ...................................................................2
1.3 Optional Principal Payments..................................................2
1.4 Interest Payments. ..........................................................3
1.5 Offer to Pay Upon Change in Control..........................................4
1.6 No Other Payments of Principal; Acquisition of Notes. .......................6
1.7 Notation of Notes on Payment. ...............................................6
1.8 Manner of Payments...........................................................6
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES....................................7
2.1 Registration of Notes........................................................7
2.2 Exchange of Notes. ..........................................................7
2.3 Replacement of Notes. .......................................................8
2.4 Issuance Taxes...............................................................8
3. AFFIRMATIVE COVENANTS............................................................8
3.2 Notices of Material Events..................................................10
3.3 Information Regarding Issuer................................................11
3.4 Existence; Conduct of Business. ............................................11
3.5 Payment of Obligations......................................................11
3.6 Maintenance of Properties...................................................12
3.7 Insurance. .................................................................12
3.8 Casualty and Condemnation...................................................12
3.9 Books and Records; Inspection and Audit Rights..............................12
3.10 Compliance with Laws.......................................................13
3.11 Use of Proceeds............................................................13
3.12 Additional Subsidiaries. ..................................................13
3.13 Further Assurances.........................................................13
3.14 Environmental Covenant.....................................................14
4. NEGATIVE COVENANTS .............................................................14
4.1 Indebtedness; Certain Equity Securities.....................................14
4.2 Liens. .....................................................................15
4.3 Fundamental Changes. .......................................................16
4.4 Investments, Loans, Advances, Guarantees and Acquisitions. .................16
4.5 Asset Sales.................................................................17
4.6 Sale and Leaseback Transactions.............................................18
4.7 [Reserved] .................................................................18
4.8 Restricted Payments; Certain Payments of Indebtedness. .....................18
4.9 Transactions with Affiliates. ..............................................18
4.10 Restrictive Agreements. ...................................................18
4.11 Amendment of Material Documents. ..........................................19
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
4.12 Minimum EBITDAX to Total Interest Expense Ratio............................19
4.13 Maximum Leverage Ratio.....................................................19
4.14 Minimum Current Ratio......................................................19
4.15 Subsidiaries. .............................................................20
4.16 Take or Pay Contracts. ....................................................20
5. [RESERVED] .....................................................................20
6. EVENTS OF DEFAULT. .............................................................20
6.1 Events of Default...........................................................20
6.2 Default Remedies. ..........................................................22
6.3 Annulment of Acceleration of Notes. ........................................23
7. SUBORDINATION OF NOTES..........................................................24
8. INTERPRETATION OF THIS AGREEMENT ...............................................24
8.1 Terms Defined...............................................................24
8.2 Accounting Principles ......................................................39
8.3 Directly or Indirectly. ....................................................40
8.4 Section Headings and Table of Contents and Construction.....................40
8.5 Governing Law...............................................................40
8.6 General Interest Provisions. ...............................................40
9. MISCELLANEOUS...................................................................41
9.1 Notices.....................................................................41
9.2 Reproduction of Documents...................................................42
9.3 Survival. ..................................................................42
9.4 Successors and Assigns. ....................................................42
9.5 Amendment and Waiver........................................................43
9.6 Expenses....................................................................44
9.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc..........................45
9.8 Indemnification of Each Holder. ............................................46
9.9 Entire Agreement. ..........................................................47
9.10 Execution in Counterpart. .................................................47
</TABLE>
-ii-
<PAGE> 4
NOTE AGREEMENT
NOTE AGREEMENT, dated as of March 31, 2000, among COHO ENERGY, INC., a
Texas corporation (together with its successors and assigns) (the "Company");
COHO RESOURCES, INC., a Nevada corporation (together with its successors and
assigns); COHO LOUISIANA PRODUCTION COMPANY, a Delaware corporation (together
with its successors and assigns); COHO EXPLORATION, INC., a Delaware corporation
(together with its successors and assigns); COHO OIL & GAS, INC., a Delaware
corporation (together with its successors and assigns); INTERSTATE NATURAL GAS
COMPANY, a Delaware corporation (together with its successors and assigns)
(herein referred to, collectively, as the "Issuers") and each of the purchasers
named on Annex I and Annex I(A) attached hereto (herein called the
"Purchasers").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement, the Purchasers
have agreed to purchase from the Issuers, and the Issuers have agreed to sell to
the Purchasers, Seventy Two Million Dollars ($72,000,000) in aggregate principal
amount of their 15% Senior Subordinated Notes due March 31, 2007, (collectively,
with any PIK Notes issued hereunder, the "Notes" and individually, including PIK
Notes, a "Note"); and
WHEREAS, the Issuers and the Purchasers wish to enter into this
Agreement to govern the terms of the Notes;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. TERMS OF NOTES
1.1 FORM OF NOTES; JOINT AND SEVERAL OBLIGATIONS.
The Notes (other than the PIK Notes) shall be substantially in the form of
Exhibit A hereto. The PIK Notes shall be substantially in the form of Exhibit B
hereto. All obligations of the Issuers under this Agreement and the Notes shall
be joint and several.
1.2 MATURITY.
The entire principal amount of the Notes, together with interest accrued
thereon, shall be due and payable in cash on March 31, 2007.
1.3 OPTIONAL PRINCIPAL PAYMENTS.
(a) OPTIONAL PRINCIPAL PAYMENTS. The Issuers may prepay the principal
amount of the Notes at any time, in whole or in part, in cash in multiples of
One Million Dollars
2
<PAGE> 5
($1,000,000) (or, if the aggregate outstanding principal amount of the Notes is
less than One Million Dollars ($1,000,000) at such time, then such principal
amount), together with:
(i) interest on such principal amount then being paid and accrued to
the payment date; and
(ii) an amount equal to the Prepayment Fee due at such time in respect
of the principal amount of the Notes being so paid,
(b) NOTICE OF OPTIONAL PAYMENT. The Issuers will give notice of each
optional payment of the Notes pursuant to this Section 1.3 to each holder of
Notes not less than three (3) Business Days before the specified payment date,
stating:
(i) the specified payment date;
(ii) that such payment is to be made pursuant to this Section 1.3;
(iii) the principal amount of each Note to be paid on such date;
(iv) the interest to be paid on each such Note, accrued to the
specified payment date; and
(v) the calculation of the Prepayment Fee due in connection with such
payment.
(c) PREPAYMENT OF NOTES. Notice of payment having been so given, the
aggregate principal amount of the Notes to be paid stated in such notice,
together with the Prepayment Fee, determined as of the specified payment date,
and interest thereon accrued to the specified payment date, shall become due and
payable on the specified payment date.
1.4 INTEREST PAYMENTS.
(a) INTEREST PAYMENTS. Interest on the Notes shall be computed on the
basis of a 360-day year of twelve 30-day months on the unpaid principal balance
thereof from the date of each Note at the rate of 15.0% per annum plus, if
applicable, Contingent Interest and interest at the Default Rate, and shall be
payable, in arrears, semi-annually on the last Business Day of each March and
September in each year, commencing on September 29, 2000, until the principal
amount thereof is paid in full. Subject to Section 1.4(c), such interest shall
be paid in cash.
(b) OVERDUE SUMS. Any overdue principal (including overdue partial
payments of principal) of, or interest, including Contingent Interest, or
Prepayment Fee, on the outstanding principal amount of Notes or any other amount
due pursuant to this Agreement or the Notes shall bear interest, payable on
demand, for each day from and including the date payment thereof was due to, but
excluding, the date of actual payment, at a rate per annum equal to the lesser
of:
(i) the Maximum Legal Rate of Interest; or
3
<PAGE> 6
(ii) the then highest interest rate in effect with respect to the
Notes then outstanding plus two percent (2%) (the "Default Rate").
(c) PIK INTEREST. If and to the extent required by the Bank
Administrative Agent pursuant to the terms of the Intercreditor Agreement the
Issuer may, in lieu of payment of interest in cash, as and to the extent
required under the Intercreditor Agreement, issue PIK Notes for the applicable
interest payment.
(d) CONTINGENT INTEREST. Additional interest shall be payable on the
outstanding principal amount of the Notes from the first anniversary of the
Closing Date, at a rate per annum equal to one-half of one percent (1/2%) for
every twenty-five cents that the Actual Price exceeds the Base Price during any
applicable semi-annual interest period up to a maximum rate of additional
interest of 10% ("Contingent Interest"). Such Contingent Interest shall be
payable semi-annually on the last Business Day of each March and September, in
cash or, if required by the Bank Administrative Agent pursuant to the terms of
the Intercreditor Agreement, by the issuance of PIK Notes.
(e) MAXIMUM LEGAL RATE. Notwithstanding anything to the contrary herein
or in the Notes, the rate of interest payable with respect to the Notes shall at
no time directly or indirectly exceed the Maximum Legal Rate of Interest.
1.5 OFFER TO PAY UPON CHANGE IN CONTROL.
(a) NOTICE OF CHANGE IN CONTROL NOTICE EVENT. For all purposes this
Section 1.5 is subject to the terms and conditions of the Intercreditor
Agreement. In the event of the obtaining of knowledge of a Change in Control
Notice Event by any Responsible Officer (including, without limitation, via the
receipt of notice of a Change in Control Notice Event from any holder of Notes),
the Issuers will, within three (3) Business Days after the occurrence of such
event, give notice of such Change in Control Notice Event to each holder of
Notes. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Responsible Officer;
(iii) refer to this Section 1.5; and
(iv) specify, in reasonable detail, the nature and date of the Change
in Control Notice Event.
(b) OFFER IN RESPECT OF A CHANGE IN CONTROL. In the event of a Change
in Control, the Issuers will, within three (3) Business Days after the
occurrence of such event (or, in the case of any Change in Control the
consummation or finalization of which would involve any action of the Issuers,
at least thirty (30) days prior to such Change in Control), give notice of such
Change in Control to each holder of Notes. Subject to the terms and conditions
of the Intercreditor Agreement, such notice, shall contain an irrevocable
separate offer to each holder of Notes to repurchase all, but not less than all,
of the principal of, and interest on the Notes held by such holder on a date
(the "Change in Control Payment Date") specified in such notice that is not
4
<PAGE> 7
less than twenty (20) days and not more than thirty (30) days after the date of
such notice. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Responsible Officer;
(iii) specify, in reasonable detail, the nature and date of the Change
in Control;
(iv) specify the Change in Control Payment Date;
(v) specify the principal amount of each Note outstanding; and
(vi) specify the interest that will be due on each Note offered to be
repurchased, accrued to the Change in Control Payment Date.
If the Issuers shall not have received a written response to such notice from
any holder of Notes within ten (10) days after the date of posting of such
notice to such holder of Notes, then the Issuers shall immediately send a second
notice to each such holder of Notes.
(c) ACCEPTANCE, REJECTION. To accept such offered prepayment, a holder
of Notes shall cause a notice of such acceptance to be delivered to the Issuers
at least ten (10) days prior to the Change in Control Payment Date. A failure to
accept in writing such written offer of prepayment as provided in this Section
1.5(c), or a written rejection of such offered prepayment, shall be deemed to
constitute a rejection of such offer. If accepted, such offered prepayment shall
be due and payable on the Change in Control Payment Date (as may be adjusted or
rescinded pursuant to Section 1.5(d)). Such offered prepayment shall be made at
101% of the principal amount of such Notes as of the Change in Control Payment
Date, together with accrued interest thereon accrued to the Change in Control
Payment Date. In such event no Prepayment Fee is due.
(d) DEFERRAL OF OBLIGATION TO PURCHASE. The obligation of the Issuers
to purchase Notes pursuant to the offer required by Section 1.5(b) and accepted
in accordance with Section 1.5(c), is subject to the occurrence of the Change in
Control in respect of which such offers and acceptances shall have been made. In
the event that such Change in Control does not occur prior to the Change in
Control Payment Date in respect thereof, such purchase shall be deferred until
and shall be made on the date on which such Change in Control occurs or, if the
Issuers determine that activities to effect such Change in Control have ceased
or have been abandoned, then such offer, acceptances and obligation to purchase
shall be deemed to have been rescinded. The Issuers shall keep each holder of
Notes reasonably and timely informed of:
(i) any such deferral of the date of purchase;
(ii) the date on which such Change in Control and the purchase are
expected to occur; and
5
<PAGE> 8
(iii) any determination by the Issuers that activities to effect such
Change in Control have ceased or been abandoned.
1.6 NO OTHER PAYMENTS OF PRINCIPAL; ACQUISITION OF NOTES.
Except for payments of principal permitted under the Intercreditor
Agreement and made in accordance with this Section 1, the Issuers may not make
any payment of principal in respect of the Notes. The Issuers will not, and will
not permit any Subsidiary or any Affiliate of the Issuers to, directly or
indirectly, acquire or make any offer to acquire any Notes.
1.7 NOTATION OF NOTES ON PAYMENT.
Upon any partial payment of a Note, the holder of such Note may (but shall
not be required to), at its option:
(a) surrender such Note to the Issuers pursuant to Section 2.2 in
exchange for a new Note in a principal amount equal to the principal amount
remaining unpaid on the surrendered Note;
(b) make such Note available to the Issuers for notation thereon of the
portion of the principal so paid; or
(c) mark such Note with a notation thereon of the portion of the
principal so paid.
In case the entire principal amount of any Note is paid, such Note shall be
surrendered to the Issuers for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the paid principal amount of any Note.
1.8 MANNER OF PAYMENTS.
(a) MANNER OF PAYMENT. The Issuers shall pay all amounts payable with
respect to each Note (without any presentment of such Notes and without any
notation of such payment being made thereon) in immediately available funds by
wire transfer to the account of the holder thereof in any bank in the United
States as may be designated in writing by such holder, or in such other manner
as may be reasonably directed or to such other address in the United States as
may be reasonably designated in writing by such holder. Annex I and Annex I(A)
shall be deemed to constitute notice, direction or designation (as appropriate)
by the Purchasers to the Issuers with respect to payments to be made to such
Purchasers as aforesaid. In the absence of such written direction, all amounts
payable with respect to each Note shall be paid by check mailed and addressed to
the registered holder of such Note at the address shown in the register
maintained by the Issuers pursuant to Section 2.1.
(b) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with respect
to, any Note shall fall due on a day other than a Business Day, then such
payment shall be made on the first Business Day following the day on which such
payment shall have so fallen due; provided that if all or any portion of such
payment shall consist of a payment of interest, for purposes of calculating such
interest, such payment shall be deemed to have been originally due
6
<PAGE> 9
on such first following Business Day, such interest shall accrue and be payable
to (but not including) the actual date of payment, and the amount of the next
succeeding interest payment shall be adjusted accordingly.
(c) PAYMENTS, WHEN RECEIVED. Any payment to be made to the holders of
Notes hereunder or under the Notes shall be deemed to have been made on the
Business Day such payment actually becomes available at such holder's bank prior
to the close of business of such bank.
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
2.1 REGISTRATION OF NOTES.
The Issuers will keep at the Company's office a register for the
registration and transfer of Notes. The name and address of each holder of one
or more Notes, each transfer thereof made in accordance with Section 2.2 and the
name and address of each transferee of one or more Notes shall be registered in
such register. The Person in whose name any Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes hereof, and
the Issuers shall not be affected by any notice or knowledge to the contrary,
other than in accordance with Section 2.2.
2.2 EXCHANGE OF NOTES.
(a) EXCHANGE OF NOTES. Upon surrender of any Note at the office of the
Company, duly endorsed or accompanied by a written instrument of transfer duly
executed by the registered holder of such Note or such holder's attorney duly
authorized in writing, the Issuers will execute and deliver, at the Issuers'
expense (except as provided in Section 2.2(b)), a new Note or Notes in exchange
therefor, in an aggregate principal amount equal to the unpaid principal amount
of the surrendered Note. Each such new Note shall be registered in the name of
such Person as such holder may request and shall be substantially in the form of
Exhibit A. Each such new Note shall be dated and bear interest from the date to
which interest shall have been paid on the surrendered Note or dated the date of
the surrendered Note if no interest shall have been paid thereon. Each such new
Note shall carry the same rights to unpaid interest and interest to accrue that
were carried by the Note so exchanged or transferred. Notes shall not be
transferred to holders other than officers of the Company in denominations of
less than Five Hundred Thousand Dollars ($500,000), provided that any holder of
Notes may transfer its entire holding of Notes regardless of the principal
amount of such holder's Notes.
(b) COSTS. The Issuers will pay the cost of delivering to or from such
holder's home office or custodian bank from or to the Issuers, insured to the
reasonable satisfaction of such holder, the surrendered Note and any Note issued
in substitution or replacement for the surrendered Note. The Issuers may require
payment of a sum sufficient to cover any stamp tax or governmental charge
imposed in respect of any such transfer of Notes.
2.3 REPLACEMENT OF NOTES.
Upon receipt by the Issuers from the registered holder of a Note of
evidence reasonably satisfactory to the Issuers of the loss, theft, destruction
or mutilation of any Note (which
7
<PAGE> 10
evidence shall be, in the case of an Institutional Investor, notice from such
institutional investor of such loss, theft, destruction or mutilation), and:
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Issuers; provided, however, that if the holder of such Note
is a Purchaser, an Institutional Investor or a nominee of either, the unsecured
agreement of indemnity of such Purchaser or such Institutional Investor (but not
of any nominee therefor) shall be deemed to be satisfactory; or
(b) in the case of mutilation, upon surrender and cancellation thereof,
the Issuers at their own expense will execute and, within five (5) Business Days
after such receipt, deliver, in lieu thereof, a replacement Note, dated and
bearing interest from the date to which interest shall have been paid on such
lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.
2.4 ISSUANCE TAXES.
The Issuers will pay all taxes, if any, due in connection with and as the
result of the initial issuance and sale of the Notes or the execution and
delivery of any other Financing Document and in connection with any
modification, waiver or amendment of any Financing Document and shall save each
holder of Notes harmless without limitation as to time against any and all
liabilities with respect to all such taxes. The obligations of the Issuers under
this Section 2.4 shall survive the payment or prepayment of the Notes and the
termination hereof.
3. AFFIRMATIVE COVENANTS
The Issuers covenant with each Purchaser that, until all of the Obligations
shall have been paid and performed in full, the Issuers will perform all of the
obligations set forth in this Section 3.
3.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Issuers will furnish,
or will cause to be furnished, to each Purchaser copies of the following
financial statements, reports, notices and information:
(a) ANNUAL FINANCIALS. Within 90 days after the end of each fiscal year
of the Issuers, their audited consolidated and consolidating balance sheet and
related statements of operations, stockholders' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by an independent public
accountants of recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Issuers and their consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, together with a certificate
of the accounting firm that reported on such financial statements stating
whether they obtained knowledge during the course of their examination of such
financial statements of any Event of Default (which certificate may be limited
to the extent required by accounting rules or guidelines);
8
<PAGE> 11
(b) QUARTERLY FINANCIALS. Within 45 days after the end of each of the
first three fiscal quarters of each fiscal year of the Issuers, their
consolidated and consolidating balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by one of their Financial Officers as presenting
fairly in all material respects the financial condition and results of
operations of the Issuers and their consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(c) FINANCIAL OFFICER'S CERTIFICATE. Concurrently with any delivery of
financial statements under clause (a) or (b) above, a certificate of a Financial
Officer of the Issuers (i) certifying as to whether an Event of Default has
occurred and, if an Event of Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect thereto, (ii)
setting forth reasonably detailed calculations demonstrating compliance with
Sections 4.12, 4.13 and 4.14 and (iii) stating whether any change in GAAP or in
the application thereof has occurred since the date of the Issuers' audited
financial statements referred to in this Section 3.1 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;
(d) CERTIFICATE AS TO EVENTS OF DEFAULT. Concurrently with any delivery
of financial statements under clause (a) above, a certificate of the accounting
firm that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements of
any Events of Default (which certificate may be limited to the extent required
by accounting rules or guidelines);
(e) BUDGETS. At least thirty (30) days prior to the commencement of
each fiscal year of the Issuers, a detailed consolidated budget for such fiscal
year (including a projected consolidated balance sheet and related statements of
projected operations and cash flow as of the end of and for such fiscal year and
setting forth the assumptions used for purposes of preparing such budget) and,
promptly when available, any significant revisions of such budget;
(f) RESERVE REPORTS. By March 1st of each year, a Reserve Report
prepared by the Issuers and audited by an Approved Engineer; and by September
1st of each year, a Reserve Report prepared by the Issuer, in each case as
required under the Credit Agreement.
(g) SEC DISCLOSURE. Promptly after the same become publicly available,
all periodic and other reports, proxy statements and other materials filed by
the Issuers or any Subsidiary with the Securities and Exchange Commission, or
any Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by the
Issuers to their shareholders generally, as the case may be; and
(h) OTHER INFORMATION. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Issuers or
9
<PAGE> 12
any Subsidiary, or compliance with the terms of any Financing Document, as any
Purchaser may reasonably request.
3.2 NOTICES OF MATERIAL EVENTS.
Promptly, and in any event within three (3) (or ten (10), in the case of
(d) or (e) below) Business Days upon the Issuer or any of their Subsidiaries
becoming aware of the following events, the Issuers will furnish to each
Purchaser written notice of the following:
(a) the occurrence of any Event of Default or default under the Credit
Agreement;
(b) (i) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting any of
the Issuers or any Affiliate thereof or (ii) the occurrence of any adverse
development with respect to any action, suit or proceeding previously disclosed
to the Purchasers pursuant to this Agreement, in each case if such action, suit
or proceeding could reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of the Issuers and their Subsidiaries an aggregate amount exceeding
$500,000; and
(d)
(i) any claim by any Person against the Issuers or any of their
Subsidiaries of nonpayment of, or
(ii) any attempt by any Person to collect upon or enforce
any accounts payable (that are more than sixty (60) days past due) of the
Issuers or any of their Subsidiaries, in the case of any single account payable
in excess of $500,000, or in the case of all accounts payable in the aggregate
in excess of $500,000;
(e) (i) any and all enforcement, cleanup, removal or other governmental
or regulatory actions instituted, completed or threatened or other environmental
claims against the Issuers or any Subsidiary or any of their Properties pursuant
to any applicable Environmental Laws which could have a Material Adverse Effect,
and (ii) any environmental or similar condition on any real Property adjoining
or in the vicinity of the Property of the Issuers or any Subsidiary that could
reasonably be anticipated to cause such Property or any part thereof to be
subject to any material restrictions on the ownership, occupancy,
transferability or use of such Property under any Environmental Laws; and
(f) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 3.2 shall be accompanied by a statement
of a Financial Officer or other Responsible Officer of the Issuers setting forth
the details of the event or
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development requiring such notice and any action taken or proposed to be taken
with respect thereto.
3.3 INFORMATION REGARDING ISSUER.
Promptly, and in any event within five (5) Business Days upon becoming
aware of the following changes, the Issuers will furnish to the Purchasers
written notice of any change: (i) in the location of any Subsidiary's chief
executive office, its principal place of business, any office in which it
maintains books or records relating to Collateral owned by it or any office or
facility at which Collateral owned by it is located (including the establishment
of any such new office or facility); (ii) in any Subsidiary's identity or
corporate structure.
3.4 EXISTENCE; CONDUCT OF BUSINESS.
Each of the Issuers will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect (i) its legal existence and (ii) the rights, licenses, permits,
privileges, franchises, patents, copyrights, trademarks and trade names material
to the conduct of its business, except where the failure to so preserve, renew
or keep in full force and effect such rights, licenses, permits, privileges,
franchises, patents, copyrights, trademarks or trade names could not reasonably
be expected to result in a Material Adverse Effect.
3.5 PAYMENT OF OBLIGATIONS.
Each of the Issuers will, and will cause each of its Subsidiaries to, pay
its Indebtedness and other obligations, including Tax liabilities, before the
same shall become delinquent or in default, except where: (i) the validity or
amount thereof is being contested in good faith by appropriate proceedings; (ii)
the Issuers or such Subsidiary has set aside on their books adequate reserves
with respect thereto in accordance with GAAP; (iv) such contest effectively
suspends collection of the contested obligation and the enforcement of any Lien
securing such obligation; and (v) the failure to make payment pending such
contest could not reasonably be expected to result in a Material Adverse Effect.
3.6 MAINTENANCE OF PROPERTIES.
Each of the Issuers will, and will cause each of its Subsidiaries to, keep,
preserve, protect and maintain all Property material to the conduct of its
business in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements so that its business, and the
respective businesses of their Subsidiaries, carried on in connection therewith
may be properly conducted at all times in accordance with standard industry
practices unless the (i) Issuers or the respective Subsidiary determine in good
faith that the continued maintenance of any of their properties is no longer
economically desirable or (ii) the failure to so keep, preserve, protect and
maintain such Property or the failure to make such repairs, renewals or
replacements could not reasonably be expected to result in a Material Adverse
Effect. In particular, the Issuers will, and will cause each of their
Subsidiaries to, operate or cause to be operated its Oil and Gas Properties as a
reasonable and prudent operator.
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3.7 INSURANCE.
Each of the Issuers will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurance companies (i) insurance
in such amounts (with no greater risk retention) and against such risks as are
customarily maintained by companies of established repute engaged in the same or
similar businesses operating in the same or similar locations and (ii) all
insurance required to be maintained pursuant to the Credit Agreement and related
loan documents. The Issuers will furnish to each of the Purchasers, upon
request, information in reasonable detail as to the insurance so maintained.
3.8 CASUALTY AND CONDEMNATION.
The Issuers will furnish to each of the Purchasers prompt written notice of
any casualty or other insured damage to any material portion of any Collateral
or the commencement of any action or proceeding for the taking of any Collateral
or any part thereof or interest therein under power of eminent domain or by
material condemnation or similar proceeding.
3.9 BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS.
Each of the Issuers will, and will cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and
activities.
3.10 COMPLIANCE WITH LAWS.
The Issuers will, and will cause each of their Subsidiaries to, comply with
all Governmental Rules applicable to them, any Subsidiary, or their respective
Property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
3.11 USE OF PROCEEDS.
The proceeds of the sale of the Notes will be used only for the payment of
(a) amounts payable under the Existing Loan Agreement in accordance with the
Plan of Reorganization and (b) capital expenditures (including, without
limitation, oil and gas production projects), working capital and other general
corporate purposes of the Issuers and their Subsidiaries.
3.12 ADDITIONAL SUBSIDIARIES.
If any additional Subsidiary is formed or acquired after the Effective
Date, the Issuers will notify each of the Purchasers thereof and the Issuers
will cause such Subsidiary (unless such Subsidiary is a Foreign Subsidiary) to
execute a Guaranty within ten (10) Business Days after such Subsidiary is formed
or acquired.
3.13 FURTHER ASSURANCES.
The Issuers will, and will cause each Subsidiary to, execute any and all
further documents, agreements and instruments, and take all such further actions
which may be required
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under any applicable law, or which the Required Holders may reasonably request,
to effectuate the transactions contemplated by the Financing Documents, all at
the expense of the Obligors.
3.14 ENVIRONMENTAL COVENANT.
Each of the Issuers will, and will cause each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in material
compliance with all Environmental Laws, keep all necessary permits, approvals,
certificates, licenses and other authorizations required by Environmental Laws
in effect and remain in material compliance therewith, and handle all Hazardous
Materials in material compliance with all applicable Environmental Laws;
(b) provide to each Purchaser 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 the Issuers or any of their Subsidiaries for
a Remedial Action under any Environmental Law, or which seeks a material amount
of damages or civil, criminal or punitive penalties from the Issuers or any of
their Subsidiaries for an alleged or actual violation of any Environmental Law,
or which names or lists the Issuers or any of their Subsidiaries as a
potentially responsible party under Environmental Law;
(c) shall use its best efforts to promptly cure and have dismissed with
prejudice to the satisfaction of the Purchasers any actions and proceedings
relating to compliance with Environmental Laws; and
(d) provide such pertinent information and certifications which any
Purchaser may reasonably request from time to time to evidence compliance with
this Section 3.14.
4. NEGATIVE COVENANTS
Until the principal of and interest on each Note and all fees payable
hereunder have been paid in full, the Issuers covenant and agree with the
Purchasers that:
4.1 INDEBTEDNESS; CERTAIN EQUITY SECURITIES.
The Issuers will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Financing Documents;
(ii) the Senior Indebtedness and Refinancing Indebtedness;
(iii) Indebtedness existing on the Effective Date and set forth in
Schedule 6.1 to the Credit Agreement, but not any extensions, renewals or
replacements of any such Indebtedness;
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(iv) Indebtedness of any Issuer to any other Issuer, any Issuer to any
Subsidiary, and any Subsidiary to any Issuer or any other Subsidiary;
provided that Indebtedness of any Subsidiary that is not a Obligor to the
Issuers or any other Obligor shall be subject to Section 4.4;
(v) guarantees by any Issuer of Indebtedness of any other Issuer or of
any Subsidiary and by any Subsidiary of Indebtedness of any Issuer or any
other Subsidiary; provided that guarantees by the Issuers or any other
Obligor of Indebtedness of any Subsidiary that is not a Obligor shall be
subject to Section 4.4;
(vi) Indebtedness of any Person that becomes a Subsidiary after the
Effective Date; provided that (A) such Indebtedness exists at the time such
Person becomes a Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary and (B) the aggregate
principal amount of Indebtedness permitted by this clause (vi) and clause
(viii) shall not exceed $5,000,000 at any time outstanding;
(vii) Hedging Obligations incurred pursuant to the Hedging Agreements
required or permitted under the Credit Agreement; and
(viii) other unsecured Indebtedness in an aggregate principal amount
not exceeding $5,000,000 at any time outstanding; provided that the
aggregate principal amount of Indebtedness of the Issuers and their
Subsidiaries permitted by clause (vi) and this clause (viii) shall not
exceed $5,000,000 at any time outstanding.
4.2 LIENS.
The Issuers will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Lien on any Property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Liens created under the Credit Agreement and related loan documents
and Refinancing Indebtedness;
(b) Permitted Encumbrances;
(c) any Lien on any Property or asset of the Issuers or any Subsidiary
existing on the Effective Date and set forth in Schedule 6.2 to the Credit
Agreement; provided that (i) such Lien shall not apply to any other Property or
asset of the Issuers or any Subsidiary and (ii) such Lien shall secure only
those obligations which it secures on the Effective Date;
(d) any Lien existing on any Property or asset prior to the acquisition
thereof by the Issuers or any Subsidiary or existing on any Property or asset of
any Person that becomes a Subsidiary after the Effective Date prior to the time
such Person becomes a Subsidiary; provided that (i) such Lien is not created in
contemplation of or in connection with such acquisition or such Person becoming
a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other
Property or assets of the Issuers or any Subsidiary and (iii) such Lien shall
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secure only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Subsidiary, as the case may be: and
(e) Liens on fixed or capital assets acquired, constructed or improved
by the Issuers or any Subsidiary which do not constitute Mortgaged Property (as
defined in the Credit Agreement); provided that (i) such security interests
secure Indebtedness permitted by clause (vi) or (viii) of Section 4.1, (ii) such
security interests and the Indebtedness secured thereby are incurred prior to or
within 90 days after such acquisition or the completion of such construction or
improvement, (iii) the Indebtedness secured thereby does not exceed 75% of the
cost of acquiring, constructing or improving such fixed or capital assets and
(iv) such security interests shall not apply to any other Property or assets of
the Issuers or any Subsidiary.
4.3 FUNDAMENTAL CHANGES.
(a) The Issuers will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person who is not an Issuer or a Subsidiary
Guarantor, or permit any other Person to merge into or consolidate with it, or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Event of Default shall have occurred and be continuing
(i) any Subsidiary may merge into any of the Issuers in a transaction in which
the respective Issuer is the surviving corporation, (ii) any Subsidiary may
merge into any Subsidiary in a transaction in which the surviving entity is a
Subsidiary and (if any party to such merger is an Obligor) is an Obligor and
(iii) any Subsidiary (other than an Obligor) may liquidate or dissolve if the
Issuers determine in good faith that such liquidation or dissolution is in the
best interests of the Issuers and is not materially disadvantageous to the
Purchasers; provided that any such merger involving a Person that is not a
wholly owned Subsidiary immediately prior to such merger shall not be permitted
unless also permitted by Section 4.4.
(b) The Issuers will not, and will not permit any of their Subsidiaries
to, engage to any material extent in any business other than businesses of the
type conducted by the Issuers and their Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
4.4 INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS.
The Issuers will not, and will not permit any of their Subsidiaries to,
purchase, hold or acquire (including pursuant to any merger with any Person that
was not a wholly owned Subsidiary prior to such merger) any Equity Interests in
or evidences of indebtedness or other securities (including any option, warrant
or other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, guaranty any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) Permitted Investments,
(b) investments existing on the Effective Date and set forth on
Schedule 6.4 to the Credit Agreement;
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(c) investments by the Issuers and their Subsidiaries in Equity
Interests in their respective Subsidiaries; provided the aggregate amount of
investments by Subsidiaries in, and loans and advances by Subsidiaries to, and
guarantees by Subsidiaries of Indebtedness of, Foreign Subsidiaries (as defined
in the Credit Agreement) (including all such investments, loans, advances and
guarantees existing on the Effective Date) shall not exceed $5,000,000 at any
time outstanding;
(d) loans or advances made by any Issuer to any other Issuer, any
Issuer to any Subsidiary, and any Subsidiary to any Issuer or any other
Subsidiary; provided that the amount of such loans and advances made by
Subsidiaries to Foreign Subsidiaries shall be subject to the limitation set
forth in clause (c) above;
(e) guarantees constituting Indebtedness permitted by Section 4.1; and
(f) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business.
4.5 ASSET SALES.
The Issuers will not, and will not permit any of their Subsidiaries to,
sell, transfer, lease or otherwise dispose of any asset, including any Equity
Interest owned by it, nor will the Issuers permit any of their Subsidiaries to
issue any additional Equity Interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business and assignments of interests in
oil and gas leases in connection with customary farmout arrangements entered
into in the ordinary course of business;
(b) sales, transfers and dispositions to any Issuer or a Subsidiary;
provided that any such sales, transfers or dispositions involving a Subsidiary
that is not an Obligor shall be made in compliance with Section 4.9;
(c) sales, transfers and other dispositions by any Issuer or a
Subsidiary of the Tunisia Assets (as defined in the Credit Agreement);
(d) sales, transfers and other dispositions of assets (other than
Equity Interests in a Subsidiary) that are not permitted by any other clause of
this Section 4.5; provided that the aggregate fair market value of all assets
sold, transferred or otherwise disposed of in reliance upon this clause (d)
shall not exceed $5,000,000 during the last four consecutive fiscal quarter
period then most recently ended;
provided that all sales, transfers, leases and other dispositions permitted
hereby (other than those permitted by clause (b) above) shall be made for fair
value solely for cash consideration.
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4.6 SALE AND LEASEBACK TRANSACTIONS.
The Issuers will not, and will not permit any of their Subsidiaries to,
enter into any arrangement, directly or indirectly, whereby it shall sell or
transfer any Property, real or personal, used or useful in its business, whether
now owned or hereinafter acquired, and thereafter rent or lease such Property or
other Property that it intends to use for substantially the same purpose or
purposes as the Property sold or transferred.
4.7 [Reserved]
4.8 RESTRICTED PAYMENTS; CERTAIN PAYMENTS OF INDEBTEDNESS.
(a) The Issuers will, not, and will not permit any Subsidiary to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so, except that
(i) any Issuer or Subsidiary may pay dividends to the Company or any other
Issuer or Subsidiary (other than a Foreign Subsidiary) at such times and in such
amounts during any fiscal year, as shall be necessary to permit the Issuers or
any other Subsidiary (other than a Foreign Subsidiary) to discharge their
permitted liabilities, (ii) any Issuer or Subsidiary may pay dividends to a
Foreign Subsidiary at such times and in such amounts so that the aggregate
amount of the dividends paid by all Issuers (other than the Company) and all
Subsidiaries to all Foreign Subsidiaries does not exceed $250,000 during any
fiscal year, and (iii) the Company may make Restricted Payments in the form of
dividends to the extent payable in, or exchanges or conversions for or into,
shares of common stock of the Company or options or warrants to purchase common
stock of the Company; and (iv) any Issuer or Subsidiary may make Restricted
Payments required by the Confirmation Order to the shareholders of the "Existing
Common Stock" (as defined in the Plan of Reorganization) with respect to (A) 20%
of any proceeds or other amounts relating to the Hicks Muse Lawsuit (as defined
in the Credit Agreement) to which the Issuers or any of their Subsidiaries are
entitled, and (B) 40% of any Net Proceeds (as defined in the Credit Agreement)
received by the Issuers or any of their Subsidiaries with respect to any sale,
transfer or other disposition of the Tunisia Assets.
(b) The Issuers will not, and will not permit any Subsidiary to, make
or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash securities or other Property) of or in respect of
principal of or interest on any Indebtedness not permitted under Section 4.1 or
any payment or other distribution (whether in cash, securities or other
Property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of
any Indebtedness not permitted under Section 4.1.
4.9 TRANSACTIONS WITH AFFILIATES.
The Issuers will not and will not permit any Subsidiary to, sell, lease or
otherwise transfer any Property or assets to, or purchase, lease or otherwise
acquire any Property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions in the
ordinary course of business and that are at prices and on terms and conditions
not less favorable to the applicable Issuers or such Subsidiary than could be
obtained on an arm's-length basis from unrelated third parties, (b) transactions
between or among the Issuers and the
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Subsidiaries not involving any other Affiliate and (c) any Restricted Payment
permitted by Section 4.8.
4.10 RESTRICTIVE AGREEMENTS.
The Issuers will not and will not permit any Subsidiary to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of the Issuers or any Subsidiary to create, incur or permit to exist any
Lien upon any of its Property or assets, or (b) the ability of any Subsidiary to
pay dividends or other distributions with respect to any shares of its capital
stock or to make or repay loans or advances to the Issuers or any other
Subsidiary or to guaranty Indebtedness of the Issuers or any other Subsidiary;
provided that (i) the foregoing shall not apply to restrictions and conditions
imposed by law or by the Credit Agreement and related loan documents or the
Financing Documents, (ii) the foregoing shall not apply to restrictions and
conditions existing on the Effective Date identified on Schedule 6.10 to the
Credit Agreement (but shall apply to any extension or renewal of, or any
amendment or modification expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of any Issuer (other
than the Company) or a Subsidiary pending such sale, provided such restrictions
and conditions apply only to the Issuer or Subsidiary that is to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the Property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases
restricting the assignment thereof.
4.11 AMENDMENT OF MATERIAL DOCUMENTS.
The Issuers will not and will not permit any Subsidiary to, amend, modify
or waive any of its rights under any of its Organic Documents.
4.12 MINIMUM EBITDA TO TOTAL INTEREST EXPENSE RATIO.
The Company will not permit its EBITDA to Total Interest Expense Ratio for
the last four consecutive fiscal quarter period then most recently ended to be
less than: (a) 2.00 to 1.00 as of the end of any fiscal quarter ending on or
before December 31, 2000; (b) 2.25 to 1.00 as of the end of any fiscal quarter
ending between January 1,2001 and June 30, 2001; (c) 2.50 to 1.00 as of the end
of any fiscal quarter ending between July 1, 2001 and October 31, 2001; (d) 2.75
to 1.00 as of the end of any fiscal quarter ending between November 1, 2001 and
December 31, 2001; and (e) 3.00 to 1.00 as of the end of any fiscal quarter
ending after January 1, 2002; provided, however that for periods of calculation
ending on or before December 31, 2000, each reference to "last four consecutive
fiscal quarter period then most recently ended" shall be deemed to be a
reference to the period from April 1, 2000 through the date of such calculation.
4.13 MAXIMUM LEVERAGE RATIO.
The Company will not permit its Leverage Ratio to exceed: (a) 5.00 to 1.00
as of the end of any fiscal quarter ending on or before December 31, 2000; (b)
4.50 to 1.00 as of the end of any fiscal quarter ending between January 1, 2001
and June 30, 2001; (c) 4.25 to 1.00 as of the
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end of any fiscal quarter ending between July 1, 2001 and October 31, 2001; (d)
3.75 to 1.00 as of the end of any fiscal quarter ending between November 1, 2001
and December 31, 2001; and (e) 3.50 to 1.00 as of the end of any fiscal quarter
ending after January 1, 2002; provided, however, that, notwithstanding the
foregoing, upon the occurrence of any prepayment of the principal outstanding
under the Financing Documents or any other Subordinated Debt, the Company from
the time of such prepayment will not permit its Leverage Ratio to exceed 3.50 to
1.00 as of the end of any fiscal quarter ending after the date of such
prepayment.
4.14 MINIMUM CURRENT RATIO.
The Company will not permit its Current Ratio to be less than 1.00 to 1.00
as of the end of any fiscal quarter.
4.15 SUBSIDIARIES.
The Issuers will not at any time create or acquire any Subsidiary unless
the Issuers have caused such Subsidiary to comply with the requirements of
Section 3.12.
4.16 TAKE OR PAY CONTRACTS.
Except as disclosed pursuant to Schedule 6.16 to the Credit Agreement, and
except for reservation charges payable for reservations of capacity in gathering
systems and pipelines incurred in the ordinary course of business on an arm's
length basis for volumes reasonably expected to be produced from the Issuers' or
their Subsidiaries' Properties to be transported through such systems and
pipelines, the Issuers will not, and will not permit any of their Subsidiaries
to, enter into or be a party to any arrangement for the purchase of materials,
supplies, other Property (including without limitation Hydrocarbons), or
services if such arrangement requires that payment be made by the applicable
Issuers or such Subsidiary regardless of whether such materials, supplies, other
Property, or services are delivered or furnished to it.
5. [RESERVED]
6. EVENTS OF DEFAULT.
6.1 EVENTS OF DEFAULT.
An "Event of Default" exists at any time if any of the following both
occurs and is continuing thereafter for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or comes about or is effected by
operation of law or otherwise):
(a) PAYMENTS ON NOTES.
(i) PRINCIPAL OR PREPAYMENT FEE PAYMENTS. The Issuers shall fail to
make any payment of principal or Prepayment Fee amounts on any Note on or
before the date such payment is due; or
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(ii) INTEREST PAYMENTS. The Issuers shall fail to make any payment of
interest on any Note, including Contingent Interest, on or before five (5)
days after the date such payment is due,
(b) OTHER DEFAULTS.
(i) PARTICULAR COVENANT DEFAULTS. The Issuers shall fail to perform or
observe any covenant contained in Sections 3.2, 3.4, or 3.11 or in Article
4 of this Agreement; or
(ii) OTHER DEFAULTS. Any Obligor or any Subsidiary fails to comply
with any other provision hereof or of any other Financing Document, and
such failure continues for more than thirty (30) days after notice thereof
from any holder of Notes.
(c) WARRANTIES OR REPRESENTATIONS. Any warranty, representation or
other statement by or on behalf of any Obligor contained in any Financing
Document, in any written amendment, supplement, modification or waiver with
respect to any Financing Document or in any instrument furnished in compliance
therewith or in reference thereto, shall have been false or misleading in any
material respect when made;
(d) DEFAULT ON OR ACCELERATION OF INDEBTEDNESS. (i) Any Obligor or any
Subsidiary fails to make, when due, at maturity, upon demand or otherwise, any
payment or payments in respect of any Indebtedness having an aggregate amount of
all obligations in respect of all such Indebtedness exceeds at such time Two
Million Five Hundred Thousand Dollars ($2,500,000); or (ii) any event shall
occur or any condition shall exist in respect of Indebtedness of any Obligor or
any Subsidiary, or under any agreement securing or relating to such Indebtedness
having an aggregate amount of all obligations in respect of all such
Indebtedness exceeds at such time Two Million Five Hundred Thousand Dollars
($2,500,000) (1) as a result of which the holder or holders of such
Indebtedness, or some group of such holders or a trustee or agent acting on
their behalf, accelerates, or has the right to accelerate, the maturity of such
Indebtedness, or a portion thereof, or (2) that results in any one or more of
the holders thereof or a trustee therefor requiring, or have the rights to
require, any Obligor or any Subsidiary to repurchase such Indebtedness from the
holders thereof;
(e) INSOLVENCY.
(i) INVOLUNTARY BANKRUPTCY PROCEEDINGS.
(1) A receiver, liquidator, custodian or trustee of any Obligor
or Subsidiary, or of all or any substantial part of the Property of
any of them, is appointed by court order; or an order for relief is
entered with respect to any Obligor or Subsidiary, or any Obligor or
Subsidiary is adjudicated a bankrupt or insolvent;
(2) All or any substantial part of the Property of any Obligor or
Subsidiary is sequestered by court order; or
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(3) A petition is filed against any Obligor or Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any whether now or
hereafter in effect, and is not dismissed, bonded or discharged within
sixty (60) days after such filing; or
(ii) VOLUNTARY PETITIONS. Any Obligor or Subsidiary files a voluntary
petition in bankruptcy or seeks relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any petition against it
under any such law;
(f) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. Any Obligor or
Subsidiary shall: (i) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in clause
(e)(i) of this Section 6.1; (ii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
any Issuer or any Subsidiary or for a substantial part of its assets; (iii) file
an answer admitting the material allegations of a petition filed against it in
any such proceeding; (iv) make a general assignment for the benefit of
creditors; (v) take any action for the purpose of effecting any of the
foregoing; or (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due;
(g) UNDISCHARGED FINAL JUDGMENTS. A final, non-appealable judgment or
final, non-appealable judgments for the payment of money aggregating in excess
of Two Million Five Hundred Thousand Dollars ($2,500,000) is or are outstanding
against any Obligor or Subsidiary and any one of such judgments shall have been
outstanding for more than thirty (30) days from the date of its entry and shall
not have been discharged in full, stayed, or bonded pending appeal; or
(h) FINANCING DOCUMENTS. Any Financing Document shall cease to be in
full force and effect or shall be declared by a court or other Governmental
Authority of competent jurisdiction to be void, voidable or unenforceable
against any Obligor; the validity or enforceability of any Financing Document
against any Obligor shall be contested by any Obligor or Subsidiary; or any
Obligor or Subsidiary shall deny that any Obligor or Subsidiary has any further
liability or obligation under any Financing Document to which it is a party.
(i) PLAN OF REORGANIZATION. The Plan of Reorganization or the
Confirmation Order shall for any reason be vacated or materially modified. If
any action, condition, event or other matter would, at any time, constitute an
Event of Default under any provision of this Section 6.1, then an Event of
Default shall exist, regardless of whether the same or a similar action,
condition, event or other matter is addressed in a different provision of this
Section 6.1 and would not constitute an Event of Default at such time under such
different provision.
6.2 DEFAULT REMEDIES.
(a) ACCELERATION OF MATURITY OF NOTES.
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(i) ACCELERATION ON EVENT OF DEFAULT.
(1) AUTOMATIC. If any Event of Default specified in Section
6.1(e) shall exist, all of the Notes at the time outstanding shall
automatically become immediately due and payable together with
interest accrued thereon, including Contingent Interest, and, to the
extent permitted by applicable law, the Prepayment Fee with respect
thereto, without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived.
(2) BY ACTION OF HOLDERS. If any Event of Default (other than an
Event of Default specified in Section 6.1(e)) shall exist, the
Required Holders may exercise any right, power or remedy permitted to
such holder or holders by law, and shall have, in particular, without
limiting the generality of the foregoing, the right to declare the
entire principal of, and all interest accrued on, including Contingent
Interest, all the Notes then outstanding to be, and such Notes shall
thereupon become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived, and the Issuers shall forthwith pay to the holder or
holders of all the Notes then outstanding the entire principal of, and
interest accrued on, the Notes and, to the extent permitted by law,
the Prepayment Fee at such time with respect to such principal amount
of such Notes.
(b) VALUABLE RIGHTS. The Issuers acknowledge, and the parties hereto
agree, that the right of each holder to maintain its investment in the Notes
free from repayment by the Issuers (except as herein specifically provided for)
is a valuable right and that the provision for payment of a Prepayment Fee by
the Issuers in the event that any Notes are prepaid or are accelerated as a
result of an Event of Default is intended to provide compensation for the
deprivation of such right under such circumstances.
(c) NONWAIVER; REMEDIES CUMULATIVE. No course of dealing on the part of
any holder of Notes nor any delay or failure on the part of any holder of Notes
to exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. All rights and remedies of
each holder of Notes hereunder and under applicable law are cumulative to, and
not exclusive of, any other rights or remedies any such holder of Notes would
otherwise have.
6.3 ANNULMENT OF ACCELERATION OF NOTES.
If a declaration is made pursuant to Section 6.2(a)(i)(2), then and in
every such case, notwithstanding anything herein or in the Notes to the
contrary, the Required Holders may, by written instrument filed with the
Issuers, rescind and annul such declaration, and the consequences thereof,
provided, however that at the time such declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment of
any moneys due on or pursuant thereto or the Notes;
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(b) all arrears of interest upon all of the Notes and all of the other
sums payable hereunder and under the Notes (except any principal of, or interest
or Prepayment Fee on, the Notes which shall have become due and payable by
reason of such declaration under Section 6.2(a)(i)(2) shall have been duly paid;
and
(c) each and every other Default and Event of Default shall have been
waived pursuant to Section 9.5 or otherwise made good or cured; and provided,
further, that no such rescission and annulment shall extend to or affect any
subsequent Event of Default or impair any right consequent thereon.
7. SUBORDINATION OF NOTES
The Issuers covenant and agree, and each holder of Notes, by its acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
set forth in the Intercreditor Agreement, the Indebtedness represented by the
Notes, including PIK Notes, and the payment of the principal of, Prepayment Fee,
if any, and interest on the Notes, including PIK Notes, are hereby expressly
made subordinate and subject in right of payment as provided in the
Intercreditor Agreement to the prior payment and satisfaction in full in cash of
all Senior Indebtedness or as to the extent provided in the Intercreditor
Agreement. This Section 7 shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of or continue to hold
Senior Indebtedness; and such provisions are made for the benefit of the holders
of or continue to hold Senior Indebtedness; and such provisions are made for the
benefit of the holders of Senior Indebtedness; and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
8. INTERPRETATION OF THIS AGREEMENT
8.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
ACTUAL PRICE - means the weighted average price received by the Issuers for
all of their oil and gas production, including hedged and unhedged production
(net of hedging costs), in dollars per barrel of oil equivalent using a 6:1
conversion ratio for natural gas. The Actual Price will be calculated over a
measurement period which shall be the six calendar month period ending on the
date two calendar months prior to the interest payment date for which the
calculation if to be made.
AFFILIATE - means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
AGREEMENT - means this Note Agreement, as it may be amended, restated or
otherwise modified from time to time.
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APPLICABLE INTEREST LAW - means any present or future law (including,
without limitation, the laws of the State of Illinois and the United States)
which has application to the interest and other charges pursuant to this
Agreement and the Notes.
APPROVED ENGINEER - means the independent engineer approved by the Bank
Administrative Agent under the terms of the Credit Agreement.
BANK ADMINISTRATIVE AGENT - means, at any time, the Administrative Agent
under the Credit Facility.
BASE PRICE - means $15 per barrel of oil equivalent.
BENEFIT PLAN - means any employee pension plan (other than a Multiemployer
Plan) subject to the provisions of Title IV or ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Company or any ERISA
Affiliate is (or, if such plan were terminated, would under 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.
BOARD OF DIRECTORS - means, (a) in the case of a Person that is a limited
liability company, the managers authorized to act therefor (or, if the limited
liability company has no managers, the members), (b) in the case of a Person
that is a corporation, the board of directors of such Person or any committee
authorized to act therefor, (c) in the case of a Person that is a limited
partnership, the board of directors of its corporate general partner or any
committee authorized to act therefor (or, if the general partner is itself a
limited partnership, the board of directors of such general partner's corporate
general partner or any committee authorized to act therefor) and (d) in the case
of any other Person, the board of directors, management committee or similar
governing body or any authorized committee thereof responsible for the
management of the business and affairs of such Person.
BUSINESS DAY - means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to remain closed.
CAPITAL LEASE OBLIGATIONS - of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
CHANGE IN CONTROL - means a change resulting when any Unrelated Person or
any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also constituting
Unrelated Persons) shall at any time either (i) Beneficially Own more than
49.99% of the aggregate voting power of all classes of Voting Stock of the
Company or (ii) during any period of two consecutive years ending on or after
the Effective Date, as determined as of the last day of each calendar quarter
after the Effective Date, the individuals and their successors nominated by any
of the Purchasers (the "Incumbent Directors") who at the beginning of such
period constituted the Board of Directors of the Company (other than additions
thereto or removals therefrom from time to time thereafter
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approved by a vote of the Board of Directors in accordance with the Company's
by-laws) shall cease for any reason to constitute 50% or more of the Board of
Directors of the Company. As used herein (a) "Beneficially Own" means
"beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of
1934, as amended, or any successor provision thereto; provided, however, that,
for purposes of this definition, a Person shall not be deemed to Beneficially
Own securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates until such tendered
securities are accepted for purchase or exchange; (b) "Group" means a "group"
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended; (c) "Unrelated Person" means at any time any Person other than the
Company or any Subsidiary of the Company or the holders of the Voting Stock of
the Company as of the Effective Date, including, without limitation, PPM America
Special Investments Fund, L.P., PPM America Special Investments CBO II, L.P.,
Appaloosa Management, L.P., Pacholder Associates, Inc., and Oaktree Capital
Management, L.L.C. and other than any trust for any employee benefit plan of the
Company or any Subsidiary of the Company; (d) "Related Person" of any Person
shall mean any other Person owning (1) 5% or more of the outstanding common
stock of such Person or (2) 5% or more of the Voting Stock of such Person; and
(e) "Voting Stock" of any Person shall mean capital stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
CHANGE IN CONTROL NOTICE EVENT - means:
(a) the execution of any written agreement which, when fully performed
by the parties thereto, would result in a Change in Control; or
(b) the making of any written offer by any person (as such term is used
in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the
Closing Date) or related persons constituting a group (as such term is used in
Rule 13d-5 under the Exchange Act as in effect on the Closing Date), which
offer, if accepted by the requisite number of such holders, would result in a
Change in Control, or
(c) any action taken by any of the Issuers which is reasonably likely
to result in a Change in Control.
CHANGE IN CONTROL PAYMENT DATE - Section 1.5(b).
CLOSING DATE - means the first day upon which any Securities are sold
to any Purchaser under the Securities Purchase Agreement.
CODE - means the Internal Revenue Code of 1986, as amended from time to
time.
COLLATERAL - has the meaning set forth in Section 1.1 of the Credit
Agreement.
CONTINGENT INTEREST - Section 1.4(d).
CONTROL - means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise
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voting power, by contract or otherwise. CONTROLLING AND CONTROLLED have meanings
correlative thereto.
CREDIT AGREEMENT - means that certain Credit Agreement dated as of
March 31, 2000, as amended, among Coho Energy, Inc., as Borrower, The Chase
Manhattan Bank, in its capacities as Bank Administrative Agent and Issuing Bank,
MeesPierson Capital Corp., in its capacity as Documentation Agent, and Fleet
National Bank, in its capacity as Syndication Agent, and the lenders party
thereto.
CREDIT FACILITY - means the Credit Agreement together with the
documents related thereto (including, without limitation, any guaranty
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any Refinancing Indebtedness.
CURRENT RATIO - means, as of any date a determination thereof is to be
made, the ratio of
(a) the sum of (i) the amount of the consolidated current assets of the
Issuers and their Subsidiaries plus (ii) the amount of the Borrowing Base Excess
(as defined in the Credit Agreement)
to
(b) the amount of the consolidated current liabilities of the Issuers
and their Subsidiaries.
DEFAULT - means any event which, with the giving of notice or the
passage of time, or both, would become an Event of Default.
DEFAULT RATE - Section 1.4(b)(ii).
DOLLARS and $ - means dollars in lawful currency of the United States.
EBITDA - means, for any period, the consolidated net income of the
Issuers and their Subsidiaries for such period (excluding material gains and
losses on sales and retirement of assets, non-cash write downs, charges
resulting from accounting convention changes and deductions for exploration
expenses) before deduction for federal and state taxes, interest expense
(including capitalized interest), depreciation, depletion and amortization
expense, costs associated directly with the reorganization of the Issuers in
accordance with the Plan of Reorganization, and any severance payments or other
bankruptcy-related costs relating to the reorganization of the Issuers incurred
by the Issuers and their Subsidiaries during the period from the Effective Date
until the date 90 days following such Effective Date.
EBITDA TO TOTAL INTEREST EXPENSE RATIO - means, on any date, the ratio
of EBITDA (calculated for the last four consecutive fiscal quarter period then
most recently ended) to Total Interest Expense (calculated for the last four
consecutive fiscal quarter period then most recently ended).
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EFFECTIVE DATE - means the date on which the conditions specified in
Section 4.1 of the Credit Agreement are satisfied (or waived in accordance with
Section 9.2 of the Credit Agreement).
ENVIRONMENTAL LAWS - means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
EQUITY INTERESTS - means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations and interpretations by the
Internal Revenue Service or the Department of Labor thereunder.
ERISA AFFILIATE - means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
ERISA EVENT - means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Benefit
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Benefit Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Benefit Plan; (d) the incurrence by the Company or
any of its ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Benefit Plan; (e) the receipt by the Company
or any ERISA Affiliate from the PBGC or a plan administrator of any notice
relating to an intention to terminate any Benefit Plan or Benefit Plans or to
appoint a trustee to administer any Benefit Plan; (f) the incurrence by the
Company or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Benefit Plan or Multiemployer Plan; or
(g) the receipt by the Company or any ERISA Affiliate of any notice, or the
receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any
notice, concerning the imposition of Withdrawal Liability (as defined in the
Credit Agreement) or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
EVENT OF DEFAULT - Section 6.1.
EXISTING LOAN AGREEMENT - means that certain Fourth Amended and
Restated Credit Agreement dated December 18, 1997, to which the Coho Entities
were parties as of the date of the commencement of the Bankruptcy Cases (as
defined in the Credit Agreement).
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FINANCIAL OFFICER - means the chief financial officer, principal
accounting officer, treasurer, assistant treasurer or comptroller of the
Company.
FINANCING DOCUMENTS - means and includes this Agreement, the Securities
Purchase Agreement, the Notes, the Registration Rights Agreement and all other
agreements, certificates and instruments to be executed pursuant to the terms of
each of the foregoing, as each may be amended, restated or otherwise modified
from time to time.
FOREIGN SUBSIDIARY - means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
GAAP - means generally accepted accounting principles in the United
States of America.
GOVERNMENTAL AUTHORITY - means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
GOVERNMENTAL RULE - means any statute, law, regulation, ordinance,
rule, judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, requirement of, or other governmental restriction or any
similar binding form of decision of or determination by, or any binding
interpretation or administration of any of the foregoing by, any Governmental
Authority, whether now or hereafter in effect.
GUARANTY - of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term "guaranty" shall not include endorsements
for collection or deposit in the ordinary course of business.
HAZARDOUS MATERIALS - means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of
any nature regulated pursuant to any Environmental Law and any petroleum,
petroleum products or petroleum distillates and associated oil or natural gas
exploration, production and development wastes that are not exempted or excluded
from being
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defined as "hazardous substances", "hazardous materials", "hazardous wastes" and
"toxic substances" under such Environmental Laws.
HEDGING AGREEMENT - means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement
between Issuers or their Subsidiaries and any Lender (as defined in the Credit
Agreement) or an Affiliate of a Lender.
HEDGING OBLIGATIONS - means, with respect to any Person, all
liabilities (including but not limited to obligations and liabilities arising in
connection with or as a result of early or premature termination of a Hedging
Agreement, whether or not occurring as a result of a default thereunder) of such
Person under a Hedging Agreement.
HYDROCARBON INTERESTS - means all rights, titles and interests in and
to oil and gas leases, oil, gas and mineral leases, other Hydrocarbon leases,
mineral interests; mineral servitudes, overriding royalty interests, royalty
interests, net profits interests, production payment interests, and other
similar interests.
HYDROCARBONS - means, collectively, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate and all other liquid or
gaseous hydrocarbons and related minerals and all products therefrom, in each
case whether in a natural or a processed state.
INDEBTEDNESS - of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, and
(k) all obligations of such Person with respect to any arrangement, directly or
indirectly, whereby such Person or its Subsidiaries shall sell or transfer any
material asset, and whereby such Person or any of its Subsidiaries shall then or
immediately thereafter rent or lease as lessee such asset or any part thereof,
(l) all recourse and support obligations of such Person or any of its
Subsidiaries with respect to the sale or discount of any of its accounts
receivable, (m) all obligations of such Person or any of its Subsidiaries with
respect to any arrangement for the purchase of materials, supplies, other
property or services if such arrangement by its express terms requires that
payment be made by such Person or such Subsidiary regardless of whether such
materials, supplies, other property or services are delivered or furnished to
it, (n) all obligations of such Person with respect to Production Payments (as
defined in the Credit Agreement), (o) net liabilities of such Person under all
Hedging Obligations, (p) all obligations of such Person under
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any prepayment for oil and gas production or other similar agreement, and (q)
all obligations of such Person under operating leases which require such Person
or its Affiliates to make payments over the term of such lease based on the
purchase price or appraisal value of the property subject to such lease plus a
marginal interest rate, and used primarily as a financing vehicle for, or to
monetize, such Property. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.
INSTITUTIONAL INVESTOR - means any insurance company, pension fund,
mutual fund, investment company, bank, savings bank, savings and loan
association, investment banking company, trust company, or any finance or credit
company, any portfolio or any investment fund managed by any of the foregoing,
or any other institutional investor, and any nominee of the foregoing.
INTERCREDITOR AGREEMENT - means that certain Intercreditor Agreement
between the Purchasers and the Bank Administrative Agent dated as of the Closing
Date.
ISSUER - has the meaning set forth in the introductory paragraph to
this Agreement.
LEVERAGE RATIO - means, on any date, the ratio of Total Senior Debt
outstanding on such date to EBITDA (calculated for the last four consecutive
fiscal quarter period then most recently ended) as of the end of the most recent
fiscal quarter; provided, however, that for purposes of calculating the Leverage
Ratio (except for calculating the Leverage Ratio used in the first proviso of
Section 4.13) for any period ending on or before December 31, 2000, the
appropriate EBITDA to be used in such calculation of the Leverage Ratio shall
not be calculated based on the last four consecutive fiscal quarter period then
most recently ended but instead shall be calculated by (a) for period of
calculation ending on or before June 30, 2000, multiplying the EBITDA for the
fiscal quarter ending June 30, 2000 by 4, (b) for period of calculation
commencing July 1, 2000 and ending on or before September 30, 2000, multiplying
the EBITDA for the last two consecutive fiscal quarter period then most recently
ended, by 2, and (c) for period of calculation commencing October 1, 2000 and
ending on or before December 31, 2000, multiplying the EBITDA for the last three
consecutive fiscal quarter period then most recently ended, by 4/3.
LIEN - means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge, collateral assignment
or security interest in, on or of such asset, (b) the interest of a vendor or a
lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
MATERIAL ADVERSE EFFECT - means a material adverse effect on (a) the
business, assets, operations or condition (financial or otherwise) of the
Company, or of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company or of any of its Subsidiaries to
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perform any of their respective obligations under any Financing Document to
which it is a party or (c) the rights of or benefits available to the Purchasers
under any Financing Document.
MAXIMUM LEGAL RATE OF INTEREST - means the maximum rate of interest
that a holder of Notes may from time to time legally charge the Issuers by
agreement and in regard to which the Issuers would be prevented successfully
from raising the claim or defense of usury under the Applicable Interest Law as
now or hereafter construed by courts having appropriate jurisdiction.
MULTIEMPLOYER PLAN - means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
NOTES - has the meaning set forth in the first Recital of this
Agreement.
OBLIGOR - means and includes the Issuers and the Subsidiary Guarantors.
OIL AND GAS PROPERTIES - means the Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including without limitation all
units created under orders, regulations and rules of any Governmental Authority
having jurisdiction) which may affect all or any portion of the Hydrocarbon
Interests; all operating agreements, joint venture agreements, contracts and
other agreements which relate to any of the Hydrocarbon Interests or the
production, sale, purchase, exchange or processing of Hydrocarbons from or
attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
the lands covered thereby and all oil in tanks and all rents, issues, profits,
proceeds, products, revenues and other incomes from or attributable to the
Hydrocarbon Interests; all tenements, profits a prendre, hereditaments,
appurtenances and Properties in anywise appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests, Properties, rights, titles, interests
and estates described or referred to above, including any and all Property, real
or personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, water wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
ORGANIC DOCUMENTS - means, relative to any Person, its articles of
organization, formation or incorporation (or comparable document), its by-laws
or operating agreement and all shareholder agreements, partnership agreements,
limited liability company or operating agreements, voting trusts and similar
arrangements applicable to ownership.
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PBGC - means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA, or any other successor entity performing similar functions.
PERMITTED ENCUMBRANCES - means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.5 of the Credit Agreement;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or are being
contested in compliance with Section 5.5 of the Credit Agreement;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII of the Credit Agreement;
(f) easements, zoning and deed restrictions, rights-of-way and similar
encumbrances on real Property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and do not materially
detract from the value of the affected Property or interfere with the ordinary
conduct of business of the Issuers or any Subsidiary;
(g) 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 the Issuers or any 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;
(h) production payments, advance payment obligations and other similar
burdens now existing or hereafter created on oil, gas or mineral leases or
interests now owned or hereafter acquired by the Issuers or any of their
Subsidiaries;
(i) royalties, overriding royalties, revenue interests, net revenue
interest and other similar burdens now existing or hereafter acquired on oil,
gas or mineral leases or interests now owned or hereafter acquired by the
Issuers or any of their Subsidiaries;
(j) rights reserved to or vested in any 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 Issuers or any of their Subsidiaries;
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<PAGE> 35
(k) rights reserved to or vested in any Governmental Authority to
control or regulate any Property of the Issuers or of any of their Subsidiaries,
or to use such Property in a manner which does not materially impair the use of
such Property for the purposes for which it is held by the Issuers or any such
Subsidiary;
(l) any obligations or duties affecting the Property of the Issuers or
of any of their Subsidiaries to any municipality or other Governmental Authority
with respect to any franchise, grant, license or permit; and
(m) rights of a common owner of any interest in real estate, right of
way or easement held by the Issuers or any of their Subsidiaries and such common
owner as tenants in common or through other common ownership.
PERMITTED INVESTMENTS - means:
(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within one
year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the highest
credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under the
laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into with
a financial institution satisfying the criteria described in clause (c) above.
PERSON - means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
PIK NOTE - means a promissory note issued by the Issuers substantially
in the form of Exhibit B hereto pursuant to which the Issuers, at the direction
of the Bank Administrative Agent in accordance with the terms of the
Intercreditor Agreement, have made a payment of interest due hereunder by
issuing to the holder of each Note a new Note in an original principal amount
equal to such accrued interest and bearing interest at the then current rate per
annum provided herein for the Notes.
PLAN OF REORGANIZATION - has the meaning set forth in the recitals of
the Credit Agreement.
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PREPAYMENT FEE - means, with respect to a principal amount of the Notes
to which a Prepayment Fee is required to be paid, an amount equal to the
following:
(a) in the event such prepayment occurs within four years from the
Closing Date, the excess, if any of:
(i) the sum of the present values of all remaining scheduled payments
of principal and interest (based upon an interest rate of 15.0% per annum
payable semiannually), other than the accrued interest payable on such
redemption date, from such redemption date to the stated maturity of such
Note (or portion thereof), discounted semiannually on each applicable
interest payment date at a rate equal to the sum of the Treasury Rate plus
3.0%, per annum, based on a 360 day year of twelve 30-day months, over (b)
the aggregate outstanding principal amount of such Note (or portion
thereof); or
(b) in the event such prepayment occurs after four years from the
Closing Date, a premium equal to the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
If the Prepayment Fee is Due During the The Percentage of such Principal Amount to be
Period Set Forth Below: Paid as Prepayment Fee Shall be:
- ----------------------------------------------------------------------------------------------
<S> <C>
From the Fourth Anniversary of the Closing
Date to March 30, 2005, inclusive 7.5%
- ----------------------------------------------------------------------------------------------
From March 31, 2005 to March 30, 2006,
inclusive 3.75%
- ----------------------------------------------------------------------------------------------
Thereafter No Prepayment Fee
- ----------------------------------------------------------------------------------------------
</TABLE>
PROPERTY - means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
PURCHASERS - has the meaning set forth in the introductory paragraph.
REFINANCING INDEBTEDNESS - means Indebtedness that refunds, refinances
or extends any Senior Indebtedness to the extent that: (i) all such Refinancing
Indebtedness is scheduled to mature no earlier than the Indebtedness being
refunded, refinanced or extended, (ii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a weighted average life to maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the weighted average
life to maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iii) all Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding of all Senior Indebtedness being refunded, refinanced or extended,
(b) the amount of accrued and unpaid interest, if any, and premiums owed, if
any, not in excess of preexisting payment provisions on such Indebtedness being
refunded, refinanced or extended and
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<PAGE> 37
(c) the amount of customary fees, expenses and costs related to the incurrence
of such Refinancing Indebtedness and (iv) such Refinancing Indebtedness is
incurred by the same Person that initially incurred the Indebtedness being
refunded, refinanced or extended.
REGISTRATION RIGHTS AGREEMENT - means the Registration Rights
Agreement, of even date herewith, among the Issuers, the Purchasers and each of
the other Persons listed on the signature pages thereto, as such agreement may
be amended, restated or otherwise modified from time to time.
REMEDIAL ACTION - means any action under Environmental Laws required to
(a) clean up, remove, treat, dispose of, abate, or in any other way address
pollutants (including Hazardous Materials) in the environment, (b) prevent the
Release or threat of a Release or minimize the further Release of pollutants, or
(c) investigate and determine if a remedial response is needed and to design
such a response and any post-remedial investigation, monitoring, operation, and
maintenance and care.
REQUIRED HOLDERS - means, at any time, the holders of percent 66 2/3%
in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by any one or more of the Issuers, any Subsidiary of the Issuers or
any Affiliate of the Issuers).
RESERVE REPORT - shall have the meaning set forth in Section 1.1 of the
Credit Agreement.
RESPONSIBLE OFFICER - means the chief executive officer, president, any
executive vice president or chief financial officer of the Company or any
equivalent officer or manager of the Company.
RESTRICTED PAYMENT - means any dividend or other distribution (whether
in cash, securities or other property, real, personal or mixed) with respect to
any Equity Interests in the Issuers or any Subsidiary, or any payment (whether
in cash, securities or other property, real, personal or mixed), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Equity Interests in
the Issuers or any Subsidiary or any option, warrant or other right to acquire
any such Equity Interests in the Issuers or any Subsidiary on or account of the
complete or partial liquidation or otherwise of the Issuers or any Subsidiary.
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT - means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SECURITIES PURCHASE AGREEMENT - means the Securities Purchase
Agreements, of even date herewith, among the Issuers and the Purchasers, as such
agreements may be amended, restated or otherwise modified from time to time.
SENIOR INDEBTEDNESS - means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a
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<PAGE> 38
bankruptcy, reorganization or other insolvency proceeding whether or not such
interest constitutes an allowable claim in such proceeding) on, and any and all
other fees, expense reimbursement obligations, indemnities and other amounts due
pursuant to the terms of all agreements, documents and instruments providing
for, creating, securing or evidencing or otherwise entered into in connection
with (a) all Indebtedness of the Issuers owed to the Bank Administrative Agent
and the lenders under the Credit Facility including all obligations of the
Issuers to reimburse any bank or other Person in respect of amounts paid under
letters of credit, acceptances or other similar instruments; provided, however,
the principal amount of such Indebtedness shall not exceed $300,000,000,
excluding accrued interest, and (b) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above.
SUBORDINATED DEBT - shall have the meaning set forth in Section 1.1 of
the Credit Agreement.
Subsidiary - means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
SUBSIDIARY - means any subsidiary of any of the Issuers. For purposes
of the representations and warranties made herein on the Effective Date, the
term "Subsidiary" includes each of the Issuers and their subsidiaries.
SUBSIDIARY GUARANTOR - means each Subsidiary of the Company that is
party to the Subsidiary Guaranty.
SUBSIDIARY GUARANTY - means the guaranty by certain Subsidiaries of the
Company of the obligations of the Issuers to the holders of the Notes in respect
of this Agreement and the Notes, in the form of Exhibit C attached hereto.
TAXES - means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
TOTAL DEBT - means all Indebtedness of the Issuers and their
Subsidiaries on a consolidated basis.
TOTAL INTEREST EXPENSE - means, with respect to any period for which a
determination thereof is to be made, the sum, without duplication, of (a) the
aggregate amount of all cash interest accrued (whether or not paid) on all
Indebtedness of the Issuers and their Subsidiaries on a consolidated basis plus
(b) the portion of any Capital Lease Obligations allocable to cash interest
expense in accordance with GAAP.
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TOTAL SENIOR DEBT - means Total Debt less Subordinated Debt.
TREASURY RATE - means the per annum rate, equal to the yield of United
States Treasury securities with a term equal to, with respect to each Note to be
redeemed or purchased, the then-remaining term of such Note, in each case as
indicated by Bloomberg Financial Markets (page PX1 or the relevant page at the
date of determination indicating such yields) (or, if such data ceases to be
available, any publicly available source of similar market data) at
approximately 10:00 a.m., New York City time, on the third business day prior to
the date of such redemption or purchase, as the case may be, of such Note
calculated based on straight line interpolation of, with respect to each Note to
be redeemed or purchased, the yields of the United States Treasury securities
having constant maturities closest to such then remaining term.
UNITED STATES - means the United States of America.
8.2 ACCOUNTING PRINCIPLES
(a) GENERALLY. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in accordance with
GAAP. Where the character or amount of any asset or liability or item of income
or expense, or any consolidation or other accounting computation is required to
be made for any purpose hereunder, it shall be done in accordance with GAAP;
provided, however, that if any term defined herein includes or excludes amounts,
items or concepts that would not be included in or excluded from such term if
such term were defined with reference solely to GAAP, such term will be deemed
to include or exclude such amounts, items or concepts as set forth herein.
(b) CONSOLIDATION. Whenever accounting amounts of a group of Persons
are to be determined "on a consolidated basis" it shall mean that, as to balance
sheet amounts to be determined as of a specific time, the amount that would
appear on a consolidated balance sheet of such Persons prepared as of such time,
and as to income statement amounts to be determined for a specific period, the
amount that would appear on a consolidated income statement of such Persons
prepared in respect of such period, in each case with all transactions among
such Persons eliminated, and prepared iii accordance with GAAP except as
otherwise required hereby.
(c) CURRENCY. With respect to any determination, consolidation or
accounting computation required hereby, any amounts not denominated in the
currency in which this Agreement specifies shall be converted to such currency
in accordance with the requirements of GAAP (as such requirements relate to such
determination, consolidation or computation) and, if no such requirements shall
exist, converted to such currency in accordance with normal banking procedures,
at the closing rate as reported in The Wall Street Journal published most
recently as of the date of such determination, consolidation or computation or,
if no such quotation shall then be available, as quoted on such date by any bank
or trust company reasonably acceptable to the Required Holders.
8.3 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken
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directly or indirectly by such Person, including actions taken by or on behalf
of any partnership in which such Person is a general partner.
8.4 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement appear as
a matter of convenience only, do not constitute a part hereof and shall not
affect the construction hereof. The words "herein," "hereof," "hereunder" and
"hereto" refer to this Agreement as a whole and not to any particular Section or
other subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Agreement. References to Annexes and Exhibits
are, unless otherwise specified, references to Annexes and Exhibits attached to
this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each other
covenant contained herein, and compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
one or more other covenants.
8.5 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS. IN
ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY LAWFULLY DO SO, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS THE APPLICABLE LAW GOVERNING THE
PAYMENT OF INTEREST.
8.6 GENERAL INTEREST PROVISIONS.
(a) INTEREST IN RESPECT OF THE NOTES. It is the intention of the
Issuers and the Purchasers to conform strictly to the Applicable Interest Law,
and the parties agree that the aggregate of all interest, and any other charges
or consideration constituting interest under the Applicable Interest Law that is
taken, reserved, contracted for, charged or received pursuant to this Agreement
or the Notes shall under no circumstances exceed the maximum amount of interest
allowed by the Applicable Interest Law. If any such excess interest is ever
charged, received or collected on account of or relating to this Agreement and
the Notes (including any charge or amount which is not denominated as "interest"
but is legally deemed to be interest under Applicable Interest Law), then in
such event:
(i) the provisions of this Section 8.6 shall govern and control;
(ii) the Issuers shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of
interest allowed by the Applicable Interest Law;
(iii) any excess shall be deemed a mistake and cancelled automatically
and, if theretofore paid, shall be credited to the principal amount of the
Notes by the
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<PAGE> 41
holders thereof, and if the principal balance of the Notes is paid in full,
any remaining excess shall be forthwith paid to the Issuers; and
(iv) the effective rate of interest shall be automatically subject to
reduction to the Maximum Legal Rate of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable Interest
Law, the Issuers shall forthwith pay to the holders of the Notes, on a pro rata
basis, all amounts of such excess interest that the holders of the Notes would
have been entitled to receive pursuant to the terms of this Agreement and the
Notes had such increased Maximum Legal Rate of Interest been in effect at all
times when such excess interest accrued. To the extent permitted by the
Applicable Interest Law, all sums paid or agreed to be paid to the holders of
the Notes for the use, forbearance or detention of the indebtedness evidenced
thereby shall be amortized, prorated, allocated and spread throughout the full
term of the Notes.
9. MISCELLANEOUS
9.1 NOTICES.
(a) METHOD; ADDRESS. All notices to be provided hereunder or under the
Notes shall be in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (receipt acknowledged by electronic
transmission) or, by certified U.S. mail with return receipt requested if such
communications relate to the delivery of financial reports pursuant to this
Agreement. Notices to any Issuers shall be addressed as set forth on Annex II,
or at such other address of which such Issuer shall have notified each holder of
Notes. Notices to the holders of the Notes shall be addressed as set forth on
Annex I and Annex I(A) by such holder, or at such other address of which such
holder shall have notified the Issuers (and the Issuer shall record such address
in the register for the registration and transfer of Notes maintained pursuant
to Section 2.1).
(b) WHEN GIVEN. Any notice addressed and delivered as herein provided
shall be deemed to be received when actually delivered to the address of the
addressee (whether or not delivery is accepted except for the negligence of the
delivering party) or received by the telecopy machine of the recipient (assuming
evidence of electronic confirmation of transmission). Any notice not so
addressed and delivered shall be ineffective.
(c) SERVICE OF PROCESS. Notwithstanding the foregoing provisions of
this Section 9.1, service of process in any suit, action or proceeding arising
out of or relating to this Agreement or any document, agreement or transaction
contemplated hereby, or any action or proceeding to execute or otherwise enforce
any judgment in respect of any breach hereunder or under any document or
agreement contemplated hereby, shall be delivered in the manner provided in
Section 9.7(c).
9.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by any
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holder of Notes on the Closing Date (except the Notes themselves), and financial
statements, certificates and other information previously or hereafter furnished
to any holder of Notes, may be reproduced by any Issuers or any holder of Notes
by any photographic, photostatic, microfilm, micro-card, miniature photographic,
digital or other similar process and each holder of Notes may destroy any
original document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by any Issuer or such holder of Notes in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. Nothing in this
Section 9.2 shall prohibit any Issuers or any holder of Notes from contesting
the accuracy or validity of any such reproduction.
9.3 SURVIVAL.
All warranties, representations, certifications and covenants made by the
Issuers herein, in the Securities Purchase Agreement or in any certificate or
other instrument delivered hereunder shall be ordered to have been relied upon
by each holder of Notes and shall survive the delivery of the Notes regardless
of any investigation made by or on behalf of any party hereto. All statements in
any certificate or other instrument delivered pursuant to the terms hereof or of
the Securities Purchase Agreement shall constitute warranties and
representations of the Issuers hereunder. All obligations hereunder (other than
payment of the Notes, but including, without limitation, reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof.
9.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties hereto. The provisions
hereof are intended to be for the benefit of all holders, from time to time, of
Notes, and shall be enforceable by any such holder whether or not an express
assignment to such holder of rights hereunder shall have been made by any such
holder or its successor or permitted assign. Anything contained in this Section
9.4 notwithstanding, the Issuers may not assign any of their respective rights,
duties or obligations hereunder or under any of the other Financing Documents
without the prior written consent of all holders of Notes. For purposes of the
avoidance of doubt, any holder of a Note shall be permitted to pledge or
otherwise grant a Lien in and to such Note (including, without limitation,
pledging such Note to a trustee for the benefit of certain secured noteholders
pursuant to documents relating to the financing of such holder or to one or more
banks or other institutions providing financing in connection with the purchase
by such holder of such Note); provided, however, that any such pledgee or holder
of a Lien shall not be considered a holder hereunder until it shall have
foreclosed upon such Note in accordance with applicable law and informed the
Issuers, in writing, of the same.
9.5 AMENDMENT AND WAIVER.
(a) REQUIREMENTS. This Agreement may be amended, and the observance of
any term hereof may be waived, with (and only with) the written consent of the
Issuers and the Required Holders; provided, however, that no such amendment or
waiver shall, without the
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<PAGE> 43
written consent of the holders of all Notes (exclusive of Notes held by the any
Issuers, any Subsidiary or any Affiliate) at the time outstanding;
(i) change the amount or time of any prepayment or payment of
principal or Prepayment Fee or the rate or time of payment of interest;
(ii) amend or waive the provisions of Section 6.1, Section 6.2,
Section 6.3 or Section 7, or amend or waive any defined term to the extent
used therein;
(iii) amend or waive the definition of "Required Holders;" or
(iv) amend or waive this Section 9.5 or amend or waive any defined
term to the extent used herein.
No amendment, supplement or modification of the provisions of Section 7, or
any defined term to the extent used therein, shall be effective as to any holder
of Senior Indebtedness who has not consented to such amendment, supplement or
modification.
(b) SOLICITATION OF NOTEHOLDERS.
(i) SOLICITATION. Each holder of the Notes (irrespective of the amount
of Notes then owned by it) shall be provided by the Issuers with all
material information provided by any Issuers to any other holder of Notes
with respect to any proposed waiver or amendment of any of the provisions
hereof or the Notes. Executed or true and correct copies of any amendment
or waiver effected pursuant to the provisions of this Section 9.5 shall be
delivered by the Issuers to each holder of outstanding Notes forthwith
following the date on which such amendment or waiver becomes effective.
(ii) PAYMENT. The Issuers shall not, nor shall any Subsidiary or
Affiliate of the Issuers, directly or indirectly, pay or cause to be paid
any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the provisions hereof or of the
Notes unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to the holders of all
Notes then outstanding.
(iii) SCOPE OF CONSENT. Any amendment or waiver made pursuant to this
Section 9.5 by a holder of Notes that has transferred or has agreed to
transfer its Notes to the Issuers, any Subsidiary or any Affiliate and has
provided or has agreed to provide such amendment or waiver as a condition
to such transfer shall be void and of no force and effect except solely as
to such holder, and any amendments effected or waivers granted that would
not have been or would not be so effected or granted but for such amendment
or waiver (and the amendments or waivers of all other holders of Notes that
were acquired under the same or similar conditions) shall be void and of no
force and effect, retroactive to the date such amendment or waiver
initially took or takes effect, except solely as to such holder.
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(c) BINDING EFFECT. Except as provided in Section 9.5(b)(iii), any
amendment or waiver consented to as provided in this Section 9.5 shall apply
equally to all holders of Notes and shall be binding upon them and upon each
future holder of any Note and upon the Issuers whether or not such Note shall
have been marked to indicate such amendment or waiver. No such amendment or
waiver shall extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon.
9.6 EXPENSES.
(a) AMENDMENTS AND WAIVERS. The Issuers shall pay when billed the
reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees) incurred by the holders of the Notes in connection with the consideration,
negotiation, preparation or execution of any amendments, waivers, consents,
standstill agreements and other similar agreements with respect to this
Agreement or any other Financing Document (whether or not any such amendments,
waivers, consents, standstill agreements or other similar agreements are
executed).
(b) RESTRUCTURING AND WORKOUT, INSPECTIONS. At any time when any
Issuers and the holders of Notes are conducting restructuring or workout
negotiations in respect hereof, or an Event of Default exists, the Issuers shall
pay when billed the reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees and the fees of professional advisors) incurred by
the holders of the Notes in connection with the assessment, analysis or
enforcement of any rights or remedies that are or may be available to the
holders of Notes; provided, however, that at all other times inspections will be
at the expense of the inspecting holder of Notes.
(c) COLLECTION. If the Issuers shall fail to pay when due any principal
of, or Prepayment Fee or interest on, any Note, the Issuers shall pay to each
holder of Notes, to the extent permitted by law, such amounts as shall be
sufficient to cover the out-of-pocket costs and expenses, including but not
limited to reasonable attorneys' fees, incurred by such holder in collecting any
sums due on such Note.
9.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC.
(a) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS AGREEMENT OR
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, MAY BE BROUGHT BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT
LOCATED IN CHICAGO,
42
<PAGE> 45
ILLINOIS, OR ANY ILLINOIS STATE COURT LOCATED IN CHICAGO, ILLINOIS AS SUCH PARTY
MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
NONEXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING
BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT
IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN
ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT
IN ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY AGREES THAT
PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE ADDRESSES
PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE FULLEST EXTENT PERMITTED BY
LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE
ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR
AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE
CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED
STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) OTHER FORUMS. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS, PROCESSES OR SUMMONSES IN
ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE ISSUER
IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY
APPLICABLE LAW.
9.8 INDEMNIFICATION OF EACH HOLDER.
From and at all times after the date of this Agreement, and in addition to
all of the holders' other rights and remedies against the Issuers, the Issuers
agree jointly and severally to indemnify and hold harmless each holder of the
Notes and each director, officer, employee, agent, investment advisor and
affiliate of each such holder ("Indemnified Parties") against any and all claims
(whether valid or not), losses, damages, liabilities, costs and expenses of any
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees, costs and
43
<PAGE> 46
expenses), incurred by or asserted against such Indemnified Party, from and
after the date hereof, as a result of, arising from, or in any way relating to,
whether directly or indirectly, the execution, delivery, performance or
enforcement of this Agreement or the other Financing Documents or any
transactions contemplated herein or therein, or arising out of any breach of any
representation or warranty, covenant or agreement of the Issuers or any of the
Subsidiaries under any Financing Document, including, without limitation any of
the foregoing relating to the violation of any Environmental Law applicable to
the Properties of the Issuers and their Subsidiaries; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for any
liability resulting from the willful misconduct or gross negligence of such
Indemnified Party or with respect to liabilities arising from legal proceedings
commenced against such Indemnified Party by a security holder or creditor of
such Indemnified Party based upon alleged rights afforded to such security
holder or creditor solely in its capacity as such. All of the foregoing losses,
damages, costs and expenses of any Indemnified Party shall be payable as and
when incurred upon demand and shall be additional obligations hereunder, except
in the event any such Indemnified Party shall have been added to such legal
proceeding by the Issuer in order to establish the liability of such Indemnified
Party arising from its gross negligence or willful misconduct. Without limiting
the generality of the foregoing, but subject to the foregoing, each Indemnified
Party shall be entitled to collect, and the Issuers shall be obligated jointly
and severally to advance to each Indemnified Party, to the fullest extent
permitted by applicable law, all expenses (including, without limitations
reasonable fees and disbursements of counsel) attendant to defending against any
such claims (whether valid or not), when and as incurred, regardless of whether
any judicial determination of the Indemnified Party's entitlement to such
indemnity has been made, unless a final judicial determination is made that such
Indemnified Party is not entitled to such indemnity, in which case such
Indemnified Party shall promptly repay to the Issuers, with interest at the
applicable statutory rate applicable to judgments in the relevant jurisdiction,
all amounts so advanced by the Issuers. The obligations of the Issuers and the
rights of the Indemnified Parties under this Section 9.8 shall survive the
termination of this Agreement.
9.9 ENTIRE AGREEMENT.
This Agreement constitutes the final written expression of all of the terms
hereof and is a complete and exclusive statement of those terms.
9.10 EXECUTION IN COUNTERPART.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
[Remainder of page intentionally blank. Next page is signature page.]
44
<PAGE> 47
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered by one of its duly authorized
officers or representatives.
COHO ENERGY, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO RESOURCES, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO LOUISIANA PRODUCTION COMPANY
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO EXPLORATION, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO OIL & GAS, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
<PAGE> 48
INTERSTATE NATURAL GAS COMPANY
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
Agreed to and Accepted by:
PPM AMERICA SPECIAL INVESTMENTS FUND, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
APPALOOSA INVESTMENT LIMITED PARTNERSHIP I
BY: APPALOOSA MANAGEMENT L.P., ITS GENERAL PARTNER
By: Appaloosa Partners Inc., its General Partner
By:
----------------------------------------------
Name:
Title:
<PAGE> 49
PPM AMERICA SPECIAL INVESTMENTS FUND, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By: /s/ STUART J. LISSNER
----------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By: /s/ STUART J. LISSNER
----------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
APPALOOSA INVESTMENT LIMITED PARTNERSHIP I
BY: APPALOOSA MANAGEMENT L.P., ITS GENERAL PARTNER
By: Appaloosa Partners Inc., its General Partner
By: /s/ RONALD GOLDSTEIN
----------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
PALOMINO FUND LTD.
BY: APPALOOSA MANAGEMENT L.P., ITS INVESTMENT ADVISOR
By: Appaloosa Partners Inc., its General Partner
By: /s/ RONALD GOLDSTEIN
----------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
<PAGE> 50
TERSK LLC
BY: APPALOOSA MANAGEMENT L.P., ITS MANAGING MEMBER
By: Appaloosa Management L.P., its General Partner
By: /s/ RONALD GOLDSTEIN
----------------------------------------------
Name: RONALD GOLDSTEIN
Title: CHIEF FINANCIAL OFFICER
OAKTREE CAPITAL MANAGEMENT, LLC,
as agent and on behalf of certain funds and accounts
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
PACHOLDER VALUE OPPORTUNITY FUND, L.P.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
PACHOLDER HIGH YIELD FUND, INC.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
ONE GROUP HIGH YIELD BOND FUND
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
<PAGE> 51
OAKTREE CAPITAL MANAGEMENT, LLC,
as general partner of and investment manager for
those entities set forth on Annex 1 hereto
By: /s/ SHELDON STONE
----------------------------------------------
Name: Sheldon Stone
Title: Principal
By: /s/ TIMOTHY ANDREWS
----------------------------------------------
Name: Timothy Andrews
Title: Senior Vice President
<PAGE> 52
PALOMINO FUND LTD.
BY: APPALOOSA MANAGEMENT L.P., ITS INVESTMENT ADVISOR
By: Appaloosa Partners Inc., its General Partner
By:
----------------------------------------------
Name:
Title:
TERSK LLC
BY: APPALOOSA MANAGEMENT L.P., ITS MANAGING MEMBER
By: Appaloosa Management L.P., its General Partner
By:
----------------------------------------------
Name:
Title:
PACHOLDER VALUE OPPORTUNITY FUND, L.P.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
PACHOLDER HIGH YIELD FUND, INC.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
ONE GROUP HIGH YIELD BOND FUND
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
<PAGE> 53
EVANGELICAL LUTHERAN CHURCH IN AMERICA BOARD OF PENSIONS
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.6
COHO ENERGY, INC.
COHO RESOURCES, INC.
COHO LOUISIANA PRODUCTION COMPANY
COHO EXPLORATION, INC.
COHO OIL & GAS, INC.
INTERSTATE NATURAL GAS COMPANY
-------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------
DATED AS OF MARCH 31, 2000
------------------------------
$72,000,000 15.0% SENIOR SUBORDINATED NOTES DUE MARCH 31, 2007
SHARES OF NEW COMMON STOCK OF COHO ENERGY, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. PURCHASE AND SALE OF SECURITIES..........................................2
1.1 Issuance of Securities...............................................2
1.2 The Closing..........................................................2
2. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.............................3
2.1 Nature of Business...................................................3
2.2 Sale is Legal and Authorized; Obligations are Enforceable. ..........3
2.3 Governmental Consent to Sale of Purchased Securities. ...............4
2.4 No Defaults under Notes and Additional Shares. ......................5
2.5 Private Offering of Purchased Securities. ...........................5
2.6 Use of Proceeds......................................................5
2.7 Credit Facility......................................................6
2.8 Capitalization. .....................................................6
2.9 No Placement Fees....................................................6
2.10 Confirmation Order..................................................7
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. .......................7
3.1 Purchase for Investment..............................................7
4. CLOSING CONDITIONS.......................................................7
4.1 Opinions of Counsel..................................................8
4.2 Representations and Warranties True; Compliance. ....................8
4.3 Officers' Certificates...............................................8
4.4 Organic Documents....................................................8
4.5 Legality.............................................................9
4.6 Standby Debt Documents...............................................9
4.7 Legending of Certificates. ..........................................9
4.8 Credit Facility......................................................9
4.9 Plan of Reorganization. .............................................9
4.10 Certain Consents and Agreements. ...................................9
4.11 Private Placement Numbers...........................................10
4.12 Certificate as to Representations and Warranties....................10
4.13 Fees and Expenses...................................................10
4.14 Proceedings Satisfactory. ..........................................10
4.15 Registration Rights Agreement.......................................10
5. INTERPRETATION OF THIS AGREEMENT. .......................................11
5.1 Terms Defined........................................................11
5.2 Other Definitions....................................................13
5.3 Directly or Indirectly...............................................14
5.4 Section Headings and Table of Contents and Construction..............14
5.5 Governing Law........................................................14
</TABLE>
<PAGE> 3
i
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6. MISCELLANEOUS................................................................14
6.1 Notices................................................................14
6.2 Reproduction of Documents..............................................15
6.3 Survival. .............................................................15
6.4 Successors and Assigns. ...............................................15
6.6 Expenses...............................................................16
6.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc....................16
6.8 Indemnification of Each Holder. .......................................17
6.9 Entire Agreement. .....................................................18
6.10 Execution in Counterpart..............................................18
</TABLE>
<PAGE> 4
COHO ENERGY, INC.
COHO RESOURCES, INC.
COHO LOUISIANA PRODUCTION COMPANY
COHO EXPLORATION, INC.
COHO OIL & GAS, INC.
INTERSTATE NATURAL GAS COMPANY
-------------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------------
$72,000,000 15.0% SENIOR SUBORDINATED NOTES DUE MARCH 31, 2007
SHARES OF NEW COMMON STOCK OF COHO ENERGY, INC.
Dated as of March 31, 2000
PPM America Special Investments Fund, L.P.
PPM America Special Investments CBO II, L.P.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Appaloosa Investment Limited Partnership I
Palomino Fund Ltd.
Tersk LLC
26 Main Street
Chatham, New Jersey 07928
Pacholder Value Opportunity Fund, L.P.
Pacholder High Yield Fund, Inc.
One Group High Yield Bond Fund
Evangelical Lutheran Church in America Board of Pensions
c/o Pacholder Associates, Inc.
8044 Montgomery Road
Suite 480
Cincinnati, Ohio 45236
AAFES Supplemental Deferred Compensation Plan
AAFES Retiree Medical Dental & Life Insurance Plan
AAFES Retirement Annuity Basis Plan
California State Automobile Association Inter-Insurance Bureau
<PAGE> 5
California State Automobile Association
The California Endowment
Canada Life Insurance Company of America
Canada Life Assurance Company - CDN
Canada Life Assurance Company - USA
Howard Hughes Medical Institute
Hughes Aircraft Company Master Retirement Trust
IBM Retirement Plan - High Yield
International Paper Company
General Board of Pension and Health Benefits of the United Methodist Church
OCM High Yield Fund II, L.P.
OCM High Yield Limited Partnership
OCM High Yield Trust
Pacific Gas & Electric Retirement Plan Master Trust
Pacific Gas & Electric Company Bargained VEBA
RK Mellon Foundation
c/o Oaktree Capital Management, LLC
333 South Grand Avenue
28th Floor
Los Angeles, California 90071
Ladies and Gentlemen:
COHO ENERGY, INC., a Texas corporation, as debtor-in-possession
(together with any successors and assigns that become such in accordance
herewith, the "Company"); COHO RESOURCES, INC., a Nevada corporation (together
with any successors and assigns that become such in accordance herewith, "CRI");
COHO LOUISIANA PRODUCTION COMPANY, a Delaware corporation (together with its
successors and assigns who become such in accordance herewith, "CLP"); COHO
EXPLORATION, INC., a Delaware corporation (together with any successors and
assigns that become such in accordance herewith, "CEX"); COHO OIL & GAS, INC., a
Delaware corporation (together with any successors and assigns that become such
in accordance herewith, "COG"); and INTERSTATE NATURAL GAS COMPANY, a Delaware
corporation (together with any successors and assigns that become such in
accordance herewith, "INGC") (the Company, CRI, CLP, CEX, COG and INGC,
collectively, the "ISSUERS" or the "OBLIGORS," and, each individually, an
"ISSUER" or "OBLIGOR"), hereby agree with you as set forth below.
1. PURCHASE AND SALE OF SECURITIES.
1.1 ISSUANCE OF SECURITIES.
(a) ISSUANCE OF NOTES. The Issuers will authorize the issuance
of Seventy-Two Million Dollars ($72,000,000) in aggregate principal amount of
their 15.0% Senior Subordinated Notes due March 31, 2007 (all such notes,
whether initially issued, or issued in exchange or substitution for, any such
note, in each case in accordance with the Note Agreement, are referred to
collectively herein as the "NOTES" and individually as a "NOTE"). The Notes
shall be issued
-2-
<PAGE> 6
pursuant to a Note Agreement (as may be amended, restated or otherwise modified
from time to time, the "NOTE AGREEMENT") in the form of Exhibit 1.1(a).
(b) ISSUANCE OF ADDITIONAL SHARES. The Company will authorize
the issuance of shares of New Common Stock, as defined in the Plan of
Reorganization pursuant to the Bankruptcy Case (such shares of New Common Stock,
the "Additional Shares") representing fourteen and four-tenths percent (14.4%)
of such New Common Stock on a fully diluted basis after giving effect to the
issuance of the Additional Shares and the Rights Offering (as defined in the
Plan of Reorganization), as such numbers may be adjusted from time to time. The
certificates representing the Additional Shares (the "Additional Share
Certificates") shall be in the form of Exhibit 1.1(b) hereto, and the Additional
Shares shall have the terms provided in the Additional Share Certificates.
(c) POST-CLOSING DELIVERY OF ADDITIONAL SHARES. The Company
agrees to issue the Additional Shares in accordance with the Plan of
Reorganization on the earlier to occur of:
(i) the closing of the Rights Offering pursuant to
the Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, if the Company is able to include
within that Registration Statement the Additional Shares, if such
registration of the Additional Shares can comply with all applicable
laws (including blue sky laws), and if such Registration Statement is
declared effective by the Securities and Exchange Commission; or
(ii) the first business day that is six months after
the consummation of the Rights Offering made pursuant to the
Registration Statement described above.,
the Company will deliver to the Purchasers or their successors and assigns, pro
rata as their respective interests may appear, certificates representing the
Additional Shares in accordance with Annex 1 and Annex 1(A) attached hereto and
such number of Additional Shares, if any, as shall be necessary to make the
aggregate number of Additional Shares delivered pursuant to this Agreement equal
to fourteen and four-tenths percent (14.4%) of all shares of New Common Stock
then outstanding after giving effect to the issuance of all shares of New Common
Stock pursuant to the Rights Offering. All certificates representing the
Additional Shares, when issued in accordance with the provisions of this
Agreement shall be affixed with the required legends giving notice of the
restrictions imposed pursuant to the Registration Rights Agreement and any other
applicable agreements related to the Plan of Reorganization, and you shall have
received copies of all such certificates.
1.2 THE CLOSING.
(a) PURCHASE AND SALE OF PURCHASED SECURITIES.
(i) The Issuers hereby agree to sell to you and you
hereby agree to purchase from the Issuers, in accordance with the
provisions hereof, the aggregate principal amount of Notes set forth
below your name on Annex 1 and Annex 1A; and
(ii) the Company hereby agrees to sell to you and you
hereby agree to purchase from the Company, in accordance with the
provisions hereof, the aggregate
-3-
<PAGE> 7
number and series of Additional Shares in accordance with Annex 1 and
Annex 1(A) attached hereto,
for an aggregate purchase price for such Notes and such Additional
Shares (collectively, the "PURCHASED SECURITIES") equal to one hundred
percent (100%) of the principal amount of the Notes to be purchased.
(b) THE CLOSING. The closing (the "CLOSING") of the sale of
the Notes will be held at 10:00 a.m., local time, on March 31, 2000, or such
other time and date as the Company and you shall agree (the "CLOSING DATE"), at
the offices of Anderson Kill & Olick, P.C., in Chicago, Illinois, or at such
other location in Chicago, Illinois, as the Company and you shall agree. At the
Closing the Issuers will deliver to you one or more Notes (as set forth below
your name on Annex 1 and Annex 1A), in the denominations and series indicated on
Annex 1 and Annex 1A, in the aggregate principal amount of your purchase, dated
the Closing Date and registered in the name of the holder indicated on Annex 1
and Annex 1A against payment by federal funds wire transfer in immediately
available funds of the purchase price therefor to the account described in Annex
2.
2. REPRESENTATIONS AND WARRANTIES OF THE OBLIGORS.
To induce you to enter into this Agreement and to purchase and pay for the
Purchased Securities to be delivered to you at the Closing, the Obligors
represent and warrant as set forth below (except for Section 2.8, which the
Company alone represents and warrants).
2.1 NATURE OF BUSINESS. The representations and warranties of the
Company set forth in the Credit Facility are true and correct in all material
respects as if they were made by the Company to the Purchasers hereunder as of
the Closing Date.
2.2 SALE IS LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE.
(a) SALE OF PURCHASED SECURITIES IS LEGAL AND AUTHORIZED.
Based in part on the representations and warranties in Section 3 hereof, each of
the issuance, sale and delivery of the Notes by the Issuers, the execution and
delivery by each Obligor and each Subsidiary of such Obligor of the Standby Debt
Documents to which it is a party, and compliance by each Obligor and each
Subsidiary of such Obligor with all of the provisions of the Standby Debt
Documents to which it is a party:
(i) is within the powers of such Obligor and each of
such Subsidiaries; and
(ii) is legal and does not conflict with, result in
any breach of any of the provisions of, constitute a default under, or
result in the creation of any Lien upon any Property of any Obligor or
any such Subsidiary under the provisions of:
(A) any Organic Document of, or any
agreement or instrument to which, such Obligor or such
Subsidiary is a party or by which such Obligor or such
Subsidiary or any of its respective Property may be bound;
-4-
<PAGE> 8
(B) any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority applicable
to such Obligor or such Subsidiary or any of its respective
Property; or
(C) any statute or other rule or regulation
of any Governmental Authority applicable to such Obligor or
such Subsidiary or any of its respective Property;
except for such conflicts, breaches, defaults or Liens which in the
aggregate could not be reasonably expected to have a Material Adverse
Effect.
(b) OBLIGATIONS ARE ENFORCEABLE. Each Obligor and each
Subsidiary of each Obligor has duly authorized by all necessary action on its
part including the execution and delivery of each of the Standby Debt Documents
to which it is a party. Each of the Standby Debt Documents to which such Obligor
or any such Subsidiary is a party has been executed and delivered by one or more
duly authorized officers of such Obligor or such Subsidiary, and constitutes a
legal, valid and binding obligation of such Obligor or such Subsidiary,
enforceable in accordance with its terms, except that, in each case, the
enforceability thereof may be:
(i) limited by applicable bankruptcy, reorganization,
arrangement, insolvency, moratorium, or other similar laws affecting
the enforceability of creditors' rights generally; and
(ii) subject to the availability of equitable
remedies.
2.3 GOVERNMENTAL CONSENT TO SALE OF PURCHASED SECURITIES.
(a) Neither the nature of the Obligors and any Subsidiary of
their Subsidiaries nor of any of their respective businesses or Properties, nor
any relationship between any Obligor or any such Subsidiary and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Notes, the execution and delivery of any Standby Debt Document,
nor the performance of the obligations of any Obligor or any Subsidiary
thereunder, is such as to require a consent, approval or authorization of, or
pre-filing, registration or qualification with, any Governmental Authority on
the part of any Obligor or such Subsidiary as a condition thereto, except for
confirmation of the Plan of Reorganization by the Bankruptcy Court.
(b) Each of the issuance and sale of the Notes, the incurrence
of the Indebtedness evidenced by the Standby Debt Documents and the other
obligations represented thereby, the execution and delivery of the Standby Debt
Documents and the performance of the obligations of each Obligor and the
Subsidiaries of each Obligor hereunder and thereunder, by each Obligor and its
Subsidiaries:
(i) is not subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935,
as amended, the Transportation Acts of the United States of America (49 U.S.C.),
as amended, or the Federal Power Act, as amended; and
-5-
<PAGE> 9
(ii) does not violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to any Obligor
or any of its Subsidiaries.
2.4 NO DEFAULTS UNDER NOTES AND ADDITIONAL SHARES.
No event has occurred and no condition exists that, upon the execution
and delivery of the Standby Debt Documents and the issuance and sale of the
Notes in connection therewith, would constitute a Default or an Event of
Default.
2.5 PRIVATE OFFERING OF PURCHASED SECURITIES.
No Obligor nor any Person acting on behalf of any Obligor has offered
any of the Notes or the Additional Shares for sale to, or solicited offers to
buy any thereof from, or otherwise approached or negotiated with respect thereto
with, any prospective purchaser, other than twenty-nine or fewer institutional
"accredited investors" (as defined in Regulation D under the Securities Act)
(including you), each of whom was offered all or a portion of the Notes and the
Additional Shares at private sale for investment.
2.6 USE OF PROCEEDS.
(a) USE OF PROCEEDS. The Obligors shall apply the proceeds
from the sale of the Purchased Securities as contemplated by the Plan of
Reorganization and the Note Agreement.
(b) MARGIN REGULATIONS. None of the transactions contemplated
in any of the Standby Debt Documents (including, without limitation, the use of
the proceeds from the sale of the Purchased Securities) violates or will result
in a violation of Section 7 of the Exchange Act, or any regulation issued
pursuant thereto, including, without limitation, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter 11.
(c) ABSENCE OF FOREIGN OR ENEMY STATUS. Neither the sale of
the Purchased Securities nor the use of proceeds from the sale thereof will
result in a violation of any of the foreign assets control regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended),
or any ruling issued thereunder or any enabling legislation or Presidential
Executive Order in connection therewith.
2.7 CREDIT FACILITY.
Upon consummation of the transactions contemplated by this Agreement,
the Obligors will have duly performed all of their obligations in connection
with the Credit Facility to be performed at or prior to the closing thereunder,
the Loan Documents (as such term is defined in the Credit Facility) thereunder
have all been duly executed and delivered and are in full force and effect, and
no Default or Event of Default (as such terms are defined in the Credit
Facility) has occurred thereunder. The Company has provided to you or your
agents true, correct and complete copies of each of the agreements and
instruments executed and delivered in connection with the Credit Facility, and
there is no other material agreement or understanding between or among any
Obligor and any of the holders of any Senior Indebtedness that has not been so
provided to you.
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2.8 CAPITALIZATION.
(a) CAPITALIZATION. All equity interests in the Company
(including Capital Stock), Rights and other Securities (including all shares of
the New Common Stock) have been duly authorized and validly issued and are fully
paid, non-assessable, free and clear of any Lien.
(b) RESTRICTIVE AGREEMENTS. Other than the Registration Rights
Agreement, to the best knowledge of the Responsible Officers of the Obligors,
there is no agreement or understanding between or among the holders of equity
interests in the Company or any Rights in respect of the foregoing, in each case
regarding any of the equity interests, Rights or the holders thereof.
2.9 NO PLACEMENT FEES.
No investment banker, placement agent, broker or other intermediary was
employed by any Obligor or its Affiliates in connection with the issuance of the
Purchased Securities or the incurrence or placement of the Indebtedness under
the Credit Facility, and, therefore, no fees or other consideration have been
paid or are payable to any such Persons in connection with such transaction.
2.10 CONFIRMATION ORDER.
A Confirmation Order has been duly entered by the Bankruptcy Court, is
in full force and effect and has not been vacated or otherwise modified since
its original entry.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser represents and warrants to each of the Issuers that:
3.1 PURCHASE FOR INVESTMENT.
(a) It is an "accredited investor" within the meaning of Rule
501(a) of the Securities Act and it is purchasing the Purchased Securities
listed on Annex 1 and Annex 1A below its name for its own account, or for the
account of one or more separate accounts maintained by it, for investment and
with no present intention of, or view to, distributing such Purchased Securities
or any part thereof except in compliance with the Securities Act, but without
prejudice to its right at all times to:
(i) sell or otherwise dispose of all or any part of
the Purchased Securities under a registration statement filed under the
Securities Act, or in a transaction exempt from the registration
requirements of such act, including a transaction pursuant to Rule
144A; and
(ii) have control over the disposition of all of its
assets to the fullest extent required by any applicable law;
(b) the execution, delivery and performance by it of the
Standby Debt Documents to which it is a party, including the purchase of the
Notes and the Additional Shares pursuant
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hereto, are within such Purchaser's corporate powers and have been duly and
validly authorized by all requisite action;
(c) the Standby Debt Documents to which it is a party have
been duly executed and delivered by each such Purchaser; and
(d) each Standby Debt Document to which it is a party
constitutes a valid and binding agreement of such Purchaser, enforceable in
accordance with its terms.
It is understood and acknowledged that, in making the representations
contained in Section 2.3(a) and Section 2.5, each Obligor is relying, to the
extent applicable, upon each Purchaser's representation as set forth in Section
3.1(a) above.
4. CLOSING CONDITIONS.
Your obligations under this Agreement, including, without limitation,
the obligation to purchase and pay for the Purchased Securities to be delivered
to you at the Closing, are subject to the following conditions precedent, and
the failure by the Obligors to satisfy all such conditions shall relieve you, at
your election, of all such obligations.
4.1 OPINIONS OF COUNSEL.
You shall have received from Fulbright & Jaworski, L.L.P., counsel to
the Obligors, a closing opinion, dated as of the Closing Date, and substantially
in the form set forth in Exhibit 4.1 and as to such other matters as you may
reasonably request. This Section 4.1 shall constitute direction by the Obligors
to such counsel named in this Section 4.1 to deliver such closing opinion to
you.
4.2 REPRESENTATIONS AND WARRANTIES TRUE; COMPLIANCE.
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties contained in Section 2 shall be true in all material respects on
the Closing Date with the same effect as though made on and as of that date.
(b) COMPLIANCE WITH THIS AGREEMENT AND STANDBY DEBT DOCUMENTS.
Each Obligor shall have performed and complied with all agreements and
conditions contained herein and in the other Standby Debt Documents that are
required to be performed or complied with by such Obligor on or prior to the
Closing Date, and such performance and compliance shall remain in effect on the
Closing Date, unless such performance or compliance has been waived by you in
accordance with the terms hereof.
4.3 OFFICERS' CERTIFICATES.
You shall have received a certificate dated the Closing Date and signed
(on behalf of each Issuer) by the Secretary of each Issuer, substantially in the
form of Exhibit 4.3.
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4.4 ORGANIC DOCUMENTS.
You shall have received:
(a) GOOD STANDING CERTIFICATES - for each Obligor, a copy of
its certificate of incorporation certified by the Texas, Nevada or Delaware
Secretary of State, as the case may be, and a short-form certificate of good
standing from the Texas, Nevada or Delaware Secretary of State, as the case may
be, certifying the due organization and good standing of such Obligor; and
(b) ORGANIC DOCUMENTS - for each Obligor, a copy of its
Organic Documents attached to one of the Certificates provided pursuant to
Section 4.3 above, including such of its Organic Documents as may be certified
by the Texas, Nevada or Delaware Secretary of State, as the case may be.
4.5 LEGALITY.
The Notes shall on the Closing Date qualify as a legal investment for
you (if you are an insurance company) under applicable insurance law (without
regard to any "basket" or "leeway" provisions), and in any case, the acquisition
thereof shall not subject you to any penalty or other onerous condition pursuant
to any such law or regulation, and you shall have received such evidence as you
may reasonably request to establish compliance with this condition.
4.6 STANDBY DEBT DOCUMENTS.
The Issuers shall have executed and delivered to you the Note
Agreement, in the form of Exhibit 1.1(a), and such Note Agreement shall be in
full force and effect. The Issuers shall have executed, delivered and issued to
you the Notes in the respective amounts set forth below your name on Annex 1 and
Annex 1A.
4.7 [Reserved]
4.8 CREDIT FACILITY.
The Obligors shall have delivered to you or your agent a copy of the
fully executed Credit Facility, which shall be in form and substance
satisfactory to you and your special counsel, certified as true and correct by
an officer of the Company. On the Effective Date, after Closing, the Company
will have at least Fifteen Million Dollars ($15,000,000) in cash and borrowing
availability under the Credit Facility.
4.9 PLAN OF REORGANIZATION.
A Confirmation Order shall have been entered by the Bankruptcy Court
and shall be in full force and effect. The Issuers and all other parties to the
Plan of Reorganization shall have performed all of their obligations thereunder
as of the date of this Agreement.
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4.10 CERTAIN CONSENTS AND AGREEMENTS.
Each holder of any Indebtedness, equity interests, Rights or other
Securities of any Obligor, and each party to any other contract or other
agreement with any Obligor, the consent of which is, in the reasonable judgment
of you and your special counsel, necessary to permit such Obligor to enter into
the transactions contemplated by this Agreement and to perform its obligations
in respect of the Standby Debt Documents and the Credit Facility, shall have
executed and delivered to you a consent, in form and substance reasonably
acceptable to you and your special counsel, to the transactions contemplated by
the Standby Debt Documents.
4.11 PRIVATE PLACEMENT NUMBERS. Private placement numbers for each of
the Notes from the CUSIP Service Bureau of Standard & Poor's, a division of the
McGraw-Hill Companies, shall have been obtained by you.
4.12 [Reserved]
4.13 FEES AND EXPENSES.
Subject to Bankruptcy Court approval, the Issuers shall have paid in
full the following fees to and expenses of the Purchasers:
(a) Two Hundred Thousand Dollars ($200,000), payable to PPM
America, Inc., as agent, on behalf of itself and the other Purchasers as an
initial deposit (the "Initial Deposit") to be applied against out-of-pocket
costs and expenses of the Purchasers in connection with their due diligence
review and the preparation and negotiation of the commitment letter and loan
documentation; and
(b) a fee equal to the greater of One Million Dollars
($1,000,000) or three and one-half percent (3.50%) of the aggregate principal
amount of the Notes purchased; and
(c) all fees and disbursements required to be paid pursuant to
Section 6.6 (to the extent not already paid by application of the $200,000
above).
4.14 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with the issuance and sale of the
Notes and all documents and papers relating thereto shall be reasonably
satisfactory to you and your special counsel. You and your special counsel shall
have received copies of such documents and papers as you or they may reasonably
request in connection therewith or in connection with your special counsel's
closing opinion, all in form and substance reasonably satisfactory to you and
your special counsel.
4.15 REGISTRATION RIGHTS AGREEMENT.
The Company shall have caused to be executed and delivered a
Registration Rights Agreement, the Registration Rights Agreement to be in the
form attached hereto as Exhibit 4.15.
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The Registration Rights Agreement shall be in full force and effect, and an
executed copy of such Registration Rights Agreement shall have been delivered to
each Purchaser.
5. INTERPRETATION OF THIS AGREEMENT.
5.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ADDITIONAL SHARE CERTIFICATES - Section 1.1(b).
ADDITIONAL SHARES -Section 1.1(b).
AGREEMENT - means this Securities Purchase Agreement, as it may be
amended, restated or otherwise modified from time to time.
BANKRUPTCY CASE - means, as consolidated for administrative purposes
pursuant to order of the Bankruptcy Court, the cases commenced by each Obligor
under Chapter 11 of the United States Bankruptcy Code on August 23, 1999.
BANKRUPTCY COURT - means the United States Bankruptcy Court for the
Northern District of Texas.
CAPITAL STOCK - means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
CLOSING - Section 1.2(b).
CLOSING DATE - Section 1.2(b).
CODE - means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
COMPANY - the introductory sentence of this Agreement.
CONFIRMATION ORDER - means a final, non-appealable order of the
Bankruptcy Court confirming the Plan of Reorganization.
CREDIT FACILITY - means the Credit Agreement together with the
documents related thereto (including, without limitation, any guaranty
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any Refinancing Indebtedness.
ENVIRONMENTAL LAWS - means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or
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reclamation of natural resources, the management, release or threatened release
of any Hazardous Material or to health and safety matters.
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all rules, regulations and interpretations by the
Internal Revenue Service or the Department of Labor thereunder.
EXCHANGE ACT - means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
GOVERNMENTAL AUTHORITY - means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
GOVERNMENTAL RULE - means any statute, law, regulation, ordinance,
rule, judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, requirement of, or other governmental restriction or any
similar binding form of decision of or determination by, or any binding
interpretation or administration of any of the foregoing by, any Governmental
Authority, whether now or hereafter in effect.
ISSUERS - the introductory sentence of this Agreement.
MATERIAL ADVERSE EFFECT - means a material adverse effect on (a) the
business, assets, operations or condition (financial or otherwise) of the
Company, or of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company or of any its Subsidiaries to perform any of their
respective obligations under any Standby Debt Document to which it is a party or
(c) the rights of or benefits available to the Purchasers under any Standby Debt
Document.
NEW COMMON STOCK - See Section 2.47 of the Plan of Reorganization.
NOTE AGREEMENT - Section 1.1(a).
NOTES - Section 1.1(a).
OBLIGORS - the introductory sentence of this Agreement.
ORGANIC DOCUMENTS - means, relative to any Person, its articles of
organization, formation or incorporation (or comparable document), its by-laws
or operating agreement and all shareholder agreements, partnership agreements,
limited liability company or operating agreements, voting trusts and similar
arrangements applicable to ownership.
PLAN OF REORGANIZATION - has the meaning set forth in the recitals of
the Credit Agreement.
PERSON - means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
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PROPERTY - means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
PURCHASED SECURITIES - means the Notes and the Additional Shares to be
purchased by each Purchaser pursuant to Section 1.2 of this Agreement.
REGISTRATION RIGHTS AGREEMENT - Section 4.15.
RESPONSIBLE OFFICER - means the president or chief financial officer of
the Company and any senior management officer of any Subsidiary thereof.
RIGHT - means and includes:
(a) any warrant or any option (including, without limitation,
employee stock options) to acquire Capital Stock;
(b) any right issued to holders of the Capital Stock of the
Company, or any class thereof, permitting the holders thereof to subscribe to
additional Capital Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Capital Stock pursuant to the
provisions of any Security convertible or exchangeable into Capital Stock; and
(d) any similar right permitting the holder thereof to
subscribe for or purchase Capital Stock.
RIGHTS OFFERING - see section 2.63 of the Plan of Reorganization.
RULE 144A - means Rule 144A promulgated under the Securities Act, 17
C.F.R. Section 230.144A, as such rule may be amended from time to time.
SECURITIES ACT - means the Securities Act of 1933, as amended from time
to time.
SECURITY - means "security" as defined by Section 2(l) of the
Securities Act.
STANDBY DEBT DOCUMENTS - means and includes this Agreement, the Note
Agreement, the Notes, the Additional Share Certificates and any other
agreements, certificates and instruments to be executed pursuant to the terms of
any of the foregoing, as each may be amended, restated or otherwise modified
from time to time.
SUBSIDIARY - means any subsidiary of any of the Issuers. For purposes
of the representations and warranties made herein on the Effective Date, the
term "Subsidiary" includes each of the Issuers and their subsidiaries.
5.2 OTHER DEFINITIONS.
Except as otherwise provided herein, all capitalized terms as used
herein shall have the respective meanings ascribed to them in the form of Note
Agreement attached hereto.
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5.3 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
including actions taken by or on behalf of any partnership in which such Person
is a general partner.
5.4 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of
the Sections of this Agreement and the Table of Contents of this Agreement
appear as a matter of convenience only, do not constitute a part hereof and
shall not affect the construction hereof. The words "herein," "hereof,"
"hereunder" and "hereto" refer to this Agreement as a whole and not to any
particular Section or other subdivision. References to Sections are, unless
otherwise specified, references to Sections of this Agreement. References to
Annexes and Exhibits are, unless otherwise specified, references to Annexes and
Exhibits attached to this Agreement.
(b) INDEPENDENT CONSTRUCTION. Each covenant contained herein
shall be construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance with any one
covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with one or more other covenants.
5.5 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS. IN
ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY LAWFULLY DO SO, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS THE APPLICABLE INTEREST LAW (AS
DEFINED IN THE NOTE AGREEMENT).
6. MISCELLANEOUS.
6.1 NOTICES.
(a) METHOD; ADDRESS. All notices to be provided hereunder or
under the Notes shall be in writing and shall be delivered either by nationwide
overnight courier or by facsimile transmission (receipt acknowledged by
electronic transmission). Notices to any Issuers shall be addressed as set forth
on Annex 2, or at such other address of which such Issuer shall have notified
each holder of Notes. Notices to the holders of the Notes shall be addressed as
set forth on Annex 1 and Annex 1A by such holder, or at such other address of
which such holder shall have notified the Issuers (and the Issuers shall record
such address in the register for the registration and transfer of Notes
maintained pursuant to Section 2.1 of the Note Agreement).
(b) WHEN GIVEN. Any notice addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the address
of the addressee (whether or not delivery is accepted except for the negligence
of the delivering party) or received by the telecopy
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machine of the recipient (assuming evidence of electronic confirmation of
transmission). Any notice not so addressed and delivered shall be ineffective.
(c) SERVICE OF PROCESS. Notwithstanding the foregoing
provisions of this Section 6.1, service of process in any suit, action or
proceeding arising out of or relating to this Agreement or any document,
agreement or transaction contemplated hereby, or any action or proceeding to
execute or otherwise enforce any judgment in respect of any breach hereunder or
under any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 6.7(c).
6.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by any holder of Notes on the Closing Date (except the Notes
themselves), and financial statements, certificates and other information
previously or hereafter furnished to any holder of Notes, may be reproduced by
any Issuers or any holder of Notes by any photographic, photostatic, microfilm,
micro-card, miniature photographic, digital or other similar process and each
holder of Notes may destroy any original document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by any Issuer or such
holder of Notes in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. Nothing in this Section 6.2 shall prohibit any Issuers
or any holder of Notes from contesting the accuracy or validity of any such
reproduction.
6.3 SURVIVAL.
All warranties, representations, certifications and covenants made by
the Issuers herein, in the Note Agreement or in any certificate or other
instrument delivered hereunder shall be ordered to have been relied upon by each
holder of Notes and shall survive the delivery of the Notes and the Additional
Shares regardless of any investigation made by or on behalf of any party hereto.
All statements in any certificate or other instrument delivered pursuant to the
terms hereof or of the Note Agreement shall constitute representations and
warranties of the Issuers hereunder. All obligations hereunder (other than
payment of the Notes, but including, without limitation, reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof.
6.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of the Notes,
and shall be enforceable by any such holder whether or not an express assignment
to such holder of rights hereunder shall have been made by any such holder or
its successor or assign. Anything contained in this Section 6.4 notwithstanding,
the Issuers may not assign any of their respective rights, duties or obligations
hereunder or under any of the other Standby Debt Documents without the prior
written consent of all holders of Notes.
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For purposes of the avoidance of doubt, any holder of a Note shall be permitted
to pledge or otherwise grant a Lien in and to such Note (including, without
limitation, pledging such Note to a trustee for the benefit of certain secured
noteholders pursuant to documents relating to the financing of such holder or to
one or more banks or other institutions providing financing in connection with
the purchase by such holder of such Note); provided, however, that any such
pledgee or holder of a Lien shall not be considered a holder hereunder until it
shall have foreclosed upon such Note in accordance with applicable law and
informed the Issuers, in writing, of the same.
6.5 AMENDMENT AND WAIVER.
Subject to further limitations set forth in the Note Agreement, this
Agreement may be amended, and the observance of any term hereof may be waived,
with (and only with) the written consent of the Issuers and the Required
Holders.
6.6 EXPENSES.
(a) Amendments and Waivers. The Issuers shall pay when billed
the reasonable out-of-pocket costs and expenses (including reasonable attorneys'
fees) incurred by the holders of the Notes in connection with the consideration,
negotiation, preparation or execution of any amendments, waivers, consents,
standstill agreements and other similar agreements with respect to this
Agreement or any other Standby Debt Document (whether or not any such
amendments, waivers, consents, standstill agreements or other similar agreements
are executed).
(b) RESTRUCTURING AND WORKOUT; INSPECTIONS. At any time when
any Issuers and the holders of Notes are conducting restructuring or workout
negotiations in respect hereof, or an Event of Default exists, the Issuers shall
pay when billed the reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees and the fees of professional advisors) incurred by
the holders of the Notes in connection with the assessment, analysis or
enforcement of any rights or remedies that are or may be available to the
holders of Notes; provided, however, that at all other times inspections will be
at the expense of the inspecting holder of Notes.
(c) COLLECTION. If the Issuers shall fail to pay when due any
principal of, or Prepayment Fee (as defined in the Note Agreement) or interest
on, any Note, the Issuers shall pay to each holder of Notes, to the extent
permitted by law, such amounts as shall be sufficient to cover the out-of-pocket
costs and expenses, including but not limited to reasonable attorneys' fees,
incurred by such holder in collecting any sums due on such Note.
6.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC.
(a) WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) CONSENT TO JURISDICTION. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE
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DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR
PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH
UNDER THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, MAY BE BROUGHT BY SUCH PARTY IN ANY
FEDERAL DISTRICT COURT LOCATED IN CHICAGO, ILLINOIS, OR ANY ILLINOIS STATE COURT
LOCATED IN CHICAGO, ILLINOIS, AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT,
AND BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NONEXCLUSIVE IN PERSONAM
JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN
PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND
HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE FULLEST EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR
TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY
DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE
CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED
STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) OTHER FORUMS. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS, PROCESSES OR
SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION
OVER THE ISSUER IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
6.8 INDEMNIFICATION OF EACH HOLDER.
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From and at all times after the date of this Agreement, and in addition to
all of the holders' other rights and remedies against the Issuers, the Issuers
agree jointly and severally to indemnify and hold harmless each holder of the
Notes and each director, officer, employee, agent, investment advisor and
affiliate of each such holder ("Indemnified Parties") against any and all claims
(whether valid or not), losses, damages, liabilities, costs and expenses of any
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees, costs and expenses), incurred by or asserted against such Indemnified
Party, from and after the date hereof, as a result of, arising from, or in any
way relating to, whether directly or indirectly, the execution, delivery,
performance or enforcement of this Agreement or the other Standby Debt Documents
or any transactions contemplated herein or therein, or arising out of any breach
of any representation or warranty, covenant or agreement of the Issuers or any
of the Subsidiaries under any Standby Debt Document, including, without
limitation any of the foregoing relating to the violation of any Environmental
Law applicable to the Properties of the Issuers and their Subsidiaries;
provided, however, that no Indemnified Party shall have the right to be
indemnified hereunder for any liability resulting from the willful misconduct or
gross negligence of such Indemnified Party or with respect to liabilities
arising from legal proceedings commenced against such Indemnified Party by a
security holder or creditor of such Indemnified Party based upon alleged rights
afforded to such security holder or creditor solely in its capacity as such. All
of the foregoing losses, damages, costs and expenses of any Indemnified Party
shall be payable as and when incurred upon demand and shall be additional
obligations hereunder, except in the event any such Indemnified Party shall have
been added to such legal proceeding by the Issuer in order to establish the
liability of such Indemnified Party arising from its gross negligence or willful
misconduct. Without limiting the generality of the foregoing, but subject to the
foregoing, each Indemnified Party shall be entitled to collect, and the Issuers
shall be obligated jointly and severally to advance to each Indemnified Party,
to the fullest extent permitted by applicable law, all expenses (including,
without limitations reasonable fees and disbursements of counsel) attendant to
defending against any such claims (whether valid or not), when and as incurred,
regardless of whether any judicial determination of the Indemnified Party's
entitlement to such indemnity has been made, unless a final judicial
determination is made that such Indemnified Party is not entitled to such
indemnity, in which case such Indemnified Party shall promptly repay to the
Issuers, with interest at the applicable statutory rate applicable to judgments
in the relevant jurisdiction, all amounts so advanced by the Issuers. The
obligations of the Issuers and the rights of the Indemnified Parties under this
Section 6.8 shall survive the termination of this Agreement.
6.9 ENTIRE AGREEMENT.
This Agreement constitutes the final written expression of all of the terms
hereof and is a complete and exclusive statement of those terms.
6.10 EXECUTION IN COUNTERPART.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
[Remainder of page intentionally left blank; next page is the signature
page.]
-18-
<PAGE> 22
If this Agreement is satisfactory to you, please so indicate by signing the
acceptance at the foot of a counterpart hereof and return such counterpart to
each Obligor, whereupon this Agreement shall become binding among us in
accordance with its terms.
COHO ENERGY, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO RESOURCES, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO LOUISIANA PRODUCTION
COMPANY
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO EXPLORATION, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
COHO OIL & GAS, INC.
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
<PAGE> 23
INTERSTATE NATURAL GAS
COMPANY
By: /s/ ANNE MARIE O'GORMAN
-------------------------------
Name: Anne Marie O'Gorman
Title: Senior Vice President
<PAGE> 24
PPM AMERICA SPECIAL INVESTMENTS FUND, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By: /s/ STUART J. LISSNER
----------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P.
BY: PPM AMERICA, INC., ITS ATTORNEY-IN-FACT
By: /s/ STUART J. LISSNER
----------------------------------------------
Name: STUART J. LISSNER
Title: Managing Director
APPALOOSA INVESTMENT LIMITED PARTNERSHIP I
BY: APPALOOSA MANAGEMENT L.P., ITS GENERAL PARTNER
By: Appaloosa Partners Inc., its General Partner
By: /s/ JAMES E. BOLIN
----------------------------------------------
Name: James E. Bolin
Title: Vice President
PALOMINO FUND LTD.
BY: APPALOOSA MANAGEMENT L.P., ITS GENERAL PARTNER
By: /s/ JAMES E. BOLIN
----------------------------------------------
Name: James E. Bolin
Title: Vice President
<PAGE> 25
TERSK LLC
BY: APPALOOSA MANAGEMENT L.P., ITS MANAGING MEMBER
By: Appaloosa Management L.P., its General Partner
By: /s/ JAMES E. BOLIN
----------------------------------------------
Name: JAMES E. BOLIN
Title: VICE PRESIDENT
OAKTREE CAPITAL MANAGEMENT, LLC,
as agent and on behalf of certain funds and accounts
By:
----------------------------------------------
Name:
Title:
By:
----------------------------------------------
Name:
Title:
PACHOLDER VALUE OPPORTUNITY FUND, L.P.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
PACHOLDER HIGH YIELD FUND, INC.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
ONE GROUP HIGH YIELD BOND FUND
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-IN-FACT
By:
----------------------------------------------
Name:
Title:
<PAGE> 26
Agreed to and Accepted by:
PACHOLDER VALUE OPPORTUNITY
FUND, L.P.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-
IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
Principal Amount of Notes:
$1,500,000.00
Number of Additional Shares:
- --------------------------------------
PACHOLDER HIGH YIELD FUND, INC.
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-
IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
Principal Amount of Notes:
$2,000,000.00
Number of Additional Shares:
- -------------------------------------
<PAGE> 27
ONE GROUP HIGH YIELD BOND FUND
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-
IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
Principal Amount of Notes:
$2,000,000.00
Number of Additional Shares:
- -------------------------------------
EVANGELICAL LUTHERAN CHURCH IN
AMERICA BOARD OF PENSIONS
BY: PACHOLDER ASSOCIATES, INC., ITS ATTORNEY-
IN-FACT
By: /s/ BRUCE A. FERGUSON
----------------------------------------------
Name: Bruce A. Ferguson
Title: Senior Vice President
Principal Amount of Notes:
$1,000,000.00
Number of Additional Shares:
- -------------------------------------
<PAGE> 28
Agreed to and Accepted by:
OAKTREE CAPITAL MANAGEMENT, LLC,
as general partner of and investment manager for
those entities set forth on Annex 1 hereto
By: /s/ SHELDON STONE
----------------------------------------------
Sheldon Stone
Principal
By: /s/ TIMOTHY ANDREWS
----------------------------------------------
Timothy Andrews
Senior Vice President
Principal Amount of Notes:
<PAGE> 1
EXHIBIT 10.10
AGREEMENT
THIS AGREEMENT (this "Agreement") dated as of April 13, 2000 by and
between Coho Energy, Inc., a Texas Corporation, Coho Resources, Inc., its
employees, officers, agents, subsidiaries, affiliates, and all related entities
(hereafter collectively referred to as the "Company"), and Anne Marie O'Gorman
(the "Executive").
WITNESSETH:
WHEREAS, the Company filed for Chapter 11 reorganization in a
bankruptcy case styled "In re Coho Energy, Inc., et al.," pending before the
United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the "Bankruptcy Case");
WHEREAS, the Company has filed a Plan of Reorganization (the "Plan")
that has now gone effective on March 31, 2000 (the "Effective Date");
WHEREAS, Executive has an Employment Agreement dated as of September
19, 1995, that was rejected on the Effective Date of the Plan;
WHEREAS, Executive has filed Proof of Claim for damages as a result of
the rejection of the Employment Agreement in the approximate amount of
$777,400; and
WHEREAS, the Company and the Executive wish to compromise and settle
the entitlements of the Executive under the Employment Agreement and the Proof
of Claim by entering into this Agreement.
NOW, THEREFORE, based on the foregoing recitations and consideration
described herein and for other good and valuable consideration, the Company and
Executive agree as follows:
1. Payment of Claim. Executive will receive the sum of $175,000 payable
in four (4) installments without interest. The first payment will be made as
soon as practicable after this Agreement is signed, the three (3) additional
installments will be payable on July 1, 2000, October 1, 2000 and January 1,
2001 or the next succeeding business day if any of those days are not business
days.
2. Stay Bonus and Forgiveness of Sole Stock Purchase Loan. The Company
confirms that Executive will be entitled to the Stay Bonus in the amount of
$87,500 as set forth in Plan and the Disclosure Statement. The Stay Bonus will
be payable as set forth in the Plan and Disclosure Statement. The Company agrees
that if it voluntarily terminates Executive prior to the 270th day after the
Effective Date, Executive will still be entitled the deferred portion of the
Stay Bonus. The Company further confirms that Executive has been released from
any claim the Company may have in connection with the sole stock purchase loan
previously made to the Executive.
<PAGE> 2
3. Additional Benefits. At the time the Executive is terminated, she will
be entitled to receive severance as set forth in the attached Exhibit E.
Executive will be considered to have 15.02 years of service for purposes of the
severance policy as of the Effective Date. The Company will also pay the cost of
medical/dental coverage continuation under COBRA for a period of up to one (1)
year after Executive's termination. After this benefit is exhausted, Executive
may still be eligible for benefits under COBRA, at their own expense.
4. Release. Subject to the payment of the amounts set forth in paragraph
1 above and as more fully set forth in the Release attached hereto as Exhibit
"A", the Executive releases, acquits and discharges the Company from any and all
claims or causes of action he may have as a result of the rejection of his
Executive Severance Agreement and the Proof of Claim filed in the bankruptcy
cases. Executive shall forthwith file a withdrawal of their Proof of Claim.
5. Expenses. In the event any litigation is initiated after the date of
this Agreement with respect to this Agreement or its subject matter, any
prevailing party as determined by a court of competent jurisdiction shall be
entitled to recover such party's reasonable attorneys' fees from and against any
non-prevailing party.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Texas. Venue and jurisdiction
of any action relating to this Agreement shall lie in Dallas County, Texas.
7. Notice. Any notice, payment, demand or communication required or
permitted to be given by this Agreement shall be deemed to have sufficiently
given or served for all purposes if delivered personally or if sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at its address set forth below such party's signature to
this Agreement or to such other address as shall have been furnished in writing
by such party for whom the communication is intended. Any such notice shall be
deemed to be given on the date so delivered.
8. Severability. In the event any provisions hereof shall be modified or
held ineffective by any court, such adjudication shall not invalidate or render
ineffective the balance of the provisions hereof.
9. Waiver. Any waiver or breach of any of the terms of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions,
or any other terms or conditions, nor shall any failure to enforce any
provisions hereof operate as a waiver of such provision or any other provision
hereof.
10. Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns.
<PAGE> 3
11. Section Headings. The section headings in this Agreement have been
inserted for convenience and shall not be used for interpretative purposes or
to otherwise construe this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above and intend that this Agreement have the effect of a
sealed instrument.
COHO ENERGY, INC.,
Reorganized Debtor
14785 Preston Road, Suite 860
Dallas, Texas 75240
By: /s/ MICHAEL Y. MCGOVERN
-------------------------------------
Name: Michael Y. McGovern
-----------------------------------
Title: President
----------------------------------
COHO RESOURCES, INC.,
Reorganized Debtor
By: /s/ MICHAEL Y. MCGOVERN
-------------------------------------
Name: Michael Y. McGovern
-----------------------------------
Title: President
----------------------------------
/s/ ANNE MARIE O'GORMAN
----------------------------------------
ANNE MARIE O'GORMAN
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
THIS AGREEMENT (this "Agreement") dated as of April 13th, 2000 by and
between Coho Energy, Inc., a Texas Corporation, Coho Resources, Inc., its
employees, officers, agents, subsidiaries, affiliates, and all related entities
(hereafter collectively referred to as the "Company"), and Larry L. Keller (the
"Executive").
WITNESSETH:
WHEREAS, the Company filed for Chapter 11 reorganization in a bankruptcy
case styled "In re Coho Energy, Inc., et al.," pending before the United States
Bankruptcy Court for the Northern District of Texas, Dallas Division (the
"Bankruptcy Case");
WHEREAS, the Company has filed a Plan of Reorganization ("the Plan") that
has now gone effective on March 31, 2000 (the "Effective Date");
WHEREAS, Executive had an Executive Severance Agreement dated as of
November 9, 1995, that was rejected on the Effective Date of the Plan;
WHEREAS, Executive has filed Proof of Claim for damages as a result of the
rejection of the Executive Severance Agreement in the approximate amount of
$369,150; and
WHEREAS, the Company and the Executive wish to compromise and settle the
entitlements of the Executive under the Executive Severance Agreement and the
Proof of Claim by entering into this Agreement.
NOW, THEREFORE, based on the foregoing recitations and consideration
described herein and for other good and valuable consideration, the Company and
Executive agree as follows:
1. Payment of Claim. Executive will receive the sum of $163,000 payable in
four (4) installments without interest. The first payment will be made as soon
as practicable after this Agreement is signed, the three (3) additional
installments will be payable on July 1, 2000, October 1, 2000 and January 1,
2001 or the next succeeding business day if any of these days are not business
days.
2. Stay Bonus and Forgiveness of Sole Stock Purchase Loan. The Company
confirms that Executive will be entitled to the Stay Bonus in the amount of
$81,500 as set forth in Plan and the Disclosure Statement. The Stay Bonus will
be payable as set forth in the Plan and Disclosure Statement. The Company agrees
that if it voluntarily terminates Executive prior to the 270th day after the
Effective Date, Executive will still be entitled the deferred portion of the
Stay Bonus. The Company further confirms that Executive has been released from
any claim the Company may have in connection with the sole stock purchase loan
previously made to the Executive.
<PAGE> 2
3. Additional Benefits. The Company will also pay the cost of
medical/dental coverage continuation under COBRA for a period of up to one (1)
year after Executive's termination. After this benefit is exhausted, Executive
may still be eligible for benefits under COBRA, at their own expense. Executive
shall not be entitled to participate in Company's new Severance Policy.
4. Release. Subject to the payment of the amounts set forth in
paragraph 1 above and as more fully set forth in the Release attached hereto as
Exhibit "A", the Executive releases, acquits and discharges the Company from
any and all claims or causes of action he may have as a result of the rejection
of his Executive Severance Agreement and the Proof of Claim filed in the
bankruptcy cases. Executive shall forthwith file a withdrawal of their Proof
of Claim.
5. Expenses. In the event any litigation is initiated after the date
of this Agreement with respect to this Agreement or its subject matter, any
prevailing party as determined by a court of competent jurisdiction shall be
entitled to recover such party's reasonable attorneys' fees from and against
any non-prevailing party.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Texas. Venue and
jurisdiction of any action relating to this Agreement shall lie in Dallas
County, Texas.
7. Notice. Any notice, payment, demand or communication required or
permitted to be given by this Agreement shall be deemed to have sufficiently
given or served for all purposes if delivered personally or if sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at its address set forth below such party's signature
to this Agreement or to such other address as shall have been furnished in
writing by such party for whom the communication is intended. Any such notice
shall be deemed to be given on the date so delivered.
8. Severability. In the event any provisions hereof shall be modified
or held ineffective by any court, such adjudication shall not invalidate or
render ineffective the balance of the provisions hereof.
9. Waiver. Any waiver or breach of any of the terms of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions,
or any other terms or conditions, nor shall any failure to enforce any
provisions hereof operate as a waiver of such provision or any other provision
hereof.
10. Successors. This Agreement shall be binding upon and inure to the
benefit of the Executive and his heirs, executors, administrators and legal
representatives. This Agreement shall be binding upon and inure to the benefit
of the Company and its successors and assigns.
11. Section Headings. The section headings in this Agreement have been
inserted for convenience and shall not be used for interpretative purposes or
to otherwise construe this Agreement.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above and intend that this Agreement have the effect of a
sealed instrument.
COHO ENERGY, INC.,
Reorganized Debtor
14785 Preston Road, Suite 860
Dallas, Texas 75240
By: /s/ MICHAEL Y. MCGOVERN
-------------------------------------
Name: Michael Y. McGovern
-----------------------------------
Title: President
----------------------------------
COHO RESOURCES, INC.,
Reorganized Debtor
By: /s/ MICHAEL Y. MCGOVERN
-------------------------------------
Name: Michael Y. McGovern
-----------------------------------
Title: President
----------------------------------
/s/ LARRY J. KELLER
----------------------------------------
LARRY J. KELLER
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
dated as of
April 1, 2000
between
COHO ENERGY, INC.
and
MICHAEL Y. McGOVERN
<PAGE> 2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 2000 (this
"Agreement") by and among COHO ENERGY, INC., a Texas corporation (the
"Company"), and MICHAEL Y. McGOVERN (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the exploration for and
production and transmission of crude oil and natural gas; and
WHEREAS, the Company desires to engage Executive as President
and Chief Executive Officer upon the terms and conditions contained in this
Agreement; and
WHEREAS, Executive desires to be so employed by the Company
from and after the Effective Date, as hereinafter defined, upon the terms and
conditions contained in this Agreement; and
WHEREAS, the parties hereto desire to enter this Agreement
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual covenants and agreements herein contained and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties, intending legally to be bound, hereby agree as
follows:
1. Employment. The Company hereby employs Executive, and
Executive hereby accepts such employment, upon the terms and conditions
hereinafter set forth.
(a) Position. Executive shall be the President and Chief
Executive Officer of the Company. At all times during the term of this
Agreement, the Company shall cause Executive to be nominated as a member of the
Company's Board of Directors (the "Board").
(b) Duties. The Executive shall have full responsibility
for all the day-to-day activities of the Company and its affiliated companies
and over all officers and employees of the Company, including, but not limited
to, the power to hire and, subject to contractual commitments, fire employees,
and shall have responsibilities commensurate with those normally
1
<PAGE> 3
performed by a chief executive officer. In such capacity, the Executive shall
report solely and directly to the Board.
(c) Place of Employment. During the term of this Agreement,
the Executive shall perform the services required by this Agreement at the
principal executive office of the Company.
(d) Performance of Duties. The Executive agrees to devote
his full time and best efforts to the performance of his duties and to serve the
Company well and faithfully in conformity with the direction of the Board and
written policies of the Company. The foregoing shall not prevent Executive from
serving on the boards of directors of which he is a member as of the Effective
Date (which have been disclosed and approved prior to the execution hereof as
listed on Appendix B) so long as such service does not interfere or conflict
with the Executive's discharge of his duties under this Agreement.
2. Term.
(a) Effective Date. This Agreement shall become effective
on the effective date (the "Effective Date") of the Debtors' and Official
Committee of Unsecured Creditors' Joint Plan of Reorganization ("Plan").
(b) Termination Date. The term of employment under this
Agreement shall terminate upon the earliest to occur of the following events
(the date specified in each such event is referred to as the "Termination
Date"):
(i) Two (2) years after the Effective Date; provided,
however, that the term of this Agreement shall automatically
be extended from day to day so that it always has a remaining
term of two (2) years, unless the Company or Executive gives
written notice to the other party that it does not wish to
continue to extend the term, in which event the term will
terminate two (2) years from the date of such notice;
(ii) the date upon which the Company terminates the
Executive's employment by the Company for Cause or without
Cause (it being understood that the date of termination shall
be the date upon which the Company provides the Executive
written notice of such event);
(iii) the date of the Executive's death;
(iv) the date upon which the Company terminates
Executive's employment by the Company as a result of
Executive's Disability;
(v) the date upon which Executive effects a Voluntary
Termination with or without (it being understood that the date
of termination shall be the date upon which Executive provides
the Company written notice of such event); or
(vi) the date of a Change of Control.
2
<PAGE> 4
(c) Performance of Duties During Notice Period. In the
event that either (i) the Company terminates the Executive's employment pursuant
to Section 2(b)(ii) hereof or (ii) Executive effects a Voluntary Termination
pursuant to Section 2(b)(v), Executive, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or if shorter, until the Termination Date), and shall, in such event, be
paid the compensation and benefits hereunder for the remainder of such period.
3. Compensation and Benefits.
(a) Base Salary.
(i) The Company shall pay the Executive a base salary
at the annual rate of $350,000 per year ("Base Salary").
(ii) The Base Salary shall be paid in equal
installments, consistent with the manner in which other senior
executives of the Company are paid, and subject to all
applicable withholding and deductions, in accordance with the
usual payroll practices of the Company, but not less
frequently than monthly.
(b) Performance Bonus. The Company shall pay Executive a
performance bonus (the "Performance Bonus") in respect of each fiscal year of
the Company during the term of this Agreement in accordance with a management
performance plan which shall be implemented by the Board as soon as practicable
after the Effective Date.
(c) Benefits. During the term of this Agreement, the
Executive shall be entitled to all such employment benefits as may, from time to
time, be made generally available to employees and senior executives of the
Company, including, but not limited to, pension or other retirement plans,
medical plans, disability plans, incentive plans, stock plans, investment plans,
additional compensation plans and all other group and other insurance plans and
benefits to the extent that the Executive is, and remains, eligible to
participate therein and subject to eligibility provisions of such plans then in
effect.
(d) Business Expenses. The Company shall pay, either
directly or by reimbursement to the Executive, all documented expenses incurred
by the Executive, including travel and entertainment expenses, in the
performance of his duties upon submission of appropriate evidence thereof and on
a basis consistent with the Company's current policies on the date of this
Agreement.
(e) Vacation. For each year of this Agreement, the
Executive shall be entitled to paid vacation in accordance with the Company's
standard policy for the Company's executives.
(f) Stock Options. As soon as practical after the Effective
Date, the Board shall implement an Equity Participation Plan and shall grant to
Executive a nonqualified stock option for the number of shares and upon the
terms set forth in Appendix A (which option shall be incorporated into a Stock
Option Grant Agreement executed by the parties).
3
<PAGE> 5
(g) Standby Loan. Executive shall be entitled to purchase
at par value on the Effective Date, a 0.5% participation in the Standby loan as
such term is defined in the Plan.
4. Compensation Upon Termination of Employment.
(a) Expiration of Term. If Executive's employment by the
Company is terminated pursuant to Section 2(b)(i), whether due to the expiration
of the initial term or any renewal term, the Company shall pay Executive the
compensation and other benefits expressly provided under this Agreement through
the Termination Date, and any unpaid Performance Bonus for any prior fiscal
periods.
(b) Termination Upon Death. If Executive's employment by
the Company is terminated as a result of the occurrence of Executive's death
pursuant to Section 2(b)(iii), the Company shall be obligated to pay to the
Executive's estate any unpaid compensation and other benefits expressly provided
under this Agreement through the Termination Date, and any unpaid Performance
Bonus for any prior fiscal periods.
(c) Termination Because of Disability. If Executive's
employment by the Company is terminated by the Company as a result of the
occurrence of Executive's Disability pursuant to Section 2(b)(iv), the Company
shall pay Executive the compensation and other benefits expressly provided under
this Agreement through the Termination Date, and any unpaid Performance Bonus
for any prior fiscal periods.
(d) Termination by the Company for Cause. If Executive's
employment by the Company is terminated by the Company for Cause pursuant to
Section 2(b)(ii), Executive shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If
Executive's employment by the Company is terminated by Executive without Cause
pursuant to Section 2(b)(ii), the Company shall pay Executive (i) the
compensation and other benefits expressly provided under this Agreement through
the Termination Date, (ii) any unpaid Performance Bonus for any prior fiscal
periods, and (iii) a lump sum payment equal to two (2) times the Base Salary.
(f) Termination Following Change of Control. A Change of
Control shall be treated as a termination of the Executive's employment under
Section 4(e).
(g) No Mitigation. If the Executive's employment described
herein is terminated, the Executive shall have no duty to mitigate his damages
or seek other employment, and the Company shall have no right to offset any
amounts which are paid to or earned by Executive from other employment obtained
by Executive (including self-employment) against any amounts which are payable
to Executive pursuant to this Agreement.
(h) Continuation of Health and Life Insurance Coverage. At
Executive's own expense, Executive and Executive's dependents shall also be
entitled to any continuation of health insurance coverage rights after the
Termination Date under any applicable
4
<PAGE> 6
law; provided, however, that in the event of the termination of Executive's
employment with the Company pursuant to Section 4(e), health and life insurance
coverage shall be provided at the Company's expense for two (2 ) years after the
Termination Date on the same basis as for other senior executives of the
Company, including the same employee contributions and co-payments which are
required for other employees.
(i) Effects of Termination; Payments.
(i) Effective as of the Termination Date, the
Executive shall be deemed to have resigned from all offices
and directorships then held with the Company and its
subsidiaries.
(ii) The covenants and agreements of the Executive
contained in Sections 5, 6 and 7 shall survive termination of
the Executive's employment by the Company and the termination
of this Agreement.
(iii) All payments due to Executive or his estate
pursuant to Section 4 shall be paid as soon as practicable
after the Termination Date, but in no event later than ten
(10) days thereafter, except in the case of the Performance
Bonus for any prior fiscal period which shall be paid as soon
as practicable after the end of such fiscal period, but not
later than sixty (60) days thereafter, and except for payments
pursuant to Section 4(h).
5. Confidentiality and Non-Disclosure. Executive recognizes
that he will occupy a position of trust with respect to the Company and agrees
to use all Confidential Information solely in connection with the performance of
services for or on behalf of the Company. Executive shall not, during the term
of this Agreement, or at any time after the termination of this Agreement, in
any manner, either directly or indirectly , (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
5 shall apply to disclosures made for valid business purposes of the Company.
Executive hereby acknowledges and agrees that all personal
property and equipment, relating to the business of the Company, including,
without limitation, all books, manuals, records, reports, notes, contracts,
lists, blueprints, and other documents or materials, or copies thereof
(including computer files), and all other proprietary information relating to
the business of the Company, furnished to or prepared by Executive in the course
of or incident to Executive's employment, belongs to the Company and shall be
promptly returned to the Company within three (3) days after the Termination
Date. Following the Termination Date, Executive will not retain any written or
other tangible material containing any proprietary information of the Company.
6. Non-Solicitation. Executive hereby covenants and agrees
that, during the term of this Agreement and for a period of one (1) year
thereafter, Executive shall not, for himself or any third party, directly or
indirectly, (i) interfere with the contractual relationship
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<PAGE> 7
between the Company and any of its vendors or suppliers or (ii) employ or
solicit for employment any officer or key employee who is employed by the
Company.
7. Enforcement. It is understood and agreed by the parties
that no amount of money would adequately compensate the Company for damages
which the parties acknowledge would be suffered as a result of a violation by
the Executive of the covenants contained in Sections 5 and 6 above, and that,
therefore, the Company shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief (without the need to post
bond) to enforce the provisions of Sections 5 and 6, which injunctive relief
shall be in addition to any other rights or remedies available to the Company.
The provisions of this Section 8 shall survive the termination of this
Agreement.
8. Certain Defined Terms. For purposes of this Agreement the
following terms and phrases shall have the following meanings:
"Cause" shall mean: (i) the Executive shall have committed
an act of fraud, embezzlement or misappropriation against the Company or
committed a material breach of fiduciary duty owed to the Company; or (ii) the
Executive shall have been convicted by a court of competent jurisdiction (or
entered a plea of guilty or nolo contendere) of any felony or crime involving
moral turpitude or fraud (other than a traffic offense); or (iii) the Executive
shall have engaged in willful misconduct, material breach of his obligations
under this Agreement or the refusal or failure to perform his duties as required
by this Agreement (other than as a result of incapacity due to physical or
mental illness) which violations are not remedied within 15 days after receipt
of written notice from the Company specifying such violations.
"Change of Control" means (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")); (b) the adoption by the stockholders
of the Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into another
entity or the merger of another entity into the Company or any subsidiary
thereof with the effect that immediately after such transaction the stockholders
of the Company immediately prior to such transaction (or their affiliates) hold
less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; or (d) the acquisition by any
person, entity or group, within the meaning of Section 13(d) or 14(d) of the
Exchange Act (other than PPM America, Inc., Appaloosa Management LP, Oaktree
Capital Management LLC, their respective affiliates or managed funds, or any
group consisting of any of them), of more than fifty percent (50%) of the voting
power of all securities of the Company generally entitled to vote in the
election of directors of the Company.
"Company" as used in this Agreement, the term "the Company"
includes the Company, any assignee or other successor of interest in the
Company, and any parent, subsidiary, or other corporation or partnership under
common ownership or control with the Company.
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<PAGE> 8
"Confidential Information" means all software, trade
secrets, compilations of information, records, specifications, work products in
any form owned by the Company or any of its affiliates or created by Executive
for the Company or any of its affiliates, including but not limited to,
know-how, ideas, techniques, theories, discovery, formulas, plans, charts,
designs, drawings, whether patentable or not; lists of current or prospective
clients, business plans and proposals, current or prospective business
opportunities, financial records, research and development, marketing strategies
and programs and reports, including any documentation thereof; and all other
secrets and information of a confidential nature of the Company during the
Executive's employment with the Company.
"Disability" means an inability by the Executive to perform
a substantial portion of the Executive's duties by reason of physical or mental
incapacity or disability for a total of ninety (90) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the reasonable judgment of a physician selected by the Executive and reasonably
acceptable to the Company.
"Voluntary Termination" shall mean the voluntary
termination by Executive of Executive's employment from the Company by voluntary
resignation or any other means(other than (i) death or Disability or (ii)
simultaneous with or following termination for Cause or an event which if known
to the Company at the time of such voluntary termination by Executive would
constitute Cause).
9. Miscellaneous Provisions.
(a) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, including the making, interpretation or breach
thereof, or the employment or termination of employment of Executive shall be
resolved by expedited arbitration in the City of the principal offices of the
Company in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof, and any
party to the arbitration may, if such party so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
The powers of the arbitrator(s) shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator(s) shall include in any award in
which Executive is the prevailing party the amount of his reasonable attorneys'
fees and expenses and all other reasonable costs and expenses of the
arbitration. In the event the arbitrator(s) do not rule in favor of Executive in
respect to all of the material claims alleged by Executive, the arbitrator(s)
shall include in the award in favor of Executive the amount of Executive's
reasonable costs and expenses of the arbitration as the arbitrator(s) deem just
and equitable under the circumstances. Except as provided above, each party
shall bear his or its own attorneys' fees and expenses, and the parties shall
bear equally all other costs and expenses of the arbitration. The provisions of
this Section 9 shall survive the termination of this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements, and
understandings between the parties with respect to the subject matter hereof.
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<PAGE> 9
(c) Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties or in
the case of a waiver, by the party waiving compliance.
(d) Waiver. The failure of either party at any time or
times to require performance of any provision hereof in no manner shall affect
the right at a later time to enforce the same. No waiver by either party of a
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach or waiver of any other term
or covenant contained in this Agreement.
(e) Notices. Any and all notices or other communications
provided for herein shall be given in writing and shall be hand-delivered or
sent by United States mail, postage prepaid, registered or certified, return
receipt requested, addressed as follows:
If to the Company:
Coho Energy, Inc.
-------------------------------
-------------------------------
Attention: Board of Directors
With a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: Thomas B. Walper
If to Executive:
Michael Y. McGovern
-------------------------------
-------------------------------
With a copy to:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
provided, however, that any of the parties may, from time to time, give notice
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
8
<PAGE> 10
the date the same is actually hand delivered or, if mailed, three days after
deposit in the United States mail, postage prepaid, registered or certified,
return receipt requested.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas applicable to
contracts made and to be performed wholly within such state.
(g) Assignability. This Agreement, and the Executive's
rights and obligations hereunder, may not be assigned by the Executive. The
Company may assign its rights, together with its obligations hereunder, only to
a successor by merger or by the purchase of all or substantially all of the
assets and business of the Company and such rights and obligations shall inure
to, and be binding upon, any such successor.
(h) Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective legal
representatives, heirs, permitted successors and permitted assigns.
(i) Captions. Headings and titles in this Agreement are for
convenience of reference only and shall not control the construction or
interpretation of any provisions hereof. The words "herein," "hereof,"
"hereunder," and the words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision in
which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
(j) Indemnification. The Company agrees that the Executive
shall be entitled to indemnification and payment or reimbursement of expenses
(including attorneys' fees and expenses) to the fullest extent provided in the
Company's Certificate of Incorporation, as in effect on the date hereof and as
it may be hereafter amended (but in no event on terms less favorable to the
Executive than those in effect on the date hereof), for all damages, losses and
expenses incurred by the Executive in connection with any claim, action, suit or
proceeding which arises from the Executive's services and/or activities as an
officer and/or employee of the Company or any affiliate thereof. This Section
shall survive any termination of the term of this Agreement.
(k) Separability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such validity or unenforceability
without rendering invalid or unenforceable the
(l) remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of he date first above written.
THE COMPANY:
COHO ENERGY, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
EXECUTIVE:
-------------------------------------
Michael Y. McGovern
10
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
dated as of
April 1, 2000
between
COHO ENERGY, INC.
and
GARY L. PITTMAN
<PAGE> 2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 2000 (this "Agreement") by
and among COHO ENERGY, INC., a Texas corporation (the "Company"), and GARY L.
PITTMAN (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the exploration for and production
and transmission of crude oil and natural gas; and
WHEREAS, the Company desires to engage Executive as Vice President and
Chief Financial Officer upon the terms and conditions contained in this
Agreement; and
WHEREAS, Executive desires to be so employed by the Company from and
after the Effective Date, as hereinafter defined, upon the terms and conditions
contained in this Agreement; and
WHEREAS, the parties hereto desire to enter this Agreement upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties, intending legally to be bound, hereby agree as
follows:
1. Employment. The Company hereby employs Executive, and Executive
hereby accepts such employment, upon the terms and conditions hereinafter set
forth.
(a) Position. Executive shall be the Vice President and Chief
Financial Officer of the Company.
(b) Duties. The Executive shall have full responsibility for
all the day-to-day accounting and financial activities of the Company and its
affiliated companies and over the employees in the respective departments of the
Company, including, but not limited to, the power to hire and, subject to
contractual commitments, fire employees, and shall have responsibilities
commensurate with those normally performed by a chief financial officer. In
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<PAGE> 3
such capacity, the Executive shall report solely and directly to the President
and Chief Executive Officer.
(c) Place of Employment. During the term of this Agreement,
the Executive shall perform the services required by this Agreement at the
principal executive office of the Company.
(d) Performance of Duties. The Executive agrees to devote his
full time and best efforts to the performance of his duties and to serve the
Company well and faithfully in conformity with the direction of the President
and Chief Executive Officer and written policies of the Company. The foregoing
shall not prevent Executive from serving on the boards of directors of which he
is a member as of the Effective Date (which have been disclosed and approved
prior to the execution hereof as listed on Appendix B) so long as such service
does not interfere or conflict with the Executive's discharge of his duties
under this Agreement.
2. Term.
(a) Effective Date. This Agreement shall become effective on
the effective date (the "Effective Date") of the Debtors' and Official Committee
of Unsecured Creditors' Joint Plan of Reorganization ("Plan").
(b) Termination Date. The term of employment under this
Agreement shall terminate upon the earliest to occur of the following events
(the date specified in each such event is referred to as the "Termination
Date"):
(i) Two (2) years after the Effective Date;
provided, however, that the term of this Agreement shall automatically
be extended from day to day so that it always has a remaining term of
two (2) years, unless the Company or Executive gives written notice to
the other party that it does not wish to continue to extend the term,
in which event the term will terminate two (2) years from the date of
such notice;
(ii) the date upon which the Company terminates the
Executive's employment by the Company for Cause or without Cause (it
being understood that the date of termination shall be the date upon
which the Company provides the Executive written notice of such event);
(iii) the date of the Executive's death;
(iv) the date upon which the Company terminates
Executive's employment by the Company as a result of Executive's
Disability;
(v) the date upon which Executive effects a
Voluntary Termination with or without (it being understood that the
date of termination shall be the date upon which Executive provides the
Company written notice of such event); or
(vi) the date of a Change of Control.
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<PAGE> 4
(c) Performance of Duties During Notice Period. In the event
that either (i) the Company terminates the Executive's employment pursuant to
Section 2(b)(ii) hereof or (ii) Executive effects a Voluntary Termination
pursuant to Section 2(b)(v), Executive, if requested by the Company, shall
continue to render services hereunder to the Company for the 30-day notice
period (or if shorter, until the Termination Date), and shall, in such event, be
paid the compensation and benefits hereunder for the remainder of such period.
3. Compensation and Benefits.
(a) Base Salary.
(i) The Company shall pay the Executive a base
salary at the annual rate of $200,000 per year ("Base Salary").
(ii) The Base Salary shall be paid in equal
installments, consistent with the manner in which other senior
executives of the Company are paid, and subject to all applicable
withholding and deductions, in accordance with the usual payroll
practices of the Company, but not less frequently than monthly.
(b) Performance Bonus. The Company shall pay Executive a
performance bonus (the "Performance Bonus") in respect of each fiscal year of
the Company during the term of this Agreement in accordance with a management
performance plan which shall be implemented by the Company's Board of Directors
(the "Board") as soon as practicable after the Effective Date.
(c) Benefits. During the term of this Agreement, the Executive
shall be entitled to all such employment benefits as may, from time to time, be
made generally available to employees and senior executives of the Company,
including, but not limited to, pension or other retirement plans, medical plans,
disability plans, incentive plans, stock plans, investment plans, additional
compensation plans and all other group and other insurance plans and benefits to
the extent that the Executive is, and remains, eligible to participate therein
and subject to eligibility provisions of such plans then in effect.
(d) Business Expenses. The Company shall pay, either directly
or by reimbursement to the Executive, all documented expenses incurred by the
Executive, including travel and entertainment expenses, in the performance of
his duties upon submission of appropriate evidence thereof and on a basis
consistent with the Company's current policies on the date of this Agreement.
(e) Vacation. For each year of this Agreement, the Executive
shall be entitled to paid vacation in accordance with the Company's standard
policy for the Company's executives.
(f) Stock Options. As soon as practical after the Effective
Date, the Board shall implement an Equity Participation Plan and shall grant to
Executive a nonqualified stock option for the number of shares and upon the
terms set forth in Appendix A (which option shall be incorporated into a Stock
Option Grant Agreement executed by the parties).
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<PAGE> 5
(g) Standby Loan. Executive shall be entitled to purchase at
par value on the Effective Date, a 0.25% participation in the Standby loan as
such term is defined in the Plan.
4. Compensation Upon Termination of Employment.
(a) Expiration of Term. If Executive's employment by the
Company is terminated pursuant to Section 2(b)(i), whether due to the expiration
of the initial term or any renewal term, the Company shall pay Executive the
compensation and other benefits expressly provided under this Agreement through
the Termination Date, and any unpaid Performance Bonus for any prior fiscal
periods.
(b) Termination Upon Death. If Executive's employment by the
Company is terminated as a result of the occurrence of Executive's death
pursuant to Section 2(b)(iii), the Company shall be obligated to pay to the
Executive's estate any unpaid compensation and other benefits expressly provided
under this Agreement through the Termination Date, and any unpaid Performance
Bonus for any prior fiscal periods.
(c) Termination Because of Disability. If Executive's
employment by the Company is terminated by the Company as a result of the
occurrence of Executive's Disability pursuant to Section 2(b)(iv), the Company
shall pay Executive the compensation and other benefits expressly provided under
this Agreement through the Termination Date, and any unpaid Performance Bonus
for any prior fiscal periods.
(d) Termination by the Company for Cause. If Executive's
employment by the Company is terminated by the Company for Cause pursuant to
Section 2(b)(ii), Executive shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Executive's
employment by the Company is terminated by Executive without Cause pursuant to
Section 2(b)(ii), the Company shall pay Executive (i) the compensation and other
benefits expressly provided under this Agreement through the Termination Date,
(ii) any unpaid Performance Bonus for any prior fiscal periods, and (iii) a lump
sum payment equal to two (2) times the Base Salary.
(f) Termination Following Change of Control. A Change of
Control shall be treated as a termination of the Executive's employment under
Section 4(e).
(g) No Mitigation. If the Executive's employment described
herein is terminated, the Executive shall have no duty to mitigate his damages
or seek other employment, and the Company shall have no right to offset any
amounts which are paid to or earned by Executive from other employment obtained
by Executive (including self-employment) against any amounts which are payable
to Executive pursuant to this Agreement.
(h) Continuation of Health and Life Insurance Coverage. At
Executive's own expense, Executive and Executive's dependents shall also be
entitled to any continuation of health insurance coverage rights after the
Termination Date under any applicable
4
<PAGE> 6
law; provided, however, that in the event of the termination of Executive's
employment with the Company pursuant to Section 4(e), health and life insurance
coverage shall be provided at the Company's expense for two (2 ) years after the
Termination Date on the same basis as for other senior executives of the
Company, including the same employee contributions and co-payments which are
required for other employees.
(i) Effects of Termination; Payments.
(i) Effective as of the Termination Date, the
Executive shall be deemed to have resigned from all offices and
directorships then held with the Company and its subsidiaries.
(ii) The covenants and agreements of the Executive
contained in Sections 5, 6 and 7 shall survive termination of the
Executive's employment by the Company and the termination of this
Agreement.
(iii) All payments due to Executive or his estate
pursuant to Section 4 shall be paid as soon as practicable after the
Termination Date, but in no event later than ten (10) days thereafter,
except in the case of the Performance Bonus for any prior fiscal period
which shall be paid as soon as practicable after the end of such fiscal
period, but not later than sixty (60) days thereafter, and except for
payments pursuant to Section 4(h).
5. Confidentiality and Non-Disclosure. Executive recognizes that he
will occupy a position of trust with respect to the Company and agrees to use
all Confidential Information solely in connection with the performance of
services for or on behalf of the Company. Executive shall not, during the term
of this Agreement, or at any time after the termination of this Agreement, in
any manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
5 shall apply to disclosures made for valid business purposes of the Company.
Executive hereby acknowledges and agrees that all personal property and
equipment, relating to the business of the Company, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of the Company, furnished to or prepared by Executive in the course of or
incident to Executive's employment, belongs to the Company and shall be promptly
returned to the Company within three (3) days after the Termination Date.
Following the Termination Date, Executive will not retain any written or other
tangible material containing any proprietary information of the Company.
6. Non-Solicitation. Executive hereby covenants and agrees that, during
the term of this Agreement and for a period of one (1) year thereafter,
Executive shall not, for himself or any third party, directly or indirectly, (i)
interfere with the contractual relationship
5
<PAGE> 7
between the Company and any of its vendors or suppliers or (ii) employ or
solicit for employment any officer or key employee who is employed by the
Company.
7. Enforcement. It is understood and agreed by the parties that no
amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the
Executive of the covenants contained in Sections 5 and 6 above, and that,
therefore, the Company shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief (without the need to post
bond) to enforce the provisions of Sections 5 and 6, which injunctive relief
shall be in addition to any other rights or remedies available to the Company.
The provisions of this Section 8 shall survive the termination of this
Agreement.
8. Certain Defined Terms. For purposes of this Agreement the following
terms and phrases shall have the following meanings:
"Cause" shall mean: (i) the Executive shall have committed an
act of fraud, embezzlement or misappropriation against the Company or committed
a material breach of fiduciary duty owed to the Company; or (ii) the Executive
shall have been convicted by a court of competent jurisdiction (or entered a
plea of guilty or nolo contendere) of any felony or crime involving moral
turpitude or fraud (other than a traffic offense); or (iii) the Executive shall
have engaged in willful misconduct, material breach of his obligations under
this Agreement or the refusal or failure to perform his duties as required by
this Agreement (other than as a result of incapacity due to physical or mental
illness) which violations are not remedied within 15 days after receipt of
written notice from the Company specifying such violations.
"Change of Control" means (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")); (b) the adoption by the stockholders
of the Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into another
entity or the merger of another entity into the Company or any subsidiary
thereof with the effect that immediately after such transaction the stockholders
of the Company immediately prior to such transaction (or their affiliates) hold
less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; or (d) the acquisition by any
person, entity or group, within the meaning of Section 13(d) or 14(d) of the
Exchange Act (other than PPM America, Inc., Appaloosa Management LP, Oaktree
Capital Management LLC, their respective affiliates or managed funds, or any
group consisting of any of them), of more than fifty percent (50%) of the voting
power of all securities of the Company generally entitled to vote in the
election of directors of the Company.
"Company" as used in this Agreement, the term "the Company"
includes the Company, any assignee or other successor of interest in the
Company, and any parent, subsidiary, or other corporation or partnership under
common ownership or control with the Company.
6
<PAGE> 8
"Confidential Information" means all software, trade secrets,
compilations of information, records, specifications, work products in any form
owned by the Company or any of its affiliates or created by Executive for the
Company or any of its affiliates, including but not limited to, know-how, ideas,
techniques, theories, discovery, formulas, plans, charts, designs, drawings,
whether patentable or not; lists of current or prospective clients, business
plans and proposals, current or prospective business opportunities, financial
records, research and development, marketing strategies and programs and
reports, including any documentation thereof; and all other secrets and
information of a confidential nature of the Company during the Executive's
employment with the Company.
"Disability" means an inability by the Executive to perform a
substantial portion of the Executive's duties by reason of physical or mental
incapacity or disability for a total of ninety (90) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the reasonable judgment of a physician selected by the Executive and reasonably
acceptable to the Company.
"Voluntary Termination" shall mean the voluntary termination
by Executive of Executive's employment from the Company by voluntary resignation
or any other means (other than (i) death or Disability or (ii) simultaneous with
or following termination for Cause or an event which if known to the Company at
the time of such voluntary termination by Executive would constitute Cause).
9. Miscellaneous Provisions.
(a) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, including the making, interpretation or breach
thereof, or the employment or termination of employment of Executive shall be
resolved by expedited arbitration in the City of the principal offices of the
Company in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof, and any
party to the arbitration may, if such party so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
The powers of the arbitrator(s) shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator(s) shall include in any award in
which Executive is the prevailing party the amount of his reasonable attorneys'
fees and expenses and all other reasonable costs and expenses of the
arbitration. In the event the arbitrator(s) do not rule in favor of Executive in
respect to all of the material claims alleged by Executive, the arbitrator(s)
shall include in the award in favor of Executive the amount of Executive's
reasonable costs and expenses of the arbitration as the arbitrator(s) deem just
and equitable under the circumstances. Except as provided above, each party
shall bear his or its own attorneys' fees and expenses, and the parties shall
bear equally all other costs and expenses of the arbitration. The provisions of
this Section 9 shall survive the termination of this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements, and
understandings between the parties with respect to the subject matter hereof.
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<PAGE> 9
(c) Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties or in
the case of a waiver, by the party waiving compliance.
(d) Waiver. The failure of either party at any time or times
to require performance of any provision hereof in no manner shall affect the
right at a later time to enforce the same. No waiver by either party of a breach
of any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or waiver of any other term or
covenant contained in this Agreement.
(e) Notices. Any and all notices or other communications
provided for herein shall be given in writing and shall be hand-delivered or
sent by United States mail, postage prepaid, registered or certified, return
receipt requested, addressed as follows:
If to the Company:
Coho Energy, Inc.
------------------------------
------------------------------
Attention: Board of Directors
With a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: Thomas B. Walper
If to Executive:
Gary L. Pittman
------------------------------
------------------------------
With a copy to:
------------------------------
------------------------------
------------------------------
------------------------------
provided, however, that any of the parties may, from time to time, give notice
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
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<PAGE> 10
the date the same is actually hand delivered or, if mailed, three days after
deposit in the United States mail, postage prepaid, registered or certified,
return receipt requested.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas applicable to
contracts made and to be performed wholly within such state.
(g) Assignability. This Agreement, and the Executive's rights
and obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of the Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
(h) Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective legal
representatives, heirs, permitted successors and permitted assigns.
(i) Captions. Headings and titles in this Agreement are for
convenience of reference only and shall not control the construction or
interpretation of any provisions hereof. The words "herein," "hereof,"
"hereunder," and the words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision in
which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
(j) Indemnification. The Company agrees that the Executive
shall be entitled to indemnification and payment or reimbursement of expenses
(including attorneys' fees and expenses) to the fullest extent provided in the
Company's Certificate of Incorporation, as in effect on the date hereof and as
it may be hereafter amended (but in no event on terms less favorable to the
Executive than those in effect on the date hereof), for all damages, losses and
expenses incurred by the Executive in connection with any claim, action, suit or
proceeding which arises from the Executive's services and/or activities as an
officer and/or employee of the Company or any affiliate thereof. This Section
shall survive any termination of the term of this Agreement.
(k) Separability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such validity or unenforceability
without rendering invalid or unenforceable the
(l) remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
9
<PAGE> 11
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
he date first above written.
THE COMPANY:
COHO ENERGY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
EXECUTIVE:
----------------------------------------
Gary L. Pittman
10
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
dated as of
April 1, 2000
between
COHO ENERGY, INC.
and
GERALD E. RULEY
<PAGE> 2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 2000 (this
"Agreement") by and among COHO ENERGY, INC., a Texas corporation (the
"Company"), and GERALD E. RULEY (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the exploration for and
production and transmission of crude oil and natural gas; and
WHEREAS, the Company desires to engage Executive as Vice
President Operations, Exploitation, Land and Reserves upon the terms and
conditions contained in this Agreement; and
WHEREAS, Executive desires to be so employed by the Company
from and after the Effective Date, as hereinafter defined, upon the terms and
conditions contained in this Agreement; and
WHEREAS, the parties hereto desire to enter this Agreement
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual covenants and agreements herein contained and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties, intending legally to be bound, hereby agree
as follows:
1. Employment. The Company hereby employs Executive,
and Executive hereby accepts such employment, upon the terms and conditions
hereinafter set forth.
(a) Position. Executive shall be the Vice
President Operations, Exploitation, Land and Reserves of the Company.
(b) Duties. The Executive will direct and be
responsible for the day-to-day activities of the company involving Engineering,
Geological, Geophysical, Land, Field Operations, and their related support
functions. The Executive will provide the company with planning and execution
of projects designed to economically increase production, and company value.
<PAGE> 3
(c) Place of Employment. During the term of
this Agreement, the Executive shall perform the services required by this
Agreement at the principal executive office of the Company.
(d) Performance of Duties. The Executive agrees
to devote his full time and best efforts to the performance of his duties and
to serve the Company well and faithfully in conformity with the direction of
the President and Chief Executive Officer and written policies of the Company.
The foregoing shall not prevent Executive from serving on the boards of
directors of which he is a member as of the Effective Date (which have been
disclosed and approved prior to the execution hereof as listed on Appendix B)
so long as such service does not interfere or conflict with the Executive's
discharge of his duties under this Agreement.
2. Term.
(a) Effective Date. This Agreement shall become
effective on the effective date (the "Effective Date") of the Debtors' and
Official Committee of Unsecured Creditors' Joint Plan of Reorganization
("Plan").
(b) Termination Date. The term of employment
under this Agreement shall terminate upon the earliest to occur of the
following events (the date specified in each such event is referred to as the
"Termination Date"):
(i) Two (2) years after the Effective
Date; provided, however, that the term of this
Agreement shall automatically be extended from day to
day so that it always has a remaining term of two (2)
years, unless the Company or Executive gives written
notice to the other party that it does not wish to
continue to extend the term, in which event the term
will terminate two (2) years from the date of such
notice;
(ii) the date upon which the Company
terminates the Executive's employment by the Company
for Cause or without Cause (it being understood that
the date of termination shall be the date upon which
the Company provides the Executive written notice of
such event);
(iii) the date of the Executive's death;
(iv) the date upon which the Company
terminates Executive's employment by the Company as
a result of Executive's Disability;
(v) the date upon which Executive effects
a Voluntary Termination with or without (it being
understood that the date of termination shall be the
date upon which Executive provides the Company
written notice of such event); or
(vi) the date of a Change of Control.
(c) Performance of Duties During Notice Period.
In the event that either (i) the Company terminates the Executive's employment
pursuant to Section 2(b)(ii)
2
<PAGE> 4
hereof or (ii) Executive effects a Voluntary Termination pursuant to Section
2(b)(v), Executive, if requested by the Company, shall continue to render
services hereunder to the Company for the 30-day notice period (or if shorter,
until the Termination Date), and shall, in such event, be paid the compensation
and benefits hereunder for the remainder of such period.
3. Compensation and Benefits.
(a) Base Salary.
(i) The Company shall pay the Executive a base
salary at the annual rate of $250,000 per year ("Base Salary").
(ii) The Base Salary shall be paid in equal
installments, consistent with the manner in which other senior
executives of the Company are paid, and subject to all applicable
withholding and deductions, in accordance with the usual payroll
practices of the Company, but not less frequently than monthly.
(b) Performance Bonus. The Company shall pay Executive a
performance bonus (the "Performance Bonus") in respect of each fiscal year of
the Company during the term of this Agreement in accordance with a management
performance plan which shall be implemented by the Company's Board of Directors
(the "Board") as soon as practicable after the Effective Date.
(c) Benefits. During the term of this Agreement, the
Executive shall be entitled to all such employment benefits as may, from time
to time, be made generally available to employees and senior executives of the
Company, including, but not limited to, pension or other retirement plans,
medical plans, disability plans, incentive plans, stock plans, investment
plans, additional compensation plans and all other group and other insurance
plans and benefits to the extent that the Executive is, and remains, eligible
to participate therein and subject to eligibility provisions of such plans then
in effect.
(d) Business Expenses. The Company shall pay, either directly
or by reimbursement to the Executive, all documented expenses incurred by the
Executive, including travel and entertainment expenses, in the performance of
his duties upon submission of appropriate evidence thereof and on a basis
consistent with the Company's current policies on the date of this Agreement.
(e) Vacation. For each year of this Agreement, the Executive
shall be entitled to paid vacation in accordance with the Company's standard
policy for the Company's executives.
(f) Stock Options. As soon as practical after the Effective
Date, the Board shall implement an Equity Participation Plan and shall grant to
Executive a nonqualified stock option for the number of shares and upon the
terms set forth in Appendix A (which option shall be incorporated into a Stock
Option Grant Agreement executed by the parties).
3
<PAGE> 5
(g) Standby Loan. Executive shall be entitled to purchase at
par value on the Effective Date, a 0.15% participation in the Standby loan as
such term is defined in the Plan.
4. Compensation Upon Termination of Employment.
(a) Expiration of Term. If Executive's employment by the
Company is terminated pursuant to Section 2(b)(i), whether due to the
expiration of the initial term or any renewal term, the Company shall pay
Executive the compensation and other benefits expressly provided under this
Agreement through the Termination Date, and any unpaid Performance Bonus for
any prior fiscal periods.
(b) Termination Upon Death. If Executive's employment by the
Company is terminated as a result of the occurrence of Executive's death
pursuant to Section 2(b)(iii), the Company shall be obligated to pay to the
Executive's estate any unpaid compensation and other benefits expressly
provided under this Agreement through the Termination Date, and any unpaid
Performance Bonus for any prior fiscal periods.
(c) Termination Because of Disability. If Executive's
employment by the Company is terminated by the Company as a result of the
occurrence of Executive's Disability pursuant to Section 2(b)(iv), the Company
shall pay Executive the compensation and other benefits expressly provided
under this Agreement through the Termination Date, and any unpaid Performance
Bonus for any prior fiscal periods.
(d) Termination by the Company for Cause. If Executive's
employment by the Company is terminated by the Company for Cause pursuant to
Section 2(b)(ii), Executive shall receive the compensation and other benefits
expressly provided under this Agreement through the Termination Date.
(e) Termination by the Company without Cause. If Executive's
employment by the Company is terminated by Executive without Cause pursuant to
Section 2(b)(ii), the Company shall pay Executive (i) the compensation and
other benefits expressly provided under this Agreement through the Termination
Date, (ii) any unpaid Performance Bonus for any prior fiscal periods, and (iii)
a lump sum payment equal to two (2) times the Base Salary.
(f) Termination Following Change of Control. A Change of
Control shall be treated as a termination of the Executive's employment under
Section 4(e).
(g) No Mitigation. If the Executive's employment described
herein is terminated, the Executive shall have no duty to mitigate his damages
or seek other employment, and the Company shall have no right to offset any
amounts which are paid to or earned by Executive from other employment obtained
by Executive (including self-employment) against any amounts which are payable
to Executive pursuant to this Agreement.
(h) Continuation of Health and Life Insurance Coverage. At
Executive's own expense, Executive and Executive's dependents shall also be
entitled to any continuation of health insurance coverage rights after the
Termination Date under any applicable
4
<PAGE> 6
law; provided, however, that in the event of the termination of Executive's
employment with the Company pursuant to Section 4(e), health and life insurance
coverage shall be provided at the Company's expense for two (2 ) years after
the Termination Date on the same basis as for other senior executives of the
Company, including the same employee contributions and co-payments which are
required for other employees.
(i) Effects of Termination; Payments.
(i) Effective as of the Termination Date, the Executive
shall be deemed to have resigned from all offices and directorships
then held with the Company and its subsidiaries.
(ii) The covenants and agreements of the Executive contained
in Sections 5, 6 and 7 shall survive termination of the Executive's
employment by the Company and the termination of this Agreement.
(iii) All payments due to Executive or his estate pursuant to
Section 4 shall be paid as soon as practicable after the Termination
Date, but in no event later than ten (10) days thereafter, except in
the case of the Performance Bonus for any prior fiscal period which
shall be paid as soon as practicable after the end of such fiscal
period, but not later than sixty (60) days thereafter, and except for
payments pursuant to Section 4(h).
5. Confidentiality and Non-Disclosure. Executive recognizes that he
will occupy a position of trust with respect to the Company and agrees to use
all Confidential Information solely in connection with the performance of
services for or on behalf of the Company. Executive shall not, during the term
of this Agreement, or at any time after the termination of this Agreement, in
any manner, either directly or indirectly, (i) disseminate, disclose, use or
communicate any Confidential Information to any person or entity, regardless of
whether such Confidential Information is considered to be confidential by third
parties, or (ii) otherwise directly or indirectly misuse any Confidential
Information; provided, however, that (y) none of the provisions of this Section
5 shall apply to disclosures made for valid business purposes of the Company.
Executive hereby acknowledges and agrees that all personal property and
equipment, relating to the business of the Company, including, without
limitation, all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of the Company, furnished to or prepared by Executive in the course of or
incident to Executive's employment, belongs to the Company and shall be promptly
returned to the Company within three (3) days after the Termination Date.
Following the Termination Date, Executive will not retain any written or other
tangible material containing any proprietary information of the Company.
6. Non-Solicitation. Executive hereby covenants and agrees that, during
the term of this Agreement and for a period of one (1) year thereafter,
Executive shall not, for himself or any third party, directly or indirectly, (i)
interfere with the contractual relationship
5
<PAGE> 7
between the Company and any of its vendors or suppliers or (ii) employ or
solicit for employment any officer or key employee who is employed by the
Company.
7. Enforcement. It is understood and agreed by the parties that no
amount of money would adequately compensate the Company for damages which the
parties acknowledge would be suffered as a result of a violation by the
Executive of the covenants contained in Sections 5 and 6 above, and that,
therefore, the Company shall be entitled, upon application to a court of
competent jurisdiction, to obtain injunctive relief (without the need to post
bond) to enforce the provisions of Sections 5 and 6, which injunctive relief
shall be in addition to any other rights or remedies available to the Company.
The provisions of this Section 8 shall survive the termination of this
Agreement.
8. Certain Defined Terms. For purposes of this Agreement the following
terms and phrases shall have the following meanings:
"Cause" shall mean: (i) the Executive shall have committed an
act of fraud, embezzlement or misappropriation against the Company or committed
a material breach of fiduciary duty owed to the Company; or (ii) the Executive
shall have been convicted by a court of competent jurisdiction (or entered a
plea of guilty or nolo contendere) of any felony or crime involving moral
turpitude or fraud (other than a traffic offense); or (iii) the Executive shall
have engaged in willful misconduct, material breach of his obligations under
this Agreement or the refusal or failure to perform his duties as required by
this Agreement (other than as a result of incapacity due to physical or mental
illness) which violations are not remedied within 15 days after receipt of
written notice from the Company specifying such violations.
"Change of Control" means (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")); (b) the adoption by the stockholders
of the Company of a plan relating to the liquidation or dissolution of the
Company; (c) the merger or consolidation of the Company with or into another
entity or the merger of another entity into the Company or any subsidiary
thereof with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction (or their
affiliates) hold less than fifty percent (50%) of the total voting power of all
securities generally entitled to vote in the election of directors, managers or
trustees of the entity surviving such merger or consolidation; or (d) the
acquisition by any person, entity or group, within the meaning of Section 13(d)
or 14(d) of the Exchange Act (other than PPM America, Inc., Appaloosa
Management LP, Oaktree Capital Management LLC, their respective affiliates or
managed funds, or any group consisting of any of them), of more than fifty
percent (50%) of the voting power of all securities of the Company generally
entitled to vote in the election of directors of the Company.
"Company" as used in this Agreement, the term "the Company"
includes the Company, any assignee or other successor of interest in the
Company, and any parent, subsidiary, or other corporation or partnership under
common ownership or control with the Company.
6
<PAGE> 8
"Confidential Information" means all software, trade secrets,
compilations of information, records, specifications, work products in any form
owned by the Company or any of its affiliates or created by Executive for the
Company or any of its affiliates, including but not limited to, know-how,
ideas, techniques, theories, discovery, formulas, plans, charts, designs,
drawings, whether patentable or not; lists of current or prospective clients,
business plans and proposals, current or prospective business opportunities,
financial records, research and development, marketing strategies and programs
and reports, including any documentation thereof; and all other secrets and
information of a confidential nature of the Company during the Executive's
employment with the Company.
"Disability" means an inability by the Executive to perform a
substantial portion of the Executive's duties by reason of physical or mental
incapacity or disability for a total of ninety (90) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the reasonable judgment of a physician selected by the Executive and reasonably
acceptable to the Company.
"Voluntary Termination" shall mean the voluntary termination
by Executive of Executive's employment from the Company by voluntary
resignation or any other means(other than (i) death or Disability or (ii)
simultaneous with or following termination for Cause or an event which if known
to the Company at the time of such voluntary termination by Executive would
constitute Cause).
9. Miscellaneous Provisions.
(a) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, including the making, interpretation or breach
thereof, or the employment or termination of employment of Executive shall be
resolved by expedited arbitration in the City of the principal offices of the
Company in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof, and any
party to the arbitration may, if such party so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
The powers of the arbitrator(s) shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator(s) shall include in any award in
which Executive is the prevailing party the amount of his reasonable attorneys'
fees and expenses and all other reasonable costs and expenses of the
arbitration. In the event the arbitrator(s) do not rule in favor of Executive
in respect to all of the material claims alleged by Executive, the
arbitrator(s) shall include in the award in favor of Executive the amount of
Executive's reasonable costs and expenses of the arbitration as the
arbitrator(s) deem just and equitable under the circumstances. Except as
provided above, each party shall bear his or its own attorneys' fees and
expenses, and the parties shall bear equally all other costs and expenses of
the arbitration. The provisions of this Section 9 shall survive the termination
of this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements, and
understandings between the parties with respect to the subject matter hereof.
7
<PAGE> 9
(c) Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof
may be waived, only by a written instrument executed by both of the parties or
in the case of a waiver, by the party waiving compliance.
(d) Waiver. The failure of either party at any time or times
to require performance of any provision hereof in no manner shall affect the
right at a later time to enforce the same. No waiver by either party of a
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach or waiver of any other
term or covenant contained in this Agreement.
(e) Notices. Any and all notices or other communications
provided for herein shall be given in writing and shall be hand-delivered or
sent by United States mail, postage prepaid, registered or certified, return
receipt requested, addressed as follows:
If to the Company:
Coho Energy, Inc.
-------------------------------------------
-------------------------------------------
Attention: Board of Directors
With a copy to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
Los Angeles, California 90071
Attention: Thomas B. Walper
If to Executive:
Gerald E. Ruley
-------------------------------------------
-------------------------------------------
With a copy to:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
provided, however, that any of the parties may, from time to time, give notice
to the other parties of some other address to which notices or other
communications to such party shall be sent, in which event, notices or other
communications to such party shall be sent to such address. Any notice or other
communication shall be deemed to have been given and received hereunder as of
8
<PAGE> 10
the date the same is actually hand delivered or, if mailed, three days after
deposit in the United States mail, postage prepaid, registered or certified,
return receipt requested.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas applicable to
contracts made and to be performed wholly within such state.
(g) Assignability. This Agreement, and the Executive's rights
and obligations hereunder, may not be assigned by the Executive. The Company
may assign its rights, together with its obligations hereunder, only to a
successor by merger or by the purchase of all or substantially all of the
assets and business of the Company and such rights and obligations shall inure
to, and be binding upon, any such successor.
(h) Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective legal
representatives, heirs, permitted successors and permitted assigns.
(i) Captions. Headings and titles in this Agreement are for
convenience of reference only and shall not control the construction or
interpretation of any provisions hereof. The words "herein," "hereof,"
"hereunder," and the words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision
in which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
(j) Indemnification. The Company agrees that the Executive
shall be entitled to indemnification and payment or reimbursement of expenses
(including attorneys' fees and expenses) to the fullest extent provided in the
Company's Certificate of Incorporation, as in effect on the date hereof and as
it may be hereafter amended (but in no event on terms less favorable to the
Executive than those in effect on the date hereof), for all damages, losses and
expenses incurred by the Executive in connection with any claim, action, suit
or proceeding which arises from the Executive's services and/or activities as
an officer and/or employee of the Company or any affiliate thereof. This
Section shall survive any termination of the term of this Agreement.
(k) Separability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such validity or unenforceability
without rendering invalid or unenforceable the
(l) remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
9
<PAGE> 11
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of he date first above written.
THE COMPANY:
COHO ENERGY, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
EXECUTIVE:
---------------------------------------------
Gerald E. Ruley
10
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 19, 2000
<PAGE> 1
EXHIBIT 23.2
[RYDER SCOTT COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-1 of our reserve report regarding the interests
of Coho Energy, Inc. (the Company) dated February 16, 2000, relating to
estimated quantities of certain of the Company's proved reserves of oil and gas.
We also consent to the references to us under the headings "Reserves" and
"Engineers" in such Registration Statement.
/s/ RYDER SCOTT COMPANY, L.P.
RYDER SCOTT COMPANY, L.P.
Houston, Texas
April 20, 2000
<PAGE> 1
EXHIBIT 23.3
[SPROULE ASSOCIATES INC. LETTERHEAD]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation in this Registration Statement on Form
S-1 of our reserve report regarding the interests of Coho Energy, Inc. (the
Company) dated February 3, 2000, relating to estimated quantities of certain of
the Company's proved reserves of oil and gas. We also consent to the references
to us under the headings "Reserves" and "Engineers" in such Registration
Statement.
/s/ SPROULE ASSOCIATES INC.
SPROULE ASSOCIATES INC.
Geological and Petroleum Engineering Consultants
Denver, Colorado
April 26, 2000
<PAGE> 1
EXHIBIT 99.1
- ------------------- -------------- ----------------------------
RECORD DATE SHARES RIGHTS SHARES ELIGIBLE TO SUBSCRIBE
NOTICE OF EXERCISE OF RIGHTS
To Purchase a Portion of the New Common Stock of
COHO ENERGY, INC. (the "Company")
================================================================================
THE OPPORTUNITY TO PURCHASE SHARES OF NEW COMMON STOCK UPON EXERCISE OF THE
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 31, 2000.
================================================================================
The Subscription Agent for the Offering is:
ChaseMellon Shareholder Services LLC
Telephone number: (800) 777-3674 or (201) 329-8450
<TABLE>
<CAPTION>
By Mail: By Hand: By Overnight Delivery:
<S> <C> <C>
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3300 120 Broadway, 13th Floor 85 Challenger Road Mail Drop-Reorg
South Hackensack, NJ 07606 New York, NY 10271 Ridgefield, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
</TABLE>
In order for Rights to be validly exercised, a properly completed and
duly executed original of this Notice of Exercise of Rights (or a properly
completed and duly executed photocopy hereof) must be received by the
Subscription Agent at one of the addresses set forth above prior to 5:00 p.m.,
New York City time, on May 31, 2000. The instructions accompanying this Notice
of Exercise of Rights should be read carefully and followed precisely. Questions
and requests for assistance should be directed to the Subscription Agent at the
address or telephone number set forth above.
The terms and conditions of the Rights are set forth in the enclosed
prospectus and are incorporated herein by reference. The Prospectus also
contains important information regarding the New Common Stock, including certain
material risks that are inherent in an investment in such securities. You are
encouraged to read and consider carefully the contents of the Prospectus before
deciding whether to exercise or refrain from exercising Rights. No
recommendation is made regarding your decision to exercise or refrain from
exercising Rights.
AS DESCRIBED IN THE PROSPECTUS, EACH PERSON (EACH, AN "ELIGIBLE
HOLDER") WHO HOLDS SHARES OF COMMON STOCK, $0.01 PAR VALUE (THE "EXISTING COMMON
STOCK"), OF THE COMPANY AS OF THE CLOSE OF BUSINESS ON MARCH 6, 2000 (THE
"RECORD DATE") SHALL RECEIVE RIGHTS IN ACCORDANCE WITH THE TERMS SET FORTH IN
THE PROSPECTUS.
Each Eligible Holder shall receive the right to buy 0.338 shares of the
New Common Stock for each share of Existing Common Stock held as of the Record
Date (the "Basic Subscription Privilege"). Fractional Rights will not be issued;
rather, the number of Rights issued to an Eligible Holder will be rounded to the
nearest whole number. Each Right in the Basic Subscription Privilege shall
represent the right to purchase one share of New Common Stock for a purchase
price equal to $10.40 per share (the "Rights Exercise Price").
Each Eligible Holder who exercises its Basic Subscription Privilege in
full will also be able to subscribe for additional shares of New Common Stock at
the Rights Exercise Price, to the extent that other Eligible Holders do not
exercise their Basic Subscription Privilege in full (the "Over-Subscription
Privilege"). There is no maximum or minimum number of shares that an Eligible
Holder may subscribe for under the Over-Subscription Privilege. If there are not
enough shares to satisfy all subscriptions made under the Over-Subscription
Privilege of all Eligible Holders, the Company will allocate the remaining
shares available in the Rights offering pro rata, after eliminating all
fractional shares, among those holders exercising their Over-Subscription
Privilege. If an Eligible Holder exercises its Over-Subscription Privilege, such
Eligible Holder will be representing and certifying that such Eligible Holder is
exercising its Basic Subscription Privilege in full. If an Eligible Holder
exercises its Over-Subscription Privilege and is allocated less than all of the
shares for which such Eligible Holder wishes to subscribe, any excess payment
will be returned by mail without interest or deduction as soon as practicable.
NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW.
<PAGE> 2
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
The undersigned hereby irrevocably elects to exercise Rights of the
number of shares of New Common Stock indicated below on the terms and subject to
the conditions set forth in the Prospectus. Please issue a certificate
representing shares of New Common Stock as contemplated above in the name(s) of
the undersigned and mail the same to the address of the Eligible Holder(s)
appearing below. The number of Rights that the Eligible Holder(s) wish(es) to
exercise and the payment payable in respect thereof (the "Payment") must be
indicated in the appropriate spaces below.
<TABLE>
<S> <C>
Number of Rights to be exercised under the Basic Subscription Privilege: x $10.40 = $
--------- ----------
Number of shares of New Common Stock to be purchased under the
Over-Subscription Privilege (available only if the Basic Subscription
Privilege is exercised in full): x $10.40 = $
--------- ----------
Total subscription (sum of above payment amounts): $
----------
If the total number of shares of New Common Stock to be purchased has not been
indicated, or if the Payment delivered to the Subscription Agent is not
sufficient for the total number of shares of New Common Stock indicated above,
the Eligible Holder(s) will be deemed to have elected to purchase the maximum
number of shares of New Common Stock for which Payment was made (the Payment
divided by $10.40 rounded down to the nearest whole share of New Common Stock).
If the number of shares to be purchased under the Over-Subscription Privilege is
not specified and the Payment exceeds the aggregate subscription price for all
shares represented above, the Eligible Holder(s) shall be deemed to have
exercised the Over-Subscription Privilege to purchase, to the extent available,
that number of whole shares of New Common Stock for which Payment is made (the
excess Payment divided by $10.40 rounded down to the nearest whole share of New
Common Stock). To the extent any portion of the Payment enclosed or transmitted
remains after the foregoing procedures, such funds shall be mailed to the
Eligible Holder(s) without interest or deduction as soon as practicable.
</TABLE>
PLEASE SIGN HERE
(See Instructions 4 and 5)
X
------------------------------------------------------------------------------
Signature of Eligible Holder Fed. Tax ID No. Date
X
------------------------------------------------------------------------------
Signature of Eligible Holder Fed. Tax ID No. Date
Telephone Number: ( )
--- ----------------
If signed by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set forth
the following information.
(Please Type or Print)
Name(s):
--------------------------- ------------------------------
Capacity:
---------------------------
Address:
---------------------------
--------------------------- (Include Zip Code)
THE ABOVE SIGNATURE MAY NEED TO BE GUARANTEED. SEE INSTRUCTION 4.
INSTRUCTIONS
1. GENERAL. For the Rights to be validly exercised, a properly completed and
duly executed Notice of Exercise of Rights (or a properly completed and duly
executed photocopy thereof) must be received by the Subscription Agent
<PAGE> 3
prior to 5:00 p.m., New York City time, on May 31, 2000 (the "Exercise
Deadline") at one of the addresses set forth in this Notice of Exercise of
Rights, together with the Payment in accordance with paragraph 2 below. All
Rights that are to be exercised by the Eligible Holder named herein must be
exercised concurrently pursuant to this Notice of Exercise of Rights. Rights may
not be exercised by you unless you held shares of Existing Common Stock as of
the close of business on March 6, 2000, the Record Date. Do not send this Notice
of Exercise of Rights directly to the Company.
2. METHOD OF PAYMENT OF PURCHASE PRICE. Concurrently with the execution and
delivery of the Notice of Exercise of Rights, each Eligible Holder must pay the
Payment by either wire transfer of immediately available funds to the Company's
account identified below or by check payable to the Company delivered to the
Subscription Agent at one of the addresses set forth above, in each case so as
to be received by no later than 5:00 p.m., New York City time, on the Exercise
Deadline. If an Eligible Holder makes Payment by uncertified personal check, the
Payment must be made sufficiently in advance of the Exercise Deadline to ensure
that the Payment is received and cleared by that time. It is recommended that
Payment be made using a certified check or wire transfer of funds. The Company's
account into which the Payment may be made is identified as follows:
Coho Energy Rights Offering Account
Account No.
-----------
[Bank Name]
[Bank Address]
ABA No.
---------------
3. METHOD OF DELIVERY. The method of delivery of this Notice of Exercise of
Rights and the Payment will be at the election and risk of the Eligible Holder,
but if sent by mail, it is recommended that this Notice of Exercise of Rights
and the Payment be sent by registered mail, with return receipt requested, and
that a sufficient number of days be allowed to ensure timely receipt.
4. SIGNATURE(S). Each of the signatures on this Notice of Exercise of Rights
must be that of an Eligible Holder. If any shares of Existing Common Stock were
held of record as of the close of business on the Record Date by two or more
persons, all such persons must sign this Notice of Exercise of Rights. In all
other cases, it will be necessary for each Eligible Holder to complete, sign and
submit a separate Notice of Exercise of Rights. If this Notice of Exercise is
signed by a trustee, executor, administrator, guardian, officer or other person
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and proper evidence satisfactory to the Company of the authority
of such person to so act must be submitted with this Notice of Exercise of
Rights.
The signature of the Eligible Holder(s) contained in this Notice of
Exercise of Rights must be guaranteed by an eligible institution such as a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or from a commercial bank or
trust company having an office or correspondent in the United States. The
signature of the Eligible Holder(s) will not need to be guaranteed if this
Notice of Exercise of Rights provides that shares are to be delivered to you as
record holder of the Rights or the Eligible Holder is itself an eligible
institution as described in the prior sentence.
5. EXISTING COMMON STOCK HELD BY NOMINEES. Only holders of shares of Existing
Common Stock of record as of the close of business on the Record Date may
exercise the Rights. Therefore, brokers, dealers, commercial banks, trust
companies and other persons that as of the close of business on the Record Date
held shares of Existing Common Stock for the account of others, should notify
the respective beneficial owners of such shares of Existing Common Stock as soon
as possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the exercise of the Rights. Beneficial owners of
shares of Existing Common Stock held through such a nominee holder should
contact such nominee holder and request such nominee holder to effect
transactions in accordance with the beneficial owner's instructions. If the
beneficial owner so instructs, such nominee holder should complete a Notice of
Exercise of Rights. Each broker, dealer, commercial bank, trust company or other
nominee holder that held shares of Existing Common Stock as of the close of
business on the Record Date for one or more beneficial owners must certify to
the Company the number of Rights exercised on behalf of each beneficial owner on
a Nominee Holder Certification form provided separately. The Notice of Exercise
of Rights, together with the Nominee Holder Certification and the Payment,
should be submitted to the Subscription Agent.
<PAGE> 4
6. DETERMINATIONS. All determinations as to proper completion, due execution,
timeliness, eligibility, prorating and other matters affecting the validity or
effectiveness of any attempted exercise of any Rights will be made by the
Company in its reasonable discretion in accordance with the procedures set forth
herein and in the Prospectus, whose determination will be final and binding. The
Company, in its sole discretion, may waive any defect or irregularity, or permit
a defect or irregularity to be corrected within such time as it may determine or
reject the purported exercise of any Right that is subject to any such defect or
irregularity. Deliveries required to be received by the Subscription Agent in
connection with a purported exercise of Rights will not be deemed to have been
so received or accepted until actual receipt thereof by the Subscription Agent
in accordance with the instructions set forth herein shall have occurred and any
defects or irregularities shall have been waived or cured within such time as
the Company may determine in its sole discretion. Neither the Company nor any
other person will have an obligation to give notice to any holder of a Right of
any defect or irregularity in connection with any attempted exercise thereof or
incur any liability as a result of any failure to give any such notice.
7. REQUESTS FOR ADDITIONAL COPIES. Additional copies of this Notice of Exercise
of Rights or the Prospectus are available by sending a written request to the
Subscription Agent at the address set forth above or to the Company at 14785
Preston Road, Suite 860, Dallas, Texas 75240 to the attention of Ms. Anne Marie
O'Gorman.
8. REQUESTS FOR INFORMATION. Any questions or requests for assistance may be
directed to the Subscription Agent at the address or telephone number set forth
above. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance.
<PAGE> 5
TO HOLDERS OF COMMON STOCK OF COHO ENERGY, INC.
AS OF MARCH 6, 2000:
On February 7, 2000, the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court"), in the
chapter 11 reorganization cases filed by Coho Energy, Inc., Coho Resources,
Inc., Coho Oil & Gas, Inc., Coho Exploration, Inc., Coho Louisiana Production
Company and Interstate Natural Gas Company (collectively, the "Debtors"), issued
an order approving the Debtors' First Amended and Restated Disclosure Statement
dated February 14, 2000 (the "Disclosure Statement") with respect to the First
Amended and Restated Chapter 11 Plan of Reorganization dated February 14, 2000
(the "Plan") jointly proposed by the Debtors and the Official Committee of
Unsecured Creditors (collectively, the "Proponents"). As a part of the Plan,
Coho Energy, Inc. (the "Company") is offering rights (the "Rights") to acquire
shares of a new class of common stock (the "New Common Stock") of the Company to
be issued after confirmation of the Plan by the Bankruptcy Court. In connection
with the offering of Rights and the offering and sale of the New Common Stock,
the Company has filed with the Securities and Exchange Commission a registration
statement (the "Registration Statement") to register the Rights and the New
Common Stock. The Prospectus constituting a part of the Registration Statement
is enclosed herewith. All capitalized terms not otherwise defined herein have
the respective meanings ascribed thereto in the Prospectus.
AS DESCRIBED IN THE PROSPECTUS, EACH PERSON (EACH, AN "ELIGIBLE
HOLDER") WHO HOLDS SHARES OF COMMON STOCK, $0.01 PAR VALUE (THE "EXISTING COMMON
STOCK"), OF THE COMPANY AS OF THE CLOSE OF BUSINESS ON MARCH 6, 2000 (THE
"RECORD DATE") SHALL RECEIVE RIGHTS IN ACCORDANCE WITH THE TERMS SET FORTH IN
THE PROSPECTUS.
Each Eligible Holder shall receive the right to buy 0.338 shares of the
New Common Stock for each share of Existing Common Stock held as of the Record
Date (the "Basic Subscription Privilege"). Fractional Rights will not be issued;
rather, the number of Rights issued to an Eligible Holder will be rounded to the
nearest whole number. Each Right in the Basic Subscription Privilege shall
represent the right to purchase one share of New Common Stock for a purchase
price equal to $10.40 per share (the "Rights Exercise Price").
Each Eligible Holder who exercises its Basic Subscription Privilege in
full will also be able to subscribe for additional shares of New Common Stock at
the Rights Exercise Price, to the extent that other Eligible Holders do not
exercise their Basic Subscription Privilege in full (the "Over-Subscription
Privilege"). There is no maximum or minimum number of shares that an Eligible
Holder may subscribe for under the Over-Subscription Privilege. If there are not
enough shares to satisfy all subscriptions made under the Over-Subscription
Privilege of all Eligible Holders, the Company will allocate the remaining
shares available in the Rights offering pro rata, after eliminating all
fractional shares, among those holders exercising their Over-Subscription
Privilege. If an Eligible Holder exercises its Over-Subscription Privilege, such
Eligible Holder will be representing and certifying that such Eligible Holder is
exercising its Basic Subscription Privilege in full. If an Eligible Holder
exercises its Over-Subscription Privilege and is allocated less than all of the
shares for which such Eligible Holder wishes to subscribe, any excess payment
will be returned by mail without interest or deduction as soon as practicable.
<PAGE> 6
In the aggregate, 8,663,846 shares of New Common Stock will be
available under the Basic Subscription Privilege and Over-Subscription Privilege
of all of the Eligible Holders. The Rights will not be evidenced by certificates
and will not be transferable.
The Rights will be exercisable at any time during the period commencing
with the Company's mailing of the Prospectus and this Notice of Exercise of
Rights and concluding at 5:00 p.m., New York City time, on May 31, 2000,
unless extended (the "Exercise Deadline").
In order for an exercise of Rights to be valid and effective, an
Eligible Holder must deliver to the Subscription Agent at one of the addresses
set forth above a properly completed and duly executed Notice of Exercise of
Rights (including the Eligible Holder's tax identification number). In addition,
such Eligible Holder must either (x) deliver a check to the Subscription Agent
at one of the addresses specified above or (y) cause a wire transfer of
immediately available funds to be made to the Company's account specified in the
instructions to this Notice of Exercise of Rights, in each case in an amount
equal for the Rights Exercise Price times the number of shares of New Common
Stock subscribed for by such Eligible Holder for the Basic Subscription
Privilege and the Over- Subscription Privilege (the "Payment"). The Notice of
Exercise of Rights and the Payment must be received at the specified address or
account by no later than 5:00 p.m., New York City time, on the Exercise Deadline
for an exercise of Rights to be valid and effective. After the Company's receipt
of the foregoing, the Company, in its reasonable discretion in accordance with
the procedures set forth herein and in the Prospectus, shall determine how many
shares of New Common Stock each such Eligible Holder is entitled to receive.
In the event the Bankruptcy Court does not confirm the Plan or the
effective date specified in the Plan does not occur, the offering of Rights and
the offering and sale of shares of New Common Stock may be rescinded without
notice and shall be of no further force and effect, and any monies received by
the Company in connection with the offering shall promptly be returned to the
applicable Eligible Holders, without interest or deduction.
Neither the Debtors nor the Creditors' Committee is making any
recommendation as to whether the Rights should be exercised or the New Common
Stock should be purchased. Each Eligible Holder should decide whether to
exercise the Rights and purchase the shares of New Common Stock based upon its
own assessment of its best interests in consultation with its legal and
financial advisors.
<PAGE> 7
NOMINEE HOLDER CERTIFICATION
Reference is made to the Notice of Exercise of Rights dated April 28
2000, delivered by Coho Energy, Inc. (the "Company") to each person (an
"Eligible Holder") who holds shares of common stock, $0.01 par value (the
"Existing Common Stock"), of the Company as of the close of business on March 6,
2000 (the "Record Date"). Capitalized terms used but not defined herein shall
have the respective meanings assigned to such terms in the Notice of Exercise.
NOTE: THE FOLLOWING SHOULD ONLY BE COMPLETED AND SIGNED IF THE ELIGIBLE
HOLDER IS A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE
HOLDER THAT HELD SHARES OF EXISTING COMMON STOCK FOR ONE OR MORE BENEFICIAL
OWNERS ON THE RECORD DATE.
The undersigned is a broker, dealer, commercial bank, trust company or
other nominee which held shares of Existing Common Stock of record as of the
Record Date for the account of one or more beneficial owners (indicated below by
number without identifying any such beneficial owner), and hereby certifies to
the Company that the undersigned has exercised, on behalf of the beneficial
owners thereof (which may include the undersigned), the number of Rights
specified below:
ATTACH ADDITIONAL LISTS AS NECESSARY
<TABLE>
<CAPTION>
Number of shares of New Common Number of shares of New Common
Beneficial Stock Purchased on Behalf of Such Stock Purchased on Behalf of Such
Owner Beneficial Owner under the Beneficial Owner under the
Number Basic Subscription Privilege Over-Subscription Privilege
<S> <C> <C>
1
----------------------------- -----------------------------
2
----------------------------- -----------------------------
3
----------------------------- -----------------------------
4
----------------------------- -----------------------------
5
----------------------------- -----------------------------
6
----------------------------- -----------------------------
7
----------------------------- -----------------------------
8
----------------------------- -----------------------------
9
----------------------------- -----------------------------
10
----------------------------- -----------------------------
</TABLE>
- --------------------------------------------------------------------------------
PLEASE SIGN AND DATE HERE
<TABLE>
<CAPTION>
Name of Nominee Holder Fed. Tax ID No. Dated:
---------------------- --------------- -----
<S> <C> <C>
- ------------------------------------
By:
-------------------------------- ----------------- --------------------
Name:
------------------------------
Title:
-----------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 8
COHO ENERGY, INC.
Offering Being Made Pursuant to
the First Amended and Restated Plan of Reorganization
of
COHO ENERGY, INC.
Under Chapter 11 of the United States Bankruptcy Code
================================================================================
THE OPPORTUNITY TO PURCHASE SHARES OF NEW COMMON STOCK UPON
EXERCISE OF THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MAY 31, 2000.
================================================================================
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Coho Energy, Inc. (the "Company") is conducting an offering of rights (the
"Rights") to purchase shares of a new class of common stock (the "New Common
Stock") of the Company to be issued after confirmation of the Debtors' and
Creditors Committee's First Amended and Restated Chapter 11 Plan of
Reorganization dated February 14, 2000, upon the terms and subject to the
conditions set forth in a Notice of Exercise of Rights dated April 28, 2000
(the "Notice of Exercise") and a related prospectus (the "Prospectus").
Capitalized terms used but not defined herein shall have the respective meanings
assigned to such terms in the Notice of Exercise.
Enclosed herewith are copies of the following documents:
1. The Notice of Exercise for your use and for the information of
your clients;
2. The Prospectus;
3. A form of letter which may be sent to your clients for whose
account you hold shares of Existing Common Stock in your name
or in the name of a nominee, with space provided for obtaining
such clients' instructions with regard to their exercise of
Rights; and
4. A Nominee Holder Certification for your use.
Please note that the Exercise Deadline for the Rights is at 5:00 P.M.,
New York City time, on May 31, 2000, unless extended. We urge you to contact
your clients as promptly as possible.
The Company will not pay any fees or commissions to any broker or
dealer or other person for soliciting instructions with respect to the exercise
of Rights (other than to the Subscription Agent). You will be reimbursed for
customary mailing and handling expenses incurred by you in forwarding the
enclosed materials to your clients.
<PAGE> 9
Additional copies of the enclosed materials may be obtained from the
Subscription Agent at its address and telephone number set forth on the front
page of the Notice of Exercise.
Very truly yours,
COHO ENERGY, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL BE DEEMED TO MAKE
YOU OR ANY OTHER PERSON AN AGENT OF THE COMPANY OR THE SUBSCRIPTION AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFERING OF RIGHTS
OR THE OFFERING OR SALE OF THE NEW COMMON STOCK NOT CONTAINED IN THE NOTICE OF
EXERCISE OR THE PROSPECTUS.
-2-
<PAGE> 10
COHO ENERGY, INC.
Offering Being Made Pursuant to
the First Amended and Restated Plan of Reorganization of
COHO ENERGY, INC.
Under Chapter 11 of the United States Bankruptcy Code
================================================================================
THE OPPORTUNITY TO PURCHASE SHARES OF NEW COMMON STOCK UPON
EXERCISE OF THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MAY 31, 2000.
================================================================================
TO OUR CLIENTS:
Enclosed for your consideration is a Notice of Exercise of Rights dated
April 28, 2000 (the "Notice of Exercise"), of Coho Energy, Inc. (the "Company")
and a related prospectus (the "Prospectus") relating to the Company's offering
of rights (the "Rights") to purchase shares of a new class of common stock (the
"New Common Stock") of the Company to be issued after confirmation of the
Debtors' and Creditors Committee's First Amended and Restated Chapter 11 Plan of
Reorganization dated February 14, 2000. Capitalized terms used but not defined
herein shall have the respective meanings assigned to such terms in the Notice
of Exercise.
WE ARE THE REGISTERED HOLDER OF SHARES OF THE COMPANY'S EXISTING COMMON
STOCK, $0.01 PAR VALUE (THE "EXISTING COMMON STOCK"), HELD BY US FOR YOUR
ACCOUNT. DELIVERY OF THE NOTICE OF EXERCISE WITH RESPECT TO THE EXERCISE OF
RIGHTS RELATING TO SUCH SHARES OF EXISTING COMMON STOCK CAN BE MADE ONLY BY US
AS THE REGISTERED HOLDER AND PURSUANT TO YOUR INSTRUCTIONS. THE NOTICE OF
EXERCISE AND THE RELATED PROSPECTUS ARE FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO DELIVER A NOTICE OF EXERCISE WITH RESPECT TO
RIGHTS RELATING TO THE SHARES OF EXISTING COMMON STOCK HELD BY US FOR YOUR
ACCOUNT.
Accordingly, we request instructions as to whether you wish us to
deliver the Notice of Exercise with respect to the Rights relating to such
shares of Existing Common Stock, pursuant to the terms and conditions set forth
in the Notice of Exercise and the related Prospectus. We urge you to read the
Notice of Exercise, the Prospectus and the other enclosed materials carefully
before instructing us to deliver a Notice of Exercise with respect to the Rights
relating to such shares of Existing Common Stock.
Your instructions to us and any Payment for shares of New Common Stock
should be forwarded as promptly as possible in order to permit us to deliver the
Notice of Exercise on your behalf. The Exercise Deadline is at 5:00 P.M., New
York City time, on May 31, 2000, unless extended.
If you wish to have us exercise your Rights to purchase shares of New
Common Stock, please so instruct us by completing, executing and returning to us
the instructions contained on the reverse side of this letter.
<PAGE> 11
BENEFICIAL OWNER ELECTION FORM
with Respect to the
Offering Being Made Pursuant to
the First Amended and Restated Plan of Reorganization of
COHO ENERGY, INC.
Under Chapter 11 of the United States Bankruptcy Code
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the exercise of Rights to purchase New
Common Stock of Coho Energy, Inc.
This will instruct you to exercise my Rights to purchase shares of New
Common Stock indicated below pursuant to the terms and conditions set forth in
the Notice of Exercise and the Prospectus. I have transmitted to you
concurrently with these instructions my Payment for the shares of New Common
Stock being purchased.
Date: ____________________, 2000
<TABLE>
<S> <C> <C>
Number of shares of
New Common Stock ------------------------------------------
to be purchased under
the Basic Subscription ------------------------------------------
Privilege: Signature(s)
----------------------
Number of shares of ------------------------------------------
New Common Stock
to be purchased under ------------------------------------------
the Over-Subscription Please print name(s) here
Privilege (available only
if the Basic Subscription ------------------------------------------
Privilege is exercised ------------------------------------------
in full): ------------------------------------------
---------------------- ------------------------------------------
Please type or print address
Total number of shares
of New Common Stock ------------------------------------------
to be purchased (sum of Area Code and Telephone Number
the above two amounts):
---------------------- ------------------------------------------
Payment (the product of Taxpayer Identification or Social Security
the total number of shares Number
of New Common Stock
to be purchased and $10.40): $
---------------------- ------------------------------------------
My Account Number with You
</TABLE>
