-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PnA32g3Bn5X+qD1WgKwq+cW6u+JgdHHs/+0AEIXAasqbDSq7cmbO2sale5Vx4FUm vZAkHPI/vIQUYPnOsriKmg== 0000899243-01-000727.txt : 20010329 0000899243-01-000727.hdr.sgml : 20010329 ACCESSION NUMBER: 0000899243-01-000727 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODRICH PETROLEUM CORP CENTRAL INDEX KEY: 0000943861 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760466193 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12719 FILM NUMBER: 1582860 BUSINESS ADDRESS: STREET 1: 815 WALKER STREET 2: SUITE 1040 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7137809494 MAIL ADDRESS: STREET 1: 815 WALKER STREET 2: SUITE 1040 CITY: HOUSTON STATE: TX ZIP: 77002 10-K 1 0001.txt FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For Fiscal Year Ended December 31, 2000 Commission file number 1-7940 GOODRICH PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0466193 (State of incorporation) (I.R.S. Employer Identification No.) 815 Walker St., Suite 1040 Houston, Texas 77002 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code is (713) 780-9494
Name of each exchange on Title of each class which registered ------------------- ------------------------
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.20 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Series A Preferred Stock, $1.00 par NASDAQ Small Cap value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] At March 21, 2001 there were 17,508,430 shares of Goodrich Petroleum Corporation common stock outstanding. The aggregate market value of shares of common stock held by non-affiliates of the registrant as of March 21, 2001 was approximately $109,428,000 based on a closing price of $6.25 per share on the New York Stock Exchange on such date. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I Items 1 and 2. Business and Properties. General Goodrich Petroleum Corporation and subsidiaries ("Goodrich" or "the Company") is an independent oil and gas company engaged in the exploration, exploitation development and production of oil and natural gas properties in the transition zone of south Louisiana and in north Louisiana, the Gulf Coast of Texas and east Texas. The Company owns working and overriding royalty interests in 130 active oil and gas wells located in 32 fields in six states. At December 31, 2000 Goodrich had estimated proved reserves of approximately 6,789,000 barrels of oil and condensate and 29.5 Bcf of natural gas, or an aggregate of 70.2 Bcfe with a pre-tax present value of future net revenues, discounted at 10%, of $250.1 million and an after-tax Standardized Measure value of $179.8 million. The Company's principal executive offices are located at 815 Walker, Suite 1040 Houston, Texas 77002. The Company also has offices in Shreveport, Louisiana. At March 12, 2001 the Company had 15 employees. Company Background Goodrich resulted from a business combination on August 15, 1995 between La/Cal Energy Partners ("La/Cal") and Patrick Petroleum Company and subsidiaries ("Patrick"). La/Cal was a privately held independent oil and gas partnership formed in July 1993 and engaged in the development, production and acquisition of oil and natural gas properties, primarily in southern Louisiana. Patrick was a NYSE listed independent oil and gas company engaged in the exploration, production, development and acquisition of oil and natural gas properties in the continental United States. Patrick's oil and gas operations and properties were primarily located in west Texas and Michigan at the time of the combination, with additional operations and properties in certain western states. Oil and Gas Operations and Properties The following is a summary description of the Company's oil and gas properties. Louisiana The majority of the Company's proved natural gas reserves are in the transition zone of the south Louisiana producing region. This region refers to the geographic area that covers the onshore and in-land waters of south Louisiana lying in the southern one-half of the state of Louisiana, which is one of the world's most prolific oil and natural gas producing sedimentary basins. The region generally contains sedimentary sandstones, which are of high qualities of porosity and permeabilities. There is a myriad of types of reservoir traps found in the region. These traps are generally formed by faulting, folding and subsurface salt movement or a combination of one or more of these. The formations found in the southern Louisiana producing region range in depth from 1,000 feet to 20,000 feet below the surface. These formations range from the Sparta and Frio formations in the northern part of the region to Miocene and Pleistocene in the southern part of the region. The Company's production comes predominately from Miocene and Frio age formations. Burrwood/West Delta Block 83 Fields. The Burrwood/West Delta Block 83 fields, located in Plaquemines Parish, Louisiana, were discovered in 1955 by Chevron. The fields lie upthrown to a large down-to-the southeast growth fault system with the structure striking northeast-southwest and dipping northwestward in a counter-regional direction. The fields have collectively produced 48.8 million barrels of oil and 140 Bcf of natural gas. The productive sands are Miocene and Pliocene age sands ranging in depth from 6,300 feet to approximately 11,700 feet. There are currently 20 active producing wells in the fields. 2 Goodrich acquired a 95% working interest in approximately 8,600 acres through an acquisition that closed on March 2, 2000 with an effective date of January 1, 2000. Lafitte Field. The Lafitte Field is located in Jefferson Parish, Louisiana and was discovered in 1935 by Texaco. The Lafitte Field is a large, north- south elongated salt dome anticline feature. There are currently more than thirty (30) defined productive sands, which have collectively produced in excess of 263 million barrels of oil and 318 Bcf of natural gas. The productive sands are Miocene and Pliocene age sands ranging in depth from 3,000 feet to approximately 12,000 feet. There are currently 32 active producing wells in the field. In September 1999, the Company acquired an approximate 49% interest in the Lafitte Field with regards to the field's leases, surface facilities and equipment and an approximate 45% average interest in the 31 active producing wells. In November 1999, the Company acquired additional interests, resulting in an approximate field-wide interest of 49%. Additionally, the Lafitte Field has over 30 defined productive reservoirs, a large cumulative production history of 1,890 Bcfe, a large acreage position of over 8,000 acres and then current production of approximately 4,500 Mcfe per day. The Company has drilled one new well and performed five workovers and recompletions, increasing production from 4,500 Mcfe per day to approximately 9,000 Mcfe per day currently. Second Bayou Field. The Second Bayou Field is located in Cameron Parish, Louisiana and was discovered in 1955 by the Sun Texas Company. Goodrich is the operator of seven producing wells, five of which are dually completed, and has an average working interest of approximately 29% in 1,395 gross acres. To date, the field has produced over 424 Bcf of natural gas and 3.5 million barrels of oil from multiple Miocene aged sands ranging from 4,000 to 15,200 feet. Other major operators in the area are Fina Oil and Chemical Company, Texaco Exploration and Producing, Inc. and Bellwether Exploration Company. Pecan Lake Field. The Pecan Lake Field was discovered in 1944 by the Superior Oil Company. Geologically, the field is comprised of a relatively low relief, four-way closure and multiple stacked pay sands. The Pecan Lake Field comprises approximately 870 gross leased acres in Cameron Parish, Louisiana, approximately 42 miles southeast of Lake Charles, Louisiana. The field has produced from over 15 Miocene sands ranging in depths from 7,500 to 11,800 feet, which have been predominately gas and gas condensate reservoirs. These sand reservoirs are characterized by generally widespread development and strong waterdrive production mechanisms. The field has produced in excess of 352 Bcf of gas and 746,000 barrels of condensate. All of the field production to date has come from normal pressured reservoirs. The Company is the operator of five producing wells with working interests ranging from approximately 43% to 47%. Isle St. Jean Charles Field. Isle St. Jean Charles Field is located in Terrebonne Parish, Louisiana. The field is a northwest extension of the Bayou Jean LaCroix Field located in the southeastern area of the Parish. These fields are trapped on a four-way closure, downthrown on a major east-west trending down to the south fault. Production is from multiple Miocene-aged sands, which are normally pressured and range in depth from 9,000 feet to 13,000 feet. The field was developed primarily in the 1950's by Exxon and reservoirs have exhibited both depletion and water drive mechanisms. To date, these fields have produced in excess of 55 billion cubic feet of gas and 6.58 million barrels of oil and condensate. Goodrich acquired its working interest in its leasehold of approximately 425 acres through both acreage acquisitions and a farmout from Fina, et al. Goodrich is operator of the field and holds an approximate 34% working interest. Lake Raccourci Field. The Lake Raccourci Field was discovered by Humble Oil and Refining Company ("Exxon") in 1949, with the field extended to the south by Pan American ("Amoco") in 1958. Geologically, the field is a large four-way dipping closure, which is cross-cut by numerous northeast-southwest striking down to the south faults. The field has produced from a minimum of 18 different Miocene age sandstones, ranging in depth from 9,000 to 16,500 feet. These normally and abnormally pressured reservoirs exhibit depletion, water and combination drive mechanisms, and have produced in excess of 833 billion cubic feet of gas and 20 million barrels of oil and condensate. 3 Goodrich acquired its average 20% working interest in the field through a farmout from MW Petroleum ("Apache") in July 1996 and a separate farmout from Exxon. The Company controls approximately 1,079 acres in the field. Ada Field. The Ada Field was discovered by Hope Producing Company in 1945. The field is located in Bienville Parish, in north Louisiana. Geologically, the field lies between two salt domes exhibiting a four-way anticline with two main horst blocks, a main graben block, and several compensating faults. The field has produced from numerous lower cretaceous sands and lime facies, with the sands being predominately lenticular in deposition. The producing interval for the field ranges from 4,500 to 10,000 feet, with the reservoir being primarily a pressure depletion mechanism. Ada Field has produced over 657 Bcf of natural gas and 5.2 million barrels of oil. Goodrich owns an approximate 43% working interest in the six producing wells in the field. Other. The Company maintains ownership interests in acreage and wells in several additional fields in Louisiana, including the (i) Opelousas Field, located in St. Landry Parish, (ii) Sibley Field, located in Webster Parish, (iii) City of Lake Charles Field, located in Calcasieu Parish, (iv) South Drew Field, located in Lafourche Parish, (v) Mosquito Bay Field, located in Terrebonne Parish, (vi) South Pecan Lake Field located in Cameron Parish and (vii) Kings Ridge Field, located in Lafourche Parish. Texas Goodrich explores and has production in the western, eastern and southern regions of Texas. Sean Andrew Field. The Sean Andrew Field was discovered by the Company in 1994 utilizing the Company's 375 square mile 3-D seismic database in west Texas. The Company is the operator of the four wells in the field and holds an approximate 37.5% working interest. Marholl Field. The Marholl Field is a Siluro-Devonian (Fussellman) field in Dawson County discovered in 1995 through the use of 3-D seismic. The Company operates two wells in the field with an approximate 23% working interest. Mary Blevins Field. The Mary Blevins Field is located in Smith County, Texas. It was a new discovery that is fault separated from Hitts Lake Field, discovered in 1953 by Sun Oil. Currently there are four producing wells in the field with Goodrich, as operator, having an approximate 48% working interest in 782 gross acres. To date, Hitts Lake has produced over 14 million barrels of oil and Mary Blevins has produced over 514,073 barrels from the Paluxy, which occurs at a depth of approximately 7,300 feet. Other. The Company maintains ownership interests in acreage and wells in several additional fields in Texas including the (i) Ackerly Field, located in Dawson and Howard Counties, (ii) Lamesa Farms Field, located in Dawson County, (iii) Midway Field, located in San Patricio County, (iv) East Jacksonville Field, located in Cherokee County, (v) Mott Slough, located in Wharton County and (vi) Cantillo Field, located in Nueces County. Australia Goodrich has interest in two exploration permits in the Carnarvon Basin of Western Australia. The Carnarvon Basin is two-thirds the size of the Gulf of Mexico and has produced in excess of 4.3 TCF and 550 million barrels of oil from less than 1000 wells. The Carnarvon Basin retains significant exploration potential. Additional strengths of the basin include large inexpensive acreage blocks, vast available geological and geophysical data sets, existing and expanding petroleum infrastructure and increasing domestic demands for natural gas. 4 EP-395. Goodrich Petroleum acquired a 20% non-operated working interest in the 240 square kilometer Exploration Permit in 1995. Since 1995, the partners have reprocessed the original 2-D seismic data sets, shot a 38 km 3-D seismic survey (1995), and shot an additional 93 km of high quality 2-D seismic. Interpretation of this data has confirmed two separate prospects: West Boyd and Lindsay. During 1999, Goodrich Petroleum farmed out its working interest for a 6.9% carried interest through the drilling of the Boyd #1 well, which was a dry hole. Currently, the partners are evaluating information from the dry hole. EP-397. This Permit is 160 square kilometers and the Company has a 33% working interest. The 130 km of available seismic has been reprocessed and interpreted with several prospect leads. Oil and Natural Gas Reserves The following tables set forth summary information with respect to the Company's proved reserves as of December 31, 2000 and 1999, as estimated by the Company by compiling reserve information, substantially all of which was prepared by the engineering firm of Coutret and Associates, Inc.
After-Tax Net Reserves Pre-Tax Present Standardized Measure ---------------------------- Value of Future of Discounted Future Oil Net Revenues Net Revenues Category (Bbls) Gas (Mcf) Bcfe(1) (in millions) (in millions) -------- --------- ---------- ------- --------------- -------------------- December 31, 2000 Proved Developed 3,196,330 22,251,970 41.4 $162.41 Proved Undeveloped.... 3,593,028 7,258,709 28.8 87.70 --------- ---------- ---- ------- Total Proved........ 6,789,358 29,510,679 70.2 $250.11 $179.78 ========= ========== ==== ======= ======= December 31, 1999 Proved Developed 2,662,907 13,945,450 29.9 $ 50.50 Proved Undeveloped..... 3,076,090 6,904,142 25.4 41.91 --------- ---------- ---- ------- Total Proved........ 5,738,997 20,849,592 55.3 $ 92.41 $ 78.56 ========= ========== ==== ======= =======
- -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. Reserve engineering is a subjective process of estimating underground accumulations of crude oil, condensate and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the pre-tax Present Value of Future Net Revenues amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. In accordance with the Commission's guidelines, the engineers' estimates of future net revenues from the Company's properties and the pre-tax Present Value of Future Net Revenues thereof are made using oil and natural gas sales prices in effect as of the dates of such estimates and are held constant throughout the life of the properties, except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. The prices as of December 31, 2000 used in such estimates averaged $10.06 per Mcf of natural gas and $26.10 per Bbl of crude oil/condensate. 5 Productive Wells The following table set forth the number of active well bores in which the Company maintains ownership interests as of December 31, 2000:
Oil Gas Total --------------- --------------- --------------- Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2) -------- ------ -------- ------ -------- ------ California.............. -- -- 4.00 2.09 4.00 2.09 Louisiana............... 48.00 29.61 41.00 18.76 89.00 48.37 Michigan................ 2.00 0.26 5.00 0.05 7.00 0.31 New Mexico.............. -- -- 1.00 0.03 1.00 0.03 Texas................... 23.00 11.56 5.00 0.74 28.00 12.30 Wyoming................. 1.00 0.17 -- -- 1.00 0.17 ----- ----- ----- ----- ------ ----- Total Productive Wells................ 74.00 41.60 56.00 21.67 130.00 63.27 ===== ===== ===== ===== ====== =====
- -------- (1) Does not include royalty or overriding royalty interests. (2) Net working interest. Productive wells consist of producing wells and wells capable of production, including gas wells awaiting pipeline connections. A gross well is a well in which the Company maintains an ownership interest, while a net well is deemed to exist when the sum of the fractional working interests owned by the Company equals one. Wells that are completed in more than one producing horizon are counted as one well. Of the gross wells reported above, twelve had multiple completions. Acreage The following table summarizes the Company's gross and net developed and undeveloped natural gas and oil acreage under lease as of December 31, 2000. Acreage in which the Company's interest is limited to a royalty or overriding royalty interest is excluded from the table.
Gross Net ------- ------ Developed acreage California............................................... 1,280 568 Louisiana................................................ 24,087 14,780 Michigan................................................. 1,920 19 Texas.................................................... 5,358 1,912 Wyoming.................................................. 80 13 Undeveloped acreage Offshore Australia....................................... 98,841 17,306 Louisiana................................................ 1,280 924 Michigan................................................. 640 50 Texas.................................................... 1,000 552 ------- ------ Total.................................................. 134,486 36,124 ======= ======
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas or oil, regardless of whether or not such acreage contains proved reserves. As is customary in the oil and gas industry, the Company can retain its interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the leases or by payment of delay rentals during the remaining primary term of such a lease. The natural gas and oil leases in which the Company has an interest are for varying primary terms; however, most of the Company's developed lease acreage is beyond the primary term and is held by producing natural gas or oil wells. 6 Operator Activities Goodrich Petroleum operates a majority in value of the Company's producing properties, and will generally seek to become the operator of record on properties it drills or acquires in the future. Drilling Activities The following table sets forth the drilling activity of the Company for the last three years. (As denoted in the following table, "Gross" wells refers to wells in which a working interest is owned, while a "net" well is deemed to exist when the sum of fractional ownership working interests in gross wells equals one.)
Year Ended December 31, ------------------------------- 2000 1999 1998 ---------- --------- ---------- Gross Net Gross Net Gross Net ----- ---- ----- --- ----- ---- Development Wells: Productive.............................. 3.00 1.77 1.00 .49 6.00 2.77 Non-Productive.......................... 1.00 .49 -- -- 2.00 1.47 ---- ---- ---- --- ----- ---- Total................................. 4.00 2.26 1.00 .49 8.00 4.24 ==== ==== ==== === ===== ==== Exploratory Wells: Productive.............................. 2.00 .93 -- -- 7.00 1.49 Non-Productive.......................... 2.00 1.00 1.00 .12 8.00 2.87 ---- ---- ---- --- ----- ---- Total................................. 4.00 1.93 1.00 .12 15.00 4.36 ==== ==== ==== === ===== ==== Total Wells: Productive.............................. 5.00 2.70 1.00 .49 13.00 4.26 Non-Productive.......................... 3.00 1.49 1.00 .12 9.00 4.34 ---- ---- ---- --- ----- ---- Total................................. 8.00 4.19 2.00 .61 22.00 8.60 ==== ==== ==== === ===== ====
Net Production, Unit Prices and Costs The following table presents certain information with respect to oil, gas and condensate production attributable to the Company's interests in all of its fields, the revenue derived from the sale of such production, average sales prices received and average production costs during each of the years in the three-year period ended December 31, 2000.
2000 1999 1998 --------- --------- --------- Net Production: Natural gas (Mcf)........................ 3,394,921 2,930,655 2,782,825 Oil (Bbls)............................... 571,766 394,442 316,768 Natural gas equivalents (Mcfe) (1)....... 6,825,517 5,297,307 4,683,433 Average Net Daily Production: Natural gas (Mcf)........................ 9,301 8,029 7,624 Oil (Bbls)............................... 1,566 1,081 868 Natural gas equivalents (Mcfe) (1)....... 18,697 14,515 12,832 Average Sales Price Per Unit (2): Natural gas (per Mcf).................... $ 3.95 2.41 2.18 Oil (per Bbl)............................ $ 25.55 16.88 11.88 Other Data: Lease operating expense (per Mcfe)....... $ 0.69 0.45 0.37 Production taxes (per Mcfe).............. $ 0.32 0.23 0.24
- -------- (1) Estimated by the Company using a conversion ratio of 1.0 Bbl/6.0 Mcf. (2) See results of operations under Item 7 for discussion of the effects of hedging on year 2000 results. Hedging activity for 1999 did not have a significant effect on these results. 7 Oil and Gas Marketing and Major Customers Marketing. Goodrich's natural gas production is sold under spot or market- sensitive contracts and to various gas purchasers on short-term contracts. Goodrich's natural gas condensate is sold under short-term rollover agreements based on current market prices. The Company's crude oil production is marketed to several purchasers based on short-term contracts. The Company entered into an agreement with Natural Gas Ventures, L.L.C. ("NGV"), a Louisiana limited liability company, for the purpose of marketing the Company's and its contracting parties' natural gas. The Company and other contracting parties contribute natural gas to NGV, that NGV then markets to gas purchasers, pursuant to the Joint Venture Agreement between NGV and Seaber Corporation of Louisiana ("Seaber"). The Company can terminate this agreement on 60-days notice. The Company believes its contract with NGV allows it to realize higher prices for its contributed gas because of the greater market power associated with larger volumes of gas than the Company would have for sale on a stand-alone basis. Customers. Due to the nature of the industry, the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 2000 1999 1998 ---- ---- ---- Seaber Corporation of Louisiana............................ 48% 37% 47% Genesis Crude Oil, L.P..................................... 27% 27% 12% Gulfmark Energy, Inc....................................... 10% 10% -- Equiva Trading............................................. 8% 27% 12% Texla Energy Management.................................... -- 10% -- Navajo Refining Company.................................... 4% 7% 11%
Competition The oil and gas industry is highly competitive. Major and independent oil and gas companies, drilling and production acquisition programs and individual producers and operators are active bidders for desirable oil and gas properties, as well as the equipment and labor required to operate those properties. Many competitors have financial resources substantially greater than those of the Company, and staffs and facilities substantially larger than those of the Company. The availability of a ready market for the oil and gas production of the Company will depend in part on the cost and availability of alternative fuels, the level of consumer demand, the extent of domestic production of oil and gas, the extent of importation of foreign oil and gas, the cost of and proximity to pipelines and other transportation facilities, regulations by state and federal authorities and the cost of complying with applicable environmental regulations. Regulations The availability of a ready market for any natural gas and oil production depends upon numerous factors beyond the Company's control. These factors include regulation of natural gas and oil production, federal and state regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the amount of natural gas and oil available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a productive natural gas well may be "shut- in" because of an oversupply of natural gas or the lack of an available natural gas pipeline in the areas in which the Company may conduct operations. State and federal regulations generally are intended to prevent waste of natural gas and oil, protect rights to produce natural gas and oil between owners in a common reservoir, control the amount of natural gas and oil produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local agencies as well. 8 Environmental Regulation Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company's operations and costs as a result of their effect on oil and gas development, exploration and production operations. It is not anticipated that the Company will be required in the near future to expend amounts that are material in relation to its total capital expenditures program by reason of environmental laws and regulations but, inasmuch as such laws and regulations are frequently changed by both federal and state agencies, the Company is unable to predict the ultimate cost of continued compliance. Additionally, see existing EPA matters discussed in Item 3--Legal Proceedings. State statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. In addition, there are state statutes, rules and regulations governing conservation matters, including the unitization or pooling of oil and gas properties, establishment of maximum rates of production from oil and gas wells and the spacing, plugging and abandonment of such wells. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced from the Company's properties and may restrict the number of wells that may be drilled on a particular lease or in a particular field. Item 3. Legal Proceedings. The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company estimates that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with the Company's percentage of responsibility estimated to be approximately 3.05%. As of December 31, 2000, the Company had paid $321,000 in costs related to this matter and accrued $122,500 for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. On February 8, 2000, the Company commenced a suit against the operator and joint owner of the Lafitte Field, alleging certain items of misconduct and violations of the letter agreement associated with the joint acquisition. The suit is in its early stages and it is too early to predict a likely outcome, however, as the Company is the plaintiff in this action, this action is not expected to have a significantly adverse impact on the operations or financial position of the Company. The Company is party to additional lawsuits arising in the normal course of business. The Company intends to defend these actions vigorously and believes, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to its financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. None. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's common stock is traded on the New York Stock Exchange. At March 22, 2001 the number of holders of record of the Company's common stock without determination of the number of individual participants in security position was 3,063 with 17,508,430 shares outstanding. High and low sales prices for the Company's common stock for each quarter during the calendar years 2000 and 1999 are as follows:
2000 1999 ---------- --------- Quarter Ended High Low High Low ------------- ----- ---- ---- ---- March 31............................................. $6.25 2.63 1.50 .69 June 30.............................................. $5.56 4.25 1.88 .94 September 30......................................... $6.25 4.50 2.69 .94 December 31.......................................... $6.50 5.00 3.06 2.19
The Company has not paid a cash dividend on its Common Stock and does not intend to pay such a dividend in the foreseeable future. 10 Item 6. Selected Financial Data. Selected Statement of Operations Data: The following table sets forth selected financial data of the Company for each of the years in the five-year period ended December 31, 2000, which information has been derived from the Company's audited financial statements. This information should be read in connection with and is qualified in its entirety by the more detailed information in the Company's financial statements under Item 8 below and Item 7, "Management's Discussion And Analysis Of Financial Condition And Results Of Operations."
Year Ended December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- Revenues................ $28,489,391 14,020,574 10,591,873 12,901,361 9,769,383 Depletion, Depreciation and Amortization....... 5,953,641 4,743,608 4,094,447 4,862,754 3,788,292 Exploration............. 2,813,332 1,656,158 6,010,425 3,205,730 1,149,240 Interest Expense........ 4,390,331 2,810,576 1,909,849 1,416,675 828,394 Total Costs and Expenses............... 24,712,518 15,330,062 18,311,421 14,978,629 9,476,366 Gain (Loss) on sale of assets................. 307,299 (519,495) 4,206 688,304 88,428 Income taxes............ (1,655,032) -- -- -- -- Net Income(Loss)........ 5,739,204 (1,828,983) (7,715,342) (1,388,964) 381,445 Preferred Stock Dividends.............. 1,193,768 1,249,343 1,255,638 1,205,210 644,800 Income(Loss) Applicable to Common Stock........ 4,545,436 (3,078,326) (8,970,980) (2,594,174) (263,355) Basic Income(Loss) Per Average Common Share... .46 (.58) (1.71) (.50) (.05) Diluted Income(Loss) Per Average Common Share... $ .35 (.58) (1.71) (.50) (.05) Average Common Shares Outstanding Basic...... 9,903,248 5,288,011 5,243,105 5,229,307 5,225,564 Average Common Shares Outstanding Diluted.... 13,116,641 5,288,011 5,243,105 5,229,307 5,225,564 Year Ended December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- Selected Balance Sheet Data: Total Assets.......... $65,343,594 56,258,552 44,036,588 37,537,918 22,398,984 Total Long Term Debt(a).............. 22,965,000 36,953,117 29,500,000 18,500,000 10,000,000 Stockholders' Equity............... $32,605,216 6,411,044 4,959,388 14,332,676 9,135,200
- -------- (a) Includes current maturities Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company was created by the combination of Patrick Petroleum Company ("Patrick") and La/Cal Energy Partners, a partnership in which it had a controlling interest ("La/Cal"), in August 1995. The combination was a reverse merger in which the Company's current management gained control of the combined company, renamed it Goodrich Petroleum Corporation and assumed Patrick's New York Stock Exchange listing. Results of Operations Year ended December 31, 2000 versus year ended December 31, 1999--Total revenues in 2000 amounted to $28,489,000 and were $14,468,000 (103%) higher than total revenues in 1999 due primarily to higher oil and gas sales. Oil and gas sales were $28,014,000 for the twelve months ended 2000, compared to $13,735,000, or 11 $14,279,000 higher due to higher oil and gas prices and higher oil and gas production volumes associated with the Burrwood/West Delta 83 Field acquisition in February 2000, and a full year of production at the Lafitte Field in 2000 compared to four months in 1999. Oil sales were reduced by $2,461,000 and gas sales were reduced by $441,000 for the year ended December 31, 2000 as a result of settlement of the Company's outstanding futures contracts. The Company recorded a gain on the sale of certain non-core oil and gas properties of $307,000 for the twelve months ended December 31, 2000. The Company incurred a loss on the sale of marketable equity securities of $519,000 for the twelve months ended December 31, 1999. The following table reflects the production volumes and pricing information for the periods presented:
2000 1999 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- ------------- Gas (Mcf)............... 3,394,921 3.95 2,930,655 $ 2.41 Oil (Bbls).............. 571,766 25.55 394,442 $16.88
Lease operating expense and production taxes were $6,914,000 for 2000 compared to $3,592,000 for 1999, or $3,322,000 higher, due primarily to higher oil and gas sales, additional costs associated with the Company's Burrwood/West Delta 83 Field and Lafitte Field acquisitions, and higher base operating costs associated with certain mature oil and gas fields. Depletion, depreciation and amortization was $5,954,000 in 2000 versus $4,744,000 in 1999, or $1,210,000 higher, due to increased oil and gas production including volumes associated with the Burrwood/West Delta 83 and Lafitte Field properties and increased capitalized costs. The Company incurred $2,813,000 of exploration expense in 2000 compared to $1,656,000 in 1999, or $1,157,000 higher, due primarily to seismic and dry hole costs of $796,000 and $475,000 respectively in 2000, compared to $51,000 and $68,000 respectively in 1999. The Company recorded an impairment in the recorded value of certain oil and gas properties in 2000 in the amount of $1,835,000 due primarily to a sooner than anticipated depletion of reserves in one non-core field. This compares to an impairment of $465,000 recorded in 1999. Interest expense was $4,390,000 in the twelve months ended December 31, 2000 compared to $2,810,000 in the twelve months ended December 31, 1999, or $1,580,000 higher, due to higher average debt outstanding and a higher average effective interest rate for the twelve months ended December 31, 2000. The 2000 amount includes $919,000 of non-cash expenses associated with the amortization of financing costs and debt discount in connection with the September 1999 private placement and amortization of the discount associated with the production payment liability recorded in connection with the Lafitte Field acquisition. Such non-cash expenses totaled $252,000 for the 1999 period. General and administrative expenses amounted to $2,518,000 for 2000 versus $1,990,000 in 1999. For the period ended December 31, 2000, the Company paid an aggregate of approximately $1.8 million of dividend arrearages and $580,000 of regular quarterly (third and fourth quarter 2000) dividends on its outstanding series of preferred stock. At December 31, 2000, the Company was current as to dividends on both series of preferred stock. During 1999, no preferred stock dividends were declared, however, dividends on the Company Series A and Series B preferred stock did accumulate to an amount equal to $1,249,000. The Company also accrued non-cash dividends on its Goodrich--Louisiana Series A Preferred units of $38,000 and $73,000 that is reflected as preferred dividends of subsidiary in the statement of operations for the 2000 and 1999 periods respectively. Year ended December 31, 1999 versus year ended December 31, 1998--Total revenues in 1999 amounted to $14,021,000 and were $3,429,000 (32%) higher than total revenues in 1998 due primarily to higher oil and gas revenues. Oil and gas sales were $3,898,000 higher due to higher oil and gas prices, higher oil and gas production volumes and additional oil volumes associated with the Lafitte Field acquisition in September 1999. 12 The following table reflects the production volumes and pricing information for the periods presented:
1999 1998 ------------------------ ------------------------ Production Average Price Production Average Price ---------- ------------- ---------- ------------- Gas (Mcf)............... 2,930,655 $ 2.41 2,782,825 $ 2.18 Oil (Bbls).............. 394,442 $16.88 316,768 $11.88
Lease operating expense and production taxes were $3,592,000 for 1999 compared to $2,822,000 for 1998, or $770,000 higher substantially due to costs related to the Lafitte Field properties. Depletion, depreciation and amortization was $4,744,000 in 1999 versus $4,094,000 in 1998, or $650,000 higher due to increased oil and gas production including volumes associated with the Lafitte Field properties. The Company incurred $1,656,000 of exploration expense in 1999 compared to $6,010,000 in 1998. Included in the 1999 exploration expense is $120,000 of costs related to dry holes during the period versus $3,684,000 of such costs related to dry holes in 1998. The Company recorded an impairment in the recorded value of certain oil and gas properties in 1999 in the amount of $465,000 due to the complete depletion of the reserves on three one well non-core fields. This compares to an impairment of $1,076,000 recorded in 1998. Interest expense was $2,811,000 in 1999 compared to $1,910,000 (47% higher) in 1998 due to the Company having higher average debt outstanding as a result of the September 23, 1999 private placement and a higher effective interest rate in 1999 compared to 1998. The 1999 interest expense includes financing costs and non-cash expense due to the amortization of the valuation of detachable common stock purchase warrants issued in connection with the 1999 private placement. General and administrative expenses amounted to $1,990,000 for 1999 versus $2,399,000 in 1998. During 1999, no preferred stock dividends were declared, however, dividends on the Company Series A and Series B preferred stock accumulated to an amount equal to $1,249,000 for 1999. The preferred stock dividends are cumulative and the Company was prohibited from paying dividends on its Series A and B preferred stock by its bank loan agreement. The Company also accrued non-cash dividends on its Goodrich--Louisiana Series A Preferred units of $73,000 that is reflected as preferred dividends of subsidiary in the statement of operations for 1999. Liquidity and Capital Resources Net cash provided by operating activities was $12,641,000 in 2000 compared to $1,065,000 in 1999 and $3,740,000 in 1998. The Company's net cash provided by operations increased in 2000 due primarily to the Company earning approximately $5,700,000 in net income. The Company's net cash flow provided by operating activities decreased in 1999 from 1998 due to the use of part of the proceeds from the 1999 private placement of securities to pay down accounts payable by $5,052,000. The accompanying consolidated statements of cash flows identify major differences between net income (loss) and net cash provided by operating activities for each of the years presented. Net cash used in investing activities amounted to $15,881,000 in 2000 compared to $6,407,000 in 1999 and $14,182,000 in 1998. The net cash used in investing activities for the twelve months ended December 31, 2000, reflects capital expenditures totaling $15,142,000, cash paid in connection with the acquisition of oil and gas properties of $1,199,000 and proceeds from the sale of oil and gas properties of $460,000. The amount for year ended December 31, 1999 is composed almost entirely of cash paid in connection with the purchase of oil and gas properties of $4,100,000 and exploration and drilling capital expenditures of $2,557,000. These amounts were partially offset by proceeds from the sale of marketable equity securities and the sale of an oil and gas property of $240,000 and $9,000, respectively. Net cash used in investing activities for year ended December 31, 1998 is composed almost entirely of cash paid for exploration and drilling capital expenditures of $14,102,000. 13 Net cash provided by financing activities was $842,000 in 2000 compared to $11,176,000 in 1999 and $9,744,000 in 1998. The 2000 amount includes proceeds from the issuance of common stock of $9,150,000 and paydowns by the Company under its line of credit of $4,126,000. The 2000 amount includes preferred stock dividends of $2,308,000, changes in restricted cash of $1,240,000 and proceeds from the exercise of stock purchase warrants and employee stock options of $451,000. The 2000 amount also includes production payments of $653,000 and payment of debt and equity financing costs of $432,000. The 1999 amount includes proceeds from the issuance of convertible notes of $12,000,000 and proceeds from the issuance of preferred stock of $3,000,000. The amount also includes debt financing costs of $1,303,000 and pay downs of $2,409,000 by the Company under its line of credit. The 1999 period reflects no preferred dividends. The 1998 amount includes the borrowing of $11,500,000 by the Company under its line of credit offset by paydowns during the year of $500,000. Preferred stock dividends in 1998 amounted to $1,256,000 (Series A and Series B). Conversion of Private Placement Securities On September 23, 1999, the Company and two of its subsidiaries, Goodrich Petroleum Company, L.L.C. ("Goodrich-Louisiana") and Goodrich Petroleum Company-Lafitte, L.L.C. ("Goodrich-Lafitte"), completed a private placement of $15 million of convertible securities consisting of $12,000,000 in convertible notes and $3,000,000 in preferred units. On February 17, 2000, all of the holders of the 300,000 outstanding preferred units of Goodrich Petroleum Company, L.L.C.'s Series A Preferred Units converted their units into approximately 1,550,000 shares of the Company's common stock. The conversion of the preferred units increased the Company's stockholders equity by approximately $2,700,000. On August 17, 2000, the holders of approximately $12,943,000 of principal and accrued interest on the above-mentioned convertible notes converted their notes into 3,235,647 shares of the Company's common stock. The conversion of the notes increased stockholders' equity by approximately $10,130,000, inclusive of approximately $1,033,000 in remaining deferred loan financing costs, which were eliminated. The Company arranged a stand-by underwriting to finance the purchase of the convertible notes from noteholders that elected not to convert their notes into the Company's common stock. Notes purchased by the underwriters were subsequently converted into shares of the Company's common stock on the same terms as the notes originally tendered for conversion. Two of the underwriters are, or are affiliates of, members of the Company's board. Each underwriter received 15,000 shares of the Company's common stock as compensation for their services. In addition, one of the underwriters received an additional 15,000 shares of common stock for their role as agent for the noteholders. The Company issued 60,000 shares of common stock as consideration for underwriting and noteholder agent assistance relative to the conversion of the notes, which resulted in a charge to interest expense of $280,500. Burrwood/West Delta 83 Field Acquisition As described in Note F to the Consolidated Financial Statements, on March 2, 2000, the Company completed its acquisition of working interests in the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres, in Plaquemines Parish, Louisiana for a net purchase price of $1,198,000 and the assumption of the fields plugging and abandonment obligation estimated at $4,500,000. The Company acquired an approximate 95% working interest of all rights from the surface to approximately 10,600 feet and an approximate 47.5% working interest in the deep rights below 10,600 feet. In connection with the acquisition, the Company secured a performance bond and established an escrow account to be used for the payment of obligations associated with the plugging and abandonment of the wells, salvage and removal of platforms and related equipment, and the site restoration of the fields. Required escrowed outlays include an initial cash payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000 and continuing until June 1, 2005. In addition, as part of the purchase agreement, the Company has agreed to shoot a 3-D seismic survey over the fields by June 30, 2001 or remit payment to the seller in the amount of $3,500,000. The 3-D seismic 14 survey began in July 2000 and the Company anticipates that the seismic survey will be completed and processed on or before June 30, 2001. The cost of the seismic survey is expected to be approximately $2,500,000 and the Company has incurred seismic study costs of approximately $1,250,000 through December 31, 2000. Financing Transactions In October 2000, the Company completed the sale of 1,000,000 shares of its common stock for gross proceeds of $5.0 million. In September 2000, the Company paid an aggregate of approximately $1.8 million of dividend arrearages and $296,000 of regular quarterly dividends on its Series A and Series B preferred stock. These payments brought the Company current on its dividend payments on both of its series of preferred stock. In August 2000, the Company issued 3,235,647 shares of its common stock in connection with the conversion of convertible notes issued by two of its subsidiaries. The convertible notes had outstanding principal and accrued interest of $12.9 million at the time of conversion. In February 2000, the Company completed a private placement of 1,533,333 shares of its common stock resulting in gross proceeds of $4.5 million Restructuring of Credit Agreement On January 31, 2001, the Company amended its Credit Agreement with Compass Bank. The amended credit facility provides for an initial borrowing base, subject to semi-annual redeterminations each April and October based on a review of the Company's reserves, of $30,000,000. For the period from February 1, 2001 through February 28, 2001, the borrowing base will be $23,800,000. The borrowing base will then reduce by $1,550,000 each calendar month thereafter through and including the month of April, 2001. For each calendar month thereafter, the redetermined borrowing base shall be reduced by $550,000. Interest on the credit facility will accrue at a rate calculated at the option of the Company as either the Compass Bank prime rate, or LIBOR plus 1.75%-- 2.00% depending on borrowing base utilization. Interest is payable monthly. The credit facility will mature on April 1, 2003. The credit facility requires that the Company pay a commitment fee each quarter based on the Company's borrowing base utilization. The fee is equal to 0.375% to 0.50% per annum based on the borrowing base utilization. Prior to maturity, no payments are required so long as the maximum borrowing base amount exceeds the amounts outstanding under the credit facility. The credit facility requires the Company to monitor tangible net worth and maintain certain financial statement ratios at certain levels and restricts the Company from declaring or paying dividends on its common stock without the lenders consent. Substantially all the Company's assets are pledged to secure the credit facility. Additionally, the Company has a $1 million letter of credit facility in place with Compass Bank that expires in April 2003. There were no outstanding letters of credit as of December 31, 2000. Public Offering On February 1, 2001, the Company completed a public offering of 3,000,000 shares of its common stock at $5.00 per share resulting in net proceeds of approximately $13.2 million to the Company. The Company used the proceeds from the offering and available cash to reduce outstanding debt under its credit facility by approximately $13.7 million. Exchange of Series B Preferred Stock Prior to the public offering, the Company reached an agreement with all of the holders of its Series B preferred stock to exchange each share of Series B for 1.8 shares of its common stock. Concurrent with the closing of the public offering, the Company exchanged all 660,839 shares of its Series B preferred stock into 15 1,189,510 shares of common stock. In connection with the conversion of the Series B preferred stock, a conversion premium in the amount of $2,377,000 was recorded to reflect the excess of the 1:8 conversion factor over the terms of the original preferred stock issuance. This one-time, non-cash charge will be reflected as a preferred stock dividend to arrive at net income applicable to common stock and will not have an affect on stockholders' equity. Stock Listing The Company is currently below certain of the New York Stock Exchange's ("NYSE's") continued listing critera. The Company has been trading pursuant to an approved business plan to return to compliance within a 12-month time frame. The business plan covered the period through August 2000. The NYSE has determined to forbear from initiating any formal removal action in view of the fact that the Company has successfully met one half of the conjunction test requiring that the Company return to $50 million each in stockholders' equity and market capitalization and has made substantial progress on meeting the other component of the test. The Company's market capitalization at March 19, 2001 was in excess of $100 million. This extension of the business plan has been made in light of evidence that the Company has provided that shows the Company successfully meeting the $50 million equity requirement, though in a delayed time frame. Accounting Matters The Financial Accounting Standards Board FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in June 1997. This statement established accounting and reporting standards for derivative instruments and hedging activities. In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS No. 133. Effective January 1, 2001, the Company must recognize the fair value of all derivative instruments as either assets or liabilities in its Consolidated Balance Sheet. A derivative instrument meeting certain conditions may be designated as a hedge of a specific exposure; accounting for changes in a derivative's fair value will depend on the intended use of the derivative and the resulting designation. Changes in a derivative fair value for a qualifying hedge of forecasted transactions will be deferred and recorded as a component of accumulated comprehensive income until the forecasted transaction occurs, at which time the derivative value will be recognized in earnings. Transition adjustments resulting from adopting this statement will be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principal. As described under the heading "Quantitative and Qualitative Disclosures About Market Risk" below, the Company makes use of derivative instruments to hedge specific market risks. The Company has determined that the adoption of SFAS No. 133 will decrease other comprehensive income by approximately $2,523,000 and the overall affect on net income from adoption of this standard will not be significant. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Debt and debt-related derivatives The Company is exposed to interest rate risk on its short-term and long- term debt with variable interest rates. Based on the overall interest rate exposure on variable rate debt at December 31, 2000, a hypothetical 2% increase in the interest rates would increase interest expense by approximately $459,000. Hedging Activity The Company enters into futures contracts or other hedging agreements from time to time to manage the commodity price risk for a portion of its production. The Company considers these to be hedging activities and, as such, monthly settlements on these contracts are reflected in its oil and natural gas sales. The Company's strategy, which is reviewed periodically by its board of directors, has been to hedge between 30% and 70% of its production. Most of the Company's hedging arrangements are in the form of costless collars, whereby a floor and a ceiling are fixed. It is the Company's belief that the benefits of the downside protection afforded by these costless collars outweigh the costs incurred by losing potential upside when commodity prices increase. On 16 January 1, 2001, the Company adopted a formal policy with respect to hedging arrangements in accordance with accounting pronouncements. The Company does not expect its hedging policy or future hedging practice to differ materially from its historical practice--to hedge a portion of its production ranging from 30% to 70% in order to reduce the impact of short-term fluctuations in prices. The Company will not engage in speculative activity not supported by production. The Company's futures contract agreements provide for separate contracts tied to the New York Mercantile Exchange ("NYMEX") light sweet crude oil and natural gas futures contacts. The Company has contracts which contain specific price ranges or "collars" that are settled monthly based on the differences between the contract price or price ranges and the average NYMEX prices for each month applied to the related contract volumes. To the extent the average NYMEX price exceeds the contract price, the Company pays the difference, and to the extent the contract price exceeds the average NYMEX price, the Company receives the difference. As of December 31, 2000, the Company's open forward position on its outstanding crude oil was as follows: (a) 500 barrels of oil per day with a no cost "collar" of $20.00 and $28.40 per barrel through December 2001; and (b) 300 barrels of oil per day with a no cost "collar" of $23.00 and $29.55 per barrel through December 2001; The fair value of the crude oil hedging contracts in place at December 31, 2000, resulted in a liability of $20,000. As of December 31, 2000, the Company's natural gas hedging contracts were as follows: (a) 5000 Mmbtu per day with a no cost collar of $3.05 and $4.45 per Mmbtu through December 31, 2001; (b) 5000 Mcf per day "swap" at $7.75 per Mcf for January 2001; (c) 5000 Mcf per day "swap" at $7.42 per Mcf for February 2001; and (d) 5000 Mcf per day "swap" at $7.60 per Mcf for March 2001. The fair value of the natural gas hedging contracts in place at December 31, 2000, would result, if not accounted for as hedges, in a liability of $3,881,000. The Company has the option to terminate its outstanding oil and natural gas hedging contracts by paying the amount of the liability. The Company does not anticipate terminating any of its open contacts. For the fourth quarter of 1999, the Company had 305,000 Mcf (44%) of the Company's gas hedged. The Company received $2.41 per Mcf of gas during this period versus an average NYMEX gas price of $2.40. For the first quarter of 2000, the Company had 72,800 barrels (66%) of its oil hedged and 455,000 Mcf (64%) of its gas hedged. The Company received $24.18 per barrel of oil and $2.58 per Mcf during this period versus an average NYMEX price of $30.21 per barrel of oil and $2.57 per Mcf. For the second quarter of 2000, the Company had 85,000 barrels (56%) of its oil hedged and 455,000 Mcf (59%) or its gas hedged. The Company received $24.12 per barrel of oil and $3.74 per Mcf during this period versus an average NYMEX price of $28.64 per barrel of oil and $3.88 per Mcf. For the third quarter of 2000, the Company had 92,000 barrels (53%) of its oil hedged and 460,000 Mcf (48%) of its gas hedged. The Company received $26.33 per barrel of oil and $4.27 per Mcf during this period versus an average NYMEX price of $31.46 per barrel of oil and $4.29 per Mcf. For the fourth quarter of 2000, the Company had 92,000 barrels (68%) of its oil hedged and 753,000 Mcf (80%) of its gas hedged. The Company received $27.24 per barrel of oil and $4.94 per Mcf during this period versus an average NYMEX price of $31.24 per barrel of oil and $5.57 per Mcf. Price fluctuations and the volatile nature of markets Despite the measures the Company has taken to attempt to control price risk, it remains subject to price fluctuations for oil and natural gas sold in the spot market. Prices received for natural gas sold in the spot market are volatile due primarily to seasonality of demand and other factors beyond the Company's control. Oil and 17 natural gas prices can change dramatically primarily as a result of the balance between supply and demand. The trend since 1998 has been upward, with an average natural gas price received for the year ending December 31, 2000, of $4.91 per Mcf, up from $2.94 per Mcf in 1999 and $2.18 per Mcf in 1998. The Company's average oil price received for the year ended December 31, 2000, was $27.24, up from an average price received of $16.88 in 1999 and $11.88 in 1998. There can be no assurance that prices will not decline from current levels. Declines in domestic oil and natural gas prices could have a material adverse effect on the Company's financial position, results of operations and quantities of reserves recoverable on an economic basis. Disclosure Regarding Forward-Looking Statements This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Annual Report on Form 10-K regarding reserve estimates, planned capital expenditures, future oil and gas production and prices, future drilling activity, the Company's financial position, business strategy and other plans and objectives for future operations, are forward- looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates made by different engineers often vary from one another. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revisions of such estimates and such revisions could change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. Additional important factors that could cause actual results to differ materially from the Company's expectations include changes in oil and gas prices, changes in regulatory or environmental policies, production difficulties, transportation difficulties and future drilling results. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. 18 Item 8. Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Goodrich Petroleum Corporation: We have audited the accompanying consolidated balance sheets of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the years in the three year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Goodrich Petroleum Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Shreveport, Louisiana March 16, 2001 19 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, December 31, 2000 1999 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents......................... $ 3,531,763 5,929,229 Accounts receivable Trade and other, net of allowance............... 241,659 669,741 Accrued oil and gas revenue..................... 4,553,863 1,937,711 Prepaid insurance and other....................... 238,647 53,806 ------------ ----------- Total current assets............................ 8,565,932 8,590,487 ------------ ----------- PROPERTY AND EQUIPMENT Oil and gas properties............................ 79,252,980 65,401,168 Furniture, fixtures and equipment................. 240,150 213,524 ------------ ----------- 79,493,130 65,614,692 Less accumulated depletion, depreciation and amortization..................................... (26,044,257) (19,566,835) ------------ ----------- Net property and equipment...................... 53,448,873 46,047,857 ------------ ----------- OTHER ASSETS Restricted Cash................................... 1,240,000 -- Deferred taxes.................................... 1,694,675 -- Other............................................. 394,114 1,620,208 ------------ ----------- Total Other Assets.............................. 3,328,789 1,620,208 ------------ ----------- TOTAL ASSETS.................................... $ 65,343,594 56,258,552 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt................. $ -- 3,600,000 Accounts payable.................................. 3,043,477 2,711,746 Accrued liabilities............................... 1,231,965 1,326,995 Current portion of other noncurrent liabilities... 820,454 1,182,306 ------------ ----------- Total current liabilities....................... 5,095,896 8,821,047 ------------ ----------- LONG TERM DEBT...................................... 22,965,000 33,353,117 OTHER NONCURRENT LIABILITIES Production payment payable........................ 969,870 1,630,784 Accrued abandonment costs......................... 3,707,612 3,108,281 Accrued interest on long term debt................ -- 251,154 ------------ ----------- Total liabilities............................... 32,738,378 47,164,383 ------------ ----------- PREFERRED STOCKHOLDERS EQUITY IN A SUBSIDIARY COMPANY............................................ -- 2,683,125 STOCKHOLDERS' EQUITY Preferred stock; authorized 10,000,000 shares: Series A convertible preferred stock, par value $1.00 per share; issued and outstanding 791,968 and 796,318 shares (liquidating preference $10 per share, aggregating to $7,919,680)........... 791,968 796,318 Series B convertible preferred stock, par value $1.00 per share; issued and outstanding 660,839 and 665,759 shares (liquidation preference $10 per share, aggregating to $6,608,390)........... 660,839 665,759 Common stock, par value $0.20 per share; authorized 25,000,000 shares;issued and outstanding 13,318,920 and 5,417,171 shares...... 2,663,784 1,083,434 Additional paid-in capital........................ 39,348,013 18,156,114 Accumulated deficit............................... (10,859,388) (14,290,581) ------------ ----------- Total stockholders' equity...................... 32,605,216 6,411,044 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $ 65,343,594 56,258,552 ============ ===========
See notes to consolidated financial statements. 20 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ----------------------------------- 2000 1999 1998 ----------- ---------- ---------- REVENUES Oil and gas sales....................... $28,014,245 13,734,691 9,836,863 Other................................... 475,146 285,883 755,010 ----------- ---------- ---------- Total revenues........................ 28,489,391 14,020,574 10,591,873 ----------- ---------- ---------- COSTS AND EXPENSES Lease operating expense and production taxes.................................. 6,913,968 3,591,427 2,821,515 Depletion, depreciation and amortization........................... 5,953,641 4,743,608 4,094,447 Exploration............................. 2,813,332 1,656,158 6,010,425 Impairment of oil and gas properties.... 1,834,654 465,465 1,075,853 Interest expense........................ 4,390,331 2,810,576 1,909,849 General and administrative.............. 2,518,228 1,989,703 2,399,332 Other................................... 250,000 -- -- Preferred dividend requirements of subsidiary............................. 38,364 73,125 -- ----------- ---------- ---------- Total costs and expenses.............. 24,712,518 15,330,062 18,311,421 ----------- ---------- ---------- GAIN (LOSS) ON SALES OF ASSETS............ 307,299 (519,495) 4,206 ----------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES......... 4,084,172 (1,828,983) (7,715,342) Income Taxes............................ (1,655,032) -- -- ----------- ---------- ---------- NET INCOME (LOSS)......................... 5,739,204 (1,828,983) (7,715,342) Preferred stock dividends............... 1,193,768 1,249,343 1,255,638 ----------- ---------- ---------- INCOME (LOSS) APPLICABLE TO COMMON STOCK.. 4,545,436 (3,078,326) (8,970,980) =========== ========== ========== BASIC INCOME (LOSS) PER AVERAGE COMMON SHARE.................................... $ .46 (.58) (1.71) =========== ========== ========== DILUTED INCOME (LOSS) PER AVERAGE COMMON SHARE.................................... $ .35 (.58) (1.71) =========== ========== ========== AVERAGE COMMON SHARES OUTSTANDING BASIC... 9,903,248 5,288,011 5,243,105 AVERAGE COMMON SHARES OUTSTANDING-- DILUTED.................................. 13,116,641 5,288,011 5,243,105
See notes to consolidated financial statements. 21 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, --------------------------------------- 2000 1999 1998 ------------ ----------- ------------ OPERATING ACTIVITIES Net income(loss)..................... $ 5,739,204 (1,828,983) (7,715,342) Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depletion, depreciation and amortization........................ 5,953,641 4,743,607 4,094,447 Amortization of leasehold costs...... 1,007,636 1,103,219 1,016,649 Other................................ 250,000 -- -- Amortization of deferred debt financing costs..................... 331,042 109,088 -- Deferred tax benefit................. (1,655,032) -- -- Impairment of oil and gas properties.......................... 1,834,654 465,465 1,075,853 Accrued interest and other charges on private placement borrowings..... 973,631 -- -- Amortization of debt discount........ 357,016 142,500 -- Amortization of production payment discount............................ 230,649 251,154 -- Preferred dividends of subsidiary.... 38,364 73,125 -- (Gain)Loss on sale of asset.......... (307,299) 519,495 (4,206) Director stock grant................. 30,000 30,000 -- Dry hole costs....................... 475,130 119,800 3,605,417 Payment of contingent liability...... -- (68,636) (160,518) Payment of other liabilities......... -- -- (107,625) Net change in: Accounts receivable................. (2,188,070) 678,953 (289,660) Prepaid insurance and other......... (181,323) 195,975 (71,550) Accounts payable.................... 331,731 (5,051,761) 2,975,821 Accrued liabilities................. (95,030) (418,092) (679,620) Other liabilities................... (484,525) -- -- ------------ ----------- ------------ Net cash provided by operating activities........................ 12,641,416 1,064,909 3,739,666 ------------ ----------- ------------ INVESTING ACTIVITIES Proceeds from sales of assets........ 459,526 249,487 49,091 Acquisition of oil and gas properties.......................... (1,198,631) (4,099,956) (129,325) Capital expenditures................. (15,141,818) (2,556,901) (14,101,522) ------------ ----------- ------------ Net cash used in investing activities........................ (15,880,923) (6,407,370) (14,181,756) ------------ ----------- ------------ FINANCING ACTIVITIES Proceeds from private placement of common stock........................ 9,150,000 -- -- Principal payments of bank borrowings.......................... (4,125,617) (2,409,383) (500,000) Proceeds from bank borrowings........ -- -- 11,500,000 Preferred stock dividends............ (2,308,011) -- (1,255,638) Proceeds from private placement borrowings.......................... -- 12,000,000 -- Proceeds from preferred stock issue.. -- 3,000,000 -- Exercise of stock purchase warrants.. 249,322 -- -- Exercise of employee stock options... 191,444 3,909 -- Exercise of director stock options... 9,875 -- -- Net change in restricted cash........ (1,240,000) -- -- Payment of debt and equity financing costs............................... (431,557) (1,303,496) -- Production payments.................. (653,415) (114,970) -- ------------ ----------- ------------ Net cash provided by financing activities........................ 842,041 11,176,060 9,744,362 ------------ ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (2,397,466) 5,833,599 (697,728) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... $ 5,929,229 95,630 793,358 ------------ ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... 3,531,763 5,929,229 95,630 ============ =========== ============ NON CASH INVESTING AND FINANCING ACTIVITIES Conversion of net carrying amount of notes payable and accrued interest.. 10,130,349 -- -- Conversion of preferred stock of subsidiary.......................... 2,721,489 -- -- Acquisition of oil and gas properties and assumption of related liabilities......................... -- 6,036,342 -- Costs of private placement........... -- 355,800 -- Accrued Capital Expenditures and Financing Costs..................... -- -- 1,981,276
See notes to consolidated financial statements. 22 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended December 31, 2000, 1999 and 1998
Accumulated Other Comprehensive Income-Unrealized Additional Gain (Loss) on Series A Series B Paid-In Accumulated Marketable Equity Preferred Stock* Preferred Stock* Common Stock Capital Deficit Securities ------------------ ------------------ ---------------------- ------------ -------------- ------------------- Balance at January 1, 1998............ 796,318 796,318 750,000 750,000 5,232,403 1,046,481 15,146,095 (3,490,618) 84,400 Net loss........ -- -- -- -- -- -- -- (7,715,342) -- Unrealized Change in Marketable Securities...... -- -- -- -- -- -- -- -- (485,300) Total Comprehensive Income (Loss)... -- -- -- -- -- -- -- -- -- Preferred stock dividends....... -- -- -- -- -- -- -- (1,255,638) -- Employee and director stock grants.......... -- -- -- -- 15,302 3,060 79,932 -- -- ------- --------- ------- --------- ---------- ----------- ------------ -------------- ---------- Balance at December 31, 1998............ 796,318 $ 796,318 750,000 $ 750,000 5,247,705 $ 1,049,541 $ 15,226,027 $ (12,4 61,598) $ (400,900) ======= ========= ======= ========= ========== =========== ============ ============== ========== Net loss........ -- -- -- -- -- -- -- (1,828,983) -- Realized loss on sale of marketable Securities...... -- -- -- -- -- -- -- -- 400,900 Total Comprehensive Income (Loss)... -- -- -- -- -- -- -- -- -- Issuance of Common Stock purchase Warrants with Preferred Stock........... -- -- -- -- -- -- 210,000 -- -- Issuance of Common Stock purchase Warrants for services........ -- -- -- -- 40,000 8,000 113,800 -- -- Issuance of Common Stock purchase Warrants as transaction fee............. -- -- -- -- -- -- 234,000 -- -- Issuance of Common Stock Purchase Warrants with debt............ -- -- -- -- -- -- 2,280,000 -- -- Director Stock Grants.......... -- -- -- -- 30,000 6,000 24,000 -- -- Exercise of Employee Stock Options......... -- -- -- -- 5,250 1,050 2,889 -- -- Conversion of Series B Preferred Stock to Common Stock........... -- - (84,241) (84,241) 94,216 18,843 65,398 - -- ------- --------- ------- --------- ---------- ----------- ------------ -------------- ---------- Balance at December 31, 1999............ 796,318 $ 796,318 665,759 $ 665,759 5,417,171 $ 1,083,434 $ 18,156,114 $ (14 ,290,581) $ - ======= ========= ======= ========= ========== =========== ============ ============== ========== Net Income...... -- -- -- -- -- -- -- 5,739,204 -- Total Comprehensive Income.......... -- -- -- -- -- -- -- -- -- Issuance of Common Stock.... -- -- -- -- 2,533,333 506,667 8,643,333 -- -- Conversion of preferred stock of subsidiary to common stock.... -- -- -- -- 1,547,665 309,533 2,411,956 -- -- Exercise of director stock option.......... -- -- -- -- 12,500 2,500 7,375 -- -- Conversion of notes payable... -- -- -- -- 3,295,647 659,130 9,751,719 -- -- Preferred stock dividends....... -- -- -- -- -- -- -- (2,308,011) -- Exercise of common stock purchase warrants........ -- -- -- -- 252,022 50,403 198,919 -- -- Exercise of Employee Stock Options......... -- -- -- -- 245,698 49,140 142,304 -- -- Director Stock Grant........... -- -- -- -- 6,000 1,200 28,800 -- -- Conversion of Series B Preferred Stock to Common Stock........... -- -- (4,920) (4,920) 5,486 1,097 3,823 -- -- Conversion of Series A Preferred Stock to Common Stock........... (4,350) (4,350) -- -- 3,398 680 3,670 -- -- ------- --------- ------- --------- ---------- ----------- ------------ -------------- ---------- Balance at December 31, 2000............ 791,968 $ 791,968 660,839 $ 660,839 13,318,920 $ 2,663,784 $ 39,348,013 $ (10, 859,388) $ -- ======= ========= ======= ========= ========== =========== ============ ============== ========== Total Stockholders' Equity ------------- Balance at January 1, 1998............ 14,332,676 Net loss........ (7,715,342) Unrealized Change in Marketable Securities...... (485,300) ------------- Total Comprehensive Income (Loss)... (8,200,642) Preferred stock dividends....... (1,255,638) Employee and director stock grants.......... 82,992 ------------- Balance at December 31, 1998............ $ 4,959,388 ============= Net loss........ (1,828,983) Realized loss on sale of marketable Securities...... 400,900 ------------- Total Comprehensive Income (Loss)... (1,428,083) Issuance of Common Stock purchase Warrants with Preferred Stock........... 210,000 Issuance of Common Stock purchase Warrants for services........ 121,800 Issuance of Common Stock purchase Warrants as transaction fee............. 234,000 Issuance of Common Stock Purchase Warrants with debt............ 2,280,000 Director Stock Grants.......... 30,000 Exercise of Employee Stock Options......... 3,939 Conversion of Series B Preferred Stock to Common Stock........... -- ------------- Balance at December 31, 1999............ $ 6,411,044 ============= Net Income...... 5,739,204 ------------- Total Comprehensive Income.......... 5,739,204 Issuance of Common Stock.... 9,150,000 Conversion of preferred stock of subsidiary to common stock.... 2,721,489 Exercise of director stock option.......... 9,875 Conversion of notes payable... 10,410,849 Preferred stock dividends....... (2,308,011) Exercise of common stock purchase warrants........ 249,322 Exercise of Employee Stock Options......... 191,444 Director Stock Grant........... 30,000 Conversion of Series B Preferred Stock to Common Stock........... -- Conversion of Series A Preferred Stock to Common Stock........... -- ------------- Balance at December 31, 2000............ $32,605,216 =============
- ----- *dividends are cumulative and arrearages amounted to $1,249,343 or $0.23 per share at December 31, 1999 See notes to consolidated financial statements 23 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 NOTE A--Description of Business The Company is in the primary business of exploration and production of crude oil and natural gas. The subsidiaries have interests in such operations in seven states, primarily in Louisiana and Texas. NOTE B--Summary of Significant Accounting Policies Principals of Consolidation--The consolidated financial statements include the financial statements of Goodrich Petroleum Corporation, its wholly-owned subsidiaries, and one of its wholly-owned subsidiary's wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition--Revenues from the production of natural gas properties in which the Company has an interest with other producers are recognized on the entitlements method. Differences between actual production and net working interest volumes are routinely adjusted. These differences are not significant. Property and Equipment--The Company uses the successful efforts method of accounting for exploration and development expenditures. Leasehold acquisition costs are capitalized. When proved reserves are found on an undeveloped property, leasehold cost is reclassified to proved properties. Significant undeveloped leases are reviewed periodically, and a valuation allowance is provided for any estimated decline in value. Cost of all other undeveloped leases is amortized over the estimated average holding period of the leases. Costs of exploratory drilling are initially capitalized, but if proved reserves are not found, the costs are subsequently expensed. All other exploratory costs are charged to expense as incurred. Development costs are capitalized, including the cost of unsuccessful development wells. The Company follows SFAS No. 121 and recognizes an impairment when the net of future cash inflows expected to be generated by an identifiable long-lived asset and cash outflows expected to be required to obtain those cash inflows is less than the carrying value of the asset. The Company performs this comparison for its oil and gas properties on a field-by-field basis using the company's estimates of future commodity prices. The amount of such loss is measured based on the difference between the discounted value of such net future cash flows and the carrying value of the asset. The Company recorded such impairments in 2000, 1999 and 1998 in the amounts of $1,835,000, $465,000 and $1,076,000 respectively. The impairments were generally the result of certain non-core fields depleting earlier than anticipated. Depreciation and depletion of producing oil and gas properties are provided under the unit-of-production method. Proved developed reserves are used to compute unit rates for unamortized tangible and intangible development costs, and proved reserves are used for unamortized leasehold costs. Estimated dismantlement, abandonment, and site restoration costs, net of salvage value, are considered in determining depreciation and depletion provisions. Gains and losses on disposals or retirements that are significant or include an entire depreciable or depletable property unit are included in income. All other dispositions, retirements, or abandonments are reflected in accumulated depreciation, depletion, and amortization. Cash and Cash Equivalents--Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at date of purchase. 24 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Marketable Equity Securities--The Company classifies its investment in marketable equity securities as available for sale. Accordingly, unrealized holding gains and losses are excluded from earnings and are reported as other comprehensive income until realized. The Company sold its marketable equity securities in January 1999. Income Taxes--The Company follows the provisions of SFAS No. 109, Accounting for Income Taxes which requires income taxes be accounted for under the asset and liability method. 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 and operating loss and tax credit carryforwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Share--Basic income per Common share is computed by dividing net income available for common stockholders, for each reporting period by the weighted average number of Common shares outstanding during the period. Diluted income per Common share is computed by dividing net income available for common stockholders for each reporting period by the weighted average number of Common shares outstanding during the period, plus the effects of potentially dilutive Common shares. Derivative Financial Instruments--The Company utilizes derivative instruments such as futures, forwards, options, collars and swaps for purposes of hedging its exposure to fluctuations in the price of crude oil and natural gas. Gains and losses from derivatives designated as hedges of sales are reported on the statement of income as an increase or reduction of oil and gas sales in the period related to the actual sale of product. Premiums paid on hedging contracts are amortized over the life of the contracts as a reduction to oil and gas sales. Accounting Matters--The Financial Accounting Standards Board FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in June 1997. This statement established accounting and reporting standards for derivative instruments and hedging activities. In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS No. 133. Effective January 1, 2001, the Company must recognize the fair value of all derivative instruments as either assets or liabilities in its Consolidated Balance Sheet. A derivative instrument meeting certain conditions may be designated as a hedge of a specific exposure; accounting for changes in a derivative's fair value will depend on the intended use of the derivative and the resulting designation. Changes in a dervative fair value for a qualifying hedge of forecasted transactions will be deferred and recorded as a component of accumulated comprehensive income until the forecasted transaction occurs, at which time the dervative value will be recognized in earnings. Transition adjustments resulting from adopting this statement will be reported in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principal. The Company makes use of derivative instruments to hedge specific market risks. The Company has determined that the adoption of SFAS No. 133 will decrease other comprehensive income by approximately $2,523,000 and the overall affect on net income from adoption of this standard will not be significant. Stock Based Compensation--The Company uses SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma net income and pro forma earnings per share and other disclosures for employee stock options grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the disclosure provisions of SFAS No. 123. 25 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Commitments and Contingencies--Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties, which are probable of realization, are separately recorded, and are not offset against the related environmental liability. Use of Estimates--Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principals. Actual results could differ from those estimates. NOTE C--Subsequent Events Public Offering On February 1, 2001, the Company completed a public offering of 3,000,000 shares of its common stock at $5.00 per share resulting in net proceeds of approximately $13.2 million to the Company. The Company used the proceeds from the offering along with other available funds to reduce outstanding debt under its credit facility by approximately $13.7 million. Exchange of Series B Preferred Stock Prior to the public offering, the Company reached an agreement with all of the holders of its Series B preferred stock to exchange each share of Series B for 1.8 shares of its common stock. Concurrent with the closing of the public offering, the Company exchanged all 660,839 shares of its Series B preferred stock into 1,189,510 shares of common stock. In connection with the conversion of the Series B preferred stock, a conversion premium in the amount of $2,377,000 was recorded to reflect the excess of the 1:8 conversion factor over the terms of the original preferred stock issuance. This one-time, non- cash charge will be reflected as a preferred stock dividend to arrive at net income applicable to common stock and will not have an affect on total stockholders equity. NOTE D--Indebtedness Indebtedness at December 31, 2000 and 1999 consists of the following:
2000 1999 ----------- ---------- Bank Debt Borrowings under credit facility, interest, at Compass Prime plus 5/8% (see below) (weighted average rate at December 31, 2000--9.9%); principal due April 1, 2003.. $22,965,000 27,090,617 Convertible Notes Payable at the Subsidiary Level Goodrich Petroleum Company, LLC $6,000,000 face amount, interest at 8% maturing in 2004; (effective interest rate of 13.0%)......................................... -- 4,931,250 Goodrich Petroleum Company--Lafitte LLC $6,000,000 face amount, interest at 8% maturing in 2004; (effective interest rate of 13.0%)................................ -- 4,931,250 ----------- ---------- 22,965,000 36,953,117 Less current portion.................................... -- 3,600,000 ----------- ---------- Long-term debt, excluding current portion............... $22,965,000 33,353,117 =========== ==========
26 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Compass Credit Facility On January 31, 2001, the Company amended its Credit Agreement with Compass Bank. The amended credit facility provides for an initial borrowing base, subject to semi-annual redeterminations each April and October based on a review of the Company's reserves, of $30,000,000. For the period from February 1, 2001 through February 28, 2001, the borrowing base will be $23,800,000. The borrowing base will then reduce by $1,550,000 each calendar month thereafter through and including the month of April, 2001. For each calendar month thereafter, the redetermined borrowing base shall be reduced by $550,000. Interest on the credit facility will accrue at a rate calculated at the option of the Company as either the Compass Bank prime rate, or LIBOR plus 1.75%-- 2.00% depending on borrowing base utilization. Interest is payable monthly. The credit facility will mature on April 1, 2003. The credit facility requires that the Company pay a commitment fee each quarter based on the Company's borrowing base utilization. The fee is equal to 0.375% to 0.50% per annum based on the borrowing base utilization. Prior to maturity, no payments are required so long as the maximum borrowing base amount exceeds the amounts outstanding under the credit facility. The credit facility requires the Company to monitor tangible net worth and maintain certain financial statement ratios at certain levels and restricts the Company from declaring or paying dividends on its common stock without the lenders consent. Substantially all the Company's assets are pledged to secure the credit facility. Additionally, the Company has a $1 million letter of credit facility in place with Compass Bank that expires in April 2003. There were no outstanding letters of credit as of December 31, 2000. Interest paid during 2000, 1999 and 1998 amounted to $2,182,724, $2,338,840 and $1,904,809 respectively. Convertible Notes Payable The convertible notes issued by two of the Company's subsidiaries in a private placement in September 1999 accrued interest at 8% per annum, monthly in arrears. The principal and interest on the notes were convertible into the common stock of the Company at the rate of $4.00 per share. The purchasers of these notes received one warrant to purchase a share of the common stock of the Company at $.9375 (the closing price on the date the transaction was negotiated) for every $4.00 of notes issued. On August 17, 2000, the holders of approximately $12,943,000 of principal and accrued interest on the convertible notes converted their notes into 3,235,647 shares of the Company's common stock under the original terms of the notes. The conversion of the notes increased stockholders equity by approximately $10,130,000, inclusive of approximately $1,033,000 in remaining deferred loan financing costs which were eliminated. The Company arranged a stand-by underwriting to finance the purchase of the convertible notes from noteholders that elected not to convert their notes into the Company's common stock. Notes purchased by the underwriters were subsequently converted into shares of the Company's common stock on the same terms as the notes originally tendered for conversion. Two of the underwriters are, or are affiliates of, members of the Company's board. Each underwriter received 15,000 shares of the Company's common stock as compensation for their services. In addition, one of the underwriters received an additional 15,000 shares of common stock for their role as agent for the noteholders. The Company issued 60,000 shares of common stock as consideration for underwriting and noteholder agent assistance relative to the conversion of the notes, which resulted in a charge to interest expense of $280,500. 27 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Note E--Preferred Stockholders Equity in a Subsidiary Company During 1999, Goodrich-Louisiana issued $3,000,000 of preferred interests consisting of 300,000 preferred units with a par value and liquidation preference of $10 per share. The fair value of the preferred units was recorded as preferred stockholders' equity in a subsidiary company in the accompanying financial statements. Dividends on the preferred units accrued quarterly in arrears at 8% per annum through September 30, 2002 at which time the rate increased 2% per year, not to exceed 20%. Goodrich-Louisiana had the right to redeem the units at any time. The preference amount and accrued dividends were convertible by the holder at any time into the common stock of the Company at $2.00 per share. Each preferred unit holder was also issued one warrant to purchase a share of common stock of the Company for every $10 of preference value. The warrants are exercisable at $1.50 per share at any time before their expiration on September 30, 2006. Issuance costs of $180,000 were allocated to and offset against the carrying value of the preferred units. On February 17, 2000, all of the holders of the Preferred Units converted the units into approximately 1,550,000 shares of the common stock of Goodrich Petroleum Corporation. The conversion of the preferred units increased the Company's stockholders equity by approximately $2,700,000. NOTE F--Acquisition of Oil and Gas Properties On March 2, 2000, the Company completed its acquisition of working interests in the Burrwood and West Delta 83 Fields, comprising approximately 8,600 acres, in Plaquemines Parish, Louisiana for net purchase price of $1,198,000 and the assumption of the fields plugging and abandonment obligation estimated at $4,300,000 and the obligation to shoot 3-D seismic over the fields at a cost of approximately $2,500,000. The Company acquired an approximate 95% working interest of all rights from the surface to approximately 10,600' and an approximate 47.5% working interest in the deep rights below 10,600 feet. NOTE G--Income (Loss) Per Share Net income (loss) was used as the numerator in computing both basic and diluted income (loss) per common share for the years ended December 31, 2000, 1999 and 1998. The following table reconciles the weighted average shares outstanding used for these computations.
Year Ended December 31, ------------------------------ 2000 1999 1998 ---------- --------- --------- Basic Method..................................... 9,903,248 5,288,011 5,243,105 Dilutive Stock Warrants.......................... 2,842,858 -- -- Dilutive Stock Options........................... 370,535 -- -- Convertible Debt................................. -- -- -- ---------- --------- --------- Diluted Method................................... 13,116,641 5,288,011 5,243,105 ========== ========= =========
Both series of the Company's convertible preferred stock and its stock options are considered to be potential common stock. Additionally, stock purchase warrants issued in the 1999 Private Placement and the convertible debt are also considered potential common stock. Approximately 798,000 stock options and 1,067,000 shares issuable in connection with the convertible preferred stock have not been included in the computation of diluted income per share in 2000 because to do so would have been antidilutive. No potential common stock amounts have been included in the computation of diluted per share in 1999 and 1998 because to do so would have been antidilutive. The calculation of the dilutive effects of potentially dilutive securities has been calculated using the treasury stock method. 28 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 NOTE H--Income Taxes Income tax expense for the years ending December 31, 2000, 1999 and 1998 consists of:
Current Deferred Total ------- ---------- ---------- Year Ended December 31, 2000: U.S. Federal............................ $ -- (1,655,032) (1,655,032) State................................... -- -- -- ------- ---------- ---------- -- (1,655,032) (1,655,032) ======= ========== ========== Year Ended December 31, 1999: U.S. Federal............................ $ -- -- -- State................................... -- -- -- ------- ---------- ---------- -- -- -- ======= ========== ========== Year Ended December 31, 1998: U.S. Federal............................ $14,643 (14,643) -- State................................... -- -- -- ------- ---------- ---------- 14,643 (14,643) -- ======= ========== ==========
The following is a reconciliation of the U.S. statutory income to the Company's income (loss) before income taxes for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ----------- -------- ---------- U.S. Statutory Income Tax.................. 1,429,460 (640,144) (2,700,370) Increase in deductible temporary differences for which no benefit recorded.................................. -- 640,144 2,669,509 Change in the beginning of the year balance of the valuation allowance allocated to income tax expense (3,089,767) -- -- Nondeductible expenses..................... 5,275 -- 30,681 ----------- -------- ---------- (1,655,032) -- -- =========== ======== ==========
29 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 are presented below.
December 31, December 31, 2000 1999 ------------ ------------ Deferred tax assets: Differences between book and tax basis of: Contingent liabilities...................... $ 132,349 132,349 Other......................................... 157,247 8,750 Operating loss carryforwards.................. 14,383,974 13,384,419 Statutory depletion carryforward.............. 6,407,941 5,974,726 AMT Tax credit carryforward................... 1,477,872 1,477,872 Investment tax credit carryforward............ 2,108 2,108 ----------- ----------- Total gross deferred tax assets............... 22,561,491 20,980,224 Less valuation allowance...................... (16,816,199) (19,784,669) ----------- ----------- Net deferred tax assets....................... 5,745,292 1,195,555 ----------- ----------- Deferred tax liability: Differences between book and tax basis of: Property and equipment...................... (4,050,617) (1,155,912) ----------- ----------- Total gross deferred liability................ (4,050,617) (1,155,912) ----------- ----------- Net deferred tax asset........................ $ 1,694,675 39,643 =========== ===========
The valuation allowance for deferred tax assets decreased $2,968,470 and increased $680,000 for the years ended December 31, 2000 and 1999, respectively. The decrease in 2000 is primarily the result of recognizing a change in the beginning of the year valuation allowance resulting from changes in management's estimates of future taxable income. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based primarily upon the level of projections for future taxable income and the reversal of future taxable temporary differences over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2000. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 30 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The following table summarizes the amounts and expiration dates of operating loss and investment tax credit carryforwards:
Operating loss carryforwards Investment tax credit carryforwards -------------- ----------------------------------- Amount Expires Amount Expires ------ ------- ------------------ ------------------ $ 973,053 2005 $2,108 2001 7,093,823 2006 8,860,622 2007 4,285,746 2008 3,247,494 2009 5,480,870 2010 600,706 2011 1,939,496 2012 4,530,029 2018 2,546,445 2019 1,538,785 2020 ----------- $41,097,069 ===========
As a result of the August 15, 1995 business combination, the Company's annual utilization of its net operating loss and statutory depletion carryforwards generated prior to the business combination are limited under Internal Revenue Code Section 382. Such limitation is determined annually and is comprised of a base amount of $1,682,797 plus any recognized "built in gains" existing at August 15, 1995. Additionally, as a result of the conversion of the preferred units and private placement on February 18, 2000, the combined annual limitation of the Company's existing net operating losses and statutory depletion carryforwards will be approximately $2,671,000 plus any recognized "built in gains" existing at February 18, 2000. Such limitation amounted to $23,511,000 in 1999 and is estimated to be $26,733,000 in 2000. The Company's statutory depletion carryforwards and AMT credit carryovers have no expiration date. The Company paid income taxes of $4,344 in 1998. NOTE I--Production Payment Obligation A production payment was entered into by the Company to assist in the financing of the Lafitte Field acquisition in September 1999. The original amount of the production payment obligation was $2,940,000, which was recorded as a production payment liability of $2,228,000 after a discount to reflect an effective rate of interest of 11.25%. At December 31, 2000 the remaining principal amount was $2,172,000 and the recorded liability was $1,691,000. Under the terms of the production payment the Company must make monthly cash payments which approximate the Company's forty-nine percent share of 10% of the monthly gross oil and gas revenue of the Lafitte Field. The Company's estimate as of December 31, 2000, based on expected production and prices and expected discount amortization is that projected payments will decrease the recorded liability as follows: 2001, $561,000; 2002, $592,000 and 2003, $538,000. 31 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 NOTE J --Stockholders' Equity On October 23, 2000, the Company completed a private placement of 1,000,000 shares of common stock at $5.00 per share. Net proceeds from the private placement amounted to $4,650,000 and were used primarily to accelerate the development of the Company's Burrwood and West Delta 83 fields. An affiliate of a member of the Company's board of directors received $250,000 in compensation for its service in placing the shares in the private placement. On February 18, 2000, the Company completed a private placement of shares of its common stock resulting in net proceeds to the Company of $4,500,000. The Company issued 1,533,000 shares of common stock in its offering. The $4,500,000 in offering proceeds were used to assist in the acquisition and development of the Burrwood and West Delta 83 fields, and to further develop the Lafitte field purchased in 1999. Approximately $2,300,000 of the proceeds from issuance of the convertible notes and preferred units as part of the 1999 Private Placement was allocated to additional paid in capital as the fair value of the warrants issued in connection with the securities. The proceeds allocable to additional paid-in capital were being amortized as additional interest cost over the original term of the related notes until their conversion in August 2000, (See Note D). Additional interest costs related to the amortization of proceeds amounted to $359,000 and $142,500 for 2000 and 1999, respectively. Common Stock--At December 31, 2000 unissued shares of Goodrich common stock were reserved in the amount of 3,348,000 shares for the exercise of stock warrants issued in connect with the private placement transaction of September 23, 1999 and 762,188 shares for stock option plans. Preferred Stock The Series A Convertible Preferred Stock has a par value of $1.00 per share with a liquidation preference of $10.00 per share, and is convertible at the option of the holder at any time, unless earlier redeemed, into shares of common stock of the Company at an initial conversion rate of .417 shares of common stock per share of Series A Preferred. The Series A Preferred Stock also will automatically convert to common stock if the closing price for the Series A Preferred Stock exceeds $15.00 per share for ten consecutive trading days. The Series A Preferred Stock is redeemable in whole or in part, at $12.00 per share, plus accrued and unpaid dividends. Dividends on the Series A Preferred Stock accrue at an annual rate of 8% and are cumulative. The Company issued 750,000 shares of Series B Convertible Preferred Stock in connection with its acquisition of the La/Cal II properties on January 31, 1997. The Series B Convertible Preferred Stock has a par value of $1.00 per share with a liquidation preference of $10.00 per share and ranked junior to the Series A Preferred Stock. The shares of Series B Preferred Stock were convertible at the option of the holder at any time, unless earlier redeemed, into shares of common stock of the Company at the conversion rate of 1.12 shares of common stock per share of Series B Preferred Stock. During 2000 holders of 84,241 shares of Series B Preferred Stock opted to convert their shares into 94,216 shares of common stock of the Company. The Series B Preferred Stock was redeemable by the Company prior to January 31, 2001 at $10.00 per share. Dividends on the Series B Preferred Stock accrued at an annual rate of 8.25% and were cumulative. The Company reached an agreement with all of the holders of its Series B stock to exchange each share of Series B for 1.8 shares of its common stock. Concurrent with the closing of its public offering (See Note C), the Company exchanged all 660,839 shares of its Series B preferred stock into 1,189,510 shares of common stock. 32 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Stock Option and Incentive Programs--Goodrich currently has two plans, which provide for stock option and other incentive awards for the Company's key employees, consultants and directors. The Goodrich Petroleum Corporation 1995 Stock Option Plan allows the Board of Directors to grant stock options, restricted stock awards, stock appreciation rights, long-term incentive awards and phantom stock awards, or any combination thereof, to key employees and consultants. The Goodrich Petroleum Corporation 1997 Director Compensation Plan provides for the grant of stock and options to each director who is not and has never been an employee of the Company. Additionally, Goodrich assumed certain outstanding stock options of Patrick as a result of the business combination in 1995. The Goodrich plans authorize grants of options to purchase up to a combined total of 762,168 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant, and all stock options granted under the 1995 Stock Option Plan generally have ten year terms and three year pro rata vesting. The per share weighted average fair value of stock options granted during 2000, 1999 and 1998 was $3.16, $2.17 and $2.57 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 2000--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; 1999--expected dividend yield 0%, risk- free interest rate of 7.5%, and an expected life of 6 years; 1998--expected dividend yield 0%, risk-free interest rate of 7.5%, and an expected life of 6 years; expected volatility of stock over expected life of the options--35%. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been reduced to the pro forma amounts indicated below:
2000 1999 1998 ---------- ---------- ---------- Net Income(loss)................ As reported $5,739,204 (1,828,983) (7,715,342) Pro forma 5,040,410 (2,109,357) (7,906,618) Income(loss) applicable to...... As reported 4,545,436 (3,078,326) (8,970,980) common stock ................. Pro forma 3,846,642 (3,358,700) (9,162,256) Basic income(loss) per average common share...... As reported 0.46 (0.58) (1.71) Pro forma 0.39 (0.64) (1.75) Diluted income(loss) per average common share...... As reported 0.35 (0.58) (1.71) Pro forma 0.29 (0.64) (1.75)
33 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 Stock option transactions during 2000, 1999 and 1998 were as follows:
Weighted Weighted Average Number of Average Remaining Options Exercise Price Range of Exercise Price Contractual Life ----------------- -------------- -------------------------------- ----------------- Patrick Patrick Patrick Total Only Total Only Total Patrick Only Total Only -------- ------- ------ ------- --------------- ---------------- -------- -------- Outstanding January 1, 1998 .................. 341,442 70,817 9.60 18.60 $5.50 to $24.00 $16.00 to $24.00 7.4 yrs. 4.2 yrs. ======== ======= Granted--1995 Stock Option Plan........... 144,000 -- 5.98 -- Granted--1997 Director Compensation Plan .... 10,000 -- 5.98 -- Expiration of Options ...................... (62,190) (5,625) 7.88 19.33 -------- ------- Outstanding December 31, 1998 .................. 433,252 65,192 -- -- $5.50 to $24.00 $16.00 to $24.00 7.0 yrs. 3.4 yrs. ======== ======= Granted--1995 Stock Option ............... 389,196 -- 1.37 -- Granted--1997 Director Stock Option ......... 37,063 -- .80 -- Exercised--1995 Stock Option Plan........... 5,250 -- .75 -- Expiration/Surrender of Options .............. (381,377) (29,567) 7.61 18.00 -------- ------- ------ ----- Outstanding December 31, 1999 .................. 472,884 35,625 -- -- $0.75 to $24.00 $16.00 to $24.00 8.5 yrs. 2.9 yrs. ======== ======= Granted--1995 Stock Option Plan........... 600,000 -- 4.99 -- Granted--1995 Non- Employee Director Stock Option Plan .... 12,000 -- 4.88 -- Exercised--1995 Stock Option Plan........... (245,698) -- .78 -- Exercised--1997 Director Stock Option Plan.................. (12,500) -- .79 -- Expiration of Options ...................... (64,500) -- 4.35 -- -------- ------- Outstanding December 31, 2000 .................. 762,186 35,625 -- -- $0.75 to $24.00 $16.00 to $24.00 8.9 yrs. 1.9 yrs. ======== ======= Exercisable December 31, 1998 .................. 208,379 65,192 $10.86 18.54 Exercisable December 31, 1999 .................. 71,438 35,625 $ 9.95 19.00 Exercisable December 31, 2000 .................. 129,356 35,625 $ 7.59 19.00
NOTE J--Hedging Activities The Company enters into futures contracts or other hedging agreements from time to time to manage the commodity price risk for a portion of its production. The Company considers these to be hedging activities and, as such, monthly settlements on these contracts are reflected in its oil and natural gas sales. The Company's strategy, which is reviewed periodically by its board of directors, has been to hedge between 30% and 70% of its production. Most of the Company's hedging arrangements are in the form of costless collars, whereby a floor and a ceiling are fixed. It is the Company's belief that in most cases the benefits of the downside protection afforded by these costless collars outweigh the costs incurred by losing potential upside when commodity prices increase. The Company has adopted a formal policy with respect to hedging arrangements in accordance with accounting pronouncements. The Company does not expect its hedging policy or future hedging practice to differ materially from its historical practice--to hedge a portion of its production ranging from 30% to 70% in order to reduce the impact of short-term fluctuations in prices. The Company will not engage in speculative activity not supported by production. 34 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The Company's futures contract agreements provide for separate contracts tied to the New York Mercantile Exchange ("NYMEX") light sweet crude oil and natural gas futures contracts. The Company has contracts which contain specific price ranges or "collars" that are settled monthly based on the differences between the contract price or price ranges and the average NYMEX prices for each month applied to the related contract volumes. To the extent the average NYMEX price exceeds the contract price, the Company pays the difference, and to the extent the contract price exceeds the average NYMEX price, the Company receives the difference. As of December 31, 2000, the Company's open forward position on its outstanding crude oil was as follows: (a) 500 barrels of oil per day with a no cost "collar" of $20.00 and $28.40 per barrel through December 2001; (b) 300 barrels of oil per day with a no cost "collar" of $23.00 and $29.55 per barrel through December 2001; and The fair value of the crude oil hedging contracts in place at December 31, 2000, resulted in a liability of $20,000. As of December 31, 2000, our natural gas hedging contracts were as follows: (e) 5000 MMbtu per day with a no cost collar of $3.05 and $4.45 per MMbtu through December 31, 2001; (f) 5000 Mcf per day "swap" at $7.75 per Mcf for January 2001; (g) 5000 Mcf per day "swap" at $7.42 per Mcf for February 2001; and (h) 5000 Mcf per day "swap" at $7.60 per Mcf for March 2001. The fair value of the natural gas hedging contracts in place at December 31, 2000, would result, if not accounted for as hedges, in a liability of $3,881,000. The Company has the option to terminate its outstanding oil and natural gas hedging contracts by paying the amount of the liability. The Company does not anticipate terminating any of our open contacts. The Company is exposed to credit losses in the event of nonperformance by the counterparties to its hedging contracts. The Company anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts. The Company does not obtain collateral to support financial instruments but monitors the credit standing of the counterparties. Price fluctuations and volatile nature of markets Despite the measures taken by the Company to attempt to control price risk, the Company remains subject to price fluctuations for natural gas and oil sold in the spot market. Prices received for natural gas sold on the spot market are volatile due primarily to seasonality of demand and other factors beyond the Company's control. Domestic prices for oil and gas could have a material adverse effect on the Company's financial position, results of operations and quantities of reserves recoverable on an economic basis. 35 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 NOTE K--Fair Value of Financial Instruments The following presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2000 and 1999.
December 31, 2000 December 31, 1999 ---------------------- --------------------- Carrying Carrying Amount Fair Value Amount Fair Value ----------- ---------- ---------- ---------- Financial liabilities-- Long-term debt (including current maturities)........... $22,965,000 22,965,000 27,090,617 27,090,617 Notes payable.......... $ -- -- 9,862,500 9,862,500 Production payment liability............. $ 1,691,050 1,691,050 2,113,000 2,113,000 Hedges Asset (Liability)-- Oil.................... $ -- -- -- (338,000) Gas.................... $ -- (3,881,000) -- 300,000
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, restricted cash, accounts payables and accrued liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Therefore, these instruments were not presented in the table above. Long term debt and other noncurrent liabilities: The fair value is estimated using the discounted cash flow method based on the Company's borrowing rates or similar types of financing arrangements. NOTE L--Concentrations of Credit Risk and Significant Customers Due to the nature of the industry the Company sells its oil and natural gas production to a limited number of purchasers and, accordingly, amounts receivable from such purchasers could be significant. Revenues from these sources as a percent of total revenues for the periods presented were as follows:
Year Ended December 31, ---------------- 2000 1999 1998 ---- ---- ---- Seaber Corporation of Louisiana............................ 48% 37% 47% Genesis Crude Oil, L.P..................................... 27% -- -- Gulfmark Energy, Inc....................................... 10% -- -- Equiva Trading............................................. 8% 27% 12% Texla Energy Management.................................... -- 10% -- Navajo Refining Company.................................... 4% 7% 11%
NOTE M--Commitments and Contingencies The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for the cost of clean-up of "hazardous substances" at an oil field waste disposal site in Vermilion Parish, Louisiana. The Company estimates that the remaining cost of long-term clean-up of the site will be approximately $3.5 million, with the Company's percentage of responsibility estimated to be 36 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 approximately 3.05%. As of December 31, 2000, the Company had paid $321,000 in costs related to this matter and accrued $122,500 for the remaining liability. These costs have not been discounted to their present value. The EPA and the PRPs will continue to evaluate the site and revise estimates for the long-term clean-up of the site. There can be no assurance that the cost of clean-up and the Company's percentage responsibility will not be higher than currently estimated. In addition, under the federal environmental laws, the liability costs for the clean-up of the site is joint and several among all PRPs. Therefore, the ultimate cost of the clean-up to the Company could be significantly higher than the amount presently estimated or accrued for this liability. In connection with the acquisition of its Burrwood and West Delta 83 Fields, the Company secured a performance bond and established an escrow account to be used for the payment of obligations associated with the plugging and abandonment of the wells, salvage and removal of platforms and related equipment, and the site restoration of the fields. Required escrowed outlays include an initial cash payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000 and continuing until June 1, 2005. In addition, as part of the purchase agreement, the Company has agreed to shoot a 3-D seismic survey over the fields by June 30, 2001 or remit payment to the seller in the amount of $3,500,000. The 3-D seismic survey began in July 2000 and the Company anticipates that the seismic survey will be completed on or before June 30, 2001. The cost of the seismic survey is expected to be approximately $2,500,000 and the Company has incurred seismic study costs of approximately $1,250,000 through December 31, 2000. On February 8, 2000, the Company commenced a suit against the operator and joint owner of the Lafitte Field, alleging certain items of misconduct and violations of the letter agreement associated with the joint acquisition. The suit is in its early stages and it is too early to predict a likely outcome, however, as the Company is the plaintiff in this action, this action is not expected to have a significantly adverse impact on the operations or financial position of the Company. The Company is party to additional lawsuits arising in the normal course of business. The Company intends to defend these actions vigorously and believes, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to its financial position or results of operations. NOTE N--Natural Gas and Crude Oil Cost Data The following reflects the Company's capitalized costs related to natural gas and oil activities at December 31, 2000, and 1999:
2000 1999 ----------- ----------- Proved properties.............................. $74,778,157 61,527,593 Unproved properties............................ 4,474,823 3,873,575 ----------- ----------- 79,252,980 65,401,168 Less accumulated depreciation and depletion.... (25,908,724) (19,398,287) ----------- ----------- Net property and equipment..................... $53,344,256 46,002,881 =========== ===========
37 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The following table reflects certain data with respect to natural gas and oil property acquisitions, exploration and development activities:
Year Ended December 31, --------------------------------------- 2000 1999 1998 ----------- ---------- ---------- Property acquisition Proved.......................... $ 1,198,631(a) 10,136,298(b) 129,325 Unproved........................ 820,200 498,391 2,446,474 Exploration....................... 2,797,642 1,634,299 8,718,682 Development....................... 13,862,296 1,960,371 8,169,741 ----------- ---------- ---------- $18,678,769 14,229,359 19,464,222 =========== ========== ==========
- -------- (a) Burrwood/West Delta 83 Field acquisition. (b) Primarily Lafitte Field acquisition inclusive of liabilities assumed in connection with the purchase. NOTE O--Supplemental Oil and Gas Reserve Information (Unaudited) The supplemental oil and gas reserve information that follows is presented in accordance with SFAS No. 69, Disclosures about Oil and Gas Producing Activities. The schedules provide users with a common base for preparing estimates of future cash flows and comparing reserves among companies. Additional background information follows concerning the schedules. Schedules 1 and 2--Estimated Net Proved Oil and Gas Reserves Substantially all of the Company's reserve information related to crude oil, condensate, and natural gas liquids and natural gas was compiled based on evaluations performed by Coutret and Associates, Inc. All of the subject reserves are located in the continental United States. Many assumptions and judgmental decisions are required to estimate reserves. Quantities reported are considered reasonable but are subject to future revisions, some of which may be substantial, as additional information becomes available. Such additional knowledge may be gained as the result of reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes, and other factors. Regulations published by the Securities and Exchange Commission define proved reserves as those volumes of crude oil, condensate, and natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are those volumes expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those volumes expected to be recovered as a result of making additional investments by drilling new wells on acreage offsetting productive units or recompleting existing wells. Schedule 3--Standardized Measure of Discounted Future Net Cash Flows to Proved Oil and Gas Reserves SFAS No. 69 requires calculation of future net cash flows using a ten percent annual discount factor and year end prices, costs, and statutory tax rates, except for known future changes such as contracted prices and legislated tax rates. 38 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The calculated value of proved reserves is not necessarily indicative of either fair market value or present value of future cash flows because prices, costs, and governmental policies do not remain static; appropriate discount rates may vary; and extensive judgment is required to estimate the timing of production. Other logical assumptions would likely have resulted in significantly different amounts. Crude oil and natural gas market prices at the end of each year, were used for this calculation, and averaged $26.10 per bbl and $10.06 per Mcf, respectively as of December 31, 2000; $25.16 per Bbl and $2.63 per Mcf, respectively as of December 31, 1999, and $9.37 per Bbl and $2.24 per Mcf, respectively as of December 31, 1998. Schedule 3 also presents a summary of the principal reasons for change in the standard measure of discounted future net cash flows for each of the three years in the period ended December 31, 2000. Schedule 1--Estimated Net Proved Gas Reserves (Mcf)
Year Ended December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- Proved: Balance, beginning of period...... 20,849,592 28,144,310 37,570,614 Revisions of previous estimates... 708,580 (6,069,885) (8,393,772) Purchase of minerals in place..... 5,955,477 1,705,822 226,778 Extensions, discoveries, and other additions........................ 5,546,322 -- 1,656,200 Production........................ (3,394,921) (2,930,655) (2,782,825) Sales of minerals in place........ 154,371 -- (132,685) ---------- ---------- ---------- Balance, end of period............ 29,510,679 20,849,592 28,144,310 ========== ========== ========== Proved developed: Beginning of period............... 13,945,540 21,481,946 16,600,669 End of period..................... 22,251,970 13,945,450 21,481,946
Schedule 2--Estimated Net Proved Oil Reserves (Barrels)
Year Ended December 31, ------------------------------- 2000 1999 1998 --------- --------- --------- Proved: Balance, beginning of period......... 5,738,997 3,092,810 4,098,390 Revisions of previous estimates...... 74,369 (12,989) (988,611) Purchase of minerals in place........ 891,334 3,053,618 -- Extensions, discoveries, and other additions........................... 665,911 -- 299,799 Production........................... (571,766) (394,442) (316,768) Sale of minerals in place............ (9,487) -- -- --------- --------- --------- Balance, end of period............... 6,789,358 5,738,997 3,092,810 ========= ========= ========= Proved, developed: Beginning of period.................. 2,662,907 2,266,854 2,292,626 End of period........................ 3,196,330 2,662,907 2,266,854
39 GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 2000 The following table summarizes the Company's combined oil and gas reserve information on a Mcf equivalent basis. Estimates of oil reserves were converted using a conversion ratio of 1.0/6.0 Mcf.
Year Ended December 31, -------------------------------- 2000 1999 1998 ---------- ---------- ---------- Estimated Net Proved Reserves (Mcfe): Total Proved......................... 70,246,827 55,283,574 46,701,170 Proved Developed..................... 41,429,950 29,922,892 35,083,070
Schedule 3--Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserves
Year Ended December 31, --------------------------- 2000 1999 1998 --------- ------- ------- (in thousands) Future cash inflows.............................. $ 452,310 182,292 86,449 Production costs................................. (55,948) (31,647) (18,617) Development costs................................ (25,201) (15,458) (5,722) Future income tax expense(a)..................... (101,113) (21,534) -- --------- ------- ------- Future net cash flows............................ 270,048 113,653 62,110 10% annual discount for estimated timing of cash flows........................................... (90,268) (35,092) (21,475) --------- ------- ------- Standardized measure of discounted future net cash flows...................................... $ 179,780 78,561 40,635 ========= ======= ======= Average year end prices: Natural gas (per Mcf).......................... $ 10.06 2.63 2.24 Crude oil (per Bbl)............................ $ 26.10 25.16 9.37 ========= ======= =======
- -------- (a) Taxable income for 1998 period was entirely offset by available net operating loss carry forwards. The following are the principal sources of change in the standardized measure of discounted net cash flows for the years shown:
Year Ended December 31, -------------------------- 2000 1999 1998 -------- ------- ------- (in thousands) Net changes in prices and production costs related to future production............................. $ 91,250 33,360 (31,820) Sales and transfers of oil and gas produced, net of production costs.............................. (21,100) (10,144) (7,015) Net change due to revisions in quantity estimates........................................ 4,112 (10,277) (12,464) Net change due to extensions, discoveries and improved recovery................................ 33,974 -- 3,006 Net change due to purchase and sales of minerals- in-place......................................... 39,485 33,476 82 Development costs incurred during the period...... 1,127 338 2,198 Net change in income taxes........................ (56,485) (13,845) 14,093 Accretion of discount............................. 9,241 4,064 7,810 Change in production rates (timing) and other..... (385) 954 742 -------- ------- ------- $101,219 37,926 (23,368) ======== =======
40 GOODRICH PETROLEUM CORPORATION Consolidated Quarterly Income Information (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total ----------- --------- ---------- --------- ---------- 2000 Revenues.............. $ 4,673,790 6,678,141 8,686,376 8,451,083 28,489,391 Costs and Expenses.... 4,705,059 5,261,415 6,792,255 7,953,789 24,712,518 Gain on sale of assets............... 563 273,261 33,475 -- 307,299 Income taxes.......... -- -- (1,655,032) -- (1,655,032) Net income (Loss)..... (30,706) 1,689,987 3,582,628 497,294 5,739,204 Preferred stock dividends............ 307,607 295,945 295,562 294,654 1,193,766 Income (Loss) applicable to common Stock................ (338,313) 1,394,042 3,287,066 202,640 4,545,436 Basic earnings (Loss) per average common share................ (.05) .16 .31 .02 .46 Diluted earnings (Loss) per average common share......... $ (.05) .12 .23 .01 .35 1999 Revenues.............. $ 2,941,696 2,829,530 3,631,762 4,617,586 14,020,574 Costs and Expenses.... 3,458,450 3,405,546 3,283,633 5,182,433 15,330,062 Loss on sale of assets............... (519,495) -- -- -- (519,495) Net income (Loss)..... (1,036,249) (576,016) 348,129 (564,847) (1,828,983) Preferred stock dividends............ 313,912 313,912 313,912 307,607 1,249,343 Income (Loss) applicable to common Stock................ (1,350,161) (889,928) 34,217 (872,454) (3,078,326) Basic income (Loss) per average common share................ (.26) (.17) .01 (.16) (.58) Diluted income (Loss) per average common share......... $ (.26) (.17) .01 (.16) (.58)
The fourth quarter of 2000 and 1999 amount includes impairment of oil and gas properties of $1,835,000 and $465,000, respectively. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None 41 PART III Item 10. Directors and Executive Officers of the Registrant. * Item 11. Executive Compensation. * Item 12. Security Ownership of Certain Beneficial Owners and Management. * Item 13. Certain Relationships and Related Transactions. * *Reference is made to information under the captions "Election of Directors", "Executive Compensation", "Security Ownership of Certain Beneficial Owners and Management", and "Certain Relationships and Related Transactions", in the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders. 42 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements The following consolidated financial statements of Goodrich Petroleum Corporation are included in Part II, Item 8:
Page ---- Independent Auditors' Report............................................. 18 Consolidated Balance Sheets--December 31, 2000 and 1999.................. 20 Consolidated Statements of Operations--Years ended December 31, 2000, 1999 and 1998........................................................... 21 Consolidated Statements of Cash Flows--Years ended December 31, 2000, 1999 and 1998........................................................... 22 Consolidated Statements of Stockholders' Equity and Comprehensive Income --Years ended December 31, 2000, 1999 and 1998.......................... 23 Notes to Consolidated Financial Statements--Year ended December 31, 2000.................................................................... 24 Consolidated Quarterly Income Information (Unaudited).................... 41
2. Financial Statement Schedules The schedules for which provision is made in Regulation S-X are not required under the instructions contained therein, are inapplicable, or the information is included in the footnotes to the financial statements. (b) Reports on Form 8-K None (c) Exhibits 3(I).1 Amended and Restated Certificate of Incorporation of the Company dated August 15, 1995, and filed with the Secretary of State of the State of Delaware on August 15, 1995 (Incorporated by reference to Exhibit 3.1a of the Company's registration statement filed on Form S-1 (No. 333-47078)). 3(I).2 Certificate of Amendment of Restated Certificate of Incorporation of Goodrich Petroleum Corporation dated March 12, 1998. (Incorporated by reference to Exhibit 3.16 of the Company's registration statement on Form S-1 (No. 333-47078)). 3(ii).1 Bylaws of the Company, as amended and restated (Incorporated by reference to Exhibit 3.3 of the Company's registration statement filed on Form S-1 (No. 333-47078)). 4.1 Specimen Common Stock Certificate. (Incorporated by reference to Exhibit 4.6 of the Company's Registration Statement filed February 20, 1996 on Form S-8 (File No. 33-01077)). 4.2 Series B Convertible Preferred Stock Certificate of Designations. (Incorporated by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 4.3 Credit Agreement among Goodrich Petroleum Company, L.L.C., Compass Bank and other lenders dated January 31, 2001. 4.4 Letter of Credit Agreement among Goodrich Petroleum Company, L.L.C., Compass Bank and other lenders dated January 31, 2001. 4.5 Amendment to the Letter of Credit Agreement among Goodrich Petroleum Company, L.L.C., Compass Bank and other lenders dated March 13, 2001. 10.1 Goodrich Petroleum Corporation 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement filed June 13, 1995 on Form S-4 (File No. 33-58631)). 10.2 Consulting Services Agreement between Leo E. Bromberg and Goodrich Petroleum Corporation (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report filed on Form 10-Q for the three months ended September 30, 1995).
43 10.3 Goodrich Petroleum Corporation 1997 Director Compensation Plan (Incorporated by reference to the May 20, 1998 Proxy). 10.4 Form of Subscription Agreement dated September 27, 1999 (Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filing dated September 23, 1999). 10.5 Registration Rights Agreement (2000 Private Placement) (Incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999). 10.6 Registration Statement on Form S-1 filed on September 29, 2000 (Registration No. 333-47078) 21 Subsidiaries of the Registrant Goodrich Petroleum Corporation, Inc. of Louisiana--incorporated in the state of Nevada Goodrich Petroleum Company LLC--incorporated in state of Louisiana Goodrich Petroleum Lafitte, LLC--incorporated in state of Louisiana Subsidiaries of Goodrich Petroleum Company of Louisiana Drilling & Workover Company, Inc.--incorporated in state of Louisiana LECE, Inc.--incorporated in the state of Texas National Marketing Company--incorporated in state of Delaware 23 Consent of KPMG LLP.
44 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GOODRICH PETROLEUM CORPORATION (Registrant) Date: March 28, 2001 By /s/ Walter G. Goodrich ___________________________________ Walter G. Goodrich President, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Date: March 28, 2001
Signature Title --------- ----- /s/ Walter G. Goodrich Chief Executive Officer and Director ______________________________________ (Principal Executive Officer) Walter G. Goodrich /s/ Roland L. Frautschi Senior Vice President, Treasurer and Chief ______________________________________ Financial Officer (Principal Financial Roland L. Frautschi Officer) /s/ Lonnie J. Shaw Vice President (Principal Accounting Officer) ______________________________________ Lonnie J. Shaw /s/ Sheldon Appel Director ______________________________________ Sheldon Appel /s/ Henry Goodrich Director ______________________________________ Henry Goodrich /s/ Arthur A. Seeligson Director ______________________________________ Arthur A. Seeligson /s/ Donald M. Campbell Director ______________________________________ Donald M. Campbell /s/ Jeff Benhard Director ______________________________________ Jeff Benhard /s/ Mike McGovern Director ______________________________________ Mike McGovern /s/ Michael J. Perdue Director ______________________________________ Michael J. Perdue /s/ Patrick E. Malloy, III Director ______________________________________ Patrick E. Malloy, III
45 EX-4.3 2 0002.txt CREDIT AGREEMENT EXHIBIT 4.3 - -------------------------------------------------------------------------------- CREDIT AGREEMENT AMONG GOODRICH PETROLEUM COMPANY, L.L.C., AS BORROWER COMPASS BANK, AS AGENT AND AS A LENDER AND THE OTHER LENDERS NOW OR HEREAFTER PARTIES HERETO January 31, 2001 REVOLVING LINE OF CREDIT - -------------------------------------------------------------------------------- Table of Contents Page ARTICLE I DEFINITIONS AND INTERPRETATION................................... 1 1.1 Terms Defined Above............................................... 1 1.2 Additional Defined Terms.......................................... 1 1.3 Undefined Financial Accounting Terms.............................. 15 1.4 References........................................................ 15 1.5 Articles and Sections............................................. 15 1.6 Number and Gender................................................. 15 1.7 Incorporation of Exhibits......................................... 15 ARTICLE II TERMS OF FACILITY............................................... 15 2.1 Revolving Line of Credit.......................................... 15 2.2 Use of Loan Proceeds.............................................. 16 2.3 Interest.......................................................... 17 2.4 Repayment of Loans and Interest................................... 17 2.5 Outstanding Amounts............................................... 17 2.6 Time, Place, and Method of Payments............................... 18 2.7 Borrowing Base Determinations..................................... 18 2.8 Mandatory Prepayments............................................. 19 2.9 Voluntary Prepayments............................................. 19 2.10 Commitment Fee; Reduction of Commitment Amount.................... 19 2.11 Loans to Satisfy Obligations of Borrower.......................... 19 2.12 Security Interest in Accounts; Right of Offset.................... 20 2.13 General Provisions Relating to Interest........................... 20 2.14 Yield Protection.................................................. 21 2.15 Limitation on Types of Loans...................................... 23 2.16 Illegality........................................................ 24 2.17 Limitations on Interest Periods................................... 24 2.18 Power of Attorney................................................. 24 2.19 Facility Fee...................................................... 25 ARTICLE III CONDITIONS..................................................... 25 3.1 Receipt of Loan Documents and Other Items......................... 25 3.2 The Acquisition Portion........................................... 27 3.3 Each Loan......................................................... 27 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................. 29 4.1 Due Authorization................................................. 29 4.2 Corporate Existence............................................... 29 4.3 Valid and Binding Obligations..................................... 29 4.4 Security Instruments.............................................. 29 4.5 Title to Assets................................................... 29 4.6 Scope and Accuracy of Financial Statements........................ 30 4.7 No Material Misstatements......................................... 30 4.8 Liabilities, Litigation, and Restrictions......................... 30 4.9 Authorizations; Consents.......................................... 30 4.10 Compliance with Laws.............................................. 30 i Table of Contents (continued) Page 4.11 ERISA............................................................. 30 4.12 Environmental Laws................................................ 31 4.13 Compliance with Federal Reserve Regulations....................... 31 4.14 Investment Company Act Compliance................................. 31 4.15 Public Utility Holding Company Act Compliance..................... 31 4.16 Proper Filing of Tax Returns; Payment of Taxes Due................ 31 4.17 Refunds........................................................... 32 4.18 Gas Contracts..................................................... 32 4.19 Intellectual Property............................................. 32 4.20 Casualties or Taking of Property.................................. 32 4.21 Locations of Borrower and Guarantors.............................. 32 4.22 Subsidiaries...................................................... 32 4.23 Scope of Collateral............................................... 33 ARTICLE V AFFIRMATIVE COVENANTS............................................ 33 5.1 Maintenance and Access to Records................................. 33 5.2 Quarterly Financial Statements; Compliance Certificates........... 33 5.3 Annual Financial Statements; Compliance Certificates.............. 33 5.4 Oil and Gas Reserve Reports....................................... 33 5.5 Hedging Position.................................................. 34 5.6 Title Opinions; Title Defects..................................... 34 5.7 Notices of Certain Events......................................... 34 5.8 Letters in Lieu of Transfer Orders; Division Orders............... 36 5.9 Additional Information............................................ 36 5.10 Compliance with Laws.............................................. 36 5.11 Payment of Assessments and Charges................................ 37 5.12 Maintenance of Corporate Existence and Good Standing.............. 37 5.13 Further Assurances................................................ 37 5.14 Fees and Expenses................................................. 37 5.15 Operation of Oil and Gas Properties............................... 38 5.16 Maintenance and Inspection of Properties.......................... 38 5.17 Maintenance of Insurance.......................................... 38 5.18 Maintenance of Operating Accounts................................. 38 5.19 Indemnification................................................... 39 ARTICLE VI NEGATIVE COVENANTS.............................................. 39 6.1 Indebtedness; Contingent Obligations.............................. 40 6.2 Liens............................................................. 40 6.3 Sales of Assets................................................... 40 6.4 Leasebacks........................................................ 41 6.5 Loans; Advances; Investments...................................... 41 6.6 Changes in Corporate Structure.................................... 41 6.7 Dividends and Distributions....................................... 41 6.8 Transactions with Affiliates...................................... 41 6.9 Lines of Business................................................. 41 ii Table of Contents (continued) Page 6.10 ERISA Compliance.................................................. 42 6.11 Consolidated Tangible Net Worth................................... 42 6.12 EBITDAX to Interest Expense Ratio................................. 42 6.13 Current Ratio..................................................... 42 ARTICLE VII EVENTS OF DEFAULT.............................................. 42 7.1 Enumeration of Events of Default.................................. 42 7.2 Remedies.......................................................... 44 ARTICLE VIII THE AGENT..................................................... 45 8.1 Appointment of Agent.............................................. 45 8.2 Limitation on Liability of Agent.................................. 46 8.3 Agent also a Lender............................................... 46 8.4 Credit Decision by Each Lender.................................... 46 8.5 Agent Not Required to Act......................................... 47 8.6 Agent's Knowledge................................................. 47 8.7 Agent May Resign.................................................. 47 8.8 Lending Procedures................................................ 48 8.9 Letters of Credit................................................. 48 8.10 Receipts to be Shared............................................ 49 ARTICLE IX MISCELLANEOUS................................................... 49 9.1 Transfers; Participations......................................... 49 9.2 Survival of Representations, Warranties, and Covenants............ 50 9.3 Notices and Other Communications.................................. 50 9.4 Parties in Interest............................................... 50 9.5 Rights of Third Parties........................................... 51 9.6 No Waiver; Rights Cumulative...................................... 51 9.7 Survival Upon Unenforceability.................................... 51 9.8 Amendments; Waivers............................................... 51 9.9 Controlling Agreement............................................. 51 9.10 Release by Borrower............................................... 52 9.11 Governing Law..................................................... 52 9.12 Jurisdiction and Venue............................................ 52 9.13 Waiver of Rights to Jury Trial.................................... 52 9.14 Entire Agreement.................................................. 52 9.15 Counterparts...................................................... 52 9.16 Release of Security Instruments................................... 53 iii CREDIT AGREEMENT This CREDIT AGREEMENT is made and entered into this 31st day of January, 2001, by and among GOODRICH PETROLEUM COMPANY, L.L.C., a Louisiana limited liability company (the "Borrower"), the financial institutions (collectively, the "Lenders") now or hereafter party hereto, and COMPASS BANK, an Alabama state chartered banking institution (the "Agent"), acting as agent for the Lenders, and is joined in for the limited purpose of making the representations, warranties, and covenants set forth in Articles IV, V, and VI only by GOODRICH PETROLEUM CORPORATION, a Delaware corporation ("Goodrich") and by GOODRICH PETROLEUM COMPANY - LAFITTE, L.L.C., a Louisiana limited liability company ("Lafitte"). W I T N E S S E T H: In consideration of the mutual covenants and agreements herein contained, the Borrower, the Agent and the Lenders hereby agree as follows, amending and restating in its entirety the Credit Agreement dated as of September 23, 1999, by and between the Borrower and Compass Bank, as heretofore amended, restated, or supplemented (the "Existing Credit Agreement"): ARTICLE I DEFINITIONS AND INTERPRETATION 1.1 Terms Defined Above. As used in this Credit Agreement, the terms "Borrower," "Existing Credit Agreement," "Goodrich," "Lafitte," "Agent" and "Lenders," shall have the meaning assigned to them hereinabove. 1.2 Additional Defined Terms. As used in this Credit Agreement, each of the following terms shall have the meaning assigned thereto in this Section, unless the context otherwise requires: "Acquisition Portion" means that portion of the Loan Balance in excess of (i) for the period from and after the date hereof through and including January 31, 2001, $22,350,000, (ii) for the period from and after February 1, 2001 through and including February 28, 2001, $21,800,000 and (iii) for the period from and after March 1, 2001 through and including March 31, 2001, $21,250,000. From and after April 1, 2001, the Acquisition Portion shall be $0. "Affiliate" shall mean any Person directly or indirectly controlling, or under common control with, the Borrower and includes any Subsidiary of the Borrower and any "affiliate" of the Borrower within the meaning of Reg. (S)240.12b-2 of the Securities Exchange Act of 1934, as amended, with "control," as used in this definition, meaning possession, directly or indirectly, of the power to direct or cause the direction of management, policies or action through ownership of voting securities, contract, voting trust, or membership in management or in the group appointing or electing management or otherwise through formal or informal arrangements or business relationships. "Additional Costs" shall mean costs which any Lender reasonably determines are attributable to its obligation to make or its making or maintaining any LIBO Rate Loan, or any reduction in any amount receivable by such Lender in respect of any such obligation or any LIBO Rate Loan, resulting from any Regulatory Change which (a) changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Note in respect of any LIBO Rate Loan (other than taxes imposed on the overall net income of such Lender), (b) imposes or modifies any reserve, special deposit, minimum capital, capital rates, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including LIBO Rate Loans and Dollar deposits in the London interbank market in connection with LIBO Rate Loans), or any commitments of such Lender hereunder, or (c) imposes any other condition affecting this Agreement or any of such extensions of credit, liabilities, or commitments. "Agreement" shall mean this Credit Agreement, as it may be amended, supplemented, or restated from time to time. "Applicable LIBO Rate" shall mean, for any Interest Period for any LIBO Rate Loan, an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the sum of the LIBO Rate for such Interest Period for such LIBO Rate Loan plus the Applicable Margin for LIBO Rate Loans, but in no event shall such rate exceed the Highest Lawful Rate. "Applicable Margin" shall mean, as to each Floating Rate Loan, zero percent (0%), and as to each LIBO Rate Loan, 2.25% at all times that the Borrowing Base Utilization is greater than 75%, 2.00% at all times that the Borrowing Base Utilization is greater than 50% but less than or equal to 75% and 1.75% at all times that the Borrowing Base Utilization is less than or equal to 50%. "Applications" shall have the meaning ascribed to such term in the Letter of Credit Agreement. "Available Commitment" shall mean, at any time, an amount equal to the remainder, if any, of (a) the lesser of the Commitment Amount or the Borrowing Base in effect at such time minus (b) the Loan Balance at such time. "Borrower Membership Interests" shall mean all of the issued and outstanding equity interests in and to the Borrower which are owned by Goodrich. "Borrowing Base" shall mean, at any time, the amount determined in accordance with Section 2.7 and then in effect. 2 "Borrowing Base Utilization" for any calendar quarter means the ratio (expressed as a percentage) of (i) the aggregate unpaid principal balance of the Obligations as of the last day of the preceding calendar quarter to (ii) the amount by which the Maximum Borrowing Base exceeds the Acquisition Amount as of the last day of the preceding calendar quarter; provided, however that the Borrowing Base Utilization for the period from the date hereof through March 31, 2001 shall be 39%. The Borrowing Base Utilization applicable to each calendar quarter shall determined on the basis of a written certification by the Borrower delivered to the Agent within five (5) days after the end of the preceding calendar quarter (in the absence of which the Borrowing Base Utilization shall be presumed to be 100%). "Borrowing Request" shall mean each written request, in substantially the form attached hereto as Exhibit I, by the Borrower to the Agent for a borrowing, conversion, or prepayment pursuant to Sections 2.1 or 2.9 or issuance of a Letter of Credit, each of which shall: (a) be signed by a Responsible Officer of the Borrower; (b) specify the amount and type of the Loan or Letter of Credit requested, and, as applicable, the Loan to be converted or prepaid and the date of the borrowing, conversion or prepayment or Letter of Credit issuance(which shall be a Business Day); (c) when requesting a Floating Rate Loan, be delivered to the Agent no later than 10:00 a.m., Central Standard or Daylight Savings Time, as the case may be, on the Business Day of the requested borrowing, conversion or prepayment; and (d) when requesting a LIBO Rate Loan, be delivered to the Agent no later than 10:00 a.m., Central Standard or Daylight Savings Time, as the case may be, the second Business Day preceding the requested borrowing, conversion, or prepayment and designate the Interest Period requested with respect to such LIBO Rate Loan. "Business Day" shall mean a day other than a day when commercial banks are authorized or required to close in the State of Texas and, with respect to all requests, notices, and determinations in connection with, and payments of principal and interest on, LIBO Rate Loans, which is a day for trading by and between banks in Dollar deposits in the London interbank market. "Change of Control" shall mean 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 50% of the aggregate voting power of all classes of Voting Stock of Goodrich or (ii) succeed in having sufficient of its or their nominees elected to the Board of Directors of Goodrich such that such nominees, when added to any existing director remaining on the Board of Directors of Goodrich after such election who is an Affiliate or Related Person of such Person or Group, shall constitute a majority of the Board of Directors of Goodrich. As used herein (a) 3 "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the United States 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 United States Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person (I) other than Goodrich or any of its Subsidiaries and (II) other than any trust for any employee benefit plan of Goodrich or any of its Subsidiaries; (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. "Closing Date" shall mean January 31, 2001. "Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean the Mortgaged Properties, the Lafitte Membership Interests, the Borrower Membership Interests, all other Property of the Borrower and Lafitte and any other Property now or at any time used or intended as security for the payment or performance of all or any portion of the Obligations. "Commitment" shall mean the obligation of the Lenders, subject to applicable provisions of this Agreement, to make Loans to or for the benefit of the Borrower pursuant to this Agreement or to issue (or acquire participation interests in) Letters of Credit. The initial Commitments of the respective Lenders are set forth on the signature pages hereto. "Commitment Amount" shall mean $50,000,000. "Commitment Period" shall mean the period from and including the Closing Date to but not including the Commitment Termination Date. "Commitment Termination Date" shall mean April 1, 2003. "Commonly Controlled Entity" shall mean any Person which is under common control with the Borrower or any Guarantor within the meaning of Section 4001 of ERISA. "Compliance Certificate" shall mean each certificate, substantially in the form attached hereto as Exhibit II, executed by a Responsible Officer of the Borrower and the 4 Guarantors and furnished to the Agent from time to time in accordance with the terms hereof. "Consolidated Net Income" shall mean, for any period, the net income of Goodrich and its Subsidiaries, on a consolidated basis, for such period, determined in accordance with GAAP. "Consolidated Tangible Net Worth" shall mean, without duplication, total assets, as would, in accordance with GAAP, be reflected on a consolidated balance sheet of Goodrich and its Subsidiaries, exclusive of Intellectual Property, experimental or organization expenses, franchises, licenses, permits, and other intangible assets, treasury stock, unamortized underwriters' debt discount and expenses, and goodwill, minus (d) total liabilities, as would, in accordance with GAAP, be reflected on a consolidated balance sheet of Goodrich and its Subsidiaries. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends, or other obligations of any other Person (for purposes of this definition, a "primary obligation") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, regardless of whether such obligation is contingent, (a) to purchase any primary obligation or any Property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any primary obligation, or (ii) to maintain working or equity capital of any other Person in respect of any primary obligation, or otherwise to maintain the net worth or solvency of any other Person, (c) to purchase Property, securities or services primarily for the purpose of assuring the owner of any primary obligation of the ability of the Person primarily liable for such primary obligation to make payment thereof, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof, with the amount of any Contingent Obligation being deemed to be equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Cover" shall have the meaning ascribed to such term in the Letter of Credit Agreement. "Default" shall mean any event or occurrence which with the lapse of time or the giving of notice or both would become an Event of Default. "Default Rate" shall mean a per annum interest rate equal to the Index Rate from time to time in effect plus five percent (5%), but in no event exceeding the Highest Lawful Rate. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. 5 "EBITDAX" shall mean, for any period, (a) Consolidated Net Income for such period plus (b) Interest Expense (without duplicate addition of capitalized cash interest payments), taxes, exploration expense, depreciation, amortization, depletion, and other non-cash expenses for such period deducted in the determination of Consolidated Net Income minus (c) capitalized general and administrative expenses for such period included in the determination of Consolidated Net Income minus (d) non-cash income for such period included in the determination of Consolidated Net Income. "Environmental Complaint" shall mean any written or oral complaint, order, directive, claim, citation, notice of environmental report or investigation, or other notice by any Governmental Authority or any other Person with respect to (a) air emissions, (b) spills, releases, or discharges to soils, any improvements located thereon, surface water, groundwater, or the sewer, septic, waste treatment, storage, or disposal systems servicing any Property of any Related Party, (c) solid or liquid waste disposal, (d) the use, generation, storage, transportation, or disposal of any Hazardous Substance, or (e) other environmental, health, or safety matters affecting any Property of any Related Party or the business conducted thereon. "Environmental Laws" shall mean (a) the following federal laws as they may be cited, referenced, and amended from time to time: the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Hazardous Materials Transportation Act of 1986, the Occupational Safety and Health Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act of 1976, the Safe Drinking Water Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b) any and all equivalent environmental statutes of any state, as they may be cited, referenced and amended from time to time; (c) any rules or regulations promulgated under or adopted pursuant to the above federal and state laws; and (d) any other equivalent federal, state, or local statute or any requirement, rule, regulation, code, ordinance, or order adopted pursuant thereto, including, without limitation, those relating to the generation, transportation, treatment, storage, recycling, disposal, handling, or release of Hazardous Substances. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations thereunder and interpretations thereof. "Event of Default" shall mean any of the events specified in Section 7.1. "Existing Notes" shall mean the Note, as such term is defined in the Existing Credit Agreement, in existence prior to the Closing Date. "Existing Loan Documents" shall mean the Loan Documents, as such term is defined in the Existing Credit Agreement, in existence prior to the Closing Date. "Existing Security Instruments" shall mean the Security Instruments, as such term is defined in the Existing Credit Agreement, in existence prior to the Closing Date. 6 "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of Dallas, Texas, on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent. "Financial Statements" shall mean statements of the financial condition as at the point in time and for the period indicated and consisting of at least a balance sheet and related statements of operations, common stock and other stockholders' equity, and cash flows and, when required by applicable provisions of this Agreement to be audited, accompanied by the unqualified certification of a nationally- recognized firm of independent certified public accountants or other independent certified public accountants acceptable to the Majority Lenders and footnotes to any of the foregoing, all of which shall be prepared in accordance with GAAP consistently applied and in comparative form with respect to the corresponding period of the preceding fiscal period. "Floating Rate" shall mean an interest rate per annum equal to the greater of (i) the Index Rate from time to time in effect plus the Applicable Margin for Floating Rate Loans or (b) the Federal Funds Rate from time to time in effect plus 1/2%, but in no event exceeding the Highest Lawful Rate. "Floating Rate Loan" shall mean any Loan and any portion of the aggregate unpaid principal balance of the Loans which the Borrower has requested, in the initial Borrowing Request for such Loan or a subsequent Borrowing Request for such portion of the aggregate unpaid principal balance of the Loans, bear interest at the Floating Rate, or which pursuant to the terms hereof is otherwise required to bear interest at the Floating Rate. "GAAP" shall mean generally accepted accounting principles established by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants and in effect in the United States from time to time. "Governmental Authority" shall mean any nation, country, commonwealth, territory, government, state, county, parish, municipality, or other political subdivision and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government. "Guaranties" shall mean, collectively, the Guaranty of each Guarantor dated the Closing Date, in each case guaranteeing the payment and performance of the Obligations 7 as provided therein, as each may be ratified, amended, restated, or supplemented from time to time. "Guarantors" shall mean Goodrich, Lafitte and any other Person hereafter executing a guaranty of the Obligations. "Hazardous Substances" shall mean flammables, explosives, radioactive materials, hazardous wastes, asbestos, or any material containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum products, associated oil or natural gas exploration, production, and development wastes, or any substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," or "toxic substances" under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, or any other Requirement of Law. "Hedging Agreement" shall mean (a) any interest rate or currency swap, rate cap, rate floor, rate collar, forward agreement, or other exchange or rate protection agreement or any option with respect to any such transaction and (b) any swap agreement, cap, floor, collar, exchange transaction, forward agreement, or other exchange or protection agreement relating to hydrocarbons or any option with respect to any such transaction. "Highest Lawful Rate" shall mean the maximum non-usurious interest rate, if any (or, if the context so requires, an amount calculated at such rate), that at any time or from time to time may be contracted for, taken, reserved, charged, or received under applicable laws of the State of Texas or the United States of America, whichever authorizes the greater rate, as such laws are presently in effect or, to the extent allowed by applicable law, as such laws may hereafter be in effect and which allow a higher maximum non-usurious interest rate than such laws now allow. "Indebtedness" shall mean, as to any Person, without duplication, (a) all liabilities (excluding reserves for deferred income taxes, deferred compensation liabilities, and other deferred liabilities and credits) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet, (b) all obligations of such Person evidenced by bonds, debentures, promissory notes, or similar evidences of indebtedness, (c) all other indebtedness of such Person for borrowed money and capitalized leases, and (d) all obligations of others, to the extent any such obligation is secured by a Lien on the assets of such Person (whether or not such Person has assumed or become liable for the obligation secured by such Lien). "Index Rate" shall mean, on any day, the prime rate as published in The Wall Street Journal's "Money Rates" table for such day. If multiple prime rates are quoted in such table, then the highest prime rate quoted therein shall be the Index Rate. In the event that a prime rate is not published in The Wall Street Journal's "Money Rates" table, 8 the Agent will choose a substitute Index Rate, for purposes of calculating the Floating Rate, which is based on comparable information, until such time as a prime rate is published in The Wall Street Journal's "Money Rates" tables. "Insolvency Proceeding" shall mean application (whether voluntary or instituted by another Person) for or the consent to the appointment of a receiver, trustee, conservator, custodian, or liquidator of any Person or of all or a substantial part of the Property of such Person, or the filing of a petition (whether voluntary or instituted by another Person) commencing a case under Title 11 of the United States Code, seeking liquidation, reorganization, or rearrangement or taking advantage of any bankruptcy, insolvency, debtor's relief, or other similar law of the United States, the State of Texas, or any other jurisdiction. "Insolvent" or "Insolvency" shall mean, with respect to any Multiemployer Plan, that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA. "Intellectual Property" shall mean patents, patent applications, trademarks, tradenames, copyrights, technology, know-how, and processes. "Interest Expense" for any period means cash interest payments (including capitalized cash interest payments) on all Indebtedness, including the Obligations, during such period. "Interest Period" shall mean, subject to the limitations set forth in Section 2.17, with respect to any LIBO Rate Loan, a period commencing on the date such Loan is made or converted from a Loan of another type pursuant to this Agreement or the last day of the next preceding Interest Period with respect to such Loan and ending on the numerically corresponding day in the calendar month that is one, two or three months thereafter, as the Borrower may request in the Borrowing Request for such Loan. "Investment" in any Person shall mean any stock, bond, note, or other evidence of Indebtedness, or any other security of, or investment or partnership interest in, such Person. "Lafitte Membership Interests" shall mean all of the issued and outstanding equity interests in and to Lafitte. "Letter of Credit" shall have the meaning ascribed to such term in the Letter of Credit Agreement. "Letter of Credit Agreement" means the Letter of Credit Agreement dated concurrently herewith executed by and among Borrower, Agent and Lenders, as it may from time to time be amended, modified, restated or supplemented. 9 "Letter of Credit Documents" means the Letter of Credit Agreement, the Letters of Credit and the Applications. "Letter of Credit Liabilities" shall have the meaning ascribed to such term in the Letter of Credit Agreement. "LIBO Rate" shall mean, with respect to any Interest Period for any LIBO Rate Loan, the rate for deposits in Dollars for a period equal to such Interest Period which appears on the Telerate Page 3750 at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. If, for any reason, such rate is not available, then "LIBO Rate" shall mean, with respect to any Interest Period, the rate per annum determined by the Agent to be the arithmetic average (rounded upwards, if necessary, to the nearest 1/16th of 1%) of the rate per annum as quoted to Agent by leading reference banks at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period for settlement in immediately available funds by leading reference banks in the London interbank market for a period equal to such Interest Period and in the approximate amount of such LIBO Rate Loan. "LIBO Rate Loan" shall mean any Loan and any portion of the aggregate unpaid principal balance of the Loans which the Borrower has requested, in the initial Borrowing Request for such Loan or a subsequent Borrowing Request for such portion of the aggregate unpaid principal balance of the Loans, bear interest at the Applicable LIBO Rate and which is permitted by the terms hereof to bear interest at the Applicable LIBO Rate. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of such Property, whether such interest is based on common law, statute, or contract, and including, but not limited to, the lien or security interest arising from a mortgage, ship mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt, or a lease, consignment, or bailment for security purposes (other than true leases or true consignments), liens of mechanics, materialmen, and artisans, maritime liens and reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Property which secure an obligation owed to, or a claim by, a Person other than the owner of such Property (for the purpose of this Agreement, any Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes), and the filing or recording of any financing statement or other security instrument in any public office. "Limitation Period" shall mean any period while any amount remains owing on the Notes and interest on such amount, calculated at the applicable interest rate, plus any fees or other sums payable under any Loan Document and deemed to be interest under 10 applicable law, would exceed the amount of interest which would accrue at the Highest Lawful Rate. "Loan" shall mean any loan made by the Lenders to or for the benefit of the Borrower pursuant to this Agreement. "Loan Balance" shall mean, at any time, the sum of the aggregate outstanding principal balance of the Notes and the aggregate outstanding Letter of Credit Liabilities at such time. "Loan Documents" shall mean this Agreement, the Notes, the Guaranties, the Security Instruments, the Letter of Credit Documents, and all other documents and instruments now or hereafter delivered pursuant to the terms of or in connection with this Agreement, the Notes, the Guaranties, the Security Instruments, the Loans or the Letters of Credit, and all renewals and extensions of, amendments and supplements to, and restatements of, any or all of the foregoing from time to time in effect. "Majority Lenders" means Lenders with 75% or more of the Commitment (or, at any time that the Commitment has been terminated, 75% or more of the aggregate outstanding principal balance of the Obligations). "Material Adverse Effect" shall mean (a) any material adverse effect on the business, operations, properties, condition (financial or otherwise), or prospects of the Borrower or any Guarantor, (b) any adverse effect upon the business operations, properties, condition (financial or otherwise), or prospects of the Borrower or any Guarantor which increases the risk that any of the Obligations will not be repaid as and when due, or (c) any adverse effect upon the Collateral. "Maximum Borrowing Base Amount" means (i) for the period from and after the date hereof through and including January 31, 2001, $30,000,000, (ii) for the period from and after February 1, 2001 through and including February 28, 2001, $23,800,000, (iii) for each calendar month thereafter through and including April, 2001, the Maximum Borrowing Base Amount for the immediately preceding calendar month minus $1,550,000 and (iv) for each calendar month thereafter, the Maximum Borrowing Base Amount for the immediately preceding calendar month minus $550,000. "Mortgaged Properties" shall mean all Oil and Gas Properties of the Borrower and Lafitte subject to a perfected first-priority Lien in favor of the Agent, subject only to Permitted Liens, as security for the Obligations. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Notes" shall mean the promissory notes of the Borrower payable to the order of the respective Lenders in an original principal amount equal to their pro rata share of the 11 Commitment, together with all renewals, extensions for any period, increases, and rearrangements thereof. "Obligations" shall mean, without duplication, (a) all Indebtedness evidenced by the Notes or arising under the Letters of Credit, (b) the obligation of the Borrower for the payment of fees and expenses pursuant to the Loan Documents, (c) the obligations of the Guarantors under the Guaranties, and (d) all other obligations and liabilities of the Borrower or the Guarantors to the Agent or any Lender, now existing or hereafter incurred, under, arising out of or in connection with any Loan Document, and to the extent that any of the foregoing includes or refers to the payment of amounts deemed or constituting interest, only so much thereof as shall have accrued, been earned and which remains unpaid at each relevant time of determination. "Oil and Gas Properties" shall mean fee, leasehold, or other interests in or under mineral estates or oil, gas, and other liquid or gaseous hydrocarbon leases with respect to Properties situated in the United States or offshore from any State of the United States, including, without limitation, overriding royalty and royalty interests, leasehold estate interests, net profits interests, production payment interests, and mineral fee interests, together with contracts executed in connection therewith and all tenements, hereditaments, appurtenances, and Properties appertaining, belonging, affixed, or incidental thereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" shall mean (a) Liens for taxes, assessments, or other governmental charges or levies not yet due or which (if foreclosure, distraint, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor, (b) Liens in connection with workers' compensation, unemployment insurance or other social security (other than Liens created by Section 4068 of ERISA), old-age pension, or public liability obligations which are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor, (c) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction, or similar Liens arising by operation of law in the ordinary course of business in respect of obligations which are not yet due or which are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor, (d) Liens in favor of operators and non-operators under joint operating agreements or similar contractual arrangements arising in the ordinary course of the business to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor, (e) Liens under production sales agreements, division orders, operating agreements, and other agreements customary in the oil and gas business for processing, producing, and selling hydrocarbons securing obligations not constituting 12 Indebtedness and provided that such Liens do not secure obligations to deliver hydrocarbons at some future date without receiving full payment therefor within 90 days of delivery, (f) easements, rights of way, restrictions, and other similar encumbrances, and minor defects in the chain of title which are customarily accepted in the oil and gas financing industry, none of which interfere with the ordinary conduct of the business of the owner of the relevant Property or materially detract from the value or use of the Property to which they apply, and other Liens expressly permitted under the Security Instruments and (g) Liens securing the obligations and liabilities under letters of credit issued by Compass Bank as described in Section 6.1(g) hereof (which Liens shall be evidenced by the Security Instruments and shall be pari passu with the Liens securing the Obligations). "Person" shall mean an individual, corporation, partnership, trust, unincorporated organization, government, any agency or political subdivision of any government, or any other form of entity. "Plan" shall mean, at any time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower, any Guarantor, or any Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Principal Office" shall mean the principal office of the Agent in Houston, Texas, presently located at 24 Greenway Plaza, 14th Floor, Houston, Texas 77046. "Prohibited Transaction" shall have the meaning assigned to such term in Section 4975 of the Code. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean the passage, adoption, institution, or modification of any federal, state, local, or foreign Requirement of Law (including, without limitation, Regulation D), or any interpretation, directive, or request (whether or not having the force of law) of any Governmental Authority or monetary authority charged with the enforcement, interpretation, or administration thereof, occurring after the Closing Date and applying to a class of banks including the applicable Lender or its applicable lending office. "Related Party" shall mean any of the Borrower, the Guarantors or the Subsidiaries of Goodrich. "Related Parties" shall mean the Borrower, the Guarantors and all Subsidiaries of Goodrich. 13 "Release of Hazardous Substances" shall mean any emission, spill, release, disposal, or discharge, except in accordance with a valid permit, license, certificate, or approval of the relevant Governmental Authority, of any Hazardous Substance into or upon (a) the air, (b) soils or any improvements located thereon, (c) surface water or groundwater, or (d) the sewer or septic system, or the waste treatment, storage, or disposal system servicing any Property of the Borrower or any Guarantor. "Reorganization" shall mean, with respect to any Multiemployer Plan, that such Plan is in reorganization within the meaning of such term in Section 4241 of ERISA. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty-day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)2615. "Requirement of Law" shall mean, as to any Person, any applicable law, treaty, ordinance, order, judgment, rule, decree, regulation, or determination of an arbitrator, court, or other Governmental Authority, including, without limitation, rules, regulations, orders, and requirements for permits, licenses, registrations, approvals, or authorizations, in each case as such now exist or may be hereafter amended and are applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Reserve Report" shall mean each report delivered to the Agent pursuant to Section 5.4. "Responsible Officer" shall mean, as to any Person, its President or chief financial officer. "Security Instruments" shall mean the Existing Security Instruments, the security instruments executed and delivered in satisfaction of the condition set forth in Section 3.1, and all other documents and instruments at any time executed as security for all or any portion of the Obligations, as such instruments may be amended, restated, or supplemented from time to time. "Single Employer Plan" shall mean any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Subsidiary" shall mean, as to any Person, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. 14 "Superfund Site" shall mean those sites listed on the Environmental Protection Agency National Priority List and eligible for remedial action or any comparable state registries or list in any state of the United States. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the State of Texas. 1.3 Undefined Financial Accounting Terms. Undefined financial accounting terms used in this Agreement shall be defined according to GAAP at the time in effect. 1.4 References. References in this Agreement to Exhibit, Article, or Section numbers shall be to Exhibits, Articles, or Sections of this Agreement, unless expressly stated to the contrary. References in this Agreement to "hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," "hereunder" and words of similar import shall be to this Agreement in its entirety and not only to the particular Exhibit, Article, or Section in which such reference appears. 1.5 Articles and Sections. This Agreement, for convenience only, has been divided into Articles and Sections; and it is understood that the rights and other legal relations of the parties hereto shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and Sections and without regard to headings prefixed to such Articles or Sections. 1.6 Number and Gender. Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated. Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative. 1.7 Incorporation of Exhibits. The Exhibits attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for all purposes. ARTICLE II TERMS OF FACILITY 2.1 Revolving Line of Credit. (a) Upon the terms and conditions and relying on the representations and warranties contained in this Agreement, each Lender agrees, during the Commitment Period, to make Loans (pro rata based upon their respective Commitments) to or for the benefit of the Borrower. Loans shall be made in such amounts as the Borrower may request; provided, however, no Loan shall be made in an amount exceeding the then existing Available Commitment, and the Loan Balance shall not exceed at any time the 15 lesser of the Commitment Amount or the Borrowing Base then in effect. Loans shall be made in immediately available funds at the Principal Office from time to time on any Business Day designated by the Borrower in its Borrowing Request. (b) Subject to the terms of this Agreement, during the Commitment Period, the Borrower may borrow, repay, and reborrow and convert Loans of one type or with one Interest Period into Loans of another type or with a different Interest Period. Each borrowing, conversion, and prepayment of principal of Loans shall be in an amount at least equal to $250,000. Each borrowing, prepayment, or conversion of or into a Loan of a different type or, in the case of a LIBO Rate Loan, having a different Interest Period, shall be deemed a separate borrowing, conversion, and prepayment for purposes of the foregoing, one for each type of Loan or Interest Period. Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of LIBO Rate Loans having the same Interest Period shall be at least equal to $1,000,000; and if any LIBO Rate Loan would otherwise be in a lesser principal amount for any period, such Loan shall be a Floating Rate Loan during such period. (c) The Borrower and the Lenders agree pursuant to Chapter 346 ("Chapter 346") of the Texas Finance Code, that Chapter 346 (which relates to open-end line of credit revolving loan accounts) shall not apply to this Agreement, the Notes or any of the Obligations and that neither the Notes nor any of the Obligations shall be governed by Chapter 346 or subject to its provisions in any manner whatsoever. (d) The Loans shall be evidenced by the Notes. (e) The obligations of Lenders hereunder are several and not joint, and the provisions of this Agreement will give rise to certain inappropriate results if special provisions are not made to accommodate the failure of a Lender to fund a Loan as and when required by this Agreement; therefore, notwithstanding anything herein to the contrary, (I) no Lender shall be required to make Loans at any one time outstanding in excess of such Lender's pro rata share of the Available Commitment and (II) if a Lender fails to make a Loan as and when required hereunder and Borrower subsequently makes a repayment on the Loans, such repayment shall be split among the non-defaulting Lenders ratably in accordance with their respective pro rata shares of the Commitment until each Lender has its pro rata share of all of the outstanding Loans, and the balance of such repayment shall be divided among all of the Lenders in accordance with their respective pro rata shares. 2.2 Use of Loan Proceeds. (a) As of the Closing Date, indebtedness in the amount of $9,275,000 is outstanding under the Existing Credit Agreement. Such indebtedness shall be renewed, extended, and rearranged pursuant to the terms of this Agreement, the Notes, and the relevant Borrowing Request and shall for all purposes be deemed a borrowing hereunder. Proceeds of all subsequent Loans and all Letters of Credit shall be used solely for general corporate purposes of the Borrower and the Guarantors; provided, however, that the Acquisition Portion may only be used for the acquisition of oil and gas reserves. 16 2.3 Interest. Subject to the terms of this Agreement (including, without limitation, Section 2.13), interest on the Loans shall accrue and be payable at a rate per annum equal to the Floating Rate for each Floating Rate Loan and the Applicable LIBO Rate for each LIBO Rate Loan. Interest on all Loans shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) during the period for which payable. Notwithstanding the foregoing, interest on past-due principal and, to the extent permitted by applicable law, past-due interest, shall accrue at the Default Rate, computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) during the period for which payable, and shall be payable upon demand at any time as to all or any portion of such interest. In the event that the Borrower fails to select the duration of any Interest Period for any LIBO Rate Loan within the time period and otherwise as provided herein, such Loan (if outstanding as a LIBO Rate Loan) will be automatically converted into a Floating Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then outstanding) will be made as, a Floating Rate Loan. Interest provided for herein shall be calculated on unpaid sums actually advanced and outstanding pursuant to the terms of this Agreement and only for the period from the date or dates of such advances until repayment. If any payment remains past due for ten (10) days, a late charge equal to five percent (5%) of such payment shall also be due and payable (subject, however, to the provisions of Section 20 hereof). 2.4 Repayment of Loans and Interest. (a) Accrued and unpaid interest on each outstanding Floating Rate Loan shall be due and payable monthly commencing on the first day of January, 2001, and continuing on the first day of each calendar month thereafter while any Floating Rate Loan remains outstanding, the payment in each instance to be the amount of interest which has accrued and remains unpaid in respect of the relevant Floating Rate Loan. Accrued and unpaid interest on each outstanding LIBO Rate Loan shall be due and payable on the last day of the Interest Period for such LIBO Rate Loan and, in the case of any Interest Period in excess of three months, on the day of the third calendar month following the commencement of such Interest Period corresponding to the day of the calendar month on which such Interest Period commenced, the payment in each instance to be the amount of interest which has accrued and remains unpaid in respect of the relevant LIBO Rate Loan. The aggregate unpaid principal balance of the Loans, together with all accrued and unpaid interest thereon, shall be due and payable on the Commitment Termination Date. (b) At the time of making each payment hereunder or under the Notes, the Borrower shall specify to the Agent the Loans or other amounts payable by the Borrower hereunder to which such payment is to be applied. In the event the Borrower fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may apply such payment as it may elect in its sole discretion. 2.5 Outstanding Amounts. Each Lender is irrevocably authorized by the Borrower to attach to and make a part of its Note a ledger reflecting amounts advanced to or paid by the Borrower and to attach to and make a part of such Note a continuation of any such schedule of 17 advances and payments, as and when required. All Loans and all payments and prepayments made on account of the principal thereof and all conversions of Loans shall be reflected by an appropriate notation on such ledger or any continuation thereof attached to the applicable Notes; provided, however, the failure of any Lender to do so shall not relieve the Borrower of its liability hereunder or under the Notes or subject the Borrower to additional liability hereunder or under the Notes. The outstanding principal balance of the Notes reflected by the notations by the Lenders on their records or ledger sheets affixed to the Notes shall be deemed rebuttably presumptive evidence of the principal amount owing on the Notes. The liability for payment of principal and interest evidenced by the Notes shall be limited to principal amounts actually advanced and outstanding pursuant to this Agreement and interest on such amounts calculated in accordance with this Agreement. 2.6 Time, Place, and Method of Payments. All payments required by Borrower pursuant to this Agreement, the Notes, or any other Loan Document shall be made in lawful money of the United States of America and in immediately available funds, shall be deemed received by the Agent on the next Business Day following receipt if such receipt is after 2:00 p.m., Houston, Texas, time on any Business Day, and shall be made at the Principal Office. Except as provided to the contrary herein, if the due date of any payment under any Loan Document would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 2.7 Borrowing Base Determinations. The Borrowing Base as of the date hereof is acknowledged by the Borrower, the Agent and the Lenders to be $30,000,000, inclusive of the Acquisition Portion. The Borrowing Base shall be redetermined each April 1 and October 1 during the Commitment Period on the basis of information supplied by the Borrower in compliance with the provisions of this Agreement, including, without limitation, Reserve Reports, and all other information available to the Lenders. In addition, the Lenders shall, in the normal course of business following a request of the Borrower, redetermine the Borrowing Base; provided, however, the Lenders shall not be obligated to respond to more than two such requests during any calendar year, and in no event shall the Lenders be required to redetermine the Borrowing Base more than once in any three-month period, including, without limitation, each scheduled semi-annual redetermination provided for above. Notwithstanding the foregoing, the Lenders may at their discretion redetermine the Borrowing Base at any time and from time to time. Upon each determination of the Borrowing Base by the Lenders, the Agent shall notify the Borrower in writing of such determination, and the Borrowing Base so communicated to the Borrower shall become effective upon such written notification and shall remain in effect until the next subsequent determination of the Borrowing Base. The Borrowing Base shall represent the determination by the Lenders, in accordance with the applicable definitions and provisions herein contained and their customary lending practices for loans of this nature, of the value, for loan purposes, of the Mortgaged Properties, subject, in the case of any increase in the Borrowing Base, to the approval of the Borrower and the credit approval process of the Lenders. Furthermore, the Borrower acknowledges that the determination of the Borrowing Base contains an equity cushion (market value in excess of loan value), which is acknowledged by the Borrower to be essential for the adequate protection of the Lenders. Notwithstanding anything to the contrary set forth herein, the Borrowing Base shall not exceed the Maximum Borrowing Base 18 Amount unless the Lenders shall have given their prior written approval, which may be given or denied in their sole and absolute discretion (and which approval may be conditioned upon payment to the Lenders of additional facility fees in an amount equal to or greater than 3/8% times the amount by which the Borrowing Base is so permitted to exceed $30,000,000). 2.8 Mandatory Prepayments. If at any time the Loan Balance exceeds the lesser of the Commitment Amount or the Borrowing Base then in effect, the Borrower shall, within 30 days of notice from the Agent of such occurrence, (a) prepay, or make arrangements acceptable to the Lenders for the prepayment of (or, in respect of Letter of Credit Liabilities, provide Cover for), the amount of such excess for application on the Loan Balance (such prepayment may be made in the form of up to six (6) monthly installments, each in an amount equal to or greater than 1/6th of the amount of such excess, to be due and payable on the first day of each of the next six (6) calendar months), (b) provide additional collateral, of character and value satisfactory to the Lenders in their sole discretion, to secure the Obligations by the execution and delivery to the Agent of security instruments in form and substance satisfactory to the Lenders, or (c) effect any combination of the alternatives described in clauses (a) and (b) of this Section and acceptable to the Lenders in their sole discretion. 2.9 Voluntary Prepayments. Subject to applicable provisions of this Agreement, the Borrower shall have the right at any time or from time to time to prepay Loans and to convert Loans of one type or with one Interest Period into Loans of another type or with a different Interest Period; provided, however, that (a) the Borrower shall give the Agent notice of each such prepayment or conversion of all or any portion of a LIBO Rate Loan no less than two Business Days prior to prepayment or conversion, (b) any LIBO Rate Loan may be prepaid or converted only on the last day of an Interest Period for such Loan, (c) the Borrower shall pay all accrued and unpaid interest on the amounts prepaid or converted, and (d) no such prepayment or conversion shall serve to postpone the repayment when due of any Obligation. 2.10 Commitment Fee; Reduction of Commitment Amount. To compensate the Lenders for maintaining funds available, the Borrower shall pay to the Agent, for the account of each Lender, a commitment fee in the amount of (i) at all times that the Borrowing Base Utilization is greater than 50%, 0.50% per annum and (ii) at all times that the Borrowing Base Utilization is less than or equal to 50%, 0.375% per annum, calculated on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day), on the average daily amount of the Available Commitment of each Lender. Such accrued commitment fees shall be due and payable on the first day of January, 2001, the first day of each third calendar month thereafter during the Commitment Period, and on the Commitment Termination Date. The Borrower may, with 30 days' written notice to the Agent, reduce the Commitment Amount (and any such reduction shall be irrevocable); provided that Borrower may not thereby decrease the Available Commitment to an amount less than the Loan Balance. 2.11 Loans to Satisfy Obligations of Borrower. The Lenders may, but shall not be obligated to, make Loans for the benefit of the Borrower and apply proceeds thereof to the satisfaction of any condition, warranty, representation, or covenant of the Borrower or any Guarantor contained in this Agreement or any other Loan Document. Such Loans shall be 19 evidenced by the Notes, shall bear interest at the Default Rate, and shall be payable upon demand. 2.12 Security Interest in Accounts; Right of Offset. As security for the payment and performance of the Obligations, the Borrower hereby transfers, assigns, and pledges to the Agent and grants to the Agent a security interest in all funds of the Borrower now or hereafter or from time to time on deposit with any Lender, with such interest of such Lender to be retransferred, reassigned, and/or released by such Lender, as the case may be, at the expense of the Borrower upon payment in full and complete performance of all Obligations. All remedies as secured party or assignee of such funds shall be exercisable by the Agent upon the occurrence of any Event of Default, regardless of whether the exercise of any such remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof. Furthermore, the Borrower hereby grants to the Agent the right, exercisable at such time as any Obligation shall mature, whether by acceleration of maturity or otherwise, of offset or banker's lien against all funds of the Borrower now or hereafter or from time to time on deposit with any Lender, regardless of whether the exercise of any such remedy would result in any penalty or loss of interest or profit with respect to any withdrawal of funds deposited in a time deposit account prior to the maturity thereof. 2.13 General Provisions Relating to Interest. (a) It is the intention of the parties hereto to comply strictly with all applicable usury laws. In this connection, there shall never be collected, charged, or received on the sums advanced hereunder interest in excess of that which would accrue at the Highest Lawful Rate. (b) Notwithstanding anything herein or in the Notes to the contrary, during any Limitation Period, the interest rate to be charged on amounts evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if any, of the Borrower for the payment of fees or other charges deemed to be interest under applicable law shall be suspended. During any period of time following a Limitation Period, to the extent permitted by applicable laws of the State of Texas or the United States of America, the interest rate to be charged hereunder shall remain at the Highest Lawful Rate until such time as there has been paid to the Lenders (i) the amount of interest in excess of that accruing at the Highest Lawful Rate that the Lenders would have received during the Limitation Period had the interest rate remained at the otherwise applicable rate, and (ii) all interest and fees otherwise payable to the Lenders but for the effect of such Limitation Period. (c) If, under any circumstances, the aggregate amounts paid on the Notes or under this Agreement or any other Loan Document include amounts which by law are deemed interest and which would exceed the amount permitted if the Highest Lawful Rate were in effect, the Borrower stipulates that such payment and collection will have been and will be deemed to have been, to the extent permitted by applicable laws of the State of Texas or the United States of 20 America, the result of mathematical error on the part of the Borrower and the Lenders; and the Lenders shall promptly refund the amount of such excess (to the extent only of such interest payments in excess of that which would have accrued and been payable on the basis of the Highest Lawful Rate) upon discovery of such error by the Lenders or notice thereof from the Borrower. In the event that the maturity of any Obligation is accelerated, by reason of an election or otherwise, or in the event of any required or permitted prepayment, then the consideration constituting interest under applicable laws may never exceed the Highest Lawful Rate; and excess amounts paid to the Lenders which by law are deemed interest, if any, shall be credited by the Lenders on the principal amount of the Obligations, or if the principal amount of the Obligations shall have been paid in full, refunded to the Borrower. (d) All sums paid, or agreed to be paid, to the Lenders for the use, forbearance and detention of the proceeds of any advance hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term hereof until paid in full so that the actual rate of interest is uniform but does not exceed the Highest Lawful Rate throughout the full term hereof. (e) On each day, if any, that the Texas Finance Code establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the "weekly ceiling" (as defined in (S)303 of the Texas Finance Code) for that day. The Lenders may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to the Borrower, if and to the extent permitted by the Texas Finance Code. 2.14 Yield Protection. (a) Without limiting the effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Lenders from time to time such amounts as the Lenders may determine are necessary to compensate them for any Additional Costs incurred by the Lenders. (b) Without limiting the effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Lenders from time to time on request such amounts as the Lenders may determine are necessary to compensate the Lenders for any costs attributable to the maintenance by the Lenders (or any applicable lending office of a Lender), pursuant to any Regulatory Change, of capital in respect of their pro rata shares of the Commitment, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of the Lenders (or any Applicable Lending Office) to a level below that which the applicable Lender (or any applicable lending office of a Lender) could have achieved but for such Regulatory Change. 21 (c) Without limiting the effect of the other provisions of this Section (but without duplication), the Borrower shall pay to the Lenders such amounts as shall be sufficient in the reasonable opinion of the Lenders to compensate them for any loss, cost, or expense incurred by and as a result of: (i) any payment, prepayment, or conversion by the Borrower of a LIBO Rate Loan on a date other than the last day of an Interest Period for such Loan; or (ii) any failure by the Borrower to borrow a LIBO Rate Loan or to convert a Floating Rate Loan into a LIBO Rate Loan on the date for such borrowing or conversion specified in the relevant Borrowing Request; such compensation to include, without limitation, with respect to any LIBO Rate Loan, an amount equal to the excess, if any, of (A) the amount of interest which would have accrued on the principal amount so paid, prepaid, converted, or not borrowed or converted for the period from the date of such payment, prepayment, conversion, or failure to borrow or convert to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow or convert, the Interest Period for such Loan which would have commenced on the date of such failure to borrow or convert) at the applicable rate of interest for such Loan provided for herein over (B) the interest component (as reasonably determined by the Lenders) of the amount (as reasonably determined by the Lenders) the Lenders would have bid in the London interbank market for Dollar deposits of amounts comparable to such principal amount and maturities comparable to such period. (d) Determinations by any Lender for purposes of this Section of the effect of any Regulatory Change on capital maintained, its costs or rate of return, maintaining Loans, its obligation to make Loans, or on amounts receivable by it in respect of Loans or such obligations, and the additional amounts required to compensate such Lender under this Section shall be conclusive, absent manifest error, provided that such determinations are made on a reasonable basis. The applicable Lender shall furnish the Borrower (with a copy to Agent) with a certificate setting forth in reasonable detail the basis and amount of increased costs incurred or reduced amounts receivable as a result of any such event, and the statements set forth therein shall be conclusive, absent manifest error. The applicable Lender shall (i) notify the Borrower and Agent, as promptly as practicable after such Lender obtains knowledge of any Additional Costs or other sums payable pursuant to this Section and determines to request compensation therefor, of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section and (ii) designate a different applicable lending office for the Loans of such Lender affected by such event if such designation will avoid the need for or reduce the amount of such compensation and will not, in the sole opinion of such Lender, be 22 disadvantageous to such Lender. If any Lender requests compensation from the Borrower under this Section, the Borrower may, by notice to Agent, require that the Loans by the Lenders of the type with respect to which such compensation is requested be converted into Floating Rate Loans in accordance with Section. Any compensation requested by any Lender pursuant to this Section shall be due and payable to such Lender within five days of delivery of any such notice by such Lender to the Borrower. (e) Each Lender agrees that it shall not request, and the Borrower shall not be obligated to pay, any sums payable pursuant to this Section unless (i) the applicable costs or sums shall have been paid or incurred not more than ninety (90) days prior to such request and (ii) similar additional costs and other sums payable are also generally assessed by such Lender against other customers of such Lender similarly situated where such customers are subject to documents providing for such assessment. (f) Amounts becoming due under this Section shall be payable within twenty (20) days after demand therefor by the applicable Lender to the Borrower. 2.15 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, no more than three separate Loans shall be outstanding at any one time, with, for purposes of this Section, all Floating Rate Loans constituting one Loan, and all LIBO Rate Loans for the same Interest Period constituting one Loan. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBO Rate Loan for any Interest Period therefor: (a) the Agent determines (which determination shall be conclusive) that quotations of interest rates for the deposits referred to in the definition of "LIBO Rate" in Section 1.2 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Loan as provided in this Agreement; or (b) the Agent determines (which determination shall be conclusive) that the rates of interest referred to in the definition of "LIBO Rate" in Section 1.2 upon the basis of which the rate of interest for such Loan for such Interest Period is to be determined do not accurately reflect the cost to the Lenders of making or maintaining such Loan for such Interest Period, then the Agent shall give the Borrower prompt notice thereof. So long as such condition remains in effect, the Lenders shall be under no obligation to make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans; and the Borrower shall, on the last day of the then current Interest Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert such Loan into another type of Loan in accordance with Section 2.9. Before giving such notice pursuant to this Section, the Lenders will designate a different available applicable lending office for LIBO Rate Loans or take such other action as the Borrower may request if such designation or action will avoid the need to suspend the obligation of the Lenders 23 to make LIBO Rate Loans hereunder and will not, in the opinion of the Lenders, be disadvantageous to the Lenders. 2.16 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or any Lender's applicable lending office to (a) honor its obligation to make LIBO Rate Loans hereunder or (b) maintain LIBO Rate Loans hereunder, then the Agent shall promptly notify the Borrower thereof; and the obligation of the Lenders hereunder to make LIBO Rate Loans and to convert Floating Rate Loans into LIBO Rate Loans shall be suspended until such time as each Lender may again make and maintain LIBO Rate Loans, and the outstanding LIBO Rate Loans shall be converted into Floating Rate Loans in accordance with Section 2.9. Before giving such notice pursuant to this Section, the Lenders will designate a different available Applicable Lending Office for LIBO Rate Loans or take such other action as the Borrower may request if such designation or action will avoid the need to suspend the obligation of the Lenders to make LIBO Rate Loans and will not, in the opinion of the Lenders, be disadvantageous to the Lenders. 2.17 Limitations on Interest Periods. Each Interest Period selected by the Borrower (a) which commences on the last Business Day of a calendar month (or, with respect to any LIBO Rate Loan, any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month, (b) which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day), (c) which would otherwise commence before and end after the Commitment Termination Date shall end on the Commitment Termination Date, and (d) shall have a duration of not less than one month, as to any LIBO Rate Loan, and, if any Interest Period would otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan during such period. 2.18 Power of Attorney. The Borrower hereby designates the Agent as its agent and attorney-in-fact, to act in its name, place, and stead for the purpose of completing and delivering any and all of the letters in lieu of transfer orders delivered by the Borrower to the Lender pursuant to Section 3.1 or Section 5.5, including, without limitation, completing any blanks contained in such letters and attaching exhibits thereto describing the relevant Collateral. The Borrower hereby ratifies and confirms all that the Agent shall lawfully do or cause to be done by virtue of this power of attorney and the rights granted with respect to such power of attorney. This power of attorney is coupled with the interests of the Agent in the Collateral, shall commence and be in full force and effect as of the Closing Date and shall remain in full force and effect and shall be irrevocable so long as any Obligation remains outstanding or unpaid or any Commitment exists. The powers conferred on the Agent by this appointment are solely to protect the interests of the Agent and the Lenders under the Loan Documents and shall not impose any duty upon the Agent to exercise any such powers. The Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and shall not be responsible to the Borrower or any other Person for any act or failure to act with respect to such powers, except for gross negligence or willful misconduct. 24 2.19 Facility Fee. The Borrower hereby agrees to pay to Compass Bank, concurrently with the execution and delivery of this Agreement, a facility fee in the amount of $10,000. The Borrower hereby further agrees to pay to each Lender as of the date hereof other than Compass Bank, concurrently with the execution and delivery of this Agreement, a facility fee in an amount equal to 3/8% times the pro rata share of each Lender in the Maximum Borrowing Base Amount (and, to the extent additional Lenders are added after the date hereof by reason of an assignment from Compass Bank with the prior written consent of the Borrower, Borrower agrees that it shall pay to such Lenders, concurrently with the effective date of such assignments, facility fees in an amount equal to 3/8% times the pro rata shares of such Lenders in the Maximum Borrowing Base Amount). ARTICLE III CONDITIONS The obligations of the Lenders to enter into this Agreement and to make Loans (and the obligations of Compass Bank to Issue any Letter of Credit) are subject to the satisfaction of the following conditions precedent: 3.1 Receipt of Loan Documents and Other Items. The Lenders shall have no obligation under this Agreement unless and until all matters incident to the consummation of the transactions contemplated herein shall be satisfactory to the Lenders, and the Lenders shall have received, reviewed, and approved the following documents and other items, appropriately executed when necessary and, where applicable, acknowledged by one or more authorized officers of the applicable Person or Persons, all in form and substance satisfactory to the Lenders and dated, where applicable, of even date herewith or a date prior thereto and acceptable to the Lenders: (a) multiple counterparts of this Agreement, as requested by the Lenders; (b) the Notes; (c) the Guaranties; (d) copies of the organizational documents and all amendments thereto of the Borrower and each Guarantor, accompanied by a certificate issued by the secretary or an assistant secretary of the Borrower or such Guarantor, as the case may be, to the effect that each such copy is correct and complete; (e) certificates of incumbency and signatures of all officers of the Borrower and each Guarantor who are authorized to execute Loan Documents on behalf of such entities, each such certificate being executed by the secretary or an assistant secretary of the Borrower or such Guarantor, as the case may be; 25 (f) copies of resolutions approving the Loan Documents and authorizing the transactions contemplated herein and therein, duly adopted by the boards of directors of the Borrower and each Guarantor, accompanied by certificates of the secretary or an assistant secretary of the Borrower or such Guarantor, as the case may be, to the effect that such copies are true and correct copies of resolutions duly adopted at a meeting or by unanimous consent of the board of directors of the Borrower or such Guarantor, as the case may be, and that such resolutions constitute all the resolutions adopted with respect to such transactions, have not been amended, modified, or revoked in any respect, and are in full force and effect as of the date of such certificate; (g) multiple counterparts, as requested by the Lenders, of the following documents establishing Liens in favor of the Agent in and to the Collateral securing the Obligations: (i) Mortgage, Deed of Trust, Indenture, Security Agreement, Assignment of Production, and Financing Statement from the Borrower covering all Oil and Gas Properties of the Borrower and all improvements, personal property, and fixtures related thereto, and Financing Statements constituent thereto; (ii) Mortgage, Deed of Trust, Indenture, Security Agreement, Assignment of Production, and Financing Statement from Lafitte covering all Oil and Gas Properties of Lafitte and all improvements, personal property, and fixtures related thereto, and Financing Statements constituent thereto; (iii) Security Agreements from the Borrower and the Guarantors covering the Borrower Membership Interests, the Lafitte Membership Interests and all other personal Property of the Borrower and the Guarantors, and Financing Statements constituent thereto; and (iv) undated letters, in form and substance satisfactory to the Agent, from the Borrower and Lafitte to each purchaser of production and disburser of the proceeds of production from or attributable to the Mortgaged Properties, together with additional letters with the addressees left blank, authorizing and directing the addressees to make future payments attributable to production from the Mortgaged Properties directly to the Agent (with the use of such letters of lieu to be subject to the restrictions set forth in Section 5.8 hereof); (h) certificates evidencing the Lafitte Membership Interests and the Borrower Membership Interests, with stock powers or transfer instruments, as the case may be, endorsed in blank, and Federal Reserve Forms U-1 properly completed and executed; 26 (i) certificates dated as of a recent date from the Secretary of State or other appropriate Governmental Authority evidencing the existence or qualification and good standing of each of the Borrower and the Guarantors in their jurisdictions of organization and in any other jurisdictions where they do business; (j) results of searches of the UCC Records of (i) the Secretary of State of the States of Louisiana and Texas, in the name of the Borrower, (ii) of the Secretary of State of the States of Louisiana and Texas in the name of Goodrich and (iii) of the Secretary of State of the States of Louisiana and Texas in the name of Lafitte, each from a source acceptable to the Agent and reflecting no Liens other than Permitted Liens and no Liens against any Collateral; (k) confirmation, acceptable to the Lenders, of the title to the Mortgaged Properties, free and clear of Liens other than Permitted Liens; (l) all operating, lease, sublease, royalty, sales, exchange, processing, farmout, bidding, pooling, unitization, communitization, and other agreements relating to the Mortgaged Properties requested by the Lenders; (m) engineering reports covering the Mortgaged Properties; (n) the opinion of counsel to the Borrower and the Guarantors acceptable to the Lenders, in form and substance acceptable to the Lenders; (o) certificates evidencing the insurance coverage required pursuant to Section 5.17 ; (p) receipt by the Agent and the Lenders of all fees then required to be paid pursuant to this Agreement or any of the other Loan Documents; and (q) such other agreements, documents, instruments, opinions, certificates, waivers, consents, and evidence as the Lenders may reasonably request. 3.2 The Acquisition Portion. In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make any Loan which includes any of the Acquisition Portion unless the Lenders shall be satisfied that the purchase price of the applicable acquisition is less than or equal to 85% of the present net worth (discounted at 9%) of the reserves to be acquired as determined by Lenders based on the Compass Bank Policy Price Guidelines and that at least 85% of the reserves to be acquired are classified as proved developed producing. 3.3 Each Loan. In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be obligated to make any Loan (and Compass Bank shall not be obligated to issue any Letter of Credit) unless: 27 (a) the Borrower shall have delivered to the Agent a Borrowing Request at least the requisite time prior to the requested date for the relevant Loan or Letter of Credit; each statement or certification made in such Borrowing Request shall be true and correct in all material respects on the requested date for such Loan or Letter of Credit; (b) no Event of Default or Default shall exist or will occur as a result of the making of the requested Loan or Letter of Credit; (c) if requested by the Lenders, the Borrower shall have delivered evidence satisfactory to the Lenders substantiating any of the matters contained in this Agreement which are necessary to enable the Borrower to qualify for such Loan or Letter of Credit; (d) the Lenders shall have received, reviewed, and approved such additional documents and items as described in Section 3.1 as may be requested by the Lenders with respect to such Loan or Letter of Credit; (e) no event shall have occurred which, in the reasonable opinion of the Lenders, could have a Material Adverse Effect; (f) each of the representations and warranties contained in this Agreement shall be true and correct and shall be deemed to be repeated by the Borrower as if made on the requested date for such Loan or Letter of Credit; (g) the Guaranties and all of the Security Instruments shall be in full force and effect and provide to the Agent the security intended thereby; (h) neither the consummation of the transactions contemplated hereby nor the making of such Loan or Letter of Credit shall contravene, violate, or conflict with any Requirement of Law; (i) each of the Borrower and the Guarantors shall hold full legal title to the Collateral pledged by such entity and be the sole beneficial owner thereof; (j) the Borrower shall have paid all fees and expenses payable by the Borrower hereunder for which invoices have been presented as of or prior to the date of the relevant Loan or Letter of Credit, including, without limitation, estimated fees charged by filing officers and other public officials incurred or to be incurred in connection with the filing and recordation of any Security Instruments, for which invoices have been presented as of or prior to the date of the requested Loan or Letter of Credit; and (k) all matters incident to the consummation of the transactions hereby contemplated shall be satisfactory to the Lenders. 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and extend credit to the Borrower, each of the Borrower and the Guarantors represents and warrants to the Lenders (which representations and warranties shall survive the delivery of the Notes) that: 4.1 Due Authorization. The execution and delivery by the Borrower of this Agreement and the borrowings hereunder, the execution and delivery by the Borrower of the Notes, the repayment of the Notes and interest and fees provided for in the Notes and this Agreement, the execution and delivery of the Security Instruments by the Borrower and the performance of all obligations of the Borrower under the Loan Documents are within the power of the Borrower, have been duly authorized by all necessary corporate action by the Borrower, and do not and will not (a) require the consent of any Governmental Authority, (b) contravene or conflict with any Requirement of Law or the certificate or articles of incorporation and bylaws or other organizational or governing documents of the Borrower, (c) contravene or conflict with any indenture, instrument, or other agreement to which the Borrower is a party or by which any Property of the Borrower may be presently bound or encumbered, or (d) result in or require the creation or imposition of any Lien in or upon any Property of the Borrower other than as contemplated by the Loan Documents. 4.2 Corporate Existence. Each Related Party is duly organized, legally existing, and in good standing under the laws of its state of organization and is duly qualified as a foreign entity and is in good standing in all jurisdictions wherein the ownership of Property or the operation of its business necessitates same, other than those jurisdictions wherein the failure to so qualify will not have a Material Adverse Effect. 4.3 Valid and Binding Obligations. All Loan Documents to which the Borrower is a party, when duly executed and delivered by the Borrower, will be the legal, valid, and binding obligations of such entity, enforceable against the Borrower in accordance with their respective terms, subject, however, to the effect of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.4 Security Instruments. The provisions of each Security Instrument are effective to create in favor of the Agent a legal, valid, and enforceable Lien in the Collateral described therein, which Liens, assuming the possession by the Agent of the certificates evidencing the Lafitte Membership Interests and the Borrower Membership Interests, and the accomplishment of recording and filing in accordance with applicable laws prior to the intervention of rights of other Persons, shall constitute fully perfected first-priority Liens. 4.5 Title to Assets. Each Related Party has good and indefeasible title to all of its Properties, free and clear of all Liens except Permitted Liens. 29 4.6 Scope and Accuracy of Financial Statements. The Financial Statements of Goodrich as of December 31, 1999 and as of September 30, 2000 provided to the Lenders present fairly the financial position and results of operations and cash flows of Goodrich and its Subsidiaries in accordance with GAAP as at the relevant point in time or for the period indicated, as applicable. No event or circumstance has occurred since September 30, 2000, which could reasonably be expected to have a Material Adverse Effect. 4.7 No Material Misstatements. No information, exhibit, statement, or report furnished to the Lenders by or at the direction of any Related Party in connection with this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading as of the date made or deemed made. 4.8 Liabilities, Litigation, and Restrictions. Other than as listed under the heading "Liabilities" on Exhibit III, no Related Party has any liabilities, direct, or contingent, which may materially and adversely affect its business or operations or its ownership of any Collateral. Except as set forth under the heading "Litigation" on Exhibit III, no litigation or other action of any nature affecting any Related Party is pending before any Governmental Authority or, to the best knowledge of the Borrower, threatened against or affecting any Related Party. No unusual or unduly burdensome restriction, restraint or hazard exists by contract, Requirement of Law, or otherwise relative to the business or operations of any Related Party or the ownership and operation of its Property other than such as relate generally to Persons engaged in business activities similar to those conducted by such Related Party. 4.9 Authorizations; Consents. Except as expressly contemplated by this Agreement, no authorization, consent, approval, exemption, franchise, permit, or license of, or filing with, any Governmental Authority or any other Person is required to authorize or is otherwise required in connection with the valid execution and delivery by the Borrower or any Guarantor of the Loan Documents to which it is a party or any instrument contemplated hereby, the repayment by the Borrower of the Notes and interest and fees provided in the Notes and this Agreement, or the performance by the Borrower or any Guarantor of its Obligations. 4.10 Compliance with Laws. Each Related Party and its Properties are in compliance with all applicable Requirements of Law, including, without limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA. 4.11 ERISA. No Reportable Event has occurred with respect to any Single Employer Plan, and each Single Employer Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. To the best knowledge of the Borrower, (a) no Reportable Event has occurred with respect to any Multiemployer Plan, and (b) each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Single Employer Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan for 30 which there is any withdrawal liability. As of the most recent valuation date applicable to any Multiemployer Plan, neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or such Commonly Controlled Entity were to withdraw completely from such Multiemployer Plan. Neither the Borrower nor any Commonly Controlled Entity has received notice that any Multiemployer Plan is Insolvent or in Reorganization. To the best knowledge of the Borrower, no such Insolvency or Reorganization is reasonably likely to occur. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower and all Commonly Controlled Entities for post-retirement benefits to be provided to the current and former employees of the Borrower and all Commonly Controlled Entities under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) will, in the aggregate, have a Material Adverse Effect. 4.12 Environmental Laws. Except as described on Exhibit III under the heading "Environmental Matters:" (a) no Property of any Related Party is currently on or has ever been on, or is adjacent to any Property which is on or has ever been on, any federal or state list of Superfund Sites; (b) no Hazardous Substances have been generated, transported, and/or disposed of by any Related Party at a site which was, at the time of such generation, transportation, and/or disposal, or has since become, a Superfund Site; (c) no Release of Hazardous Substances by any Related Party or from, affecting, or related to any Property of any Related Party or adjacent to any Property of any Related Party has occurred; and (d) no Environmental Complaint has been received by any Related Party. 4.13 Compliance with Federal Reserve Regulations. No transaction contemplated by the Loan Documents is in violation of any regulations promulgated by the Board of Governors of the Federal Reserve System, including, without limitation, Regulations T, U, or X. 4.14 Investment Company Act Compliance. No Related Party is or is directly or indirectly controlled by or acting on behalf of any Person which is an "investment company" or an "affiliated person" of an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.15 Public Utility Holding Company Act Compliance. No Related Party is a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.16 Proper Filing of Tax Returns; Payment of Taxes Due. Each Related Party has duly and properly filed its United States income tax return and all other tax returns which are required to be filed and has paid all taxes due except such as are being contested in good faith 31 and as to which adequate provisions and disclosures have been made. The respective charges and reserves on the books of each Related Party with respect to taxes and other governmental charges are adequate. 4.17 Refunds. Except as described on Exhibit III under the heading "Refunds," no orders of, proceedings pending before, or other requirements of, the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any Governmental Authority exist which could result in any Related Party being required to refund any material portion of the proceeds received or to be received from the sale of hydrocarbons from any of its Properties. 4.18 Gas Contracts. Except as described on Exhibit III under the heading "Gas Contracts," no Related Party (a) is obligated in any material respect by virtue of any prepayment made under any contract containing a "take-or-pay" or "prepayment" provision or under any similar agreement to deliver hydrocarbons produced from or allocated to any of its Properties at some future date without receiving full payment therefor within 90 days of delivery, or (b) is subject to or has produced gas, in any material amount, subject to, or owns Properties subject to, balancing rights of third parties or balancing duties under governmental requirements, except as to such matters for which such Related Party has established monetary reserves adequate in amount to satisfy such obligations and has segregated such reserves from other accounts. 4.19 Intellectual Property. Each Related Party owns or is licensed to use all Intellectual Property necessary to conduct all business material to its condition (financial or otherwise), business, or operations as such business is currently conducted. No claim has been asserted or is pending by any Person with the respect to the use of any such Intellectual Property or challenging or questioning the validity or effectiveness of any such Intellectual Property; and neither the Borrower nor any Guarantor knows of any valid basis for any such claim. The use of such Intellectual Property by the relevant Related Party does not infringe on the rights of any Person, except for such claims and infringements as do not, in the aggregate, give rise to any material liability on the part of any Related Party. 4.20 Casualties or Taking of Property. Except as disclosed on Exhibit III under the heading "Casualties," since September 30, 2000, neither the business nor any Property of any Related Party has been materially adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property, or cancellation of contracts, permits, or concessions by any Governmental Authority, riot, activities of armed forces, or acts of God. 4.21 Locations of Borrower and Guarantors. The principal place of business and chief executive office of the Borrower and Guarantors is located at 333 Texas Street, Suite 1375, Shreveport, Louisiana 71101 or at such other location as the Borrower may have, by proper written notice hereunder, advised the Agent, provided that such other location is within a state in which appropriate financing statements from the Borrower or the applicable Guarantor, as the case may be, in favor of the Agent have been filed. 4.22 Subsidiaries. Goodrich has no Subsidiaries except the Borrower and Lafitte, the Borrower has no Subsidiaries except Lafitte and Lafitte has no Subsidiaries. 32 4.23 Scope of Collateral. The Collateral constitutes all of the real and personal Property owned by the Borrower and the Guarantors. ARTICLE V AFFIRMATIVE COVENANTS So long as any Obligation remains outstanding or unpaid or any Commitment exists, the Borrower shall and shall cause each of its Subsidiaries to, and Goodrich and Lafitte shall and shall cause each of their respective Subsidiaries, to: 5.1 Maintenance and Access to Records. Keep adequate records, in accordance with GAAP, of all its transactions so that at any time, and from time to time, its true and complete financial condition may be readily determined, and promptly following the reasonable request of the Agent, make such records available for inspection by the Agent or any Lender and, at the expense of the Borrower, allow the Agent or any Lender to make and take away copies thereof. 5.2 Quarterly Financial Statements; Compliance Certificates. Deliver to each Lender, on or before the 45th day after the close of each quarterly period of each fiscal year of Goodrich, (a) a copy of the unaudited consolidated and consolidating Financial Statements of Goodrich as at the close of such quarterly period and from the beginning of such fiscal year to the end of such period, such Financial Statements to be certified by the chief financial officer of Goodrich as having been prepared in accordance with GAAP consistently applied and as a fair presentation of the condition of Goodrich and its Subsidiaries, subject to changes resulting from normal year-end audit adjustments, and (b) a Compliance Certificate. 5.3 Annual Financial Statements; Compliance Certificates. Deliver to each Lender, on or before the 120th day after the close of each fiscal year of Goodrich, (a) a copy of the annual audited consolidated Financial Statements of Goodrich, together with the audit report issued in connection therewith, (b) a copy of the annual unaudited consolidating Financial Statements of Goodrich, and (c) a Compliance Certificate. 5.4 Oil and Gas Reserve Reports. (a) Deliver to each Lender, no later than the last day of March of each year during the term of this Agreement, engineering reports in form and substance satisfactory to the Majority Lenders, certified by any nationally- or regionally-recognized independent consulting petroleum engineers acceptable to the Majority Lenders as fairly and accurately setting forth (i) the proven and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves (separately classified as such) attributable to the Oil and Gas Properties of each of the Related Parties (designated by entity) as of January 1 of the year for which such reserve reports are furnished, (ii) the aggregate present value of the future net income with respect to such Oil and Gas Properties, discounted at a stated per annum discount rate of such reserves, (iii) projections of the annual rate of production, 33 gross income, and net income with respect to such reserves, and (iv) information with respect to the "take-or-pay," "prepayment," and gas- balancing liabilities of the Related Parties (designated by entity). (b) Deliver to each Lender, no later than the last day of September of each year during the term of this Agreement, engineering reports in form and substance satisfactory to the Majority Lenders prepared by or under the supervision of the chief petroleum engineer or geologist of the Related Parties evaluating the Oil and Gas Properties of the Related Parties (designated by entity) as of July 1 of the year for which such reserve reports are furnished and updating the information provided in the reports pursuant to Section 5.4(a). (c) Deliver to each Lender, on or before the 45th day after the close of each month, a report of monthly production of its Oil and Gas Properties, setting forth production volumes for oil, gas, other hydrocarbons and water, broken out by major fields or by major wells, in each case to the satisfaction of the Majority Lenders. (d) Each of the reports provided pursuant to clauses (a) and (b) of this Section shall be submitted to the Lenders in ARIES or other compatible electronic format. Each of the reports provided pursuant to this Section shall be accompanied by additional data concerning pricing, quantities of production from the Oil and Gas Properties, volumes of production sold, purchasers of production, gross revenues, expenses, and such other information and engineering and geological data with respect thereto as the Majority Lenders may reasonably request. 5.5 Hedging Position. Deliver to each Lender, on or before the 45th day after the close of each month, a report of the position of the Borrower and the Guarantors in respect of Hedging Agreements and of all Indebtedness with respect to Hedging Agreements. 5.6 Title Opinions; Title Defects. Promptly upon the request of the Agent, furnish to the Agent title opinions, in form and substance and by counsel satisfactory to the Agent, or other confirmation of title acceptable to the Agent, covering such Oil and Gas Properties of the Borrower as may be requested by the Agent; and promptly, but in any event within 30 days after notice by the Agent of any defect, material in the opinion of the Agent in value, in the title of the Borrower to any of its Oil and Gas Properties, clear such title defects, and, in the event any such title defects are not cured in a timely manner, pay all related costs and fees incurred by the Agent or any Lender to do so. 5.7 Notices of Certain Events. Deliver to each Lender, immediately upon having knowledge of the occurrence of any of the following events or circumstances, a written statement with respect thereto, signed by a Responsible Officer of the Borrower and setting forth the relevant event or circumstance and the steps being taken with respect to such event or circumstance: 34 (a) any Default or Event of Default; (b) any default or event of default under any contractual obligation of any Related Party, or any litigation, investigation, or proceeding between any Related Party and any Governmental Authority which, in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding involving any Related Party as a defendant or in which any Property of any Related Party is subject to a claim and in which the amount involved is $500,000 or more and which is not covered by insurance or in which injunctive or similar relief is sought; (d) the receipt by any Related Party of any Environmental Complaint; (e) any actual, proposed, or threatened testing or other investigation by any Governmental Authority or other Person concerning the environmental condition of, or relating to, any Property of any Related Party, or adjacent to any Property of any Related Party following any allegation of a violation of any Requirement of Law; (f) any Release of Hazardous Substances by any Related Party or from, affecting, or related to any Property of any Related Party, or adjacent to any Property of any Related Party, or the violation of any Environmental Law, or the revocation, suspension, or forfeiture of or failure to renew, any permit, license, registration, approval, or authorization which could reasonably be expected to have a Material Adverse Effect; (g) any Reportable Event or imminently expected Reportable Event with respect to any Plan; any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan; the institution of proceedings or the taking of any other action by the PBGC, the Borrower or any Commonly Controlled Entity or Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Single Employer Plan or Multiemployer Plan; or any Prohibited Transaction in connection with any Plan or any trust created thereunder and the action being taken by the Internal Revenue Service with respect thereto; (h) the change in identity or address of any Person remitting to the Borrower proceeds from the sale of hydrocarbon production from or attributable to any Mortgaged Property; (i) any change in the senior management of the Borrower or any Guarantor; 35 (j) the Borrower's or any Guarantor's acquisition or ownership of any estate (fee simple or leasehold) of real or personal Property, wherever located, which is not included in the Collateral; and (k) any other event or condition which could reasonably be expected to have a Material Adverse Effect. 5.8 Letters in Lieu of Transfer Orders; Division Orders. Promptly upon request by the Agent at any time and from time to time, and without limitation on the rights of the Agent pursuant to Section 2.18, execute (or cause to be executed) such letters in lieu of transfer orders, in addition to the letters signed by the Borrower and Lafitte and delivered to the Agent in satisfaction of the condition set forth in Section 3.1(h) and/or division and/or transfer orders as are necessary or appropriate to transfer and deliver to the Agent proceeds from or attributable to any Mortgaged Property. The Agent agrees that none of the letters in lieu of transfer or division orders provided by the Borrower pursuant to this Agreement will be sent to the addressees thereof and the Agent shall not otherwise direct any purchaser of production from the Mortgaged Property to make payments with respect thereto to the Agent prior to the occurrence and except during the occurrence of an Event of Default, at which time the Agent may, at its option and in addition to the exercise of any of its other rights and remedies, send any or all of such letters and direct purchasers of production from the Mortgaged Property to make payments with respect thereto to the Agent. 5.9 Additional Information. Furnish to each Lender, within five days after any material report (other than financial statements) or other communication is sent by any Related Party to its stockholders or filed by any Related Party with the Securities and Exchange Commission or any successor or analogous Governmental Authority, copies of such report or communication and, promptly upon the request of the Agent, such additional financial or other information concerning the assets, liabilities, operations, and transactions of any Related Party as the Agent may from time to time request; and notify the Agent not less than ten Business Days prior to the occurrence of any condition or event that may change the proper location for the filing of any financing statement or other public notice or recording for the purpose of perfecting a Lien in any Collateral, including, without limitation, any change in name or the location of the principal place of business or chief executive office of any Related Party; and upon the request of the Agent, execute such additional Security Instruments as may be necessary or appropriate in connection therewith. 5.10 Compliance with Laws. Comply with all applicable Requirements of Law, including, without limitation, (a) the Natural Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d) all permits, licenses, registrations, approvals, and authorizations (i) related to any natural or environmental resource or media located on, above, within, in the vicinity of, related to or affected by any Property of any Related Party, (ii) required for the performance of the operations of any Related Party, or (iii) applicable to the use, generation, handling, storage, treatment, transport, or disposal of any Hazardous Substances; and cause all employees, crew members, agents, contractors, subcontractors, and future lessees (pursuant to appropriate lease provisions) of each Related Party, while such Persons are acting within the 36 scope of their relationship with such Related Party, to comply with all such Requirements of Law as may be necessary or appropriate to enable such Related Party to so comply. 5.11 Payment of Assessments and Charges. Pay all taxes, assessments, governmental charges, rent, and other Indebtedness which, if unpaid, might become a Lien against its Property, except any of the foregoing being contested in good faith and as to which adequate reserve in accordance with GAAP has been established or unless failure to pay would not have a Material Adverse Effect. 5.12 Maintenance of Corporate Existence and Good Standing. Maintain its corporate existence or qualification and good standing in its jurisdictions of incorporation and in all jurisdictions wherein the Property now owned or hereafter acquired or business now or hereafter conducted necessitates same. 5.13 Further Assurances. Promptly cure any defects in the execution and delivery of any of the Loan Documents and all agreements contemplated thereby, and execute, acknowledge, and deliver such other assurances and instruments as shall, in the opinion of the Lenders, be necessary to fulfill the terms of the Loan Documents. 5.14 Fees and Expenses. (a) Upon request by the Agent, promptly pay all reasonable fees and expenses of the Agent in connection with the preparation, negotiation, syndication, execution, delivery, administration, and enforcement of this Agreement and the other Loan Documents and any amendments, restatements, or supplements thereto, the satisfaction of the conditions precedent set forth herein, the filing and recordation of Security Instruments, and the consummation of the transactions contemplated in the Loan Documents, including, without limitation, fees and expenses of legal counsel. (b) Upon request by the Agent, promptly pay (to the fullest extent permitted by law) for all amounts reasonably expended, advanced, or incurred by or on behalf of the Agent or any Lender to satisfy any obligation of the Borrower or any Guarantor under any of the Loan Documents; to collect the Obligations; to enforce the rights of the Agent or any Lender under any of the Loan Documents; and to protect the Properties or business of the Borrower and the Guarantors, including, without limitation, the Collateral, which amounts shall be deemed compensatory in nature and liquidated as to amount upon notice to the Borrower by the Agent and which amounts shall include, but not be limited to (i) all court costs, (ii) reasonable fees and expenses of legal counsel, auditors and accountants, engineers, and environmental and insurance consultants, (iii) fees and expenses incurred in connection with the participation by the Agent or the applicable Lender as a member of the creditors' committee in a case commenced under any Insolvency Proceeding, (iv) fees and expenses incurred in connection with lifting the automatic stay prescribed in (S)362 Title 11 of the United States Code, and (v) fees and expenses incurred in connection with any action pursuant to (S)1129 Title 37 11 of the United States Code, all reasonably incurred by the Agent or the applicable Lender in connection with the collection of any sums due under the Loan Documents, together with interest at the per annum interest rate equal to the Default Rate, calculated on a basis of a calendar year of 360 days, counting the actual number of days elapsed, on each such amount from the date of notification that the same was expended, advanced, or incurred by the Agent or the applicable Lender until the date it is repaid, with the obligations under this Section surviving the non-assumption of this Agreement in a case commenced under any Insolvency Proceeding and being binding upon the Borrower and/or a trustee, receiver, custodian, or liquidator of the Borrower appointed in any such case. 5.15 Operation of Oil and Gas Properties. Develop, maintain, and operate its Oil and Gas Properties in a prudent and workmanlike manner in accordance with industry standards. All contract operators shall be paid monthly and all royalties shall either be paid monthly or set aside in a separate account for future funding in a manner acceptable to the Agent. 5.16 Maintenance and Inspection of Properties. Maintain all of its tangible Properties in good repair and condition, ordinary wear and tear excepted; make all necessary replacements thereof and operate such Properties in a good and workmanlike manner; and permit any authorized representative of the Agent or any Lender to visit and inspect, any tangible Property of any Related Party. So long as no Event of Default shall have occurred and be continuing, the Borrower shall not be required to reimburse any costs or expenses of such visits and inspections. If an Event of Default has occurred and is continuing, such visits and inspections shall be at the expense of the Borrower. 5.17 Maintenance of Insurance. Maintain insurance with respect to its Properties and businesses against such liabilities, casualties, risks, and contingencies as is customary in the relevant industry and sufficient to prevent a Material Adverse Effect, all such insurance to be in amounts and from insurers acceptable to the Lenders and naming the Agent as loss payee, and, upon any renewal of any such insurance and at other times upon request by the Agent, furnish to the Agent evidence, satisfactory to the Lenders, of the maintenance of such insurance. The Agent shall have the right to collect, and the Borrower hereby assigns to the Agent, any and all monies that may become payable under any policies of insurance relating to business interruption or by reason of damage, loss, or destruction of any of the Collateral. In the event of any damage, loss, or destruction for which insurance proceeds relating to business interruption or Collateral exceed $2,000,000, the Agent may, at its option (and shall, upon written request by the Majority Lenders), apply all such sums or any part thereof received by it toward the payment of the Obligations, whether matured or unmatured, application to be made first to interest and then to principal, and shall deliver to the Borrower the balance, if any, after such application has been made. In the event of any such damage, loss, or destruction for which insurance proceeds are $2,000,000 or less or insurance proceeds which are not attributable to Collateral or business interruption, provided that no Default or Event of Default has occurred and is continuing, the Agent shall deliver any such proceeds received by it to the Borrower. 5.18 Maintenance of Operating Accounts. Maintain its primary operating banking accounts with the Agent. 38 5.19 Indemnification. INDEMNIFY AND HOLD THE AGENT, THE LENDERS AND THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF ANY RELATED PARTY, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF ANY RELATED PARTY, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY ANY RELATED PARTY, OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF ANY RELATED PARTY OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF ANY RELATED PARTY, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY ANY RELATED PARTY, OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF ANY RELATED PARTY WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH ANY RELATED PARTY, IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY LOAN DOCUMENT, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE OR CONCURRENT, ON THE PART OF THE AGENT OR ANY LENDER OR ANY OF THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER ANY SECURITY INSTRUMENT, BUT EXCLUDING ANY OCCURRENCE RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSONS; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT. ARTICLE VI NEGATIVE COVENANTS So long as any Obligation remains outstanding or unpaid or any Commitment exists, the Borrower will not, and will not permit any of its Subsidiaries to, and Goodrich and Lafitte will not, and will not permit any of their respective Subsidiaries to: 39 6.1 Indebtedness; Contingent Obligations. Create, incur, assume, or suffer to exist any Indebtedness or Contingent Obligation, whether by way of loan or otherwise; provided, however, the foregoing restriction shall not apply to (a) the Obligations, (b) unsecured accounts payable incurred in the ordinary course of business, which are not unpaid in excess of 60 days beyond invoice date or are being contested in good faith and as to which such reserve as is required by GAAP has been made (accounts payable on extended terms shall not be allowed under this exception), (c) performance guarantees, escrow accounts, and performance surety or other bonds provided in the ordinary course of business, (d) Indebtedness with respect to Hedging Agreements entered into with a Person acceptable to the Lenders, provided that such Hedging Agreements relating to hydrocarbons cover not more than 75% of the projected monthly production from proved developed producing Oil and Gas Properties of the Borrower and Lafitte, and provide for strike prices which, at the time any such Hedging Agreement is entered into, are not less than the energy product pricing guidelines of the Agent at such time, (e) performance guaranties, escrow accounts, performance surety or other bonds provided with respect to the plugging and abandonment obligations owed by Lafitte to Stone Energy Corporation with respect to Oil and Gas Properties in which Lafitte owns a working interest, (f) trade credit (including authorizations for expenditures with respect to Oil and Gas Properties) incurred or operating leases entered into in the ordinary course of business; (g) letters of credit issued by Compass Bank for the benefit of Goodrich or any of its subsidiaries solely for the purpose of supporting hedging transactions permitted hereunder in an aggregate face amount not to exceed, at any one time outstanding, $3,000,000. 6.2 Liens. Create, incur, assume, or suffer to exist any Lien on any of its Properties, whether now owned or hereafter acquired; provided, however, the foregoing restrictions shall not apply to Permitted Liens. 6.3 Sales of Assets. Without the prior written consent of the Lenders, sell, transfer, or otherwise dispose of, in one or any series of transactions, any stock of any Subsidiary, any Collateral, or any other assets, whether now owned or hereafter acquired, or enter into any agreement to do so; provided, however, that, so long as no Default or Event of Default shall have occurred which is continuing and no Borrowing Base deficiency shall then exist, the foregoing restriction shall not apply to (a) the sale of hydrocarbons or inventory in the ordinary course of business provided that no contract for the sale of hydrocarbons shall obligate any Related Party to deliver hydrocarbons produced from any Property at some future date without receiving full payment therefor within 90 days of delivery, (b) the sale or other disposition of Property destroyed, lost, worn out, damaged, or having only salvage value or no longer used or useful in its business, (c) the sale or other disposition of other assets (excluding any stock of any Subsidiary) which are not material to the operations of Goodrich and its Subsidiaries, taken as a whole, provided that any mandatory prepayment required as a result thereof is made at the time of such sale or disposition or (d) the sale or other disposition of Mortgaged Properties constituting not more than ten percent (10%) of the net present value of the oil and gas properties which comprise the Borrowing Base, as determined by Agent, in the aggregate during the term of this Agreement, in which event the Borrowing Base shall be adjusted by Agent and any mandatory prepayment required as a result thereof is made at the time of such sale or disposition. 40 6.4 Leasebacks. Enter into any agreement to sell or transfer any Property and thereafter rent or lease as lessee such Property or other Property intended for the same use or purpose as the Property sold or transferred. 6.5 Loans; Advances; Investments. Make or agree to make or allow to remain outstanding any loans or advances to or Investments in, or purchase or otherwise acquire all or substantially all of the assets of any Person, or form any new Subsidiaries; provided, however, the foregoing restrictions shall not apply to (a) advances or extensions of credit in the form of accounts receivable incurred in the ordinary course of business and upon terms common in the industry for such accounts receivable, (b) advances to employees for the payment of expenses in the ordinary course of business, (c) loans, advances, or Investments by the Borrower to any Guarantor, by any Guarantor to the Borrower or by any Guarantor to any other Guarantor, (d) Investments in the form of (i) debt securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, with maturities of no more than one year, (ii) commercial paper of a domestic issuer rated at the date of acquisition at least P-2 by Moody's Investor Service, Inc. or A-2 by Standard & Poor's Ratings Services and with maturities of no more than one year from the date of acquisition, or (iii) repurchase agreements covering debt securities or commercial paper of the type permitted in this Section, certificates of deposit, demand deposits, eurodollar time deposits, overnight bank deposits and bankers' acceptances, with maturities of no more than one year from the date of acquisition, issued by or acquired from or through any Lender or any bank or trust company organized under the laws of the United States or any state thereof and having capital surplus and undivided profits aggregating at least $100,000,000, (e) other short-term Investments similar in nature and degree of risk to those described in clause (d) of this Section, or (f) other Investments not to exceed $1,000,000 in the aggregate. 6.6 Changes in Corporate Structure. Without the prior written consent of the Lenders, which will not be unreasonably withheld, enter into any transaction of consolidation, merger, or amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or dissolution). 6.7 Dividends and Distributions. Declare, pay, or make, whether in cash or other Property, any dividend or distribution on, any share of any class of its capital stock or other equity interests at any time; provided, however, the foregoing restrictions shall not apply to dividends on the preferred stock of Goodrich under the present terms of such preferred stock so long as no Default or Event of Default shall have occurred which is continuing (or would arise by reason of payment of such dividends). 6.8 Transactions with Affiliates. Directly or indirectly, enter into any transaction (including the sale, lease, or exchange of Property or the rendering of service) with any of its Affiliates, other than upon fair and reasonable terms no less favorable than could be obtained in an arm's length transaction with a Person which was not an Affiliate. 6.9 Lines of Business. Expand, on its own or through any Subsidiary, into any line of business other than those in which it is engaged as of the date hereof. 41 6.10 ERISA Compliance. Permit any Plan maintained by it or any Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b) incur any "accumulated funding deficiency," as such term is defined in Section 302 of ERISA, or (c) terminate in a manner which could result in the imposition of a Lien on any Property of any Related Party pursuant to Section 4068 of ERISA; or assume an obligation to contribute to any Multiemployer Plan; or acquire any Person or the assets of any Person which has now or has had at any time an obligation to contribute to any Multiemployer Plan. 6.11 Consolidated Tangible Net Worth. Permit, as of the close of each fiscal quarter ending on or after September 30, 2000, Consolidated Tangible Net Worth to be less than the sum of (i) $22,500,000, plus (ii) for each fiscal quarter after September 30, 2000 with positive Consolidated Net Income, 50% of the Consolidated Net Income of such fiscal quarter, plus (iii) 100% of all cash equity proceeds of each offering transaction, net of expenses incurred in connection therewith, after September 30, 2000. 6.12 EBITDAX to Interest Expense Ratio. Permit, as of the close of each fiscal quarter ending on or after September 30, 2000, the ratio of EBITDAX for such fiscal quarter to Interest Expense for such fiscal quarter to be less than 3.00 to 1.00. 6.13 Current Ratio. Permit, as of the close of each fiscal quarter ending on or after September 30, 2000, the ratio of (a) the sum of current assets of Goodrich (determined on a consolidated basis and in accordance with GAAP) plus the Available Commitment to (b) current liabilities of Goodrich (determined on a consolidated basis and in accordance with GAAP) (other than any such current liabilities representing obligations to pay the Loans or to reimburse Letter of Credit Liabilities) to be less than 1.00 to 1.00. ARTICLE VII EVENTS OF DEFAULT 7.1 Enumeration of Events of Default. Any of the following events shall constitute an Event of Default: (a) default shall be made in the payment when due of any installment of principal or interest under this Agreement or the Notes or in the payment when due of any fee or other sum payable under any Loan Document and, with respect to the payment of interest only, such default shall continue for three days; (b) default shall be made by the Borrower or any Guarantor in the due observance or performance of any of their respective obligations under the Loan Documents, other than as described in Section 7.1(a) above or Section 7.1(c) below, and with respect to default in the observance or performance of obligations under Article V or under Section 6.11 only, such default shall continue for 30 days after the earlier of notice thereof to the Borrower by the Agent or knowledge thereof by the Borrower or any Guarantor; 42 (c) any representation or warranty made by the Borrower or any Guarantor in any of the Loan Documents proves to have been untrue in any material respect or any representation, statement (including Financial Statements), certificate, or data furnished or made to the Agent or any Lender in connection herewith proves to have been untrue in any material respect as of the date the facts therein set forth were stated or certified; (d) default shall be made by any Related Party (as principal or guarantor or other surety) in the payment or performance of any bond, debenture, note, or other Indebtedness exceeding $100,000 or under any credit agreement, loan agreement, indenture, promissory note, or similar agreement or instrument executed in connection with any of the foregoing, and such default shall remain unremedied for in excess of the period of grace, if any, with respect thereto; (e) any Related Party shall (i) apply for or consent to the appointment of a receiver, trustee, or liquidator of it or all or a substantial part of its assets, (ii) file a voluntary petition commencing an Insolvency Proceeding, (iii) make a general assignment for the benefit of creditors, (iv) be unable, or admit in writing its inability, to pay its debts generally as they become due, or (v) file an answer admitting the material allegations of a petition filed against it in any Insolvency Proceeding; (f) an order, judgment, or decree shall be entered against any Related Party by any court of competent jurisdiction or by any other duly authorized authority, on the petition of a creditor or otherwise, granting relief in any Insolvency Proceeding or approving a petition seeking reorganization or an arrangement of its debts or appointing a receiver, trustee, conservator, custodian, or liquidator of it or all or any substantial part of its assets, and such order, judgment, or decree shall not be dismissed or stayed within 30 days; (g) the levy against any significant portion of the Property of any Related Party, or any execution, garnishment, attachment, sequestration, or other writ or similar proceeding which is not permanently dismissed or discharged within 30 days after the levy; (h) a final and non-appealable order, judgment, or decree shall be entered against any Related Party for money damages and/or Indebtedness due in an amount in excess of $1,000,000, and such order, judgment, or decree shall not be dismissed or stayed within 30 days; (i) any Related Party shall have (i) concealed, removed, or diverted, or permitted to be concealed, removed, or diverted, any part of its Property, with intent to hinder, delay, or defraud its creditors or any of them, (ii) made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid, or (iii) shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon any of its Property 43 through legal proceedings or distraint which is not vacated within 30 days from the date thereof; (j) any Guaranty shall for any reason cease to be in full force and effect or the Security Instruments shall for any reason not, or cease to, create valid and perfected first-priority Liens against all of the real and personal Property of the Borrower and the Guarantors (including the Borrower Membership Interests and the Lafitte Membership Interests); (k) any payment of royalties on Oil and Gas Properties of any Related Party shall not be made when due or any account payable of any Related Party (except as the Lenders may expressly agree in writing) shall not be paid within sixty (60) days of invoice date; or (l) any Change of Control shall occur; or (m) any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan; any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan for which an excise tax is due or would be due in the absence of a waiver; a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA; any Single Employer Plan shall terminate for purposes of Title IV of ERISA; the Borrower or any Commonly Controlled Entity shall incur, or in the reasonable opinion of the Lenders, be likely to incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan; or any other event or condition shall occur or exist with respect to a Plan and the result of such events or conditions referred to in this Section 7.1(n) could subject the Borrower or any Commonly Controlled Entity to any tax (other than an excise tax under Section 4980 of the Code), penalty or other liabilities which taken in the aggregate would have a Material Adverse Effect and any such circumstance shall exist for in excess of 30 days. 7.2 Remedies. (a) Upon the occurrence of an Event of Default specified in Section 7.1(g) or Section 7.1(h), immediately and without notice, (i) all Obligations shall automatically become immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by the Borrower; (ii) the Commitment shall 44 immediately cease and terminate unless and until reinstated by the Agent in writing; and (iii) the Agent is hereby authorized to at any time and from time to time (and shall, upon written instructions from the Majority Lenders), without notice to the Borrower (any such notice being expressly waived by the Borrower), set-off and apply any and all deposits (general or special, time or demand, provisional or final) held by the Agent or any Lender and any and all other indebtedness at any time owing by the Agent or any Lender to or for the credit or account of the Borrower against any and all of the Obligations. (b) Upon the occurrence of any Event of Default other than those specified in Section 7.1(g) or Section 7.1(h), (i) the Agent may (and shall, upon written instructions from the Majority Lenders), by notice to the Borrower, declare all Obligations immediately due and payable, without presentment, demand, protest, notice of protest, default, or dishonor, notice of intent to accelerate maturity, notice of acceleration of maturity, or other notice of any kind, except as may be provided to the contrary elsewhere herein, all of which are hereby expressly waived by the Borrower; (ii) the Commitment shall immediately cease and terminate unless and until reinstated by the Agent in writing; (iii) the Agent may (and shall, upon written instructions from the Majority Lenders) require Borrower to pay to Agent, in immediately available funds, an amount equal to the then aggregate amount available for drawings under all Letters of Credit (which funds shall be held by Agent as Cover) and (iv) the Agent is hereby authorized to at any time and from time to time (and shall, upon written instructions from the Majority Lenders), without notice to the Borrower (any such notice being expressly waived by the Borrower), set-off and apply any and all deposits (general or special, time or demand, provisional or final) held by the Agent or any Lender and any and all other indebtedness at any time owing by the Agent or any Lender to or for the credit or account of the Borrower against any and all of the Obligations although such Obligations may be unmatured. (c) Upon the occurrence of any Event of Default, the Agent may, in addition to the foregoing in this Section, exercise any or all of its rights and remedies provided by law or pursuant to the Loan Documents. ARTICLE VIII The Agent 8.1 Appointment of Agent. Each Lender hereby irrevocably appoints and authorizes Agent to act on such Lender's behalf and to exercise such powers under the Loan Documents as are specifically delegated to or required of Agent by the terms thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and 45 all holders of the Notes; provided that Agent shall not be required to take any action which it reasonably believes may (1) expose it to personal liability or (2) be contrary to the Credit Documents or applicable Legal Requirements. 8.2 Limitation on Liability of Agent. Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it under or in connection with the Loan Documents (1) with the consent or at the request of the Majority Lenders or (2) in the absence of its or their own gross negligence or willful misconduct (IT BEING THE EXPRESS INTENTION OF LENDERS THAT AGENT AND ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES SHALL HAVE NO LIABILITY FOR ACTIONS AND OMISSIONS UNDER THE CREDIT DOCUMENTS RESULTING FROM ITS OR THEIR ORDINARY OR CONTRIBUTORY NEGLIGENCE). Without limiting the generality of the foregoing, Agent (1) may treat the payee of each Note as the holder thereof until it receives written notice of the assignment or transfer thereof, in form and substance satisfactory to Agent, signed by such payee; (2) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (3) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with the Loan Documents, other than those made by Agent; (4) except as otherwise expressly provided herein, shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Loan Documents or to inspect the Property (including the books and records) of Borrower; (5) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents, and (6) shall incur no liability under or with respect to the Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier, cable or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties. 8.3 Agent also a Lender. With respect to its Loans and Notes and its pro rata share of the Commitment, Compass Bank shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not Agent. The term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Compass Bank in its individual capacity. Compass Bank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower and any Person who may do business with or own securities of Borrower, all as if it was not the Agent and without any duty to account therefor to Lenders. 8.4 Credit Decision by Each Lender. Each Lender acknowledges and agrees that it has, independently and without reliance upon Agent or any other Lender and based on the financial statements referred to in Section 4.6 hereof and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges and agrees that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it 46 shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. 8.5 Agent Not Required to Act. Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of the Loan Documents unless indemnified to its satisfaction by Lenders against loss, cost, liability and expense. If any indemnity furnished to Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, Lenders agree to indemnify Agent (to the extent not reimbursed by Borrower), pro rata in accordance with their respective Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by Agent under the Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent. EACH LENDER AGREES, HOWEVER, THAT IT EXPRESSLY INTENDS UNDER THIS SECTION TO INDEMNIFY AGENT RATABLY AS AFORESAID FOR ALL SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT. Without limitation of the foregoing, each Lender agrees to reimburse Agent promptly upon demand, pro rata in accordance with their respective Commitments, for any out- of-pocket expenses (including reasonable counsel fees) incurred by Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, the Loan Documents to the extent that Agent is not reimbursed for such expenses by Borrower. The provisions of this Section shall survive the termination of this Agreement and/or the payment or assignment of any of the Notes. 8.6 Agent's Knowledge. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless it shall have received notice from Borrower, a Guarantor or a Lender referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If Agent receives such a notice, it shall give notice thereof to Lenders; provided that if such notice is received from a Lender, Agent also shall give notice thereof to Borrower. Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in this Article. 8.7 Agent May Resign. Agent may resign at any time by giving written notice thereof to Lenders and Borrower and may be removed as Agent under the Loan Documents at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the notice of resignation or removal, then the retiring Agent may, on behalf of Lenders, appoint a successor, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least 47 $100,000,000. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After the resignation or removal of Agent under the Credit Documents, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. 8.8 Lending Procedures. Agent shall forward a copy of each Borrowing Request to Lenders promptly upon each receipt. Each Lender shall provide Agent with such Lender's pro rata share (based on their respective Commitments) of each requested Loan in immediately available funds no later than the date Borrower has requested such Loan to be made. If any Lender fails to so provide funds to Agent, then Agent may (but shall not be obligated to) advance to Borrower such Lender's pro rata share of such requested Loan; such advance shall be payable by such Lender on demand and shall bear interest at the same rate as such Loan. Agent shall disburse to Lenders all funds received by it from or on account of Borrower pursuant to the Loan Documents pro rata in accordance with the respective Commitment by wire transfer of immediately available funds (1) if such funds are received by Agent prior to 12:00 noon, Houston time, then on the day of receipt and (2) if such funds are received by Agent after 12:00 noon, then during the next Business Day, without interest, premium or penalty thereon. If Agent does not so disburse such funds, then such funds shall be payable by Agent on demand and shall bear interest from the day when due at the Federal Funds Rate. If a Lender owes any amount to Agent pursuant to this Agreement, then Agent shall give notice thereof, specifying the amount thereof and reasonable detail as to the determination thereof, to such Lender and the same shall be due and payable 15 days after the date of such notice and the provision of such detail. If a Lender does not pay the amount so due from such Lender by such date, then such amount shall be payable on demand and shall bear interest from the date when due at the Federal Funds Rate (except as provided herein regarding the failure of a Lender to advance its pro rata share of any Loan or any draw under a Letter of Credit). 8.9 Letters of Credit. Each Lender hereby irrevocably agrees to purchase, and Compass Bank hereby irrevocably agrees to sell, an undivided interest in each Letter of Credit and each draw under each Letter of Credit in an amount equal to such Lender's pro rata share (based on their respective Commitments) of such draw, without further action by any party hereto. Compass Bank shall notify each Lender of the occurrence of a draw and such Lender's pro rata share thereof, and each Lender shall deliver immediately available funds equal to its pro rata share of such draw to Compass Bank no later than the Business Day after such Lender receives such notice; if a Lender fails to so deliver its portion of a draw to Compass, then such portion shall bear interest at the Past Due Rate until paid; provided that no Lender shall be obligated to pay to Compass Bank its pro rata share of any unreimbursed draw under a Letter of Credit to the extent it arises out of a wrongful payment made by Compass Bank as a result of its own gross negligence or willful misconduct. Upon each reimbursement of a draw (whether by Borrower or a Guarantor and whether in whole or in part) received by Compass Bank, Compass Bank shall immediately deliver the same to Agent for distribution in accordance with this Agreement. 48 8.10 Receipts to be Shared. If a Lender obtains payment from or on account of the Borrower, whether directly, as a result of an offset or otherwise, then such Lender shall promptly acquire interests in the Loans, the Loan Documents and the Commitment from the other Lenders with the result that each Lender will maintain its pro rata share of the Obligations. ARTICLE IX MISCELLANEOUS 9.1 Transfers; Participations. (a) The Borrower may not assign any of its rights or obligations under any Loan Document without the prior consent of the Agent and the Lenders. (b) Any Lender may grant participations in the Obligations or any portion thereof to any investment or commercial bank, savings and loan institution, insurance company, trust company, or affiliate of such Lender (such grantee, a "Participant"), provided that such Lender shall retain the exclusive right and obligation to administer the Loans and Letters of Credit and the grant of any participation shall not relieve such Lender of its obligations under this Agreement or under any of the other Loan Documents. In addition, with the consent of the Agent and (so long as no Event of Default shall have occurred which is continuing) the Borrower, which will not be unreasonably withheld, any Lender may sell, transfer, or assign the Obligations or any portion thereof to any financial institution (such assignee, a "Transferee"). The Borrower agrees that each Transferee may exercise all rights (including, without limitation, rights of set-off) with respect to the portion of the Obligations held by it as fully as if such Transferee were the direct holder thereof, subject to any agreements between such Transferee and the transferor to such Transferee, and the transferor to such Transferee shall be relieved of its obligations under the Loan Documents to the extent such obligations are assumed by such Transferee. Any Lender may forward to each Participant and Transferee and prospective Participant and Transferee all documents and information relating to the Obligations, whether furnished by the Borrower or otherwise obtained, as such Lender determines necessary or desirable. (c) Notwithstanding anything in this Section to the contrary, any Lender may assign and pledge its Note or any interest therein to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. No such assignment or pledge shall release such Lender from its obligations hereunder. (d) Notwithstanding any other provisions of this Section, no transfer or assignment of the interests or obligations of any Lender or grant of participations 49 therein shall be permitted if such transfer, assignment, or grant would require the Borrower to file a registration statement with the Securities and Exchange Commission or any successor or analogous Governmental Authority or qualify the Loans under the "Blue Sky" laws of any state. 9.2 Survival of Representations, Warranties, and Covenants. All representations and warranties of the Borrower and all covenants and agreements herein made shall survive the execution and delivery of the Notes and the Security Instruments and shall remain in force and effect so long as any Obligation is outstanding or any Commitment exists. 9.3 Notices and Other Communications. Except as to oral notices expressly authorized herein, which oral notices shall be confirmed in writing, all notices, requests, and communications hereunder shall be in writing (including by telecopy). Unless otherwise expressly provided herein, any such notice, request, demand, or other communication shall be deemed to have been duly given or made when delivered by hand, or, in the case of delivery by mail, two Business Days after deposited in the mail, certified mail, return receipt requested, postage prepaid, or, in the case of telecopy notice, when receipt thereof is acknowledged orally or by written confirmation report, addressed as follows: (a) if to the Agent, to: Compass Bank, as Agent 24 Greenway Plaza, 14th Floor Houston, Texas 77046 Attention: Energy Banking Group Telecopy: (713) 968-8292 (b) if to the Borrower, to: Goodrich Petroleum Company, L.L.C. 333 Texas Street, Suite 1375 Shreveport, Louisiana 71101 Attention: Walter G. Goodrich Telecopy: (318) 429-2296 (c) if to a Lender other than Compass Bank, to such address as such Lender may have provided to Agent for notices. Any party may, by proper written notice hereunder to the others, change the individuals or addresses to which such notices to it shall thereafter be sent. 9.4 Parties in Interest. All covenants and agreements herein contained by or on behalf of the Borrower, any Guarantor, the Agent or any Lender shall be binding upon the Borrower, such Guarantor, the Agent or the applicable Lender, as the case may be, and their respective legal representatives, successors, and assigns. 50 9.5 Rights of Third Parties. All provisions herein are imposed solely and exclusively for the benefit of the Borrower and the Agent and the Lenders and their successors and assigns. No other Person (including, without limitation, the Guarantors) shall have any right, benefit, priority, or interest hereunder or as a result hereof or have standing to require satisfaction of provisions hereof in accordance with their terms. 9.6 No Waiver; Rights Cumulative. No course of dealing on the part of the Agent, the Lenders, their officers or employees, nor any failure or delay by the Agent or any Lender with respect to exercising any of their rights under any Loan Document shall operate as a waiver thereof. The rights of the Agent and the Lender under the Loan Documents shall be cumulative and the exercise or partial exercise of any such right shall not preclude the exercise of any other right. The making of any Loan or the issuance of any Letter of Credit shall not constitute a waiver of any of the covenants, warranties, or conditions of the Borrower contained herein. In the event the Borrower is unable to satisfy any such covenant, warranty, or condition, the making of any Loan or the issuance of any Letter of Credit shall not have the effect of precluding the Lender from thereafter declaring such inability to be an Event of Default as hereinabove provided. 9.7 Survival Upon Unenforceability. In the event any one or more of the provisions contained in any of the Loan Documents or in any other instrument referred to herein or executed in connection with the Obligations shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of any Loan Document or of any other instrument referred to herein or executed in connection with such Obligations. 9.8 Amendments; Waivers. Neither this Agreement nor any provision hereof may be amended, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the amendment, waiver, discharge, or termination is sought. No amendment, modification or waiver of any Loan Document may be enforced against the Lenders unless it has been signed by the Majority Lenders and it does not involve (a) the forgiveness of any principal due on the Obligations; (b) the reduction of any interest rate accruing on the Obligations; (c) the reduction of any commitment fee due under this Agreement; (d) the deferral of any principal, interest or fee payment due under the Loan Documents, (e) amendment of the definition of "Borrowing Base" or any of the provisions regarding the determination of the Borrowing Base in any material respect or (f) the release of any obligor or any material portion of the Collateral securing the Obligations. Whenever any of the Loan Documents refers to "Lenders" it shall mean the Majority Lenders unless the applicable provision involves any of the matters described in the foregoing clauses (a) through (f) above, but any amendment, modification or waiver of any Loan Document involving any of the matters described in the foregoing clauses (a) through (f) above shall require execution by all of the Lenders. 9.9 Controlling Agreement. In the event of a conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall 51 control. 9.10 Release by Borrower. The Borrower hereby releases and discharges the Agent and each Lender from all obligations, claims, losses, causes of action, and liabilities, of whatsoever kind or nature, whether heretofore or hereafter accruing, whether now known or unknown, arising under or in connection with any Existing Loan Document or any act or omission under or in connection with any Existing Loan Document; provided, however, nothing set forth in this Section shall relieve the Agent or any Lender from its obligations and liabilities under the Loan Documents to which it is a party. 9.11 Governing Law. THIS AGREEMENT, THE NOTES, AND THE GUARANTIES AND ALL ISSUES ARISING IN CONNECTION THEREWITH AND THE TRANSACTIONS CONTEMPLATED THEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW. 9.12 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE AGENT OR THE APPLICABLE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE AGENT OR ANY LENDER IN ACCORDANCE WITH THIS SECTION. 9.13 Waiver of Rights to Jury Trial. The Borrower, the agent and each Lender hereby knowingly, voluntarily, intentionally, irrevocably, and unconditionally waive all rights to trial by jury in any action, suit, proceeding, counterclaim, or other litigation that relates to or arises out of any of this Agreement or any other Loan Document or the acts or omissions of the agent or any Lender in the enforcement of any of the terms or provisions of this Agreement or any other Loan Document or otherwise with respect thereto. The provisions of this section are a material inducement for the agent and each Lender entering into this Agreement. 9.14 Entire Agreement. This Agreement amends, restates, and replaces the Existing Credit Agreement and constitutes the entire agreement among the parties hereto with respect to the subject hereof and shall supersede any prior agreement among the parties hereto, whether written or oral, relating to the subject hereof, including, without limitation, the Existing Credit Agreement. Furthermore, in this regard, this Agreement and the other written Loan Documents represent, collectively, the final agreement among the parties thereto and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of such parties. There are no unwritten oral agreements among such parties. 9.15 Counterparts. For the convenience of the parties, this Agreement may be executed in multiple counterparts and by different parties hereto in separate counterparts, each of which for all purposes shall be deemed to be an original and all of which together shall constitute one and the same Agreement. 52 9.16 Release of Security Instruments. At such time as all of the Obligation shall have been paid in full and the Commitments shall have been terminated, the Agent shall, upon request by and at the cost and expense of the Borrower, release the Liens of the Security Instruments. [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] 53 IN WITNESS WHEREOF, this Agreement is executed as of the date first above written. GOODRICH PETROLEUM COMPANY, L.L.C. By: /s/ ROBERT C. TURNHAM, JR. _____________________________ Robert C. Turnham, Jr., Senior Vice President 54 COMPASS BANK, as Agent and as a Lender By: /s/ DOROTHY MARCHAND ____________________________ Dorothy Marchand, Senior Vice President Initial Commitment: $20,000,000 55 BANK ONE TEXAS, NATIONAL ASSOCIATION By: /s/ RICHARD G. SYLVAN ____________________________ Name: Richard G. Sylvan Title: First Vice President Initial Commitment: $10,000,000 56 Joining in the execution hereof for the limited purpose of making the representations, warranties, and covenants set forth in Articles IV, V, and VI only: GOODRICH PETROLEUM CORPORATION By: /s/ ROBERT C. TURNHAM, JR. ____________________________ Robert C. Turnham, Jr., Senior Vice President GOODRICH PETROLEUM COMPANY - LAFITTE, L.L.C. By: /s/ ROBERT C. TURNHAM, JR. ____________________________ Robert C. Turnham, Jr., Senior Vice President 57 EXHIBIT I [FORM OF BORROWING REQUEST] Compass Bank, as Agent 24 Greenway Plaza, 14th Floor Houston, Texas 77046 Attention: Energy Banking Group Re: Credit Agreement dated as of January ____, 2001, by and among Goodrich Petroleum Company, L.L.C., certain financial institutions therein named and Compass Bank, as Agent (as amended, restated, or supplemented from time to time, the "Credit Agreement") Ladies and Gentlemen: Pursuant to the Credit Agreement, the Borrower hereby makes the requests a [_____] new Loan or [______] Letter of Credit [CHECK ONE] as indicated below: 1. Loans (a) Amount: $________________ (b) Requested funding or issuance date: _______________, 200___ (c) $_________________ of such Loan is to be a Floating Rate Loan; and $_________________ of such Loan is to be a LIBO Rate Loan. (d) Requested Interest Period for LIBO Rate Loan: _____ months. 2. Continuation or conversion of LIBO Rate Loan maturing on ______________, 200____. (a) Amount to be continued as a LIBO Rate Loan is $______________, with an Interest Period of _____ months; and (b) Amount to be converted to a Floating Rate Loan is $______________. 3. Conversion of Floating Rate Loan: (a) Request conversion date: ________________, 200__. EXHIBIT I (b) Amount to be converted to a LIBO Rate Loan is $______________, with an Interest Period of _______ months. The undersigned certifies that [s]he is the [______________] of the Borrower, has obtained all consents necessary, and as such is authorized to execute this request on behalf of the Borrower. The undersigned further certifies, represents, and warrants on behalf of the Borrower that no Default or Event of Default exists, and the Borrower is entitled to receive the requested borrowing under the terms and conditions of the Credit Agreement. Each capitalized term used but not defined herein shall have the meaning assigned to such term in the Credit Agreement. Very truly yours, GOODRICH PETROLEUM COMPANY, L.L.C. By:____________________________ Name:__________________________ Title:_________________________ EXHIBIT I [FORM OF COMPLIANCE CERTIFICATE] ________, 20___ Compass Bank, as Agent 24 Greenway Plaza, 14th Floor Houston, Texas 77046 Attention: Energy Banking Group Re: Credit Agreement dated as of January ____, 2001, by and among Goodrich Petroleum Company, L.L.C., certain financial institutions therein named and Compass Bank, as Agent (as amended, restated, or supplemented from time to time, the "Credit Agreement") Ladies and Gentlemen: Pursuant to applicable requirements of the Credit Agreement, the undersigned, as Responsible Officers of the Borrower and the Guarantors, hereby certify to you the following information as true and correct as of the date hereof or for the period indicated, as the case may be: [1. To the best of the knowledge of the undersigned, no Default or Event of Default exists as of the date hereof or has occurred since the date of our previous certification to you, if any.] [1. To the best of the knowledge of the undersigned, the following Defaults or Events of Default exist as of the date hereof or have occurred since the date of our previous certification to you, if any, and the actions set forth below are being taken to remedy such circumstances:] 2. The compliance of the Related Parties with the financial covenants of the Credit Agreement, as of the close of business on , is evidenced by the following: (a) Section 6.11: Consolidated Tangible Net Worth Required Actual ________ ______ Not less than the sum of $22,500,000 plus 50% of Consolidated Net Income for each positive fiscal quarter after September 30, 2000 plus 100% of cash equity proceeds, net of expenses $_______________ EXHIBIT II (b) Section 6.12: EBITDAX to Interest Expense Ratio Required Actual ________ ______ Not less than 3.00 to 1.00 ____to 1.0 (c) Section 6.13: Current Ratio Required Actual ________ ______ Not less than 1.00 to 1.00 ____to 1.0 3. No Material Adverse Effect has occurred since the date of the Financial Statements dated as of _______________________. Each capitalized term used but not defined herein shall have the meaning assigned to such term in the Credit Agreement. Very truly yours, GOODRICH PETROLEUM COMPANY, L.L.C. By:____________________________ Name:__________________________ Title:_________________________ EXHIBIT II GOODRICH PETROLEUM CORPORATION By:____________________________ Name:__________________________ Title:_________________________ EXHIBIT II EXHIBIT III DISCLOSURES Section 4.8 Liabilities -- NONE Litigation -- SEE ATTACHED SCHEDULE 1 Section 4.12 Environmental Matters -- NONE, EXCEPT AS REFLECTED ON SCHEDULE I Section 4.17 Refunds -- NONE Section 4.18 Gas Contracts -- NONE Section 4.20 Casualties -- NONE EX-4.4 3 0003.txt LETTER OF CREDIT AGREEMENT EXHIBIT 4.4 LETTER OF CREDIT AGREEMENT THIS AGREEMENT (this "Agreement") is made as of January 31, 2001, by GOODRICH PETROLEUM COMPANY, L.L.C. ("Borrower"), a Louisiana limited liability company, the financial institutions (collectively herein called "Lenders") which are now or may hereafter become signatory hereto, and COMPASS BANK, an Alabama state chartered banking institution, individually (in such capacity, herein called "Issuer") and as agent for Lenders (in such capacity, herein called "Agent"). RECITALS 1. Concurrently herewith Borrower, Agent and Lenders have entered into a Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement"). Any capitalized term defined in the Credit Agreement which is used in this Agreement shall, unless otherwise defined herein, have the meaning ascribed to it in the Credit Agreement. 2. For convenience, Borrower, Agent, Issuer and Lenders desire to gather certain provisions of the Credit Agreement relating solely to the issuance of Letters of Credit into a separate agreement. AGREEMENTS NOW, THEREFORE, in consideration of the execution and delivery of the Note, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. Capitalized words and phrases used in this Agreement have the meanings provided below. Unless otherwise stated, references to sections are to sections in this Agreement. Applications shall mean all applications and agreements for Letters of Credit, or similar instruments or agreements, in form and substance satisfactory to Issuer, now or hereafter executed by any Person in connection with any Letter of Credit now or hereafter issued or to be issued under the terms hereof at the request of any Person. Cover for Letter of Credit Liabilities shall be effected by paying to Agent immediately available funds, in an amount equal to any required prepayment, to be held by Agent in a collateral account maintained by Agent and collaterally assigned as security by Borrower for the financial accommodations extended pursuant to this Agreement and the other Loan Documents using documentation in form and substance satisfactory to Agent. Such amount shall be retained by Agent in such collateral account until such time as the applicable Letters of Credit shall have expired and the Reimbursement Obligations, if any, with respect thereto shall have been fully satisfied; provided, however, that at such time if a Default or Event of Default has occurred and is continuing, Agent shall not be required to release such amount in such collateral account. Letter of Credit shall have the meaning assigned to such term in Paragraph 2 hereof. Letter of Credit Liabilities shall mean, at any time and in respect of any Letter of Credit, the sum of (i) the amount available for drawings under such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement Obligations at the time due and payable in respect of previous drawings made under such Letter of Credit. For the purpose of determining at any time the amount described in clause (i), in the case of any Letter of Credit payable in a currency other than Dollars, such amount shall be converted by Agent to Dollars by any reasonable method, and such converted amount shall be conclusive and binding, absent manifest error. Participant means any financial institution other than a Lender owning or holding a participation interest or an assignment of an undivided interest in a Letter of Credit. Regulation D means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and includes any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. Regulatory Change shall mean any change on or after the date of this Agreement in any legal requirement (including, without limitation, Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of banks including Lender under any legal requirements (whether or not having the force of law) by any Governmental Authority. Reimbursement Obligations shall mean, as at any date, the obligations of Borrower then outstanding, or which may thereafter arise, to reimburse Issuer for the amount paid by Issuer in respect of any drawing under Letters of Credit, which obligations shall at all times be payable in Dollars notwithstanding any such Letter of Credit being payable in a currency other than Dollars. 2. ISSUANCE OF LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, and on the condition that aggregate Letter of Credit Liabilities shall never exceed $2,000,000.00, Borrower shall have the right to, in addition to Loans provided for in the Credit Agreement, utilize the Available Commitment from time to time before the Commitment Termination Date by obtaining the issuance of letters of credit for the account of Borrower and on behalf of Borrower by Issuer (such letters of credit, as any of them may be amended, supplemented, extended or confirmed from time to time, being herein collectively called the "Letters of Credit"). No Letter of Credit issued pursuant to this Agreement shall have an expiration date which is either (1) later than one year from date of issuance or (2) on or beyond the then-scheduled Commitment Termination Date. Any Letter of Credit that shall have an expiration date on or after the Commitment Termination Date shall be fully Covered or backed by a letter of credit in form and substance, and issued by an issuer, acceptable to Issuer and the Majority Lenders. Each request for the issuance of a Letter of Credit shall describe the proposed terms of such Letter of Credit and the nature of the transaction proposed to be supported thereby, and 2 shall be accompanied by such additional information regarding such transaction as Issuer, Agent or any Lender may reasonably request. No Letter of Credit may be issued if after giving effect thereto the sum of (i) the aggregate outstanding principal amount of Loans plus (ii) the aggregate Letter of Credit Liabilities would exceed the Maximum Commitment. Borrower shall be irrevocably and unconditionally obligated to immediately reimburse Issuer for any amount paid by Issuer upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind, all of which are hereby waived. Such reimbursement may, subject to satisfaction of the conditions in the Credit Agreement, be made by the borrowing of Loans. 3. LETTER OF CREDIT FEE. Borrower will pay to Issuer a letter of credit fee with respect to each Letter of Credit equal to the greater of (i) $500.00 or (ii) the product of 1-1/2% per annum times the face amount of the applicable Letter of Credit, such fee to be paid in advance on the date of the issuance thereof. In addition to such fee, Borrower agrees to pay Issuer the usual and customary costs and fees of Issuer for each extension, amendment and wire advice of and drawings under a Letter of Credit. 4. PARTICIPATION IN LETTERS OF CREDIT. Pursuant to Section 8.9 of the Credit Agreement, the Lenders agree to participate in the Letters of Credit and in the issuance fees (but not the extension, amendment, wire advice and drawing fees) earned by Issuer with respect thereto pro rata in accordance with their respective Commitments. If Borrower fails to promptly reimburse Issuer for any draw under the Letters of Credit, then at the request of Issuer, the Lenders shall advance to Issuer the amount of such draw as Loans pro rata in accordance with their respective Commitments, regardless of the procedures described in the Credit Agreement concerning the making of Loans, the size of such Loans or the acceleration of Commitment Termination Date as provided in the Credit Agreement and further regardless of any other term or provision of this Agreement; provided that the provisions of this Paragraph 4 are solely for the benefit of Issuer and shall not serve as the basis for any claim by Borrower against Agent, Issuer or any Lender. 5. CERTAIN CONDITIONS PRECEDENT. The issuance by Issuer of each Letter of Credit shall, in addition to the conditions precedent set forth in the Credit Agreement, be subject to the conditions precedent (x) that such Letter of Credit shall be in such form and contain such terms as shall be reasonably satisfactory to Issuer and the Majority Lenders and that Borrower shall have executed and delivered such Applications and other instruments and agreements relating to such Letter of Credit as Issuer and the Majority Lenders shall have reasonably requested and are not inconsistent with the terms of this Agreement. 6. CONFLICT BETWEEN THIS AGREEMENT AND ANY APPLICATION. In the event of a conflict between the terms of this Agreement and the terms of any Application, the terms hereof shall control. 7. BORROWER'S INDEMNITY. Borrower hereby indemnifies and holds harmless Issuer, Agent and each Lender from and against any and all claims and damages, losses, liabilities, costs or expenses which Issuer, Agent or any Lender may incur (or which may be claimed against Issuer, Agent or any Lender by any Person whatsoever), BY REASON OF ITS OWN NEGLIGENCE OR OTHERWISE, in connection with the execution and delivery of any Letter of Credit or transfer of or payment or failure to pay under any Letter of Credit; provided that Borrower shall 3 not be required to indemnify Issuer, Agent or any Lender for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by the willful misconduct or gross negligence of Issuer, Agent or the applicable Lender. Any amount to be paid under this Paragraph by Borrower shall bear interest until paid at the Default Rate. 8. ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. If as a result of any Regulatory Change there shall be imposed, modified or deemed applicable any tax, reserve, special deposit or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or participations in such Letters of Credit, and the result shall be to increase the cost to Issuer, Agent, any Lender or any Participant of issuing or maintaining any Letter of Credit or any participation therein, or reduce any amount receivable by Issuer, Agent, any Lender or any Participant in respect of any Letter of Credit or any participation therein, then from time to time, Borrower shall pay to Agent such additional amount or amounts as will compensate Issuer, Agent and each Lender (and each applicable Participant) for such increased costs or reductions in amount. A certificate of setting forth such amount or amounts as shall be necessary to compensate Issuer, Agent or any applicable Lender (or any applicable Participant) as specified in this Paragraph shall be conclusive and binding, absent manifest error. Borrower shall pay Agent the amount shown as due on any such certificate within fifteen (15) days after delivery of such certificate. In preparing such certificate, such assumptions and allocations of costs and expenses may be used as Agent, Issuer, a Lender or a Participant, as the case may be, shall in good faith deem reasonable and any reasonable averaging and attribution method may be used. 9. PRESERVATION OF SECURITY FOR UNMATURED REIMBURSEMENT OBLIGATIONS. In the event that, following (i) the occurrence of an Event of Default and the exercise of any rights available in connection therewith under the Loan Documents and (ii) payment in full of the principal amount then outstanding of and the accrued interest on the Loans and Reimbursement Obligations and fees and all other amounts payable hereunder and under the Notes and all other amounts secured by the Security Instruments, any Letters of Credit shall remain outstanding and undrawn upon, Agent shall be entitled to hold (and Borrower hereby grants and conveys to Agent for the ratable benefit of Issuer and Lenders a security interest in and to) all cash or other property ("Proceeds of Remedies") realized or arising out of the exercise of any rights available under the Loan Documents, at law or in equity, including without limitation the proceeds of any foreclosure, as collateral for the payment of any amounts due or to become due under or in respect of such Letters of Credit. Such Proceeds of Remedies shall constitute "Collateral" for all purposes under the terms and provisions of the Security Instruments, and the rights, titles, benefits, privileges, duties and obligations of Agent with respect thereto shall be governed by the terms and provisions of this Agreement and, to the extent not inconsistent with this Agreement, the Security Instruments. Agent may, but shall have no obligation to, invest any such Proceeds of Remedies in such manner as Agent or the Majority Lenders deem appropriate. Such Proceeds of Remedies shall be applied to Reimbursement Obligations arising in respect of any such Letters of Credit and/or the payment of Issuer's obligations under any such Letter of Credit when such Letter of Credit is drawn upon. Borrower hereby agrees to execute and deliver to Agent such security agreements, pledges or other documents as Agent may, from time to time, require to perfect the pledge, lien and security interest and to any such Proceeds of Remedies provided for in this Paragraph. 4 10. MISCELLANEOUS. (a) No delay or omission of Agent, Issuer or any Lender or any other holder of the Notes to exercise any power, right or remedy accruing to Agent, Issuer or any Lender or any other holder of the Notes shall impair any such power, right or remedy or shall be construed to be a waiver of the right to exercise any such power, right or remedy. (b) This Agreement shall not be changed orally but shall be changed only by agreement in writing signed by the party against whom such amendment is sought to be enforced. No course of dealing between the parties, no usage of trade and no parole or extrinsic evidence of any nature shall be used to supplement or modify any of the terms or provisions of this Agreement. (c) Any notice, request or other communication required or permitted to be given hereunder shall be given as provided in the Credit Agreement. Actual notice, however and from whomever given or received, shall always be effective when received. (d) If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and this Agreement shall be liberally construed so as to carry out the intent of the parties to it. Each waiver in this Agreement is subject to the overriding and controlling rule that it shall be effective only if and to the extent that (a) it is not prohibited by applicable law and (b) applicable law neither provides for nor allows any material sanctions to be imposed against Agent, Issuer or any Lender for having bargained for and obtained it. (e) The section headings appearing in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatever in construing the terms and provisions of this Agreement. Wherever the term "including" or a similar term is used in this Agreement, it shall be read as if it were written "including by way of example only and without in any way limiting the generality of the clause or concept referred to." (f) This Agreement is performable in Harris County, Texas, which shall be a proper place of venue for suit on or in respect of this Agreement. Borrower irrevocably agrees that any legal proceeding in respect of this Agreement shall be brought in the district courts of Harris County, Texas or the United States District Court for the Southern District of Texas, Houston Division (collectively, the "Specified Courts"). Borrower hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts of the State of Texas. Borrower hereby irrevocably waives, to the fullest extent permitted by law, 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 any Loan Document brought in any Specified Court, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Borrower further irrevocably consents to the service of process out of any of the Specified Courts in any such suit, action or proceeding by the mailing of copies thereof by 5 certified mail, return receipt requested, postage prepaid, to Borrower at its address as provided in this Agreement or as otherwise provided by Texas law. Nothing herein shall affect the right of Agent, Issuer or any Lender to commence legal proceedings or otherwise proceed against Borrower in any jurisdiction or to serve process in any manner permitted by applicable law. Borrower 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. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. (g) This Agreement and the other Loan Documents embody the entire agreement and understanding among Borrower, Agent, Issuer and Lenders with respect to their subject matter and supersede all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Borrower acknowledges and agrees there is no oral agreement between Borrower and Agent, Issuer or any Lender which has not been incorporated in this Agreement and the other Loan Documents. (h) All warranties, representations, covenants and agreements in this Agreement shall bind the heirs, devisees, executors, administrators, personal representatives, trustees, beneficiaries, conservators, receivers, successors and assigns of Borrower and shall benefit Agent, Issuer, Lenders, their successors and assigns, and any holder of any part of the indebtedness evidenced by the Notes. Borrower shall not assign or delegate any of its obligations under this Agreement or any of the Loan Documents without the express prior written consent of the Majority Lenders. EXECUTED as of the date set forth above. GOODRICH PETROLEUM COMPANY, L.L.C., a Louisiana limited liability company By: /s/ ROBERT C. TURNHAM, JR. ____________________________ Robert C. Turnham, Jr., Senior Vice President 6 COMPASS BANK, as Issuer and as Agent By: /s/ DOROTHY MARCHAND ____________________________ Dorothy Marchand, Senior Vice President 7 BANK ONE TEXAS, NATIONAL ASSOCIATION By: /s/ RICHARD G. SYLVAN ____________________________ Name: Richard G. Sylvan Title: First Vice President 8 EX-4.5 4 0004.txt AMENDMENT TO LETTER OF CREDIT AGREEMENT EXHIBIT 4.5 [COMPASS LOGO] International Trade Services P.O. box 4444 Houston, Texas 77210-4444 713 867-2717/Fax 713 867-2700 Telex 6737349 www.compassweb.com AMENDMENT TO LETTER OF CREDIT NO. S24756T DATE: MARCH 13, 20001 APPLICANT: BENEFICIARY: GOODRICH PETROLEUM CORPORATION ENRON NORTH AMERICA CORP. 333 TEXAS STREET, SUITE 1375 1400 SMITH STREET SHREVEPORT, LOUISIANA 71101 HOUSTON, TEXAS 77002 AMENDMENT NUMBER THREE (3) GENTLEMEN: PLEASE BE ADVISED THAT THE SUBJECT LETTER OF CREDIT HAS BEEN AMENDED AS FOLLOWS: . THE LETTER OF CREDIT AMOUNT HAS BEEN DECREASED BY USD1,550,000.00 (ONE MILLION FIVE HUNDRED FIFTY THOUSAND AND NO/100 U.S. DOLLARS) TO A NEW AMOUNT OF USD1,000,000.00 (ONE MILLION AND NO/100 U.S. DOLLARS). THIS AMENDMENT IS TO BE CONSIDERED AS PART OF THE ABOVE CREDIT AND MUST BE ATTACHED THERETO. ALL OTHER TERMS AND CONDITIONS OF THE CREDIT REMAIN UNCHANGED. PROVISIONS APPLICABLE TO THIS CREDIT: THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION) INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500. /s/ DIANE MCGIFFEN _________________________ AUTHORIZED SIGNATURE TCL - ------------------------- ------------------------- AMENDMENT ACCEPTED BY AMENDMENT NOT ACCEPTED BY - ------------------------- ------------------------- DATED DATED EX-23 5 0005.txt CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors Goodrich Petroleum Corporation We consent ot the incorporation by reference in the registration statement (No. 33-01077) on Form S-8 of Goodrich Petroleum Corporation of our report dated March 16, 2001 relating to the consolidated balance sheets of Goodrich Petroleum Corporation and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000, annual report on Form 10-K of Goodrich Petroleum Corporation. KPMG LLP Shreveport, Louisiana March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----