<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-32671
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PATINA OIL & GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2629477
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
KEITH M. CROUCH
1625 BROADWAY 1625 BROADWAY
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 389-3600 (303) 389-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CODE OF AGENT FOR SERVICE)
</TABLE>
------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOHN E. RILEY PETER E. LORENZEN MARTIN J. COLLINS
SIMPSON THACHER & BARTLETT SNYDER OIL CORPORATION MAYER, BROWN & PLATT
425 LEXINGTON AVENUE 777 MAIN STREET 1675 BROADWAY
NEW YORK, NEW YORK 10017 FORT WORTH, TEXAS 76102 NEW YORK, NEW YORK 10019
(212) 455-2520 (817) 338-4043 (212) 506-2500
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1997
7,500,000 SHARES
PATINA OIL & GAS CORPORATION
COMMON STOCK
------------------
All of the shares of Common Stock, $.01 par value (the "Common Stock"), of
Patina Oil & Gas Corporation (the "Company" or "Patina") offered hereby are
being sold by Snyder Oil Corporation ("SOCO"). Accordingly, the Company will not
receive any proceeds from the sale of the shares offered hereby. See "Selling
Stockholder."
Concurrently with the sale of the shares of Common Stock offered hereby
(the "Offering"), the Company intends to (i) sell in private transactions up to
2,520,000 shares of its 8.5% Convertible Preferred Stock (the "New Preferred
Stock") to a limited number of investors for an aggregate purchase price of up
to $63.0 million, (ii) sell shares of Common Stock having an aggregate purchase
price of $3.0 million, at a price per share equal to the per share "Price to
Public" set forth below (the "Public Offering Price"), to certain members of
management of the Company and (iii) use the proceeds from such sales, together
with bank borrowings, if necessary, to purchase the balance of the Common Stock
owned by SOCO at a price equal to the per share "Proceeds to SOCO" set forth
below (the "Net Offering Price"). Such transactions are herein collectively
referred to as the "Concurrent Transactions" and, together with the Offering, as
the "Transactions. " The consummation of the Offering is contingent upon the
consummation of certain of the Concurrent Transactions and upon SOCO receiving a
Net Offering Price of at least $7.0875 per share (which requires, assuming
underwriting discounts and commissions of $.4125 per share, a Public Offering
Price of at least $7.50 per share) in the Offering. See "Concurrent
Transactions."
The Common Stock is traded on the New York Stock Exchange under the symbol
"POG." The last reported sale price of the Common Stock on the New York Stock
Exchange on September 18, 1997 was $9 11/16 per share. See "Price Range of
Common Stock."
SEE "RISK FACTORS", BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
<TABLE>
<S> <C> <C> <C>
======================================================================================================
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) SOCO(2)
- ------------------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3) $ $ $
======================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated to be $ payable by the Company.
(3) SOCO has granted the Underwriters a 30-day option to purchase up to
1,125,000 additional shares of Common Stock solely to cover overallotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to SOCO will be
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC. MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
by, the more detailed information appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless the context suggests otherwise, (i)
Patina or the Company refers to Patina Oil & Gas Corporation and its
subsidiaries and (ii) Predecessors refers to Snyder Oil Corporation's Wattenberg
field operations and Gerrity Oil & Gas Corporation. The terms defined in the
Glossary have the meanings provided therein. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters'
overallotment option.
THE COMPANY
GENERAL
Patina Oil & Gas Corporation (the "Company" or "Patina") is an independent
energy company engaged in the acquisition, development, exploitation and
production of oil and natural gas in the Wattenberg field ("Wattenberg") of
Colorado's Denver-Julesburg Basin (the "D-J Basin"). The Company was formed in
early 1996 to hold the Wattenberg assets of Snyder Oil Corporation ("SOCO") and
to facilitate the acquisition of Gerrity Oil & Gas Corporation (the "Gerrity
Acquisition"). Thomas J. Edelman structured and negotiated the Gerrity
Acquisition and has served as the Company's chief executive from its inception.
Since the Gerrity Acquisition in May 1996, the Company has focused its efforts
on consolidating its properties, developing a focused and efficient
organization, reducing costs and improving operations. From May 1996 through
June 30, 1997, the Company used operating cash flow to reduce indebtedness by
over $40 million and repurchase $14.4 million of its equity securities, while
investing $15.5 million in the further development of its properties.
SOCO has been the Company's major stockholder since its formation and
currently owns 74% of Patina's Common Stock. For strategic reasons, SOCO has
decided to liquidate its stake in Patina and redeploy the proceeds in its core
business. Pursuant to the Transactions described in this Prospectus, SOCO's
ownership in the Company will be eliminated and the Company will be positioned
to pursue an independent growth strategy.
At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves.
Average oil and natural gas prices for the six months ended June 30, 1997 have
declined 19% and 36%, respectively, from 1996 year-end prices. Equivalent
reserves and pretax present value would have been approximately 397 Bcfe and
$343 million, respectively, at 1996 year-end, assuming constant wellhead prices
of $20.00 per barrel of oil and $2.00 per Mcf of gas. The Company operates
almost 90% of the roughly 3,550 producing wells in which it holds an interest,
representing 98% of its producing reserves. In the year ended December 31, 1996,
the Company generated revenues of $83.2 million, net income of $3.6 million and
net cash provided by operations of $53.0 million. During that period, production
averaged 93.1 MMcfe per day. During the six months ended June 30, 1997, the
Company generated revenues of $52.3 million, net income of $7.1 million and net
cash provided by operations of $33.5 million, with average production of 108.3
MMcfe per day. Based on pro forma production for 1996 and year-end 1996
reserves, the Company has a reserve life index of 10.3 years.
Since 1986, the Company and its Predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. Mr. Edelman and certain other members of Patina's management have
extensive experience in structuring and negotiating acquisitions as well as
managing large scale and cost efficient operations. During the past ten years,
the Company and its Predecessors have completed more than 65 acquisitions having
an aggregate purchase price of over $450 million and during the past five years,
have expended more than $400 million on development projects including the
drilling of over 1,500 wells and the recompletion of more than 400 wells.
Management believes that the Company's sizable asset base and cash flow, along
with its low production costs and efficient operating structure, provide it with
a competitive advantage in Wattenberg and in certain analogous basins. Given
management's expertise in acquisitions and the advantages set forth above, the
Company believes it will be in
3
<PAGE> 5
an excellent position after the Transactions described herein to pursue further
consolidation in Wattenberg and to acquire positions in other basins where it
has or can develop a competitive advantage.
To ensure that management has a significant stake in the Company's success,
all of the Company's executive officers and certain of its key employees have
collectively committed to purchase $3.0 million of the Company's Common Stock at
the Public Offering Price. In addition, these same individuals will be awarded
500,000 shares of restricted Common Stock that will vest over a five-year
period. Simultaneously, several sizable institutional investors possessing
substantial experience and an ongoing interest in investing in the energy
business, as well as several individuals, have committed to invest up to $63.0
million in the Company's New Preferred Stock. Immediately following the
Offering, the Company anticipates using the proceeds from management's stock
purchase, together with proceeds from the sale of the New Preferred Stock and
bank borrowings, if necessary, to repurchase the balance of the Company's Common
Stock owned by SOCO after the Offering.
BUSINESS STRATEGY
The Company plans to increase its reserves, production and cash flow in a
cost-efficient manner, primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.
The Company intends to pursue further consolidation and exploitation
opportunities in Wattenberg where it is currently the largest producer,
accounting for over 30% of total annual production from the field. In addition,
management intends to simultaneously pursue low-risk acquisitions of producing
reserves in other Western U.S. basins where the Company can leverage its
operating efficiencies and pursue consolidation opportunities. Management
believes that the Company's economies of scale, focused operations and operating
expertise give it a competitive advantage in pursuing further consolidation and
acquisition opportunities. See "Business -- Business Strategy."
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by SOCO.......................... 7,500,000 shares
Common Stock to be outstanding after the Offering
without giving effect to the Concurrent
Transactions........................................ 18,820,248 shares(a)
Common Stock to be outstanding after the
Transactions........................................ 13,366,037 shares(b)
Use of Proceeds....................................... The Company will not receive any of
the proceeds from the Offering. See
"Use of Proceeds" and "Concurrent
Transactions."
Conditions to the Offering............................ The consummation of the Offering is
conditioned upon the concurrent
consummation of certain of the
Concurrent Transactions and on a
minimum Net Offering Price of $7.0875
per share.
New York Stock Exchange symbol........................ POG
</TABLE>
- ---------------
(a) Excludes: (i) 4,262,271 shares issuable upon the conversion of outstanding
shares of the Company's presently outstanding shares of 7.125% Preferred
Stock (the "Old Preferred Stock") (having a conversion price of $8.61 per
share); (ii) 2,919,451 shares issuable upon exercise of outstanding warrants
(having an exercise price of $12.50 per share); and (iii) 788,960 shares
issuable upon exercise of outstanding stock options (having a weighted
average exercise price of $8.30 per share). See "Description of Capital
Stock -- Preferred Stock" and " -- Warrants" and "Management -- Stock Option
Plan."
(b) Reflects the shares of Common Stock to be outstanding after the Offering,
adjusted for the Concurrent Transactions, including: (i) 6,430,000 shares
purchased by the Company in the Repurchase (as defined below); (ii) 315,789
shares purchased by the Management Investors (as defined below) (assuming a
Public Offering Price of $9.50 per share); (iii) 500,000 shares awarded to
the Management Investors; and (iv) 160,000 shares issued by the Company to
the New Preferred Stock Investors (as defined below). Excludes 6,000,000
shares issuable upon conversion of the New Preferred Stock (assuming the
issuance of 2,280,000 shares of New Preferred Stock having a conversion
price of $9.50 per share). See "Description of Capital Stock -- Preferred
Stock" and "Management -- Management Equity Participation Program".
THE CONCURRENT TRANSACTIONS
SOCO currently owns 14,000,000 shares (or approximately 74%) of the
Company's Common Stock. Concurrently with the sale of shares of Common Stock
offered hereby, the Company will repurchase the remaining shares of Common Stock
held by SOCO after the Offering at a price per share equal to the Net Offering
Price (the "Repurchase"). The Transactions are intended to establish the Company
as an independent entity and to provide it with the financial and operational
flexibility necessary to execute its business strategy. The Concurrent
Transactions consist of: (a) the sale by the Company of up to $63.0 million (as
determined by the Company in its sole discretion, subject to a minimum of $40.0
million) of its New Preferred Stock, which will have an annual dividend of 8.5%
and a liquidation preference of $25.00 per share, to a limited number of
investors (none of whom is presently an affiliate of the Company), including
First Reserve Fund VII, Limited Partnership, Chase Venture Capital Associates,
L.P. and Highbridge International LDC (collectively, the "New Preferred Stock
Investors"); (b) the sale by the Company to Mr. Edelman and other members of
management (collectively, the "Management Investors") of $3.0 million of Common
Stock at a purchase price per share equal to the Public Offering Price; and (c)
the Repurchase, using the proceeds from the sales of the New Preferred Stock and
Common Stock described above, together with bank borrowings, if necessary. The
Repurchase will cost approximately $57.0 million, assuming a Public Offering
Price of $9.50 per share. Consummation of the Offering is contingent upon, among
other things, the consummation of the sale of shares of Common Stock to the
Management Investors, the Repurchase and upon SOCO receiving a Net Offering
Price of at least $7.0875 per share (which requires, assuming underwriting
discounts and commissions of $.4125 per share, a Public Offering Price of at
least $7.50 per share) in the Offering.
5
<PAGE> 7
At the time of the sale of the shares of New Preferred Stock, the Company
will also issue 160,000 shares of Common Stock to the New Preferred Stock
Investors as a part of the purchase of the New Preferred Stock and SOCO will
transfer 70,000 shares of Common Stock to the New Preferred Stock Investors or
their designated affiliates. The Company has also agreed to award the Management
Investors (other than Mr. Edelman) 150,000 shares of restricted Common Stock in
order to induce these individuals to invest in the Company through their
purchase of $1.0 million of Common Stock and to enhance their interest in the
Company's future success. The Company has also agreed to grant to Mr. Edelman
350,000 shares of restricted Common Stock in consideration for his efforts in
structuring and arranging the private placement of the New Preferred Stock. The
ownership of these shares will vest in equal increments over a period of five
years. For a description of the financial accounting for the 160,000 shares of
Common Stock to be issued to the New Preferred Stock Investors and the 500,000
shares of Common Stock to be issued to the Management Investors, see clauses (a)
and (d) under "Balance Sheet" in the Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements.
For more information regarding these transactions, see "Concurrent
Transactions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition and Capital Resources,"
"Description of Capital Stock -- Preferred Stock -- New Preferred Stock,"
"Management -- Management Equity Participation Program."
The following table sets forth the anticipated sources and uses of funds
applicable to the Company in connection with the consummation of the Concurrent
Transactions, assuming a Public Offering Price of $9.50 per share:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
SOURCES OF FUNDS:
Sale of New Preferred Stock........................... $57.0(a)
Sale of Common Stock to the Management Investors...... 3.0(b)
-----------
Total......................................... $60.0
========
USES OF FUNDS:
Repurchase the balance of Common Stock held by SOCO... $57.7
Expenses payable by the Company....................... 1.4
Loans to the Management Investors..................... 0.9(b)
-----------
Total......................................... $60.0
========
</TABLE>
- ---------------
(a) Assumes 2,280,000 shares of New Preferred Stock are sold to the New
Preferred Stock Investors at a price per share of $25.00.
(b) The Management Investors will purchase $3.0 million of Common Stock at the
Public Offering Price, of which up to $850,000 will be funded with loans
from the Company. See "Management -- Management Equity Participation
Program."
RISK FACTORS
There are a number of risks associated with an investment in the Company's
Common Stock, including: (i) risks related to the Company (such as acquisition
risks, dependence on key personnel and the replacement of reserves and
production decline); (ii) risks related to the oil and gas industry generally
(such as the volatility of oil and natural gas prices, operating risks of oil
and natural gas operations and the uncertainty of reserve estimates); and (iii)
risks associated with the Transactions (such as the shares eligible for future
sale, the absence of dividends, the consummation of the Repurchase and the
preferences of the New Preferred Stock). See "Risks Factors."
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(In thousands except per share data)
The following tables present summary historical and pro forma financial and
operating data of the Company and have been derived from the Consolidated
Financial Statements and Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere within this Prospectus and should be read in
conjunction with those statements and the notes thereto. The amounts and results
of operations of the Company for periods prior to the Gerrity Acquisition
include the historical amounts and results of SOCO's Wattenberg operations.
Neither the historical data nor the pro forma data is necessarily indicative of
the results to be expected after the Transactions. This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA --------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- ------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................... $ 67,822 $ 50,102 $ 83,188 $ 100,138 $30,110 $ 52,340 $52,340
Expenses
Direct operating................ 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration..................... 784 416 224 658 149 62 62
General and administrative...... 7,484 5,974 6,151 8,744 3,113 2,611 3,745
Interest and other.............. 3,869 5,476 14,304 19,198 4,979 8,485 8,485
Depletion, depreciation and
amortization.................. 43,036 32,591 44,822 51,663 18,723 24,776 24,776
-------- -------- -------- -------- ------- -------- -------
Total expenses........... 63,283 53,324 80,020 97,981 32,365 45,256 46,390
-------- -------- -------- -------- ------- -------- -------
Income (loss) before taxes........ 4,539 (3,222) 3,168 2,157 (2,255) 7,084 5,950
Provision (benefit) for income
taxes........................... 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- ------- -------- -------
Net income (loss)................. $ 2,950 $ (2,094) $ 3,562 $ 2,157 $(1,861) $ 7,084 $ 5,950
======== ======== ======== ======== ======= ======== =======
Net income (loss) per common
share........................... $ 0.21 $ (0.15) $ 0.08 $ (0.43) $ (0.16) $ 0.30 $ 0.14
======== ======== ======== ======== ======= ======== =======
Weighted average shares
outstanding..................... 14,000 14,000 17,796 14,333 15,959 18,921 13,467
======== ======== ======== ======== ======= ======== =======
CASH FLOW DATA
Net cash provided by operations... $ 47,690 $ 18,407 $ 52,996 N/A $14,968 $ 33,481 N/A
Net cash used by investing........ (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing....................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A
OTHER FINANCIAL DATA
EBITDA(c)......................... $ 51,444 $ 34,778 $ 62,265 $ 74,382 $21,390 $ 40,266 $39,499
Capital expenditures(d)........... (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.......................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net...... 234,821 214,594 398,640 381,016 381,016
Total assets............................. 246,686 224,521 430,233 413,517 413,517
Long-term debt........................... 79,333 75,000 197,594 182,685 182,685
Stockholders' equity..................... 115,846 113,663 196,236 197,542 197,542
</TABLE>
- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.
7
<PAGE> 9
(b) As adjusted to give effect to the Transactions (assuming a Public Offering
Price of $9.50 per share, the purchase by the Management Investors of
315,789 shares of Common Stock at the Public Offering Price, the issuance by
the Company of $57.0 million of New Preferred Stock and the repurchase by
the Company of 6,430,000 shares of Common Stock from SOCO at a Net Offering
Price of $8.9775 per share), as if each had occurred on the first day of the
period presented, in the case of Statement of Operations Data and Other
Financial Data, or as if each had occurred on the date presented, in the
case of Balance Sheet Data.
(c) EBITDA represents net income (loss) plus income taxes, interest expense and
depletion, depreciation and amortization expense. EBITDA does not represent,
and should not be considered as, an alternative to net income or cash flows
from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes to the
Company's industry or to the economy generally. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate oil and gas companies. The Company also believes that EBITDA data
may help to understand the Company's performance because such data may
reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service, capital expenditure and working
capital requirements. In evaluating EBITDA, historical net cash provided
from operations, capital expenditures and debt service requirements should
be considered. EBITDA may not be comparable to other similarly titled
measures of other companies. The Company's Credit Agreement requires the
maintenance of certain EBITDA ratios. See "Description of Certain
Indebtedness -- Credit Agreement."
(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.
8
<PAGE> 10
SUMMARY OPERATING DATA
The following table sets forth certain summary operating data for the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------- JUNE 30,
PRO FORMA -------------------
1994 1995 1996 1996 1996 1997
------ ------ ------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE DAILY PRODUCTION
Oil (Bbl).................... 5,011 3,677 4,612 5,786 3,809 5,442
Natural gas (Mcf)............ 65,460 57,482 65,429 79,241 56,640 75,624
Total Mcfe................... 95,526 79,544 93,101 113,957 79,494 108,275
AVERAGE PRICES
Oil (Bbl).................... $14.84 $16.43 $20.47 $20.21 $19.55 $20.29
Natural gas (Mcf)............ 1.70 1.34 1.99 1.93 1.58 2.35
Mcfe......................... 1.94 1.73 2.41 2.37 2.06 2.66
PER MCFE DATA
Revenues..................... $ 1.94 $ 1.73 $ 2.41 $ 2.37 $ 2.06 $ 2.66
Lease operating expenses..... 0.10 0.19 0.26 0.26 0.23 0.30
Production taxes............. 0.13 0.12 0.17 0.17 0.14 0.18
General and administrative
expenses.................. 0.22 0.21 0.18 0.21 0.22 0.13
------ ------ ------ ------ ------ ------
Operating margin............. $1.49 $1.21 $1.80 $1.73 $1.47 $2.05
====== ====== ====== ====== ====== ======
RESERVE LIFE INDEX(years)(a)... 7.2 6.3 12.7 10.3 N/A N/A
</TABLE>
- ---------------
(a) The reserve life index is calculated as proved reserves divided by annual or
pro forma production for the relevant period.
SUMMARY RESERVE DATA
The following table summarizes the Company's net proved developed and
undeveloped reserves as of December 31, 1996, based upon a report prepared by
Netherland, Sewell & Associates, Inc. The quantities and values are based on
wellhead prices at December 31, 1996, which averaged $25.20 per barrel of oil
and $3.70 per Mcf of gas.
<TABLE>
<CAPTION>
PROVED RESERVES(a)
--------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
Oil (MBbl)................................................. 15,799 6,676 22,475
Natural gas (MMcf)......................................... 242,777 53,882 296,659
Total Proved Reserves (MMcfe).............................. 337,572 93,938 431,509
Future net cash flow before income taxes (in thousands).... $ 980,264 $ 188,603 $1,168,867
Pretax present value (in thousands)........................ $ 582,408 $ 66,389 $ 648,797
</TABLE>
- ---------------
(a) Oil and natural gas prices in effect at December 31, 1996 were significantly
higher than current prices. Equivalent reserves and pretax present value
would be approximately 397,000 MMcfe and $343 million, respectively,
assuming constant wellhead prices of $20.00 per barrel of oil and $2.00 per
Mcf of gas.
9
<PAGE> 11
RISK FACTORS
COMPANY RISKS
Acquisition Risks
The Company's growth has been attributable in significant part to
acquisitions. The Company expects to continue to evaluate and, where
appropriate, pursue acquisition opportunities on terms management considers
satisfactory. There can be no assurance that suitable acquisitions will be
identified in the future or that the Company will be able to finance such
acquisitions on favorable terms. In connection with consummating any significant
future acquisitions, the Company will require additional debt or equity
financing, which may not be available or, if available, may not be on terms that
are acceptable to the Company. In addition, the Company competes against other
companies for acquisitions, and there can be no assurance that the Company will
be successful in the acquisition of any material property interests.
Furthermore, there can be no assurance that any future acquisitions made by the
Company will be integrated successfully into the Company's operations or will
achieve desired rates of return.
Successful acquisitions require an assessment of recoverable reserves,
exploration potential, future oil and natural gas prices, operating costs, as
well as environmental and other risks beyond the Company's control. In
connection with such assessments, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices.
Nonetheless, the resulting assessments are necessarily inexact and their
accuracy inherently uncertain, and such a review may not reveal all existing or
potential problems, nor will it necessarily permit the Company to become
sufficiently familiar with the properties to fully assess their merits and
efficiencies. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken.
Significant acquisitions can change the nature of the operations and
business of the Company depending upon the character of the acquired properties,
which may be substantially different in operating and geologic characteristics
or geographic location from existing properties.
Dependence on Key Personnel
The continued growth of the Company depends, and will continue to depend in
the foreseeable future, on the services of its officers and key employees who
have extensive experience and expertise in evaluating and analyzing potential
acquisitions and managing the Company's oil and natural gas properties,
including Mr. Edelman, the Company's Chairman, President and Chief Executive
Officer. The Company has a three-year employment agreement with Mr. Edelman,
pursuant to which Mr. Edelman will commit a substantial portion of his working
time to the Company and the business of the Company will represent his primary
responsibility. Under the terms of this employment agreement, however, he may
continue to engage in outside business activities at substantially current
levels. The Company does not have employment agreements with any of its officers
or key employees, other than Mr. Edelman. The ability of the Company to retain
its officers and key employees is important to the continued success and growth
of the Company. The loss of Mr. Edelman would, and the loss of other key
personnel could, have a material adverse effect on the Company's future growth
prospects. The Company does not maintain key man life insurance on any of its
employees. See "Management."
Replacement of Reserves and Production Decline
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted. A typical Wattenberg Codell/Niobrara well
produces at the highest rates in the first six to twelve months, during which
production declines significantly from initial rates. More than half of a
typical well's reserves are recovered in the first three-to-five years of
production. Absent the Gerrity Acquisition, production from the Company's
properties would have declined in 1996 and, in view of the limited drilling and
development activity expected in 1997, production is expected to decline further
in 1997. Management believes that production will continue to decline thereafter
unless capital expenditures are increased above currently projected levels.
Except to the extent the Company acquires properties containing proved reserves
or conducts
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<PAGE> 12
successful development activities, its proved reserves will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of acquiring or developing reserves is capital intensive.
To the extent cash flow from operations is reduced and external sources of
capital become limited or unavailable, the Company's ability to make the
necessary capital investment to maintain or expand its asset base of oil and
natural gas reserves would be impaired. In addition, there can be no assurance
that its future development, acquisition and exploration activities will result
in additional proved reserves or that the Company will be able to drill
productive wells at acceptable costs.
Geographic Concentration of Operations
All of the Company's operations are currently located in Wattenberg.
Because of this geographic concentration, any regional events that increase
costs, reduce availability of equipment or supplies, reduce demand or limit
production, including weather and natural disasters, may impact it more than if
its operations were more geographically diversified. The Company's natural gas
production is transported on local pipeline systems for processing at several
local processing plants. While the Company expects to have flexibility to
mitigate the effects of pipeline curtailments or plant shut-downs, curtailment
of a significant portion of a pipeline or a prolonged shut-down at a major
processing plant could adversely affect its operations, perhaps materially.
Effects of Leverage
Giving effect to the Transactions as if they had occurred on June 30, 1997,
the Company's outstanding indebtedness on that date would have been $182.7
million and its ratio of total debt-to-total capitalization would have been 48%.
Such indebtedness does not include the Company's dividend obligations with
respect to the New Preferred Stock or the Old Preferred Stock. As a result of,
and after giving effect to, the Transactions (assuming that 7,500,000 shares of
Common Stock are sold in the Offering at a Public Offering Price of $9.50 per
share and that $57.0 million of New Preferred Stock is issued), (i) the Company
will have no additional outstanding indebtedness and (ii) following the
expiration of the two-year pay-in-kind period for the New Preferred Stock, cash
dividends in the amount of $5.7 million per year in the aggregate (which will
have increased from an initial dividend rate of $4.8 million per year as a
result of the pay-in-kind feature of the New Preferred Stock) will accrue on the
New Preferred Stock ($6.3 million per year if all $63.0 million of New Preferred
Stock is issued). The Company's level of indebtedness will have several
important effects on its future operations. First, a significant portion of the
Company's cash flow from operations must be dedicated to the payment of interest
on its indebtedness and will not be available for other purposes. The Company
expects that its 1997 interest expense will approximate $16.2 million, which
amount is expected to gradually decrease for the next two years thereafter,
subject to the Company's future acquisition activity. Second, covenants
contained in the Company's debt obligations (which covenants are described
herein under "Description of Certain Indebtedness") will require the Company to
meet certain financial tests and may limit its ability to borrow additional
funds or to dispose of assets and may affect the Company's flexibility in
planning for, and reacting to, changes in its businesses, including possible
acquisition activities. The Company is not currently restricted in its ability
to borrow funds as a result of these restrictive covenants, but the Company's
ability to pay dividends is restricted by such restrictive covenants (subject to
certain exceptions). Third, the Company's ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired. The Company's ability to
meet its debt service obligations and to reduce its total indebtedness will be
dependent upon the Company's future performance, which will be subject to oil
and natural gas prices, the Company's level of production, general economic
conditions and financial, business and other factors affecting the operations of
the Company, many of which are beyond its control. There can be no assurance
that the Company's future performance will not be adversely affected by some or
all of these factors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<PAGE> 13
Hedging Risks
From time to time, the Company hedges a portion of its physical oil and
natural gas production utilizing a variety of instruments, including fixed price
swaps and options and exchange-traded futures contracts and options thereon. The
Company's hedging activities, while intended to reduce the Company's sensitivity
to changes in market prices of oil and natural gas, are subject to a number of
risks including instances in which: (i) production is less than expected; (ii)
there is a widening of price differentials between delivery points required by
fixed price delivery contracts, to the extent they differ from those of the
Company's production; or (iii) the Company's customers or the counterparties
fail to purchase or deliver the contracted quantities of oil or natural gas.
Additionally, fixed price sales and hedging contracts limit the benefits the
Company will realize if actual prices rise above the hedging contract prices.
The Company currently has approximately 40% of its projected natural gas
production and approximately 67% of its projected oil production hedged in
September 1997 and approximately 15% of its projected gas production hedged in
October and November 1997. In the future, the Company may increase the
percentage of its production covered by hedging arrangements. Pursuant to the
terms of the Company's Credit Agreement, dated as of April 1, 1997 (the "Credit
Agreement"), the Company is permitted to hedge up to 75% of its anticipated oil
and natural gas production for the duration of the relevant hedge contracts.
Influence of New Preferred Stock Investors
Subject to the terms and conditions of the Preferred Stock Purchase
Agreement, the nine New Preferred Stock Investors have severally, but not
jointly, committed to purchase in the aggregate a minimum of $40.0 million and a
maximum of $63.0 million of New Preferred Stock, with First Reserve Fund VII,
Limited Partnership, Chase Venture Capital Associated, L.P. and Highbridge
International LDC having commitments of up to $32.5 million, $22.5 million and
$4.75 million, respectively. None of the other New Preferred Stock Investors'
commitments exceeds $2.5 million. Holders of the New Preferred Stock will have
(assuming that 2,520,000 shares of New Preferred Stock are issued and are
convertible at $9.50 per share and that no currently outstanding warrants or
options have been exercised) up to approximately 34% of the votes entitled to be
cast on most matters submitted to shareholders for a vote. In addition, the two
holders of the New Preferred Stock holding the most shares of New Preferred
Stock will each be entitled to designate one member of the Board of Directors.
As a result, the holders of the New Preferred Stock will have significant
influence over the business, policies and affairs of the Company and to have a
significant effect on the outcome of any corporate transaction or other matters
submitted to the stockholders for approval such as: (i) any amendment to the
Company's Certificate of Incorporation (the "Certificate of Incorporation"),
including the authorization of additional shares of capital stock; (ii) any
merger, consolidation or sale of all or substantially all of the assets of the
Company; and (iii) any "going private" transaction, and prevent or cause a
change of control of the Company, all of which may adversely affect the Company
and the interests of its other stockholders.
Continued Reliance on SOCO
At the time of the sale of the shares of Common Stock offered hereby, the
Company will enter into an agreement (the "Transition Agreement") with SOCO
whereby SOCO will agree to provide the Company with certain computer and
administrative services for a period of up to one year. The breach or
termination of the Transition Agreement by SOCO could have an adverse effect on
the Company's business, operations or financial condition. There can be no
assurance that the Company would be able to arrange an alternative source of
such services provided under the Transition Agreement upon comparable terms.
Conflicting Business Interests of Chief Executive Officer
Mr. Edelman, the Chief Executive Officer of the Company, has served since
1988 and expects to continue to serve as Chairman of Lomak Petroleum, Inc.
("Lomak"), a publicly traded oil and gas company whose principal areas of
operation are the Midcontinent, Appalachian and Gulf Coast regions of the United
States. The Company currently has no business relationships with Lomak, and
Lomak does not own any of the Company's securities. In addition, the Company has
not and currently does not compete, and, although no
12
<PAGE> 14
assurances can be given, in the future does not expect to compete with Lomak,
including any competition in respect of acquisition opportunities. Although the
Company does not believe that any conflicts have arisen, or are likely to arise,
as a result of Mr. Edelman's position with Lomak, because of Mr. Edelman's
position with Lomak, or other positions or business interests that he may now or
hereafter have or acquire, conflicts of interests may arise between them. See
"Management -- Edelman Employment Agreement and Related Matters." In the past,
with respect to new business proposals, including acquisitions, the Company and
Mr. Edelman have employed the following procedures to resolve any conflicts: (i)
if such proposals were directed to or originated by Lomak or its employees, such
proposals were deemed to be for Lomak's benefit; and (ii) if such proposals were
directed to or originated by the Company or its employees, or if such proposals
were not specifically identified for either company or its employees, such
proposals were deemed to be for the Company's benefit. Mr. Edelman and the
Company plan to continue the foregoing procedures to resolve any future
conflicts that may arise.
INDUSTRY RISKS
Volatility of Oil and Natural Gas Prices
Historically, the markets for oil and natural gas have been volatile,
particularly in the Rocky Mountain region, and are likely to continue to be
volatile in the future. During the past five years, average oil and natural gas
prices have ranged from $14.84 per barrel to $20.47 per barrel for oil, and from
$1.34 per Mcf to $2.08 per Mcf for natural gas. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Inflation and
Changes in Prices." Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that will be beyond the control of the Company. These factors include the level
of consumer product demand, weather conditions, proximity and capacity of
natural gas pipelines and other transportation facilities, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in the Middle East, the foreign supply of oil and natural
gas, the price of foreign imports and overall economic conditions. It is
impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices may adversely affect the
Company's financial condition, liquidity and results of operations. Lower oil
and natural gas prices also may reduce the amount of oil and natural gas
reserves that can be produced economically.
Operating Risks of Oil and Natural Gas Operations
The oil and natural gas business involves certain operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to the Company. In addition, the Company may be
liable for environmental damages caused by previous owners of property held by
the Company. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for development, acquisitions or exploration, or
result in the loss of the Company's properties. In accordance with customary
industry practices, the Company will maintain insurance against some, but not
all, of such risks and losses. The occurrence of such an event not fully covered
by insurance could have a material adverse effect on the financial condition and
results of operations.
Uncertainty of Reserve Estimates
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represents
estimates only. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and developed geological interpretation and
judgment. As a result, estimates of different engineers may vary.
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<PAGE> 15
In addition, estimates of reserves and future net revenues from such
reserves and the present value thereof are based on assumptions regarding
production levels, future oil and natural gas prices, operating costs and other
factors that may not prove to be correct over time. Any significant variance in
these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus.
Title to Properties
Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and natural gas industry, to liens incident to
operating agreements and for current taxes not yet due and other comparatively
minor encumbrances.
As is customary in the oil and natural gas industry, only a perfunctory
investigation as to ownership is conducted at the time undeveloped properties
believed to be suitable for drilling are acquired. Prior to the commencement of
drilling on a tract, a detailed title examination is conducted and curative work
is performed with respect to known significant title defects.
Competition
The oil and natural gas industry is highly competitive in all its phases.
Competition is particularly intense with respect to the acquisition of producing
properties. There is also competition for the acquisition of oil and natural gas
leases, in the hiring of experienced personnel and from other industries in
supplying alternative sources of energy.
Competitors in acquisitions, exploration, development and production
include the major oil companies in addition to numerous independent oil
companies, individual proprietors, drilling and acquisition programs and others.
Many of these competitors possess financial and personnel resources
substantially in excess of those available to the Company. Such competitors may
be able to pay more for desirable leases and to evaluate, bid for and purchase a
greater number of properties than the financial or personnel resources of the
Company permit. The ability of the Company to increase reserves in the future
will be dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development.
Regulation
Oil and natural gas operations are subject to extensive governmental
regulation, which may change in response to economic or political conditions and
other factors. The Company believes that the trend of more expansive and
stricter environmental laws and regulations will continue. The implementation of
new, or the modification of existing, environmental laws or regulations could
reduce demand for oil and natural gas or natural gas liquids ("NGLs"), increase
the Company's costs or have a material adverse impact on the Company. See
"Business -- Regulation."
OFFERING RISKS
Shares Eligible for Future Sale; Registration Rights
Future sales, or the availability for sale, of a substantial number of
additional shares of Common Stock in the public market following the Offering
(as well as any sale of shares of New Preferred Stock) could adversely affect
the market price of the Common Stock. For a description of Common Stock
available for resale after the Offering, see "Shares Eligible for Future Sale."
After giving effect to the Transactions (assuming that the shares of Common
Stock offered hereby are sold at a Public Offering Price of $9.50 per share and
that $63.0 million of New Preferred Stock is issued with a conversion price of
$9.50 per share), there will be 7.6 million restricted shares of Common Stock
(including 6.6 million shares of Common Stock that may be issued upon conversion
of the New Preferred Stock). In addition, the New Preferred Stock Investors have
been granted certain demand registration rights, which may be exercised after
the second anniversary of the initial sale of the New Preferred Stock, for the
future registration of the New Preferred Stock, the Common Stock into which the
New Preferred Stock may be converted and the 160,000 shares of
14
<PAGE> 16
Common Stock to be issued at the initial sale date to the New Preferred Stock
Investors. The Management Investors have also been granted certain limited
registration rights. See "Shares Eligible For Future Sale."
No Dividends
The Company does not currently intend to pay cash dividends on its Common
Stock. The Company currently intends to retain its cash for the continued
expansion of its business, including development and acquisition activities and
to reduce debt levels. No cash dividends may be paid unless all accrued and
unpaid dividends on the Company's Preferred Stock have been paid. In addition,
the Company's Credit Agreement currently prohibits the payment of dividends on
the Common Stock.
Consummation of the Repurchase
The repurchase by the Company of the remaining shares of Common Stock which
would be held by SOCO after the sale of the Common Stock offered hereby is a
condition to the closing of the Offering. Under certain circumstances, the
Company may not be able to issue the New Preferred Stock and, pursuant to the
terms of its current Credit Agreement, the Company may not have sufficient
proceeds available to repurchase the balance of such shares, and, accordingly,
would require additional debt or equity financing. There can be no assurance
that the Company will be able to obtain such financing, or that such financing,
if available, would be on terms that are acceptable to the Company.
Preferences of New Preferred Stock
By its terms (and assuming that the Company issues 2,520,000 shares of New
Preferred Stock), the New Preferred Stock will have (i) a liquidation preference
of $25.00 per share (or $63.0 million in the aggregate) and (ii) a dividend
preference based on the 8.5% annual dividend rate in each case over the rights
of the holders of the Company's Common Stock. For a description of the material
terms of the New Preferred Stock, including dividend rights and redemption,
conversion and voting provisions, see "Description of Capital Stock -- New
Preferred Stock."
Benefits to Affiliates and Management of the Company
Certain directors and officers of the Company and SOCO and certain of their
respective affiliates, as well as certain nominees of the New Preferred Stock
Investors, have interests described herein that present them with conflicts of
interest in connection with the Transactions. In particular, (i) the Management
Investors will be participating in the Transactions by means of the stock
issuances to management (and the Management Investors will receive 500,000
shares of restricted Common Stock with an aggregate value of $4.75 million
(assuming a value of $9.50 per share) and assuming that management's rights in
such granted shares have vested in full), (ii) Mr. Edelman has received from
SOCO the Edelman Option (which, as described herein, is only exercisable in
certain circumstances, but in such circumstances will have a minimum value of $1
million and any amounts to be received in respect of such option in excess of
$2.5 million are to be shared equally between Mr. Edelman and SOCO), (iii) Mr.
Edelman will receive fully vested options to purchase, at the Public Offering
Price, 250,000 shares of Common Stock, and (iv) Mr. Edelman has entered into a
new three-year employment agreement with the Company (which provides for a base
salary of $350,000 and a maximum targeted bonus of 100% of Mr. Edelman's new
base salary). In addition, two of the Company's current directors, John C.
Snyder and William J. Johnson, are directors of SOCO. The Company's Board of
Directors and the Independent Committee were aware of such conflicts and
considered them in connection with the approval of the Transactions.
FORWARD LOOKING INFORMATION
Prospective purchasers of the Common Stock should consider carefully the
risk factors described above, in addition to the other information relating to
the Company and the Common Stock set forth in this Prospectus, before purchasing
any Common Stock. This Prospectus contains certain forward-looking statements,
including statements containing the words "believes," "anticipates," "expects,"
and words of similar
15
<PAGE> 17
import. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: adverse changes in national or local economic conditions; increased
competition; changes in availability, cost and terms of financing; changes in
operating expenses and other factors referenced in this Prospectus. Certain of
these factors are discussed in more detail elsewhere in this Prospectus,
including without limitation, under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business."
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements.
16
<PAGE> 18
CONCURRENT TRANSACTIONS
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will: (a) sell an aggregate of between 1,600,000 and 2,520,000
shares of the New Preferred Stock for a purchase price of $25.00 per share to
the New Preferred Stock Investors; (b) sell $3,000,000 of Common Stock for a
purchase price per share equal to the Public Offering Price (315,789 shares of
Common Stock, assuming the Public Offering Price is $9.50 per share) to the
Management Investors; and (c) use the proceeds from the sale of the New
Preferred Stock and such shares of Common Stock, together with bank borrowings,
if necessary, to purchase the balance of the shares of Common Stock owned by
SOCO. Certain other events are also expected to occur at or about the time the
shares of Common Stock offered hereby are sold.
Issuance of New Preferred Stock
Pursuant to a Stock Purchase Agreement, dated as of July 31, 1997, the
Company has agreed to sell an aggregate of between 1,600,000 and 2,520,000
shares of the New Preferred Stock to the New Preferred Stock Investors (none of
whom is presently an affiliate of the Company) at a purchase price of $25.00 per
share, or an aggregate purchase price of between $40.0 million and $63.0
million, respectively. The exact number of shares of New Preferred Stock to be
sold to the New Preferred Stock Investors will be determined by the Company in
its discretion at or shortly before the time of sale. To the extent that the
Company elects to sell less than 2,520,000 (but more than 1,600,000) shares of
New Preferred Stock concurrently with the sale of the shares of Common Stock
offered hereby, it shall retain the right to sell, in a subsequent sale, up to
the balance of such shares to the New Preferred Stock Investors at any time
prior to December 31, 1997 for a purchase price of $25.00 per share (subject to
the satisfaction of certain conditions). See "Description of Capital Stock --
Preferred Stock -- Future Issuances of Preferred Stock." It is anticipated that
shares of New Preferred Stock will be initially sold to the New Preferred Stock
Investors concurrently with the sale of the shares of Common Stock being offered
hereby; provided, however, that under certain circumstances a portion of the
proceeds from the sale of New Preferred Stock will be paid up to seven business
days following the sale of shares of Common Stock offered hereby. For a
description of the terms of the New Preferred Stock, see "Description of Capital
Stock -- Preferred Stock -- New Preferred Stock."
As a part of the issuance of the New Preferred Stock, the Company will
issue to the New Preferred Stock Investors, on a pro rata basis, at the time of
the initial sale of the shares of New Preferred Stock, an aggregate of 160,000
shares of Common Stock. If any shares of New Preferred Stock are issued, the New
Preferred Stock Investors will acquire the full amount of these shares of Common
Stock, regardless of how many shares of the New Preferred Stock are actually
issued. In connection with the Transactions, SOCO has also agreed to transfer
70,000 shares of Common Stock to the New Preferred Stock Investors or their
designated affiliates at the time of the initial sale of shares of New Preferred
Stock.
Each of the New Preferred Stock Investors has agreed not to sell, transfer
or otherwise dispose of any shares of New Preferred Stock or Common Stock for a
period of one year following the sale of the shares of Common Stock offered
hereby. See "Shares Eligible for Future Sale." The New Preferred Stock Investors
have further agreed that: (i) for the period from the first anniversary until
the second anniversary of the sale of the shares of Common Stock offered hereby,
they will not sell, transfer or otherwise dispose of any shares of New Preferred
Stock or Common Stock, without the prior consent of the Company's Board of
Directors or pursuant to Rule 144 under the Securities Act; and (ii) thereafter,
the New Preferred Stock Investors will be free to sell such shares but any such
sale, transfer or disposition must be in compliance with the requirements of the
Securities Act and any other applicable laws. In addition to the foregoing
restrictions, the New Preferred Stock Investors and their affiliates and
permitted transferees have also agreed: (i) not to sell short any of the
Company's securities for a period of two years following the sale of the shares
of Common Stock offered hereby; and (ii) to certain standstill provisions with
respect to the Company's voting securities, including, among other provisions, a
five-year restriction on the Preferred Stock Investors' ability to transfer any
shares of New Preferred Stock or Common Stock to any person who, after giving
effect to such transfers, would be the beneficial owner of 7.5% or more of the
aggregate voting power of all of the Company's securities, except for transfers
permitted under the Securities Act, in connection with an underwritten offering
17
<PAGE> 19
or certain qualifying tender or exchange offers and transfers to persons who
agree to substantially similar restrictions as those agreed to by the New
Preferred Stock Investors.
The Company has agreed to register with the Commission, following the
second anniversary of the sale of the shares of Common Stock offered hereby, for
sale to the public the shares of New Preferred Stock, the shares of Common Stock
issuable upon conversion of shares of New Preferred Stock, the 160,000 shares of
Common Stock issued to the New Preferred Stock Investors in consideration for
their prior commitment to purchase shares of New Preferred Stock, as described
under "Description of Capital Stock -- Registration Rights" and the 70,000
shares of Common Stock transferred to the New Preferred Stock Investors or their
designated affiliates by SOCO in connection with the Transactions.
Issuance of Common Stock to Management Investors
Pursuant to a Management Stock Purchase Agreement, dated as of September 4,
1997, the Company has agreed to sell shares of Common Stock having an aggregate
purchase price of $3.0 million, at a per share purchase price equal to the
Public Offering Price, to the Management Investors, including Mr. Edelman, the
Chief Executive Officer of the Company. Mr. Edelman has committed to purchase an
aggregate of $2.0 million of Common Stock (or, assuming a Public Offering Price
of $9.50 per share, 210,526 shares) and the other Management Investors have
committed to purchase an aggregate of $1.0 million of Common Stock (or, assuming
a Public Offering Price of $9.50 per share, 105,263 shares). The Company will
lend each Management Investor (other than Mr. Edelman) up to 85% of such
purchase price pursuant to five-year 8.5% loan arrangements. It is anticipated
that such shares of Common Stock will be sold to the Management Investors
concurrently with the shares of Common Stock being offered hereby and the
issuance of such shares of Common Stock is conditioned upon the concurrent sale
of the shares of Common Stock offered hereby and the issuance of such shares is
a condition to the sale of the shares of Common Stock offered hereby. In
addition, to induce the Management Investors (other than Mr. Edelman) to invest
in the Company through their purchase of $1.0 million of Common Stock and to
enhance their interest in the Company's future success, the Company will also
award to these individuals an aggregate of 150,000 shares of restricted Common
Stock. The Company has also agreed to grant to Mr. Edelman 350,000 shares of
restricted Common Stock in consideration for his efforts in structuring and
arranging the private placement of the New Preferred Stock. The ownership of
these 500,000 shares will vest in equal increments over a period of five years.
These awarded shares have an aggregate value of $4.75 million (assuming a value
of $9.50 per share) and assuming that the Management Investors' rights in such
granted shares have vested in full. See "Management -- Management Equity
Participation Program."
Each of the Management Investors has agreed not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following the sale of the shares of Common Stock offered hereby. See "Shares
Eligible for Future Sale." Thereafter the Management Investors will be free to
sell the shares of Common Stock that they have purchased, subject to compliance
with the requirements of the Securities Act and any other applicable laws. The
restricted shares of Common Stock that have been awarded them may not be sold
until ownership in such shares has vested, as described in "Management --
Management Equity Participation Program." The Company has agreed to register
with the Commission for sale to the public the shares of Common Stock purchased
by, or awarded to, the Management Investors, as described under "Description of
Capital Stock -- Registration Rights."
Repurchase of Common Stock
Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997, the
Company has agreed to purchase the balance of the shares of Common Stock owned
by SOCO, other than the 70,000 shares to be transferred by SOCO to the New
Preferred Stock Investors or their designated affiliates (6,430,000 shares,
assuming no exercise of the Underwriters' overallotment option and the sale of
7,500,000 shares in the Offering; 5,305,000 shares, assuming exercise of such
option in full), at a per share purchase price equal to the Net Offering Price.
The Company will repurchase such shares of Common Stock concurrently with the
sale of the New Preferred Stock and shares of Common Stock offered hereby and
the concurrent repurchase of such shares of Common Stock is a condition to the
sale of the shares of Common Stock offered hereby. After the
18
<PAGE> 20
consummation of the Offering and the Share Repurchase, SOCO will no longer own
any shares of Common Stock.
Pursuant to the Share Repurchase Agreement, SOCO has agreed that, for a
period of 30 days following the date a preliminary prospectus relating to the
Offering is broadly distributed, it will not take any action with respect to the
acquisition or disposition of assets or securities of the Company by any third
party.
The Company will use the proceeds from the sale of the New Preferred Stock
and the shares of Common Stock sold to the Management Investors, together with
bank borrowings, if necessary, to pay for the shares of Common Stock being
repurchased from SOCO.
Approval of the Transactions
The Board of Directors of the Company has established a committee of
independent directors not affiliated with either the Company or SOCO (the
"Independent Committee") and such committee has recommended to the Board of
Directors that the Board approve, and the Board of Directors by unanimous vote
has approved, the Transactions, including the Offering, as being fair, from a
financial point of view, to the Company's stockholders (other than SOCO). In
reaching its conclusion as to the fairness of the Transactions, the Independent
Committee considered the advice of A.G. Edwards & Sons, Inc. ("Edwards")
concerning the fairness, from a financial point of view, of: (i) the
consideration to be paid to the Company for the New Preferred Stock; and (ii)
the Repurchase. Edwards' fairness opinion does not address the fairness of all
of the components of the Transactions; in particular, the issuance of Common
Stock to the Management Investors and the Offering are not, and will not be,
addressed in such opinion. Edwards is one of the Underwriters of the Offering
and, in such capacity, will receive compensation in connection with the sales of
Common Stock thereunder. See "Underwriting."
Certain Other Events
In addition to the Concurrent Transactions described above, at or about the
time of the Offering, certain other events are anticipated to occur:
Employment Arrangements with Mr. Edelman. The Company and Mr. Edelman, the
Chief Executive Officer of the Company, have entered into a three-year
employment agreement which will become effective concurrently with the Offering.
For a description of the terms of this agreement, see "Management -- Edelman
Employment Agreement and Related Matters."
Certain Changes in the Company's Board of Directors. It is anticipated
that, concurrently with the consummation of the Transactions, the members of the
Company's Board of Directors affiliated with SOCO, Mr. John C. Snyder and Mr.
William J. Johnson, will resign from the Board and will be replaced by persons
designated by First Reserve Fund VII, Limited Partnership and Chase Venture
Capital Associates, L.P., the two largest holders of shares of the New Preferred
Stock. First Reserve Fund VII, Limited Partnership has designated Mr. William E.
Macaulay and Chase Venture Capital Associates, L.P. has designated Mr. Arnold L.
Chavkin. See "Management -- Directors and Executive Officers."
Termination of Certain Arrangements with SOCO; Transition Agreement. At
the time the shares of Common Stock offered hereby are sold, the Company will
terminate certain arrangements it has with SOCO relating to the treatment of
certain business opportunities and the provision of certain corporate services
to the Company by SOCO. In lieu thereof, the Company and SOCO will enter into
the Transition Agreement. The Transition Agreement provides that, for a period
of up to one year, SOCO will provide the Company with certain computer and
administrative services.
Grant of Options by SOCO. SOCO has granted the New Preferred Stock
Investors, in connection with and in consideration of, their commitment to
purchase the New Preferred Stock, options to acquire an aggregate of 2,000,000
shares of the Company's Common Stock owned by SOCO at a price of $8.00 per share
(the "Investors' SOCO Options"). SOCO has also granted Mr. Edelman, the Chief
Executive Officer, in consideration for Mr. Edelman's efforts to arrange and
structure the Concurrent Transactions, options to acquire 2,000,000 shares of
the Company's Common Stock owned by SOCO at a price of $8.00 per share (the
19
<PAGE> 21
"Edelman SOCO Options" and, together with the "Investors' SOCO Options, the
"SOCO Options"). In general, the SOCO Options represent a "break-up" fee to be
paid by SOCO to each of the New Preferred Stock Investors or their affiliates
and Mr. Edelman under certain limited circumstances described below.
The SOCO Options may generally be either physically settled or cash
settled, as the holder elects. To the extent that the value of a SOCO Option (as
described below) at the time that the SOCO Option is exercised or deemed
exercised (the "Option Exercise Value") is less than $1.00 (in the case of an
Investors' SOCO Option) or $0.50 (in the case of an Edelman SOCO Option), SOCO
will pay an amount equal to such difference to the holder of the SOCO Option; to
the extent that the Option Exercise Value equals or exceeds $1.25, the holder of
the SOCO Option will pay an amount equal to one-half of such excess to SOCO. As
used herein, the value of any SOCO Option means the amount, if any, by which the
value of the consideration to be received upon the exercise of the SOCO Option
(as determined pursuant the terms thereof) exceeds $8.00. The SOCO Options can
be exercised only upon the cancellation of the Offering by SOCO or the
termination of the Repurchase by SOCO other than because (a) the Net Offering
Price would be less than $7.0875 per share; (b) the Offering is not consummated
by October 29, 1997; (c) less than 5,000,000 shares of Common Stock can be sold
in the Offering; or (d) the Company materially breaches the Share Repurchase
Agreement (each an "Option Trigger Event").
Any physical exercise of the SOCO Options will be satisfied with shares of
Common Stock owned by SOCO and any cash settlement of the SOCO Options will be
paid by SOCO. However, the Company's obligations to repurchase shares of Common
Stock under the Share Repurchase Agreement will not be reduced as a result of
any exercise of the SOCO Options (except to the extent that an Option Trigger
Event results from SOCO's termination of the Share Repurchase Agreement, in
which case the Company will not have any obligation to purchase any shares of
its Common Stock from SOCO). The SOCO Options will terminate upon the earliest
to occur of: (i) the consummation of the Offering and the Share Repurchase; (ii)
the withdrawal of the shares of Common Stock from the Offering or the
termination of the Share Repurchase Agreement, except following an Option
Trigger Event; (iii) five days following the consummation of a transaction in
which a third party acquires a majority of the Company's Common Stock or assets;
and (iv) the expiration of 12 months (or, under certain circumstances, six
months) after the termination of the Share Repurchase Agreement or withdrawal of
the shares of Common Stock from the Offering.
Transfer of Shares by SOCO
In connection with the Transactions, SOCO has agreed to transfer 70,000
shares of Common Stock to the New Preferred Stock Investors or their designated
affiliates at the date of the initial sale of shares of New Preferred Stock to
such investors.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth as of June 30, 1997 (i) the capitalization
of the Company and (ii) the capitalization of the Company as adjusted to give
effect to the Transactions. This table should be read in conjunction with the
Consolidated Financial Statements and Notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(a)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash............................................................... $ 10,568 $ 10,568
======== ========
Long-term debt:
Senior debt........................................................ $ 85,000 $ 85,000
Subordinated debt.................................................. 97,685 97,685
-------- --------
Total long-term debt.......................................... 182,685 182,685
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized:
Old Preferred Stock; 1,467,926 shares issued and outstanding..... 15 15
New Preferred Stock; -0- shares issued and outstanding, 2,280,000
shares issued and outstanding as adjusted..................... -- 23
Common Stock, par value $.01 per share; 40,000,000 shares
authorized: 18,820,248 shares issued and outstanding; 13,366,037
shares issued and outstanding as adjusted(b)..................... 188 134
Additional paid-in capital......................................... 189,620 189,651
Retained earnings.................................................. 7,719 7,719
-------- --------
Total stockholders' equity.................................... 197,542 197,542
-------- --------
Total capitalization............................................... $380,227 $380,227
======== ========
</TABLE>
- ---------------
(a) Assumes a Public Offering Price of $9.50 per share, the purchase by the
Management Investors of 315,789 shares of Common Stock at the Public
Offering Price, a Net Offering Price of $8.9775 per share, the issuance by
the Company of $57.0 million of New Preferred Stock, the repurchase by the
Company of 6,430,000 shares of Common Stock from SOCO at a price per share
equal to the Net Offering Price and the borrowing by the Company of $500,000
under the Credit Agreement.
(b) Assumes a Public Offering Price of $9.50 per share and includes: (i) 315,789
shares of Common Stock to be purchased by the Management Investors; (ii)
500,000 shares of restricted Common Stock awarded to the Management
Investors; and (iii) and 160,000 shares of Common Stock issued to the New
Preferred Stock Investors. Excludes: (i) 4,262,271 shares and 6,000,000
shares (assuming the issuance of 2,280,000 shares of New Preferred Stock) of
Common Stock issuable upon the conversion of outstanding shares of the Old
Preferred Stock (at a conversion price of $8.61 per share) and shares of New
Preferred Stock (assuming a conversion price of $9.50 per share),
respectively; (ii) 2,919,451 shares of Common Stock issuable upon exercise
of outstanding warrants (having an exercise price of $12.50 per share) (the
"Warrants"); and (iii) 788,960 shares of Common Stock issuable upon exercise
of outstanding stock options (having a weighted average exercise price of
$8.30 per share). See "Description of Capital Stock -- Preferred Stock" and
"-- Warrants" and "Management -- Management Equity Participation Program."
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being sold by SOCO.
The Company will not receive any of the proceeds from the sale of such shares.
The Company will pay certain expenses relating to the Offering, estimated to be
approximately $1.4 million.
21
<PAGE> 23
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "POG." The Common Stock began trading on the New York Stock Exchange
on May 3, 1996, following the consummation of the Gerrity Acquisition. The
following table sets forth, for the periods indicated, the range of high and low
per share closing prices for the Common Stock, as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1996
Second Quarter (from May 3, 1996)............................... $ 8.25 $6.13
Third Quarter................................................... 7.38 6.75
Fourth Quarter.................................................. 9.50 7.00
1997
First Quarter................................................... 10.50 8.63
Second Quarter.................................................. 9.50 8.00
Third Quarter (through September 18, 1997)...................... 9.75 8.00
</TABLE>
On September 18, 1997, the last reported sales price of the Common Stock on
the New York Stock Exchange was $9 11/16. As of that same date, there were
approximately 110 stockholders of record of Common Stock and approximately 18.8
million shares of Common Stock outstanding.
DIVIDEND POLICY
No dividends were declared or paid on the Common Stock during the periods
reported in the table above. The Company intends to retain future cash flow for
use in its business and has no current intention of paying cash dividends on its
Common Stock in the foreseeable future. Any payment of future dividends and the
amounts thereof will depend upon the Company's earnings, financial condition,
capital requirements and other factors deemed relevant by the Company's Board of
Directors. In addition, the Company's Credit Agreement currently prohibits the
payment of any dividends on the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
and Capital Resources" and "Description of Certain Indebtedness -- Credit
Agreement."
22
<PAGE> 24
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following table presents selected historical and pro forma financial
data of the Company. The selected historical financial data as of or for each of
the years in the three-year period ended December 31, 1996 are derived from the
audited Consolidated Financial Statements of the Company. The pro forma
financial data of the Company have been derived from the Unaudited Pro Forma
Condensed Consolidated Financial Statements included elsewhere within this
Prospectus and should be read in conjunction with those statements and the notes
thereto. The amounts and results of operations of the Company for periods prior
to the Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. The selected
historical financial data for the six month periods ended June 30, 1996 and 1997
are derived from, and are qualified by reference to, unaudited interim financial
statements appearing elsewhere in this Prospectus. In the opinion of management,
such unaudited interim financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair and, except as noted
below, consistent presentation, in accordance with generally accepted accounting
principles, of such information. Future results may differ substantially from
historical results because of changes in oil and natural gas prices, normal
production declines and other factors. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, presented elsewhere in this Prospectus. This data reflects the
Gerrity Acquisition in May 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA -----------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................. $ 67,822 $ 50,102 $ 83,188 $ 100,138 $ 30,110 $ 52,340 $ 52,340
Expenses
Direct operating................... 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration........................ 784 416 224 658 149 62 62
General and administrative......... 7,484 5,974 6,151 8,744 3,113 2,611 3,745
Interest and other................. 3,869 5,476 14,304 19,198 4,979 8,485 8,485
Depletion, depreciation and
amortization..................... 43,036 32,591 44,822 51,663 18,723 24,776 24,776
-------- -------- -------- -------- -------- -------- --------
Total expenses................... 63,283 53,324 80,020 97,981 32,365 45,256 46,390
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes........... 4,539 (3,222) 3,168 2,157 (2,255) 7,084 5,950
Provision (benefit) for income
taxes.............................. 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $ 2,950 $ (2,094) $ 3,562 2,157 $ (1,861) 7,084 5,950
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share... $ 0.21 $ (0.15) $ 0.08 $ (.43) $ (0.16) $ 0.30 $ .14
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding........................ 14,000 14,000 17,796 14,333 15,959 $ 18,921 13,467
======== ======== ======== ======== ======== ======== ========
CASH FLOW DATA
Net cash provided by operations...... $ 47,690 $ 18,407 $ 52,996 N/A $ 14,968 $ 33,481 N/A
Net cash used by investing........... (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing.......................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A
OTHER FINANCIAL DATA
EBITDA(c)............................ $ 51,444 $ 34,778 $ 62,265 $ 74,382 $ 21,390 $ 40,266 $ 39,499
Capital expenditures(d).............. (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital..................................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net................. 234,821 214,594 398,640 381,016 381,016
Total assets........................................ 246,686 224,521 430,233 413,517 413,517
Long-term debt...................................... 79,333 75,000 197,594 182,685 182,685
Stockholders' equity................................ 115,846 113,663 196,236 197,542 197,542
</TABLE>
- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.
(b) As adjusted to give effect to the Transactions (assuming a Public Offering
Price of $9.50 per share, the purchase by the Management Investors of
315,789 shares of Common Stock at the Public Offering Price, the issuance by
the Company of $57.0 million of New Preferred Stock and the repurchase by
the Company of 6,430,000 shares of Common Stock from SOCO at a Net Offering
Price of $8.9775 per share), as if each had occurred on the first day of the
period presented, in the case of Statement of Operations Data and Other
Financial Data, or as if each had occurred on the date presented, in the
case of Balance Sheet Data.
(c) EBITDA represents net income (loss) plus income taxes, interest expense and
depletion, depreciation and amortization expense. EBITDA does not represent,
and should not be considered as, an alternative to net income or cash flows
from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes to the
Company's industry or to the economy generally. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate oil and gas companies. The Company also believes that EBITDA data
may help to understand the Company's performance because such data may
reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service, capital expenditure and working
capital requirements. In evaluating EBITDA, historical net cash provided
from operations, capital expenditures and debt service requirements should
be considered. EBITDA may not be comparable to other similarly titled
measures of other companies. The Company's Credit Agreement requires the
maintenance of certain EBITDA ratios. See "Description of Certain
Indebtedness -- Credit Agreement."
(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On May 2, 1996 Gerrity Oil & Gas Corporation ("Gerrity") was merged into a
wholly-owned subsidiary of the Company. The Gerrity Acquisition was accounted
for as a purchase of Gerrity. Accordingly, the results of operations since the
Gerrity Acquisition reflect the impact of the purchase.
Six months ended June 30, 1997 compared to six months ended June 30,
1996. Total revenues for the six month period ended June 30, 1997 increased to
$52.3 million from $30.1 million, representing an increase of 74% from the prior
year period. The revenue increase was due to the higher production associated
with the Gerrity Acquisition and improved oil and natural gas prices. Exclusive
of the Gerrity Acquisition, revenues would have increased by $1.8 million or 8%.
Net income for the six months ended June 30, 1997 was $7.1 million compared to a
net loss of ($1.9 million) for the same period in 1996. The increase in net
income is primarily attributed to the increased revenue, partially offset by
increased interest expense and higher depletion, depreciation and amortization
expense.
Oil and natural gas sales less direct operating expenses for the six months
ended June 30, 1997 were $42.8 million, a 75% increase from the prior year
period. Average daily production for the six months ended June 30, 1997 was
5,442 barrels and 75.6 MMcf (108.3 MMcfe), increases of 42% and 33%,
respectively. The production increases resulted solely from the Gerrity
Acquisition. Exclusive of the Gerrity Acquisition, average daily production
would have declined by 453 barrels and 8.0 MMcf due to the Company's limited
development schedule and expected initial declines on the large number of wells
drilled and completed in 1994 and early 1995. There was one well placed on
production in the first six months of 1996 compared to 19 wells in the first six
months of 1997. In the future, while production has increased from the first
quarter of 1997, a decrease is expected unless development activity is
substantially increased or acquisitions are consummated. The decision to
increase development activity is heavily dependent on the prices being received
for production.
Average oil prices increased from $19.55 per barrel for the six months
ended June 30, 1996 to $20.29 in 1997. Natural gas prices increased from $1.58
per Mcf for the six months ended June 30, 1996 to $2.35 in 1997. The increase in
natural gas prices was primarily the result of the 86% increase in the average
CIG index for the six month period. Direct operating expenses increased to $0.48
per Mcfe compared to $0.37 in the prior year period. The increase is primarily
attributed to focusing more attention on enhancing production through increased
well workovers, additional field staff overtime and the overall increase in
production taxes as a result of higher oil and gas prices.
General and administrative expenses, net of reimbursements, for the six
months ended June 30, 1997 totalled $2.6 million, a 16% decrease from the same
period in 1996. Prior to the Gerrity Acquisition, the Company did not have its
own employees. Employees and certain office space and furniture, fixtures and
equipment were provided by SOCO. SOCO allocated general and administrative
expenses based on estimates of expenditures incurred on behalf of the Company.
Interest and other expenses was $8.5 million compared to $5.0 million for
the six months ended June 30, 1996. Interest expense increased as a result of
higher average outstanding debt levels due to additional debt recorded as a
result of the Gerrity Acquisition as well as debt incurred to finance certain
costs related to the Gerrity Acquisition. The Company's average interest rate
was 9.5% compared to 7.5% in the prior year period. This increase is due
primarily to the Company's 11.75% Senior Subordinated Notes due July 15, 2004
(the "Notes") which the Company assumed as part of the Gerrity Acquisition.
Depletion, depreciation and amortization expense for the six months ended
June 30, 1997 totalled $24.8 million, an increase of $6.1 million or 32% from
the same period in 1996. The increase resulted from higher oil and natural gas
production as a result of the Gerrity Acquisition, partially offset by a
decreased depletion, depreciation and amortization rate of $1.27 per Mcfe
compared to $1.29 in 1996. The decreased rate was attributed to a decrease in
the depletion rate from $1.23 per Mcfe in 1996 to $1.20 in 1997, partially
offset by $1,167,000 of amortization, or $0.06 per Mcfe, related to a noncompete
agreement entered into as part of the
25
<PAGE> 27
Gerrity Acquisition during the six months ended June 30, 1997 as compared to
$640,000, or $0.04 per Mcfe in 1996.
Comparison of 1996 results to 1995. Total revenues for 1996 were $83.2
million, an increase of $33.1 million from 1995. The amount represents an
increase of 66% as compared to the prior year period. The revenue increase is
due to the effect of the Gerrity Acquisition, improved product prices in 1996
and includes other revenue of $1.0 million attributable to oil marketing income
associated with arrangements whereby the Company sold barrels at Cushing,
Oklahoma. Exclusive of the Gerrity Acquisition, revenues would have decreased by
$3.5 million or 7%. Net income for 1996 was $3.6 million compared to a net loss
of $2.1 million in 1995. The increase in net income is primarily attributed to a
significant increase in average oil and natural gas prices received, offset by
an increase in interest expense and depletion, depreciation and amortization.
Oil and natural gas sales less direct operating expenses for 1996 were
$67.7 million, a 64% increase from the prior year period. Average daily
production in 1996 was 4,612 barrels and 65.4 MMcf (or 93.1 MMcfe), increases of
26% and 14%, respectively. The production increases resulted solely from the
Gerrity Acquisition. Exclusive of the Gerrity Acquisition, average daily
production would have declined by 1,165 barrels and 18.3 MMcf due to the
Company's reduced capital expenditures and expected production declines on the
large number of wells drilled and completed in 1994 and early 1995. There were
88 wells placed on production in 1995 compared to 12 wells in 1996. In the
future, while production is not expected to continue to decline at the current
rate, a decrease is expected unless development drilling activity is
substantially increased or additional acquisitions are consummated. The decision
to increase development drilling is heavily dependent on the commodity prices
being received for production.
Average oil prices increased to $20.47 per barrel compared to $16.43
received in 1995. Average natural gas prices increased from $1.34 per Mcf in
1995 to $1.99 in 1996. The increase in natural gas prices was primarily the
result of prior year production being marketed under term arrangements which
were based on Rocky Mountain region pricing (which was depressed) whereas the
1996 production benefitted from several factors. A portion of these term
arrangements expired during 1996 which allowed the production to be sold at
local spot prices which had increased as a result of higher demand and declining
production in the D-J Basin. In addition, enhanced marketing efforts combined
with higher natural gas liquids("NGLs") prices contributed to the overall price
increase. Direct operating expenses increased to $0.43 per Mcfe compared to $.31
in 1995. The increase is primarily attributed to the Company's focus on
enhancing production through performing well workovers on existing properties
and the overall increase in production taxes as a result of the higher average
oil and natural gas prices.
General and administrative expenses, net of third party reimbursements, for
1996 were $6.2 million, a 3% increase over 1995. The increase is the result of
the Gerrity Acquisition partially offset by reductions in allocated costs from
SOCO during the first four months of 1996. Prior to the Gerrity Acquisition, the
Company did not have its own employees. Employees and certain office space and
furniture, fixtures and equipment were provided by SOCO. SOCO allocated general
and administrative expenses based on estimates of expenditures incurred on
behalf of the Company.
Interest and other expense was $14.3 million compared to $5.5 million in
1995. Interest expense increased as a result of higher average outstanding debt
levels as a result of the Gerrity Acquisition. The Company's average interest
rate climbed to 9.3% compared to 7.0% in 1995. This increase is due primarily to
the Notes which were assumed as part of the Gerrity Acquisition.
Depletion, depreciation and amortization expense for 1996 totaled $44.8
million, an increase of $12.2 million, or 38% over 1995. The increase resulted
from the higher production and an increased depletion, depreciation and
amortization rate of $1.32 per Mcfe compared to $1.12 in 1995. The primary cause
for the increased rate was a downward revision in reserve quantities due to
proved undeveloped reserves being classified as uneconomic at year-end 1995
prices and the inclusion of the amortization of a noncompete agreement entered
into in conjunction with the Gerrity Acquisition. The amortization of a
noncompete agreement of $2.6 million in 1996 resulted in an increase of $0.08 in
the depletion, depreciation and amortization rate per Mcfe.
26
<PAGE> 28
Comparison of 1995 results to 1994. Total revenues in 1995 were $50.1
million as compared to $67.8 million in 1994. The 26% decrease was due to both a
drop in production (17%) and in average prices received (11%). The net loss for
1995 was $2.1 million compared to net income of $3.0 million in 1994. The
decrease was primarily due to the drop in production and average prices
received, higher direct operating expenses and increased interest expense due to
increased average debt payable to parent offset somewhat by a lower depletion
rate.
Average daily production during 1995 was 3,677 barrels and 57.5 MMcf (79.5
MMcfe), a decrease of 27% for oil and 12% for gas, as compared to 1994. The
production declines resulted primarily from the Company's decision to reduce
drilling in 1995 due to the continued decline in gas prices subsequent to year
end 1994. During 1995, the Company placed an additional 88 wells on production
compared to 360 wells during 1994. The direct operating margin (revenues less
direct operating costs) for 1995 was $41.2 million, a 31% decrease from 1994.
Average oil prices increased 11% to $16.43 per barrel. However, that modest
increase was more than offset by the continued sharp decline in natural gas
prices. The average natural gas price for 1995 was only $1.34 per Mcf, a 21%
decrease from 1994. Direct operating expenses per Mcfe also increased to $0.31
from $0.23 in 1994 due to decreasing total production with a higher number of
wells and higher well servicing costs in 1995.
General and administrative expenses, net of reimbursements, were $6.0
million in 1995 as compared to $7.5 million in 1994. The Company did not have
its own employees. Employees and certain office space and furniture, fixtures
and equipment have been provided by SOCO. SOCO has allocated general and
administrative expenses based on estimates of actual expenditures incurred on
behalf of Patina. The general and administrative expenses in 1995 were $1.5
million lower than 1994, reflecting the lower overhead associated with the
reduced drilling activity.
Interest paid to parent and other expenses were $5.5 million in 1995 as
compared to $3.9 million in 1994. Interest expense represents interest on debt
payable to SOCO. Prior to the Gerrity Acquisition, SOCO financed all of the
Company's activities. A portion of such financing was considered to be an
investment by SOCO in the Company and, accordingly, no interest was charged by
SOCO to Patina for this capital. The remaining portion of such financing was
considered to be debt payable to SOCO with interest charged to the Company at a
rate which approximated the average interest rate being paid by SOCO under its
revolving credit facility. The increase in interest expense was primarily due to
an increase in interest rates from 5.5% to 7%.
Depletion, depreciation and amortization expense for 1995 decreased 24%
from 1994. The decrease was primarily attributable to the decreases in
production and a $2.1 million greater impairment in 1994.
DEVELOPMENT, ACQUISITION AND EXPLORATION
During the six months ended June 30, 1997, the Company incurred $8.1
million in capital expenditures. The Company anticipates incurring development
capital expenditures of approximately $7.0 million during the remaining six
months of 1997. The Company's capital budget has been set at a conservative
level for 1997. The Company has a significant inventory of projects that are
price sensitive and could increase capital spending significantly under certain
circumstances. During 1996, the Company incurred $226.9 million in capital
expenditures. Of this amount, $218.4 million related to the Gerrity Acquisition
by the issuance of stock and assumption of debt by the Company. Thus, for 1996,
capital expenditures, exclusive of acquisitions, totaled only $8.5 million.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At June 30, 1997, the Company had total assets of $413.5 million. Total
capitalization was $380.2 million, of which 52% was represented by stockholders'
equity, 22% by senior debt and 26% by subordinated debt. During the six months
ended June 30, 1997, net cash provided by operations was $33.5 million, as
compared to $15.0 million for the same period in 1996. As of June 30, 1997, the
Company had no significant commitments for capital expenditures. The Company
anticipates that 1997 capital expenditures for development drilling and
recompletion activity will be approximately $15.0 million, which will allow for
a reduction of
27
<PAGE> 29
indebtedness and provide funds to pursue acquisitions. The level of these and
other future expenditures is largely discretionary, and the amount of funds
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions. See "Business." The
Company plans to finance its ongoing development, acquisition and exploration
expenditures using internal cash flow, proceeds from asset sales and borrowings
under its Credit Agreement. In addition, joint ventures or future public and
private offerings of debt or equity securities may be utilized.
Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
SOCO in the Company with the remaining portion being considered debt payable to
SOCO. In conjunction with the Gerrity Acquisition, the $75.0 million debt
payable to SOCO was paid in full. The Company does not have any outstanding debt
with SOCO and does not expect SOCO to provide any additional funding.
The Company entered into the Credit Agreement in April 1997. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the revolving credit facility is
adjusted semiannually and equaled $110.0 million at June 30, 1997, with $85.0
million outstanding under the facility.
Assuming a Public Offering Price of $9.50 per share, and giving effect to
the Transactions, as of June 30, 1997, the Company would have had approximately
$25.0 million of availability under the Credit Agreement. The Credit Agreement
will permit the Company to fund up to $14.9 million of additional borrowings for
the Repurchase of shares of Common Stock from SOCO.
As of September 5, 1997, the Company had approximately $166.7 million of
debt outstanding, consisting of $69.0 million of senior debt and $97.7 million
of Notes.
The Credit Agreement contains certain financial covenants, including but
not limited to, a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio, a minimum current ratio and various other negative
covenants that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future.
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
natural gas revenues of $646,000 and $942,000 during the six months ended June
30, 1996 and 1997, respectively. These arrangements are expected to increase
revenues through 2002.
The Company's primary cash requirements following the Transactions will be
to finance additional acquisitions, capital expenditures in connection with the
development of proved reserves, refracing of existing wells, repayment of
indebtedness and general working capital needs. However, future cash flows are
subject to a number of variables, including the level of production and oil and
natural gas prices, and there can be no assurance that operations and other
capital resources will provide cash in sufficient amounts to maintain planned
levels of capital expenditures or that increased capital expenditures will not
be undertaken.
The Company believes that available borrowings under the Credit Agreement
and the Company's cash on hand will be sufficient to cover its working capital,
capital expenditures, planned development activities and debt service
requirements for the next 18 months. In connection with consummating any
significant future acquisitions, the Company will require additional debt or
equity financing, which may not be available or, if available, may not be on
terms that are acceptable to the Company.
28
<PAGE> 30
INFLATION AND CHANGES IN PRICES
While certain of its costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and natural gas prices. Although it is particularly difficult to estimate
future prices of oil and natural gas, price fluctuations have had, and will
continue to have, a material effect on the Company.
The following table indicates the average oil and natural gas prices
received over the last five years and highlights the price fluctuations by
quarter for 1996 and 1997. Average price computations exclude hedging gains or
losses and other nonrecurring items to provide comparability. Average prices per
equivalent Mcf indicate the composite impact of changes in oil and natural gas
prices. Oil production is converted to natural gas equivalents at the rate of
one barrel per six Mcf.
<TABLE>
<CAPTION>
NATURAL EQUIVALENT
OIL GAS Mcf
----------- --------- ----------
(PER Bbl) (PER Mcf) (McFe)
<S> <C> <C> <C>
ANNUAL
1992...................................... $ 19.06 $1.82 $ 2.19
1993...................................... 15.87 2.08 2.22
1994...................................... 14.84 1.70 1.94
1995...................................... 16.43 1.34 1.73
1996...................................... 20.47 1.99 2.41
QUARTERLY
1996
First................................... $ 18.31 $1.55 $ 1.96
Second.................................. 20.24 1.60 2.13
Third................................... 19.92 1.83 2.29
Fourth.................................. 22.35 2.78 3.07
1997
First................................... 21.79 2.63 2.93
Second.................................. 19.09 1.85 2.26
</TABLE>
29
<PAGE> 31
BUSINESS
GENERAL
The Company is an independent energy company engaged in the acquisition,
development, exploitation and production of oil and natural gas in the
Wattenberg field of Colorado's D-J Basin. The Company was formed in early 1996
to hold the Wattenberg assets of SOCO and to facilitate the Gerrity Acquisition.
Mr. Edelman structured and negotiated the Gerrity Acquisition and has served as
the Company's chief executive from its inception. Since the Gerrity Acquisition
in May 1996, the Company has focused its efforts on consolidating its
properties, developing a focused and efficient organization, reducing costs and
improving operations. From May 1996 through June 30, 1997, the Company used
operating cash flow to reduce indebtedness by over $40 million and repurchase
$14.4 million of its equity securities, while investing $15.5 million in the
further development of its properties.
SOCO has been the Company's major stockholder since its formation and
currently owns 74% of Patina's Common Stock. For strategic reasons, SOCO has
decided to liquidate its stake in Patina and redeploy the proceeds in its core
business. Pursuant to the Transactions described in this Prospectus, SOCO's
ownership in the Company will be eliminated and the Company will be positioned
to pursue an independent growth strategy.
At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves. The
Company operates almost 90% of the roughly 3,550 producing wells in which it
holds an interest, representing 98% of its producing reserves. In the year ended
December 31, 1996, the Company generated revenues of $83.2 million, net income
of $3.6 million and net cash provided by operations of $53.0 million. During
that period, production averaged 93.1 MMcfe per day. During the six months ended
June 30, 1997, the Company generated revenues of $52.3 million, net income of
$7.1 million and net cash provided by operations of $33.5 million, with average
production of 108.3 MMcfe per day. Based on pro forma production for 1996 and
year-end 1996 reserves, the Company has a reserve life index of 10.3 years.
Since 1986, the Company and its Predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. Mr. Edelman and certain other members of Patina's management have
extensive experience in structuring and negotiating acquisitions as well as
managing large scale and cost efficient operations. During the past ten years,
the Company and its Predecessors have completed more than 65 acquisitions having
an aggregate purchase price of over $450 million and during the past five years,
have expended more than $400 million on development projects including the
drilling of over 1,500 wells and the recompletion of more than 400 wells.
Management believes that the Company's sizable asset base and cash flow, along
with its low production costs and efficient operating structure, provide it with
a competitive advantage in Wattenberg and in certain analogous basins. Given
management's expertise in acquisitions and the advantages set forth above, the
Company believes it will be in an excellent position after the Transactions
described herein to pursue further consolidation in Wattenberg and to acquire
positions in other basins where it has or can develop a competitive advantage.
The Company, a Delaware corporation, maintains its principal executive
offices at 1625 Broadway, Suite 2000, Denver, Colorado 80202, and its telephone
number is (303) 389-3600.
WATTENBERG
Patina is currently the largest oil and natural gas producer in Wattenberg.
The Company has interests in approximately 3,550 wells which generate over 30%
of the total annual production from the field. Wattenberg, discovered in 1970,
is located approximately 35 miles northeast of Denver and stretches over Adams,
Boulder and Weld Counties in Colorado. One of the most attractive features of
Wattenberg is that there are at least eight potentially productive formations
throughout the field ranging in depths from 2,000 to 8,000 feet. Three of the
formations, the Codell, the Niobrara and the J-sand, are "blanket" zones in the
area of the Company's
30
<PAGE> 32
holdings, while other formations, such as the Sussex and the Shannon are more
localized. The existence of several pay sands within the geological structure
allows for multiple completions within a single wellbore, keeping drilling and
operating costs low. In recent years, the Codell and Niobrara formations have
been the primary drilling objective in Wattenberg, although the Company has also
successfully recompleted shallower formations such as the Sussex.
BUSINESS STRATEGY
The Company plans to increase its reserves, production and cash flow in a
cost-efficient manner, primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.
Pursue Consolidation and Acquisition Opportunities
The Company intends to pursue further consolidation and exploitation
opportunities in Wattenberg where it is currently the largest producer,
accounting for over 30% of total annual production from the field. In addition,
management intends to simultaneously pursue low-risk acquisitions of producing
reserves in other Western U.S. basins where the Company can leverage its
operating efficiencies and pursue consolidation opportunities. Management
believes that the Company's economies of scale, focused operations and operating
expertise give it a competitive advantage in pursuing further consolidation and
acquisition opportunities.
Control Operating and Overhead Costs
As a result of its extensive operating experience and concentrated reserve
base, the Company believes that it is an efficient producer of oil and natural
gas. The Company's lease operating expenses during 1996 and for the six months
ended June 30, 1997 were $0.26 and $0.30 per Mcfe, respectively. In addition,
the Company's G&A expenses have been reduced to less than half those incurred by
its Predecessors, resulting in G&A expenses during 1996 and for the six months
ended June 30, 1997 of $0.18 and $0.13 per Mcfe, respectively. The Company's low
operating costs increase its operating margin, extend the economic life of its
wells and enhance its reserve value.
Operate Properties
The Company prefers to operate its properties in order to exercise greater
control over the timing and plans for future development, well workovers,
production enhancements and lease operating expenses, as well as the marketing
of oil and natural gas production. The Company currently operates approximately
3,175 (or 90%) of the 3,550 producing wells in which it owns an interest and
these operated properties account for approximately 98% of the pretax present
value of its year-end 1996 producing reserves.
Exploit Existing Reserves
The Company seeks to maximize the value of its properties by increasing
production and recoverable reserves through the active development, recompletion
and exploitation of its properties. At December 31, 1996, the Company had 728
proved undeveloped drilling locations and 605 recompletion opportunities. A
recompletion can increase per well producing reserves by up to 100% at less than
half the cost of drilling a new well. During the past 12 months, the Company has
focused extensively on frac design and stimulation techniques. Early results
have shown an increase in productivity on newly drilled wells and recompletions.
The Company initiated a refrac program in 1996 and, to date, the Company has
successfully performed seven refracs and identified approximately 100 wells
suitable for refrac. The Company's year-end reserve report does not include any
reserves attributable to the refrac program. During 1996, the Company
successfully drilled 12 development wells and recompleted an additional 61 wells
at a total capital cost of $8.5 million. The Company's existing 1997 capital
expenditure budget provides $15 million for the drilling of 35 new
31
<PAGE> 33
development wells, the recompletion of an additional 75 wells and the expansion
of the refrac program. Through June 30, 1997, the Company had drilled 10
development wells, recompleted 40 wells (including seven refracs) and completed
the drilling of nine wells in progress at year-end 1996 for a total capital cost
of $8.0 million.
Develop Financial Flexibility
The Company is committed to maintaining its financial flexibility. Since
the Gerrity Acquisition, the Company has reduced its indebtedness by over $40
million and has repurchased $14.4 million of its equity securities. At June 30,
1997, assuming the consummation of the Transactions, the Company would have had
a debt-to-book capitalization ratio of approximately 48%. Management expects
future capital expenditures, excluding acquisitions, to be funded by operating
cash flow. The New Preferred Investors have committed to purchase up to $63.0
million of New Preferred Stock, and the Company expects to use at least $40.0
million from the sale of shares of New Preferred Stock to complete the
Repurchase. In the event the Company issues New Preferred Stock at the closing
of the Offering, the balance of this commitment will remain available through
December 31, 1997 for acquisition financing or for general corporate purposes.
PRODUCTION, REVENUE AND PRICE HISTORY
The following table sets forth information regarding net production of oil
and natural gas, revenues and expenses attributable to such production and
certain price and cost information for each of the years in the three-year
period ended December 31, 1996 and the six month periods ended June 30, 1996 and
1997. This financial and operating information reflects the Gerrity Acquisition
in May 1996.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PRICES AND PER Mcf EQUIVALENT
INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Production
Oil (MBbl)........................... 1,829 1,342 1,688 693 985
Natural gas (MMcf)................... 23,893 20,981 23,947 10,308 13,688
Total MMcfe(a)....................... 34,872 29,034 34,074 14,466 19,598
Revenues
Oil.................................. $27,151 $22,049 $34,541 $13,556 $ 19,986
Natural gas(b)....................... 40,598 28,024 47,644 16,260 32,127
------- ------- ------- ------- --------
Subtotal.......................... 67,749 50,073 82,185 29,816 52,113
Other................................ 73 29 1,003 294 227
------- ------- ------- ------- --------
Total............................. 67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- --------
Operating expenses
Lease operating expenses............. 3,662 5,387 8,866 3,378 5,865
Production taxes..................... 4,448 3,480 5,653 2,023 3,457
------- ------- ------- ------- --------
Total............................. 8,110 8,867 14,519 5,401 9,322
------- ------- ------- ------- --------
Direct operating margin................ $59,712 $41,235 $68,669 $24,709 $ 43,018
======= ======= ======= ======= ========
Average sales price
Oil (Bbl)............................ $ 14.84 $ 16.43 $ 20.47 $ 19.55 $ 20.29
Natural gas (Mcf)(b)................. 1.70 1.34 1.99 1.58 2.35
Mcfe(a).............................. 1.94 1.73 2.41 2.06 2.66
Average production expense/Mcfe........ 0.23 0.31 0.43 0.37 0.48
Average operating margin/Mcfe.......... 1.71 1.42 1.99 1.69 2.18
</TABLE>
- ---------------
(a) Oil production is converted to natural gas equivalents at the rate of one
barrel per six Mcf.
(b) Sales of NGLs are included in natural gas revenues.
32
<PAGE> 34
OIL AND NATURAL GAS RESERVES
The following table sets forth estimated year-end net proved reserves for
each of the years in the three-year period ended December 31, 1996.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Oil (MBbl)
Developed....................................... 8,832 6,955 15,799
Undeveloped..................................... 3,386 466 6,676
------ ------- -------
Total................................... 12,218 7,421 22,475
====== ======= =======
Natural gas (MMcf)
Developed....................................... 147,869 133,088 242,777
Undeveloped..................................... 30,834 5,769 53,882
------ ------- -------
Total................................... 178,703 138,857 296,659
====== ======= =======
Total MMcfe....................................... 252,012 183,384 431,509
====== ======= =======
</TABLE>
The following table sets forth for the year ended December 31, 1996 pretax
future net revenues from the production of proved reserves and the pretax
present value of such revenues, net of estimated future capital costs, including
estimated costs of $14.0 million in 1997.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997................................................. $ 117,410 $ (2,154) $ 115,256
1998................................................. 101,637 (2,455) 99,182
1999................................................. 92,397 4,235 96,632
Remainder............................................ 668,820 188,977 857,797
-------- -------- ----------
Total...................................... $ 980,264 $ 188,603 $1,168,867
======== ======== ==========
Pretax present value(a).............................. $ 582,408 $ 66,389 $ 648,797
======== ======== ==========
</TABLE>
- ---------------
(a) The aftertax present value of the proved reserves totaled $499.9 million at
year-end 1996.
The quantities and values in the preceding tables are based on prices in
effect at December 31, 1996 which averaged $25.20 per barrel of oil and $3.70
per Mcf of gas. Price declines decrease reserve values by lowering the future
net revenues attributable to the reserves and reducing the quantities of
reserves that are recoverable on an economic basis. Price increases have the
opposite effect. A significant decline in the prices of oil or natural gas could
have a material adverse effect on the Company's financial condition and results
of operations.
The present values shown should not be construed as the current market
value of the reserves. The quantities and values shown in the preceding tables
are based on oil and natural gas prices in effect on December 31, 1996. Those
prices were significantly higher than the prices that prevailed throughout most
of 1996 and since year-end, prices have fallen from year-end levels. The value
of the Company's assets is in part dependent on the prices the Company receives
for oil and natural gas and a significant decline in the price of oil or natural
gas could have a material adverse effect on the Company's financial condition
and results of operations.
All of the proved reserves at year-end were estimated by Netherland, Sewell
& Associates, Inc. No estimates of the Company's reserves comparable to those
included herein have been included in reports to any federal agency other than
the Commission.
33
<PAGE> 35
DRILLING ACTIVITY SUMMARY
The following table sets forth information with respect to wells drilled by
the Company during each of the past three years and during the six months ended
June 30, 1997. All the wells were development wells. The information should not
be considered indicative of future performance, nor should it be assumed that
there is necessarily any correlation between the number of productive wells
drilled, quantities of reserves found or economic value. Productive wells are
those that produce commercial quantities of hydrocarbons whether or not they
produce a reasonable rate of return.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
----- ---- ---- -----------------
<S> <C> <C> <C> <C>
Productive
Gross...................................... 350.0 25.0 12.0 19.0
Net........................................ 305.6 24.1 12.0 17.9
Dry
Gross...................................... 8.0 0.0 0.0 0.0
Net........................................ 7.9 0.0 0.0 0.0
</TABLE>
At June 30, 1997, no development wells were in progress.
PRODUCING WELL SUMMARY
The following table sets forth certain information at June 30, 1997
relating to the producing wells in which the Company owned a working interest.
The Company also held royalty interests in 195 producing wells at such date. The
Company's average working interest in all wells was 90%. Wells are classified as
oil or natural gas wells according to their predominant production stream.
<TABLE>
<CAPTION>
GROSS NET
WELLS WELLS
----- -----
<S> <C> <C>
Oil.......................................................... 2,735 2,513
Natural gas.................................................. 613 513
----- -----
Total.............................................. 3,348 3,026
===== =====
</TABLE>
ACREAGE
The following table sets forth certain information at June 30, 1997
relating to Wattenberg acreage held by the Company. Undeveloped acreage is
acreage held under lease, permit, contract or option that is not in a spacing
unit for a producing well, including leasehold interests identified for
development or exploratory drilling. Developed acreage is acreage assigned to
producing wells.
<TABLE>
<CAPTION>
GROSS NET
------- -------
<S> <C> <C>
Developed................................................ 176,118 136,814
Undeveloped.............................................. 142,430 126,358
------- -------
Total.......................................... 318,548 263,172
======= =======
</TABLE>
MARKETS AND CUSTOMERS
The Company's oil and natural gas production is principally sold to end
users, marketers, refiners and other purchasers having access to natural gas
pipeline facilities near its properties and the ability to truck oil to local
refineries or oil pipelines. The marketing of oil and natural gas can be
affected by a number of factors that are beyond the Company's control and whose
future effect cannot be accurately predicted. The Company does not believe,
however, that the loss of any of its customers would have a long-term material
adverse effect on its operations.
34
<PAGE> 36
Natural Gas. Wattenberg natural gas is high in heating content (BTUs) and
must be processed in order to strip NGLs before residue gas is sold to
utilities, independent marketers and end users through both intrastate and
interstate pipelines. The Company utilizes two separate arrangements to gather,
process and market its natural gas production. Approximately 30% of the
Company's natural gas production is sold to Duke Energy Field Services ("Duke
Energy") at the wellhead under percentage of proceeds contracts. Pursuant to
this type of contract, the Company receives a fixed percentage of the proceeds
from the sale of its residue gas and NGLs by Duke Energy. Substantially all of
the Company's remaining natural gas production is dedicated for gathering to
either Duke Energy or KN Front Range Gathering Company ("KN") and is then
processed at plants owned by Duke Energy, or Amoco Production Company ("AMOCO")
or North American Resources Company. Under this arrangement, the Company retains
the right to market its share of residue gas at the tailgate of the plant and
sells it under seasonal spot market arrangements along the front range of
Colorado or transports the gas to midwest markets under transportation
agreements. NGLs are sold by the processor and the Company receives payment net
of applicable processing fees.
A portion of natural gas gathered by KN is processed by Amoco at the
Wattenberg Processing Plant under a favorable contract that not only provides
payment for a percentage of the NGLs stripped from the natural gas, but also
redelivers to the tailgate the same amount of MMBtu's as was delivered to the
plant under a "keepwhole" arrangement. This agreement remains in effect until
December 2012.
Oil. Oil production is principally sold to refiners, marketers and other
purchasers who truck oil to local refineries or pipelines. The price is
generally based on a local market posting for oil and is adjusted for
transportation costs and quality. Amoco has the right to purchase oil produced
from certain properties owned by the Company.
COMPETITION
The oil and natural gas industry is highly competitive. The Company
encounters competition from other oil and natural gas companies in all of its
operations, including the acquisition of exploratory prospects and proven
properties. Patina competes for the acquisition of oil and natural gas
properties, with numerous entities, including major oil companies, other
independent oil and gas concerns and individual producers and operators. Many
competitors have financial and other resources substantially greater than those
of the Company. Management believes that the Company has a competitive advantage
over most other energy companies active in Wattenberg because of its significant
operations and its technical and geological experience in the area.
REGULATION
Regulation of Drilling and Production. The Company's operations are
affected by political developments, and by federal, state and local laws and
regulations. Oil and gas industry legislation and administrative regulations are
periodically changed for a variety of political, economic and other reasons.
Numerous federal, state and local departments and agencies issue rules and
regulations binding on the oil and gas industry, some of which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business, decreases flexibility
in the timing of operations and may adversely affect the economics of capital
projects.
In the past, the federal government has regulated the prices at which oil
and natural gas could be sold. Prices of oil and natural gas sold by the Company
are not currently regulated. In recent years, the Federal Energy Regulatory
Commission ("FERC") has taken significant steps to increase competition in the
sale, purchase, storage and transportation of natural gas. FERC's regulatory
programs allow more accurate and timely price signals from the consumer to the
producer and, on the whole, have helped natural gas become more responsive to
changing market conditions. To date, the Company believes it has not experienced
any material adverse effect as the result of these initiatives. Nonetheless,
increased competition in natural gas markets can and does add to price
volatility and inter-fuel competition, which increases the pressure on the
Company to manage its exposure to changing conditions and position itself to
take advantage of changing market forces.
35
<PAGE> 37
State statutes govern exploration and production operations, conservation
of oil and natural gas resources, protection of the correlative rights of oil
and natural gas owners and environmental standards. State Commissions implement
their authority by establishing rules and regulations requiring permits for
drilling, reclamation of production sites, plugging bonds, reports and other
matters. Colorado, where the Company's properties are located, amended its
statute concerning oil and natural gas development in 1994 to provide the
state's Oil and Gas Conservation Commission (the "Colorado OGC Commission") with
enhanced authority to regulate oil and gas activities to protect public health,
safety and welfare, including the environment. Several rule makings pursuant to
these statutory changes have been undertaken by the Colorado OGC Commission
concerning groundwater protection, soil conservation and site reclamation,
setbacks in urban areas and other safety concerns, and financial assurance for
industry obligations in these areas. To date, these rule changes have not
adversely affected operations of the Company, as the Colorado OGC Commission is
required to enact cost-effective and technically feasible regulations, and the
Company has been an active participant in their development. However, there can
be no assurance that, in the aggregate, these and other regulatory developments
will not increase the cost of conducting operations in the future.
In Colorado, a number of city and county governments have enacted oil and
natural gas regulations. These ordinances increase the involvement of local
governments in the permitting of oil and natural gas operations, and require
additional restrictions or conditions on the conduct of operations so as to
reduce their impact on the surrounding community. Accordingly, these local
ordinances have the potential to delay, and increase the cost of, drilling and
recompletion operations.
Environmental Regulation. Operations of the Company are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. The Company
currently owns or leases numerous properties that have been used for many years
for natural gas and oil production. Although the Company believes that it and
previous owners have utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have been
disposed of or released on or under the properties owned or leased by the
Company. In connection with its most significant acquisitions, the Company has
performed environmental assessments and found no material environmental
noncompliance or clean-up liabilities requiring action in the near or
intermediate future. Such environmental assessments have not, however, been
performed on all of the Company's properties.
The Company operates its own exploration and production waste management
facilities, which enable it to treat, bioremediate and otherwise dispose of tank
sludges, contaminated soil and produced water generated from the Company's
operations. There can be no assurance, that these facilities, or other
commercial disposal facilities utilized by the Company from time-to-time, will
not give rise to environmental liability in the future. To date, expenditures
for the Company's environmental control facilities and for remediation of
production sites have not been significant to Patina. The Company believes,
however, that the trend toward stricter standards in environmental legislation
and regulations will continue and could have a significant adverse impact on the
Company's operating costs, as well as on the oil and natural gas industry in
general.
OFFICE AND OPERATIONS FACILITIES
The Company leases its headquarters office in Denver, Colorado. The lease
covers approximately 28,600 square feet and has a remaining term of four years,
expiring in November 2001. The monthly rent is approximately $37,800. The
Company also owns a 6,000 square foot production facility in Platteville,
Colorado and 6,000 square feet of office and shop space in Brighton, Colorado.
These facilities are used to support the Company's drilling and production
efforts in Wattenberg.
EMPLOYEES
On June 30, 1997, the Company employed 167 people, including 106 that work
in the Company's various field offices, none of whom are represented by a labor
union. The Company believes its relationship with its employees is satisfactory.
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<PAGE> 38
INSURANCE
The Company currently maintains a $5.0 million oil and natural gas lease
operator policy that insures the Company against certain risks associated with
drilling and completing its wells, as well as a $3.0 million policy for
producing wells. There can be no assurance that this insurance will be adequate
to cover any losses or exposure to liability. The Company also carries
comprehensive general liability and workers' compensation policies, and a $10.0
million umbrella policy. The Company does not maintain key man life insurance on
any employees.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business. While the ultimate results of
these proceedings cannot be predicted with certainty, the Company does not
believe that the outcome of these matters will have a material adverse effect on
the Company.
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<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------
<S> <C> <C>
Thomas J. Edelman........ 46 Chairman of the Board, President and Chief
Executive Officer
Brian J. Cree............ 34 Executive Vice President and Chief Operating
Officer, Director
Keith M. Crouch.......... 50 Senior Vice President and General Counsel
Ronald E. Dashner........ 45 Senior Vice President, Operations
David J. Kornder......... 36 Vice President and Chief Financial Officer
David R. Macosko......... 36 Vice President
Terry L. Ruby............ 38 Vice President
David W. Siple........... 38 Vice President
*Arnold L. Chavkin........ 46 Director
Robert J. Clark.......... 52 Director
Jay W. Decker............ 44 Director
*William J. Johnson....... 63 Director
Alexander P. Lynch....... 45 Director
*William E. Macaulay...... 51 Director
*John C. Snyder........... 55 Director
</TABLE>
- ---------------
* Mr. Johnson and Mr. Snyder will resign as Directors of the Company following
the completion of the Transactions and will be replaced by Mr. Chavkin and Mr.
Macaulay.
THOMAS J. EDELMAN has served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation. He co-founded SOCO and was
the President and a director of SOCO from 1981 through February 1997. During
1992 and 1993, Mr. Edelman provided consulting services to First Reserve
Corporation (the managing general partner of one of the New Preferred Stock
Investors) and its affiliates and has served on the boards of directors of
companies controlled by First Reserve. Prior to 1981, he was a Vice President of
The First Boston Corporation. From 1975 through 1980, Mr. Edelman was with
Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman received his Bachelor of
Arts Degree from Princeton University and his Masters Degree in Finance from
Harvard University's Graduate School of Business Administration. Mr. Edelman
serves as Chairman of Lomak Petroleum, Inc., and is a Director of Petroleum Heat
& Power Co., Star Gas Corporation, Weatherford Enterra, Inc. and Paradise Music
& Entertainment, Inc. Mr. Edelman is also a Trustee of The Hotchkiss School.
BRIAN J. CREE has served as Executive Vice President, Chief Operating
Officer and Director of the Company since May 1996. Prior to the Gerrity
Acquisition, he served as Chief Operating Officer and Director of Gerrity since
1993. From 1992 to 1993, Mr. Cree served as Senior Vice President -- Operations
and Chief Accounting Officer of Gerrity. Prior to that, Mr. Cree served as Vice
President and Treasurer of Gerrity since its inception in 1990. Mr. Cree served
as Vice President and Treasurer of The Robert Gerrity Company from 1989 to 1990
and served in various accounting capacities with that company from 1987 to 1990.
Prior to that, Mr. Cree was employed as an accountant at the public accounting
firm of Deloitte, Haskins & Sells. Mr. Cree received his Bachelor of Arts Degree
in Accounting from the University of Northern Iowa.
KEITH M. CROUCH has served as Senior Vice President and General Counsel of
the Company since May 1996. Prior to the Gerrity Acquisition, he was a Vice
President of Gerrity commencing in 1993 and was appointed a Director in 1994.
From 1992 to 1993, Mr. Crouch served as Corporate Counsel to Gerrity. Prior to
joining Gerrity, Mr. Crouch was in private practice with the law firms of
Gorsuch, Kirgis, Campbell Walker
38
<PAGE> 40
and Grover; Kirkland & Ellis and Pendleton, Friedberg, Wilson and Hennessey. Mr.
Crouch received a Bachelor of Arts and Juris Doctor Degrees from the University
of Colorado.
RONALD E. DASHNER has served as Senior Vice President, Operations of the
Company since its formation. He joined SOCO in 1994 and served as Operations
Manager of SOCO's D-J Basin/Greater Green River Unit. In late 1995 he was
appointed Vice President -- Rocky Mountain Division. From 1991 to 1994, Mr.
Dashner was Onshore Gulf Coast Operations Manager for Enron Oil & Gas Company.
From 1980 through 1990, Mr. Dashner held various positions with TXO Production
Corp., including Drilling & Production Manager -- Rocky Mountain District and
Assistant District Manager -- East Texas District. From 1978 to 1980, he was
employed by Davis Oil Company in Engineering and Operations. From 1975 to 1978,
he was employed by Chevron in the Drilling, Production and Construction
Department. Mr. Dashner received his Bachelor of Science Degree in Civil
Engineering from Colorado State University.
DAVID J. KORNDER has served as Vice President and Chief Financial Officer
of the Company since May 1996. Prior to the Gerrity Acquisition, he served as a
Vice President -- Finance of Gerrity beginning in early 1993. From 1989 through
1992, Mr. Kornder was an Assistant Vice President for Gillett Group Management,
Inc. Prior to that, Mr. Kornder was an accountant with the independent
accounting firm of Deloitte & Touche for five years. Mr. Kornder received his
Bachelor of Arts Degree in Accounting from Montana State University.
DAVID R. MACOSKO has served as a Vice President of the Company since May
1996. Prior to the Gerrity Acquisition, he served as a Vice President of Gerrity
from 1994. From 1992 to 1994, Mr. Macosko served as Operations Coordinator and
Manager of Accounts Payable with Gerrity. Mr. Macosko has eleven years of
experience in the oil and gas industry. Mr. Macosko received a Bachelor of
Science Degree in Accounting from West Virginia University.
TERRY L. RUBY has served as a Vice President of the Company since May 1996.
Prior to the Gerrity Acquisition, Mr. Ruby was a senior landman of Gerrity
beginning in 1992 and was appointed a Vice President -- Land of Gerrity in 1995.
His current responsibilities include management and administration of land
assets, acquisitions and divestitures. Prior to his employment with Gerrity, Mr.
Ruby worked with Apache Corporation from 1990 to 1992, and with Baker
Exploration Company from 1982 to 1989. Mr. Ruby holds a Bachelor of Science
Degree in Minerals Land Management from the University of Colorado and an M.B.A.
from the University of Denver.
DAVID W. SIPLE has served as a Vice President of the Company since May
1996. He joined SOCO's land department in 1994 and was appointed a Land Manager
with SOCO in 1995. His current responsibilities include the accomplishment of
all land related aspects of the Company's drilling recompletion and refrac
programs. From 1990 through May 1994, Mr. Siple was the Land Manager of Gerrity.
From 1981 through 1989, Mr. Siple was employed by PanCanadian Petroleum Company
in the Land Department. Mr. Siple received his Bachelor of Science Degree in
Mineral Land Management from the University of Colorado.
ARNOLD L. CHAVKIN will be appointed a Director of the Company following the
completion of the Transactions. Mr. Chavkin is a General Partner at Chase
Capital Partners. Chase Capital Partners is a General Partner of Chase Venture
Capital Associates, L.P. Before assuming such position, Mr. Chavkin was a member
of Chemical Bank's merchant banking group and, prior to that, a generalist in
its corporate finance group specializing in mergers and acquisitions and private
placements for the energy industry. Prior to that, Mr. Chavkin worked in
corporate development for Freeport McMoRan, and held various positions with Gulf
and Western Industries. Mr. Chavkin is a Certified Public Accountant. He
received his Bachelor of Arts and M.B.A. degrees from Columbia University. Mr.
Chavkin is also a director of American Radio Systems, Inc., Bell Sports, Reading
& Bates Corporation and Wireless One, Inc.
ROBERT J. CLARK has served as a Director of the Company since May 1996. Mr.
Clark is the President of Bear Paw Energy Inc., a wholly owned subsidiary of
TransMontaigne Oil Company. Mr. Clark formed a predecessor company Bear Paw
Energy Inc. in 1995 and joined TransMontaigne in 1996 when TransMontaigne
acquired a majority interest in the predecessor company. From 1988 to 1995 he
was President of SOCO Gas Systems, Inc. and Vice President -- Gas Management for
SOCO. Mr. Clark was Vice President
39
<PAGE> 41
Gas Gathering, Processing and Marketing of Ladd Petroleum Corporation, an
affiliate of General Electric from 1985 to 1988. Prior to 1985, Mr. Clark held
various management positions with NICOR, Inc. and its affiliates NICOR
Exploration, Northern Illinois Gas and Reliance Pipeline Company. Mr. Clark
received his Bachelor of Science Degree from Bradley University and an M.B.A.
from Northern Illinois University.
JAY W. DECKER has served as a Director of the Company since May 1996. Mr.
Decker has been the Executive Vice President and a Director of Hugoton Energy
Corporation, a public independent oil company since 1995. From 1989 until its
merger into Hugoton Energy, Mr. Decker was the President and Chief Executive
Officer of Consolidated Oil & Gas, Inc., a private independent oil company based
in Denver, Colorado and President of a predecessor company. Prior to 1989, Mr.
Decker served as Vice President -- Operations for General Atlantic Energy
Company and in various capacities for Peppermill Oil Company, Wainoco Oil & Gas
and Shell Oil Company. Mr. Decker received his Bachelor of Science Degree in
Petroleum Engineering from the University of Wyoming. Mr. Decker also serves as
a Director of FX Energy.
WILLIAM J. JOHNSON will resign as a Director of the Company following the
completion of the Transactions. Mr. Johnson has served as a Director of the
Company since May 1996. Mr. Johnson, a Director of SOCO since 1994, is a private
consultant to the oil and gas industry and is President and a Director of JonLoc
Inc., an oil and gas company of which he and his family are the sole
shareholders. From 1991 to 1994, Mr. Johnson was President, Chief Operating
Officer and a Director of Apache Corporation. Previously, he was a Director,
President and Chief Executive Officer of Tex/Con Oil and Gas, where he served
from 1989 to 1991. Prior thereto, Mr. Johnson served in various capacities with
major oil companies, including Director and President USA of BP Exploration
Company, President of Standard Oil Production Company and Senior Vice President
of The Standard Oil Company. Mr. Johnson received a Bachelor of Science degree
in Petroleum Geology from Mississippi State University and completed the
Advanced Management Course at the University of Houston. Mr. Johnson serves as a
Director of Tesoro Petroleum, Camco International and J. Ray McDermott. Mr.
Johnson also serves on the advisory board of Texas Commerce Bank, Houston.
ALEXANDER P. LYNCH has served as a Director of the Company since May 1996.
Mr. Lynch is currently a Partner at the Beacon Group, a financial advisory and
merchant banking firm. Mr. Lynch had been Co-President and Co-Chief Executive
Officer of The Bridgeford Group, a financial advisory firm, since 1995. From
1991 to 1994, he served as Senior Managing Director of Bridgeford. From 1985
until 1991, Mr. Lynch was a Managing Director of Lehman Brothers, a division of
Shearson Lehman Brothers Inc. Mr. Lynch received his Bachelor of Arts Degree
from the University of Pennsylvania and an M.B.A. from the Wharton School of
Business at the University of Pennsylvania. Mr. Lynch also serves as a Director
of Lincoln Snacks Company and Illinois Central Corporation.
WILLIAM E. MACAULAY will be appointed a Director of the Company following
the completion of the Transactions. Mr. Macaulay has been the President and
Chief Executive Officer of First Reserve Corporation, a corporate manager of
private investments (including First Reserve Fund VII, Limited Partnership)
focusing on the energy and energy related sectors, since 1983. Prior to 1983, he
was a General Partner of Meridian Capital Company, a private investment firm
specializing in corporate buyouts and energy. From 1976 to 1981, Mr. Macaulay
was with Oppenheimer & Co., where he served in various capacities, including as
Executive Vice President of Oppenheimer Management Corp. and as Director of
Corporate Finance and a Member of the Management Committee and a General Partner
of Oppenheimer & Co. He holds a B.A. from the City College of New York and an
M.B.A. from the Wharton School of the University of Pennsylvania. Mr. Macaulay
serves as a director of Weatherford Enterra, Inc., Maverick Tube Corporation,
TransMontaigne Oil Company, Hugoton Energy Corporation, Cal Dive International,
Inc. and Domain Energy Corporation.
JOHN C. SNYDER will resign as a Director of the Company following the
completion of the Transactions. Mr. Snyder has served as a Director of the
Company since its formation. Mr. Snyder, the Chairman and Chief Executive
Officer of SOCO, founded one of SOCO's predecessors in 1978. From 1973 to 1977,
Mr. Snyder was an independent oil operator in Texas and Oklahoma. Previously, he
was a director and the Executive Vice President of May Petroleum Inc. where he
served from 1971 to 1973. Mr. Snyder was the first president of
Canadian-American Resources Fund, Inc., which he founded in 1969. From 1964 to
1966, Mr. Snyder was employed by Humble Oil and Refining Company (currently
Exxon Co., USA) as a petroleum engineer. Mr.
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<PAGE> 42
Snyder received his Bachelor of Science Degree in Petroleum Engineering from the
University of Oklahoma and his Masters Degree in Business Administration from
the Harvard University Graduate School of Business Administration. Mr. Snyder is
a director of the Community Enrichment Center, Inc., Forth Worth, Texas.
CHANGE IN CONTROL PLAN
In June 1997, the Company adopted a Change in Control Plan (the "Change in
Control Plan") which will provide payments to all employees in the event there
is a "change in control" (as defined in the Change in Control Plan) of the
Company and the employee is terminated, or for certain executives,
constructively terminated. The Change in Control Plan provides that certain
executives and key managers are entitled to receive payments, including an
amount ranging from 34% to 150% of their base compensation in the year the
payment is to be made plus an amount equal to their most recent bonus. Further,
upon a change in control all non-vested securities of the Company held by
employees (as defined in the Change in Control Plan) including non-vested
options to purchase Common Stock held by employees and all non-vested rights
under the Company's 401(k) plan, bonus plan and deferred compensation plan vest
automatically.
EDELMAN EMPLOYMENT AGREEMENT AND RELATED MATTERS
Mr. Edelman, the Chief Executive Officer of the Company, has entered into
an employment agreement (the "Employment Agreement"), which will become
effective concurrently with the sale of the shares of Common Stock offered
hereby. Under the Employment Agreement, Mr. Edelman has agreed to be employed by
the Company for a period of three years, at a base salary of $350,000 per year,
subject to adjustment by mutual agreement. Pursuant to the Employment Agreement,
Mr. Edelman will commit a substantial portion of his working time to the Company
and the business of the Company will represent his primary responsibility. Under
the terms of the Employment Agreement, however, he may continue to engage in
outside business activities at substantially current levels. Mr. Edelman is
entitled to receive an annual bonus during the term of his employment, with the
target bonus set at 100% of his base salary, based on performance criteria
determined by the Company's Board of Directors in its sole discretion. The
Employment Agreement also provides that if Mr. Edelman's employment is
terminated by the Company without cause, or by Mr. Edelman for good reason (as
defined in the Employment Agreement), he will be entitled to payments equal to
two times the sum of: (i) his base salary for the then-current year; plus (ii)
the greater of (a) his target bonus for the then-current year and (b) the actual
bonus paid to him for the prior year; plus (iii) the maximum contributions the
Company would have made in the year of termination on Mr. Edelman's behalf to
the Company's 401(K) plan and the amount Mr. Edelman would have accrued in the
year of termination under the Company's Deferred Compensation Plan. In addition,
Mr. Edelman would receive a prorated portion of his target bonus for the
then-current year.
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will grant Mr. Edelman options to purchase 250,000 shares of Common
Stock, which options will vest immediately pursuant to the Company's stock
option plan described below under "Stock Option Plan."
Mr. Edelman has served since 1988 and expects to continue to serve as
Chairman of Lomak, a publicly traded oil and gas company whose principal areas
of operation are the Midcontinent, Appalachian and Gulf Coast regions of the
United States. The Company currently has no business relationships with Lomak
and Lomak does not own any of the Company's securities. Although the Company
does not believe that any conflicts have arisen, or are likely to arise, as a
result of Mr. Edelman's position with Lomak, because of Mr. Edelman's position
at Lomak, conflicts of interests may arise between the Company and Lomak. The
Company intends that the terms of any future transactions and agreements between
the Company and Lomak will be substantially as favorable to the Company as could
be obtained from third parties. In the past, with respect to new business
proposals, including acquisitions, the Company and Mr. Edelman have employed the
following procedures to resolve any potential conflicts: (i) if such proposals
were directed to or originated by Lomak or its employees, such proposals were
deemed to be for Lomak's benefit; and (ii) if such proposals were directed to or
originated by the Company or its employees, or if such proposals were not
specifically identified for either company or its employees, such proposals were
deemed to be for the Company's benefit. Mr. Edelman and the Company plan to
continue the foregoing procedures to resolve any future conflicts that may
arise.
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<PAGE> 43
Delaware law imposes certain fiduciary duties on corporate directors,
including a duty of loyalty. The duty of loyalty has been generally described as
a duty to act in good faith and in the best interests of the corporation. Under
the corporate opportunity doctrine developed by the Delaware courts, an
individual who fails to offer to the corporation of which he serves as a
director a business opportunity presented to such individual in his capacity as
a director of that corporation may be liable for a breach of fiduciary duty.
Neither the Company's Certificate of Incorporation or Bylaws, nor the
certificate of incorporation or bylaws of Lomak limit a director's fiduciary
duty with respect to potential conflicts of interests.
STOCK OPTION PLAN
The Company's stock option plan, which is administered by the Compensation
Committee, provides for the granting of options to purchase shares of Common
Stock to key employees of the Company and certain other persons who are not
employees of the Company, but who from time to time provide substantial advice
or other assistance or services to the Company. The plan permits options to
acquire up to 3,000,000 shares of Common Stock to be outstanding at any one
time. During 1996, options to purchase 512,000 shares of Common Stock were
granted to 50 employees at an average exercise price of $7.75 per share. During
1997, options to purchase 271,000 shares of Common Stock were granted to 56
employees at an average exercise price of $9.25 per common share. The exercise
price of all such options was equal to the fair market value of the Common Stock
on the date of grant. All options granted during 1996 and 1997 were for a term
of five years, with 30% of the options becoming exercisable after one year, an
additional 30% becoming exercisable after two years and the remaining options
becoming exercisable after the three years.
MANAGEMENT EQUITY PARTICIPATION PROGRAM
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will sell shares of Common Stock having an aggregate value of
$3,000,000 (315,789 shares of Common Stock assuming a Public Offering Price of
$9.50 per share) to the Management Investors (including Mr. Edelman) at a
purchase price per share equal to the Public Offering Price. In connection with
these sales, the Company will loan to each Management Investor (other than Mr.
Edelman) up to 85% of such purchase price pursuant to five-year 8.5% loans which
will be secured by all of the shares of Commom Stock purchased by, or awarded
to, such Management Investor.
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company also intends to award an aggregate of 150,000 shares of restricted
Common Stock to the Management Investors (other than Mr. Edelman) in order to
induce these individuals to invest in the Company through their purchase of $1.0
million of Common Stock and to enhance their interest in the Company's future
success. The Company has also agreed to grant to Mr. Edelman 350,000 shares of
restricted Common Stock in consideration for his efforts in structuring and
arranging the private placement of the New Preferred Stock. The ownership of
such shares will vest over a five-year period at the rate of 20% per year, or
sooner if there is a "change in control" (as defined in the Company's Change in
Control Plan).
Each of the Management Investors has agreed not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following the sale of the shares of Common Stock offered hereby. See "Shares
Eligible for Future Sale." Thereafter the Management Investors will be free to
sell the shares of Common Stock that they have purchased, subject to compliance
with the requirements of the Securities Act and any other applicable laws. The
shares of restricted Common Stock that have been awarded them may not be sold
until ownership of such shares has vested, as described above.
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<PAGE> 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of
Common Stock of the Company by each person who, to the knowledge of the Company,
beneficially owns 5% or more of the Common Stock of the Company, each person who
will be a director of the Company after the Offering, the five most highly
compensated executive officers, including the Chief Executive Officer and by all
such executive officers and directors of the Company as a group. Except as noted
below, no director or executive officer of the Company beneficially owns any
equity securities of the Company other than Common Stock and Warrants. The
business address of each individual listed below, except as otherwise noted, is:
c/o Patina Oil & Gas Corporation, 1625 Broadway, Suite 2000, Denver, Colorado
80202.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER THE
COMMON STOCK PRIOR TO THE COMMON STOCK AFTER THE TRANSACTIONS --
TRANSACTIONS(a)(b)(c) TRANSACTIONS(d) AS ADJUSTED(e)
-------------------------- ----------------------- -----------------------
NUMBER NUMBER NUMBER
OF SHARES PERCENTAGE OF SHARES PERCENTAGE OF SHARES PERCENTAGE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Edelman............. 30,000 * 490,526 2.4% 960,526 4.5%
Brian J. Cree................. 39,279 * 52,437 * 167,187 *
Keith M. Crouch............... 9,652 * 20,178 * 71,178 *
Ronald E. Dashner............. 8,400 * 18,926 * 67,526 *
David J. Kornder.............. 7,227 * 17,753 * 60,353 *
Jay W. Decker................. 2,927 * 2,927 * 11,427 *
Robert J. Clark............... 2,927 * 2,927 * 11,427 *
Alexander P. Lynch............ 2,927 * 2,927 * 11,427 *
Arnold L. Chavkin(f).......... 0 * 2,450,564 12.3% 2,450,564 12.3%
William E. Macaulay(g)........ 0 * 3,539,703 17.7% 3,539,703 17.7%
All executive officers and
directors as a group........ 118,296 0.6% 6,637,511 32.2% 7,479,631 34.8%
Snyder Oil Corporation........ 14,000,000(h) 74.4% 0 * 0 *
777 Main Street
Fort Worth, Texas 76102
Stark Investments............. 1,464,420 7.2% 1,464,420 6.8% 1,464,420 5.2%
150 West Market Street
Mequon, Wisconsin 53092
First Reserve Fund VII,
Limited Partnership......... 0 * 3,539,703 17.7% 3,539,703 17.7%
475 Steamboat Road
Greenwich, Connecticut 06830
Chase Venture Capital
Associates, L.P. ........... 0 * 2,450,564 12.3% 2,450,564 12.3%
380 Madison Avenue, 12th
Floor
New York, New York 10017
</TABLE>
- ---------------
* Less than 1%
(a) As of June 30, 1997.
(b) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table. Based solely upon information furnished
by such individuals or contained in filings made by such beneficial owners
with the Commission.
(c) Calculated pursuant to Rule 13d-3(d) under the Exchange Act, shares not
outstanding that are subject to options, warrants, rights, or conversion
privileges exercisable within sixty days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the percentage owned
by any other person.
(d) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes: (i) 230,000 shares of Common Stock issued to
the New Preferred Stock Investors (including 70,000 shares to be transferred
to the New Preferred Stock Investors or their designated affiliates by
SOCO); (ii) 315,789 shares of Common Stock
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<PAGE> 45
purchased by the Management Investors (assuming a Public Offering Price of $9.50
per share); (iii) 7,159,091 shares of Common Stock issuable upon conversion of
the New Preferred Stock (assuming the issuance of 2,520,000 shares of New
Preferred Stock having a conversion price of $9.50 per share); (iv) 250,000
shares of Common Stock issuable upon exercise of stock options issued to Mr.
Edelman pursuant to the Company's Stock Option Plan; and excludes the
500,000 shares of restricted Common Stock awarded to the Management
Investors (which shares will vest over a five-year period at the rate of 20%
per year).
(e) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes those included in note (d) above and also
includes: (i) the 500,000 shares of restricted Common Stock awarded to the
Management Investors (which Shares will vest over a five-year period at the
rate of 20% per year); and (ii) 394,620 unvested shares issuable upon
exercise of outstanding stock options (having a weighted average exercise
price of $8.40 per share).
(f) Mr. Chavkin may be deemed to share beneficial ownership of the 900,000
shares of New Preferred Stock and 2,450,564 shares of Common Stock owned by
Chase Venture Capital Associates, L.P. through his role with Chase Venture
Capital Associates, L.P. Mr. Chavkin disclaims beneficial ownership of such
shares of New Preferred Stock and Common Stock.
(g) Mr. Macaulay may be deemed to share beneficial ownership of the 1,300,000
shares of New Preferred Stock and 3,539,703 shares of Common Stock owned by
First Reserve Fund VII, Limited Partnership through his ownership of common
stock of First Reserve Corporation, which is the sole general partner of
First Reserve Fund VII, Limited Partnership. Mr. Macaulay disclaims
beneficial ownership of such shares of New Preferred Stock and Common Stock.
(h) Between 7,500,000 and 8,625,000 of these shares (depending on whether, and
to what extent, the Underwriters exercise their overallotment option) will
be sold by SOCO in this Offering. 70,000 of these shares will be transferred
to the New Preferred Stock Investors or their designated affiliates and the
remaining 5,305,000 to 6,430,000 shares will be repurchased by the Company
as part of the Concurrent Transactions.
44
<PAGE> 46
SELLING STOCKHOLDER
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by SOCO.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE NUMBER OF
TRANSACTIONS NUMBER OF OFFERING(a) NUMBER OF SHARES BENEFICIALLY
SELLING ---------------------- SHARES BEING --------------------- SHARES BEING OWNED AFTER THE
STOCKHOLDER NUMBER(b) PERCENT OFFERED NUMBER PERCENT REPURCHASED(a) TRANSACTIONS(b)
- --------------- ---------- ------- ------------ --------- ------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Snyder Oil
Corporation... 14,000,000 74.1% 7,500,000 6,500,000 34.5% 6,500,000 0
</TABLE>
- ---------------
(a) Assumes that the Underwriters' overallotment option is not exercised and
that all shares offered hereby will be sold and no other shares of Common
Stock will be purchased or sold by SOCO. If the Underwriters' overallotment
option is exercised in full, SOCO will beneficially own 5,375,000 shares,
representing approximately 28.6% of the outstanding Common Stock, and,
accordingly, the number of shares repurchased by the Company as part of the
Concurrent Transactions will be 5,375,000.
(b) Of the 14,000,000 shares of Common Stock owned by SOCO, 2,000,000 shares are
Series A Common Stock. The Series A Common Stock has three votes per share
rather than one vote per share. The Series A Common Stock will automatically
convert into Common Stock upon sale by SOCO.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Certificate of Incorporation of the Company, the authorized
capital stock consists of 40,000,000 shares of common stock, par value $.01 per
share (of which 38,000,000 shares are Common Stock and 2,000,000 shares have
been designated Series A Common Stock) and 5,000,000 shares of preferred stock,
par value $0.01 per share. As of June 30, 1997, there were 18,820,248 shares of
Common Stock outstanding, 2,000,000 of which were Series A Common Stock, and
1,467,926 shares of Old Preferred Stock outstanding. All of the Series A Common
Stock is owned by SOCO and, upon sale or transfer, will convert into Common
Stock. The following descriptions of the securities of the Company are
summaries, do not purport to be complete or to give effect to applicable
statutory or common law, and are qualified in their entirety by reference to the
Certificate of Incorporation, which is included as an exhibit to the Company's
Registration Statement on Form S-4 dated April 2, 1996.
COMMON STOCK
General. The Company is authorized to issue 40,000,000 shares of common
stock, par value $0.01, of which 38,000,000 shares are Common Stock and
2,000,000 shares have been designated as Series A Common Stock. The holders of
Common Stock are entitled to one vote for each share on all matters submitted to
a vote of stockholders. The holders of Common Stock do not have cumulative
voting rights in the election of directors of the Company. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of legally available funds. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets of the Company remaining after
provision for payment of liabilities and satisfaction of the liquidation
preference of any shares of preferred stock that may be outstanding. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The shares of Common Stock outstanding are validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to those of holders of the Old Preferred Stock and any other
series of preferred stock.
Series A Common Stock. Except as set forth below, each share of Series A
Common Stock is identical in all respects to the Common Stock. The holders of
shares of Series A Common Stock are entitled to vote upon all matters submitted
to a vote of the stockholders of the Company, but shall in all cases be entitled
to three votes per share of Series A Common Stock held. Upon sale by SOCO or
upon notice to the Company that the Company is no longer eligible for inclusion
in SOCO's consolidated financial statements, the Series A Common Stock shall
automatically convert into shares of Common Stock.
45
<PAGE> 47
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $.01 per share. The Company presently has one series of preferred stock
outstanding and will issue another series of preferred stock concurrently with
the Offering.
Old Preferred Stock
As of June 30, 1997, 1,467,926 shares of the Company's 7.125% Preferred
Stock (the "Old Preferred Stock") were outstanding. Shares of the Old Preferred
Stock are convertible into Common Stock at any time at $8.61 per share. Shares
of Old Preferred Stock are redeemable at 105.7% at the option of the Company at
any time after May 2, 1998 if the average closing price of the Company's Common
Stock is greater than $12.92 per share for 20 of the 30 days prior to and not
less than five days preceding the redemption date. Shares of Old Preferred Stock
are redeemable at any time after May 2, 1999 at 104.988% of their stated value,
declining to 100% in 2006. The stated value of the Old Preferred Stock is $25.00
per share; the liquidation preference is $25.00 per share, plus accrued and
unpaid dividends. Holders of shares of Old Preferred Stock are not generally
entitled to vote, except with respect to certain limited matters.
New Preferred Stock
Subject to the conditions described under "Concurrent Transactions," the
Company will issue, in connection with the sale of the shares of Common Stock
offered hereby, between 1,600,000 and 2,520,000 shares of New Preferred Stock to
the New Preferred Stock Investors. The New Preferred Stock will be convertible
into Common Stock, based on the $25.00 per share liquidation preference, at the
option of the holders thereof at any time at a conversion price which will equal
(A) if the Public Offering Price is less than $9.125 per share, the lesser of
(I) 10% over the Public Offering Price and (II) $8.80 per share, and (B) if the
Public Offering Price is $9.125 per share or higher, $9.50 per share. Assuming a
conversion price of $9.50 per share, one share of New Preferred Stock would be
convertible into approximately 2.6316 shares of Common Stock (which is the
result of $25.00 divided by $9.50). Holders of New Preferred Stock will be
entitled to vote their shares of New Preferred Stock with the Common Stock,
based upon the number of shares of Common Stock into which the shares of New
Preferred Stock are convertible. In addition, the two holders of New Preferred
Stock holding the largest number of shares of New Preferred Stock shall each be
entitled to designate a member of the Company's Board of Directors.
The New Preferred Stock will have a stated value of $25.00 per share and
will carry an 8.5% annual dividend payable quarterly. The dividend will be
payable in-kind (the "PIK Dividend") for two years from the issuance date (the
"PIK Period") and payable in cash thereafter. The PIK Dividend will be payable
based on the New Preferred Stock's stated value of $25.00 per share. During the
PIK Period, the New Preferred Stock Investors have agreed not to sell short any
of the Company's securities. This restriction shall also apply during the PIK
Period to future purchasers of the New Preferred Stock or of the underlying
Common Stock into which they are convertible. The Company has agreed that,
following the PIK Period, it will register the shares of New Preferred Stock
(and the shares of Common Stock underlying them) with the Commission, as
described below under "Registration Rights."
The Company will have the right to redeem the New Preferred Stock at any
time, in whole or in part, beginning three years after the issuance date at 106%
of its stated value, plus accrued and unpaid interest thereon to the redemption
date. Thereafter, the redemption price will decline by two percentage points per
annum until the redemption price reaches the stated value of the New Preferred
Stock. The New Preferred Stock will have a liquidation preference equal to
$25.00 per share plus accrued dividends.
Future Issuances of Preferred Stock
To the extent that the Company elects to sell more than 1,600,000 but less
than 2,520,000 shares of New Preferred Stock concurrently with the sale of the
shares of Common Stock offered hereby, it shall retain the right to sell, in a
subsequent sale, up to the balance of such shares of New Preferred Stock to the
New Preferred Stock Investors at any time prior to December 31, 1997 for a
purchase price of $25.00 per share.
46
<PAGE> 48
Any such sale shall be subject to certain conditions, including: (i) the absence
of any material adverse change in the business of the Company since the date
hereof; and (ii) the average price of the Common Stock over the ten-day period
prior to the date the Company notifies the New Preferred Stock Investors that it
is electing to sell such shares shall be at least 90% of the Public Offering
Price.
The Board of Directors also has authority, without stockholder approval, to
issue up to 886,392 additional shares of preferred stock (assuming 2,520,000
shares of New Preferred Stock are issued) in one or more series and to determine
the number of shares, designations, dividend rights, conversion rights, voting
power, redemption rights, liquidation preferences and other terms of any such
series. The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control.
WARRANTS
In 1996, the Company issued 3,000,000 warrants (the "Warrants"), initially
representing the right to purchase an aggregate of 3,000,000 shares of Common
Stock. Each Warrant entitles the holder thereof initially to purchase one share
of Common Stock for an initial exercise price of $12.50 per share. The Company
repurchased 80,549 Warrants during 1996 and 2,919,451 Warrants are currently
outstanding. The Warrants are exercisable at any time prior to May 2, 2001, at
which time they expire.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, Warrants and
Preferred Stock is ChaseMellon Shareholder Services, L.L.C., 2323 Bryan Street,
Suite 2300, Dallas, Texas, 75201.
REGISTRATION RIGHTS
The Company has granted the New Preferred Stock Investors customary
"demand" registration rights with respect to the shares of New Preferred Stock,
the shares of Common Stock issuable upon conversion of shares of the New
Preferred Stock and the shares of Common Stock issued to the New Preferred Stock
Investors in consideration for their prior commitment to purchase the New
Preferred Stock (collectively, the "Registrable Securities"). At any time after
the second anniversary of the date hereof the holder or holders of not less than
one-third of the Registrable Securities then outstanding may demand that the
Company to register Registrable Securities for sale pursuant to the Securities
Act; provided that the number of shares of Registrable Securities proposed to be
sold shall be at least 25% of the aggregate number of shares of Registrable
Securities then outstanding. The holders of Registrable Securities shall be
entitled to no more than three such demands in the aggregate. In addition, the
Company has agreed that, under certain circumstances, holders of Registrable
Securities may have the right to include their shares of Registrable Securities
in registrations by the Company of its securities being offered for sale for its
own account. All such registrations shall be effected at the Company's sole
expense.
In addition, the Company has granted the Management Investors certain
registration rights with respect to the shares of Common Stock that they are
acquiring. The Company has agreed with the Management Investors that if the
Company registers securities for sale pursuant to the Securities Act, it will,
subject to certain conditions, use its reasonable efforts to include in such
registration shares of Common Stock owned by Management Investors who wish to
have their shares so included.
47
<PAGE> 49
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the Credit Agreement and the Notes,
such descriptions do not purport to be complete and are qualified in their
entirety by reference to such documents, which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
CREDIT AGREEMENT
In April 1997, the Company entered into its Credit Agreement. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the Credit Agreement is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.
Assuming an offering price of $9.50 per share, and the closing of the
Transactions as of June 30, 1997, the Company would have had approximately $25.0
million of availability under the Credit Agreement on such date. In the event
the sale of the New Preferred Stock is insufficient to fund the repurchase of
the shares of Common Stock owned by SOCO, the Credit Agreement, will permit the
Company to fund up to $14.9 million of any shortfall through borrowings under
the Credit Agreement.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to .25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus 0.5% plus the Applicable Margin; or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the six months
ended June 30, 1997, the average interest rate under the facility approximated
6.9%.
The Credit Agreement contains certain financial covenants, including but
not limited to a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio. The Credit Agreement also
contains certain negative covenants that could limit the Company's ability to
incur other debt, dispose of assets, pay dividends or repurchase securities. The
negative covenants include, among other things, restrictions on indebtedness,
certain liens, guaranties, speculative derivative instruments and other similar
obligations, asset dispositions, dividends, loans and advances, creation of
subsidiaries, investments, leases, acquisitions, mergers, changes in fiscal
year, transactions with affiliates, changes in business conducted, sale and
leaseback and operating lease transactions, sale of receivables, prepayment of
other indebtedness, amendments to principal documents, negative pledge clauses,
issuance of securities and non-speculative commodity hedging. Specifically, the
Credit Agreement restricts the Company from incurring indebtedness, in addition
to the Notes and to borrowings under the Credit Agreement, in excess of $1.0
million. Borrowings under the Credit Agreement mature in 2000 but may be prepaid
at anytime.
SENIOR SUBORDINATED NOTES
In connection with the Gerrity Acquisition, the Company assumed $100
million principal amount of the Notes issued by Gerrity in 1994. The Notes have
been reflected in the financial statements since the Gerrity Acquisition at a
book value of 105.875% of their principal amount. Interest is payable each
January 15, and July 15. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after July 15, 1999, initially at
105.875% of their principal amount, declining to 102.938% on or after July 15,
2000 and declining to 100% on or after July 15, 2001. Upon a change of control,
as defined in the Notes (which, as so defined, does not include the consummation
of the Transactions described herein), the Company is obligated to make an offer
to purchase all outstanding Notes at a price of 101% of the principal amount
thereof. In addition, the Company would be obligated, subject to certain
conditions, to make offers to purchase Notes with the net cash proceeds of
certain asset sales or other dispositions of assets at a price of 101% of the
principal amount thereof. Subsequent to the Gerrity Acquisition, the Company
repurchased and retired $7.7 million principal amount of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million as of June 30, 1997. The Notes are unsecured general obligations
48
<PAGE> 50
of the Company and are subordinated to all senior indebtedness of the Company
and to any existing and future indebtedness of the Company's subsidiaries.
The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly is not limited in its ability to incur additional
debt.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following consummation of the Transactions, there will be
13,366,037 shares of Common Stock issued and outstanding (excluding shares of
Common Stock issuable upon the exercise of all currently outstanding options and
warrants and the conversion of all outstanding Preferred Stock). Of such shares,
all of the 8,625,000 shares of Common Stock potentially sold in the Offering
will be immediately eligible for resale in the public market, except for any of
such shares owned by an "affiliate" of the Company within the meaning of Rule
144 under the Securities Act ("Rule 144"), which shares may be subject to
certain of the resale limitations of Rule 144. Of the 4,741,037 remaining
outstanding shares, 730,000 are "restricted securities" within the meaning of
Rule 144 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has held "restricted securities" for at least
one year (including a person who may be deemed an affiliate of the Company) is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company, and the average weekly trading volume of the
Company's Common Stock on all exchanges and on the NYSE during the four calendar
weeks preceding the sale. In addition to the previously described volume
limitations on the sale of restricted securities and securities held by
affiliates of the Company, sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about the Company. A person who has not been an "affiliate"
of the Company at any time during the 90 days preceding a sale, and who has held
restricted shares for at least one year, would be entitled to sell such shares
immediately under Rule 144(k) without regard to the volume limitations, manner
of sale provisions or notice or other requirements of Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete description thereof.
The Company and each of the Management Investors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
prior written consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible, exercisable or
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock, subject to certain exceptions. Upon expiration of the 180-day
period, 602,232 shares of Common Stock (assuming the exercise of all currently
outstanding options and warrants) will be eligible for immediate resale without
restriction under the Securities Act, subject to certain volume, timing and
other requirements of Rule 144. Each of the New Preferred Stock Investors has
agreed, in connection with the purchase of the New Preferred Stock, not to
offer, sell, contract to sell or otherwise dispose of any New Preferred Stock or
any Common Stock or securities convertible, exercisable or exchangeable for
Common Stock or grant any options or warrants to purchase Common Stock, for a
period of one year from the date of this Prospectus, and has agreed not to
transfer any such securities between the first and the second anniversary of the
closing of the Offering, except with the consent of the Company's Board of
Directors or pursuant to Rule 144; thereafter, the New Preferred Stock Investors
will be free to sell such shares, but any such sale, transfer or disposition
must be in compliance with the requirements of the Securities Act and any other
applicable laws. In addition, each of the New Preferred Stock Investors has
agreed: (i) not to sell short any of the Company's securities for a period of
two years; and (ii) to certain standstill provisions with respect to the
Company's voting securities, including, among other provisions, a five-year
restriction on the Preferred Stock Investors' ability to transfer any shares of
New Preferred Stock or Common Stock to any person who, after giving effect to
such transfers, would be the beneficial owner of 5% or more of the aggregate
voting power of all of the Company's securities, except for transfers in
connection with certain qualifying tender or exchange offers and transfers to
persons who agree to substantially similar restrictions as those agreed to by
the New Preferred Stock Investors. See "Concurrent Transactions -- Issuance of
New Preferred Stock" and "Description of Capital Stock -- Preferred Stock -- New
Preferred Stock."
The Company has agreed, under certain circumstances, to register for sale
pursuant to the Securities Act, the shares of New Preferred Stock, the shares of
Common Stock issuable upon conversion thereof and the shares of Common Stock
issued to the New Preferred Stock Investors in consideration for their prior
commitment to purchase shares of New Preferred Stock and the shares of Common
Stock purchased by, or awarded to, the Management Investors. See "Description of
Capital Stock -- Registration Rights."
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, SOCO has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Smith Barney, Inc. is acting as representative (the
"Representative"), has severally agreed to purchase from SOCO, the respective
number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc. .....................................................
Morgan Stanley & Co. Incorporated......................................
A.G. Edwards & Sons, Inc. .............................................
Jefferies & Company, Inc. .............................................
PaineWebber Incorporated...............................................
----------
Total........................................................ 7,500,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
overallotment option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares offered
hereby directly to the public at the public offering price set forth on the
cover of this Prospectus and part of the shares offered hereby to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to other
Underwriters, or to certain other dealers.
SOCO has granted to the Underwriters an overallotment option to purchase up
to an additional 1,125,000 shares of Common Stock on the same terms per share.
If the Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
offered hereby. The Underwriters may exercise such option on or before the
thirtieth day from the date of the public offering of the shares offered hereby
and only to cover over allotments made of the shares in connection with the
Offering. Under the terms of the Share Repurchase Agreement, the Company is
obligated to purchase from SOCO all shares of Common Stock owned by SOCO that
are not sold in the Offering at the initial closing of the Offering.
Accordingly, if the Underwriters exercise their overallotment option and the
purchase of the additional shares occurs after the initial closing, then the
Underwriters will purchase the overallotment shares from the Company instead of
SOCO.
In connection with this Offering and in compliance with applicable law, the
Underwriters may over allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchase of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the offering. A syndicate
short position may be covered by exercise of the option described above in lieu
or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representative purchases Common Stock in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
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<PAGE> 53
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
The Company and each of the Management Investors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
prior written consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible, exercisable or
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock, subject to certain exceptions. See "Shares Eligible for Future
Sale."
Edwards, one of the Underwriters, has been engaged by the Independent
Committee to render the opinion concerning the fairness, from a financial point
of view, of: (i) the consideration to be paid to the Company for the New
Preferred Stock and (ii) the Repurchase, as described in "Concurrent
Transactions -- Approval of Transactions." For such services, Edwards will
receive a fee of $250,000. Edwards was previously engaged by the Company to
deliver a fairness opinion to Gerrity in connection with the formation of the
Company and the execution by the Company of a certain subordinated loan
agreement. Edwards was also engaged to deliver a fairness opinion to the holders
of Gerrity Preferred Stock in connection with a transaction pursuant to which
holders of depository shares of Gerrity received shares of the Company's
convertible preferred stock. Edwards received customary fees in connection with
the delivery of each of the opinions described in the preceding two sentences.
The Company and SOCO have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock will
be passed upon for the Company by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York. Certain legal
matters with respect to the Common Stock will be passed upon for the
Underwriters by Mayer, Brown & Platt, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 have been incorporated by reference and included herein in reliance upon
the report of Arthur Andersen LLP, independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Gerrity Oil & Gas Corporation for each of the
three years in the period ended December 31, 1995 have been incorporated by
reference and included herein in reliance upon the reports of Arthur Andersen
LLP and Coopers & Lybrand, L.L.P., independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firms as experts in accounting and auditing.
Certain information with respect to the oil and natural gas reserves of the
Company derived from reports of Netherland, Sewell & Associates, Inc., a firm of
independent petroleum consultants, has been included and incorporated herein in
reliance upon the authority of such firm as experts with respect to the matters
contained in its reports.
52
<PAGE> 54
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549 and at its Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such materials also may be obtained by mail at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, the Commission maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. The Common Stock is listed on the New York Stock
Exchange, and similar information concerning the Company may also be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement"), of which this Prospectus constitutes a part, under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in or incorporated by
reference in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares offered hereby, reference
is made to the Registration Statement, copies of which may be obtained from the
Commission as set forth above. Any statements contained in this Prospectus
concerning the provisions of any contract, agreement or other document filed
with the Registration Statement as exhibits are not necessarily complete
summaries of such documents, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act (Commission file number 1-14344) are incorporated
herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1997 and June 30, 1997; and
(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated April 25, 1996, as
updated by any amendment or report filed for the purpose of updating such
description.
In addition, the following document heretofore filed by Gerrity Oil & Gas
Corporation with the Commission pursuant to the Exchange Act (Commission file
number 0-18667) is incorporated herein by reference: Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents. Any
statement contained in a document all or a portion of which is incorporated
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will furnish without charge to each person, including
any beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any of the
foregoing documents incorporated by reference herein, except for the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
copies should be directed to Patina Oil & Gas Corporation, Attention: Investor
Relations, 1625 Broadway, Suite 2000, Denver, Colorado 80202 (telephone: (303)
389-3600).
53
<PAGE> 55
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this Prospectus.
"Bbl" means barrel.
"Bcf" means billion cubic feet.
"Bcfe" means billion cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil so
that one barrel of oil is referred to as six Mcf of natural gas or "Mcfe."
"Boe" means barrel of oil equivalent, determined using the ratio of six Mcf
of natural gas (including natural gas liquids) to one Bbl of oil.
"Btu" means British Thermal Unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
"Capital expenditures" means costs associated with development and
successful exploratory drilling, leasehold acquisitions, producing property
acquisitions, and other miscellaneous capital expenditures.
"Completion" means the stimulation and installation of equipment for the
production of oil or natural gas.
"Developed acreage" means the number of acres that are allocated or
assignable to producing wells or wells capable of production.
"Development well" means a well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
"Frac" means the initial Completion of a well for production.
"Exploitation" means further development of a known oil or natural gas
area.
"Gross" oil and gas wells or "gross" acres are the total number of wells or
acres in which the Company has an interest, without regard to the size of that
working interest.
"Lease operating expense" means all direct costs associated with and
necessary to operate a producing property, excluding production taxes.
"MBbl" means a thousand barrels of oil.
"Mcf" means thousand cubic feet.
"Mcfe" means a thousand cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil, so
that one barrel of oil is referred to as six Mcf of natural gas equivalent or
"Mcfe."
"MMBtu" means million Btus.
"MMcf" means million cubic feet.
"MMcfe" means million cubic feet of natural gas equivalent.
"Net" oil and gas wells or "net" acres are determined by multiplying gross
wells or acres by the Company's working interest in those wells or acres.
"Pretax present value" means when used with respect to required disclosure
respecting oil and gas reserves, a calculation of the estimated future gross
revenue to be generated from the production of proved reserves, net of estimated
production and future development costs, using prices and costs in effect as of
the date indicated, without giving effect to non-property related expenses such
as general and administrative expenses, debt service and future income tax
expense or to depreciation, depletion and amortization, discounted using an
annual discount rate of 10%. "Present value of estimated pre tax net revenues"
or "pretax present value at constant prices of estimated future net revenues"
means estimated future net revenues discounted by a factor of ten percent per
annum, before income taxes and with no price or cost escalation or
de-escalation, in accordance with guidelines promulgated by the Securities and
Exchange Commission.
"Productive well" means a well that is producing oil and/or natural gas or
that is capable of production.
"Proved reserves" refer to those quantities of oil and natural gas which,
upon analysis of geologic and engineering data, appear with reasonable certainty
to be recoverable in the future from known oil and natural
54
<PAGE> 56
gas reservoirs under existing economic and operating conditions. Proved reserves
are limited to those quantities of oil and natural gas which can be expected,
with little doubt, to be recoverable commercially at current prices and costs,
under existing regulatory practices and with existing conventional equipment and
operating method.
"Proved developed reserves" include proved developed producing reserves and
proved developed non-producing reserves.
"Proved developed producing reserves" include only those reserves expected
to be recovered from existing completion intervals in existing wells.
"Proved developed nonproducing reserves" include those reserves contained
in geological formations through which an existing well has been drilled but
from which the well has not yet produced. The reserves are said to be
nonproducing or "behind-the-pipe" because the oil and gas are sealed out of the
well bore by the casing leading to the existing completion interval.
Behind-the-pipe reserves are classified as proved developed only if the cost of
completing the well for production of such reserves is relatively small compared
to the cost of a new well.
"Proved undeveloped reserves" include those reserves expected to be
recovered from new wells on proved undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.
"Recompletion" refers to the completion of an existing well for production
from a new formation that exists within the well. See "proved developed
nonproducing reserves."
"Refrac" is similar to a recompletion except that the stimulation occurs
within the existing producing formation in an attempt to increase production and
reserves.
"Reserve life index" means the calculation of total proved reserves divided
by oil and natural gas production for the relevant annual period.
"Reserves" means natural gas and oil, on a net revenue interest basis,
found to be commercially recoverable.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but does not require the owner
to pay any portion of the costs of drilling or operating the wells on the leased
acreage. Royalties may be either landowner's royalties, which are reserved by
the owner of the leased acreage at the time the lease is granted, or overriding
royalty interests, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"Spot price" means average of reported natural gas or oil prices for
location-specific contracts with durations of 31 days or less as quoted in
various publications such as Inside FERC.
"Undeveloped acreage" means lease acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners royalties. See the definitions of "net revenue interest"
and "royalty" above. For example, the owner of a 100% working interest in a
lease burdened only by a typical 1/8 landowner's royalty would be required to
pay 100% of the costs of a well but would be entitled to retain 87.5% of the
production. The remaining 12.5% would accrue to the royalty owners.
"Workover" means to perform recompletion or mechanical work in an existing
well bore.
In this Prospectus, natural gas volumes are stated at the legal pressure
base of the state or area in which the reserves are located at 60 degrees
Fahrenheit.
55
<PAGE> 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PATINA OIL & GAS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED CONSOLIDATED PRO FORMA INFORMATION
Introduction........................................................................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet, June 30, 1997............. F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six
Months Ended June 30, 1997....................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year
Ended December 31, 1996.......................................................... F-5
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ F-6
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................ F-8
Consolidated Balance Sheets......................................................... F-9
Consolidated Statements of Operations............................................... F-10
Consolidated Statements of Changes in Stockholders' Equity.......................... F-11
Consolidated Statements of Cash Flows............................................... F-12
Notes to Consolidated Financial Statements.......................................... F-13
</TABLE>
F-1
<PAGE> 58
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1997 and the related Pro Forma Condensed Consolidated Statement of Operations
for the Six Months then Ended and the Year Ended December 31, 1996, give effect
to the Gerrity Acquisition and the Concurrent Transactions. The pro forma
consolidated financial statements are based upon the assumptions set forth in
the accompanying notes to such statements. The pro forma adjustments are based
upon available information and assumptions that management believes are
reasonable under the circumstances.
The pro forma consolidated financial statements as adjusted comprise
historical financial data that have been retroactively adjusted or combined to
reflect the effect of the Gerrity Acquisition and the Concurrent Transactions on
the historical financial statements included elsewhere in this Prospectus. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 1997 was
prepared as if the Concurrent Transactions were consummated on June 30, 1997,
the related Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997 was prepared as if the Concurrent
Transactions were consummated on January 1, 1997 and the Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the Year Ended, December 31,
1996 was prepared as if both the Gerrity Acquisition and the Concurrent
Transactions were consummated on January 1, 1996. The historical information
provided under the heading "Gerrity Acquisition" in the statement of operations
for the year ended December 31, 1996, includes results for Gerrity for the
period from January 1, 1996 until its purchase on May 2, 1996. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the related historical financial statements and are not necessarily
indicative of the results that would have actually occurred had the Gerrity
Acquisition and the Concurrent Transactions been consummated on the dates or for
the period indicated or which may occur in the future.
F-2
<PAGE> 59
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets................................... $ 29,610 $ $ 29,610
Oil and gas properties and equipment, net........ 382,573 382,573
Other noncurrent assets, net..................... 1,334 1,334
-------- --------
$ 413,517 $413,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................. $ 27,729 $ $ 27,729
Long-term debt................................... 182,685 (1,425)(b) 182,685
1,425(e)
Other noncurrent liabilities..................... 5,561 5,561
Stockholders' equity
Preferred stock, $.01 par...................... 15 23(a) 38
Common stock, $.01 par......................... 188 (64)(b) 134
2(a)
3(c)
5(d)
Capital in excess of par value................. 189,620 (57,661)(b) 195,251
56,975(a)
2,997(c)
4,745(d)
(1,425)(e)
Deferred compensation.......................... -- (4,750)(d) (4,750)
Notes receivable from Management Investors..... -- (850)(c) (850)
Retained earnings.............................. 7,719 7,719
-------- --------
197,542 197,542
-------- --------
$ 413,517 $413,517
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 60
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Oil and natural gas sales...................... $52,113 $ $ 52,113
Other.......................................... 227 227
------- -------
52,340 52,340
------- -------
EXPENSES
Direct Operating............................... 9,322 9,322
Exploration.................................... 62 62
General and administrative..................... 2,611 184(f) 3,745
950(g)
Interest and other............................. 8,485 8,485
Depletion, depreciation, and amortization...... 24,776 24,776
------- -------
45,256 46,390
------- -------
Income before taxes.............................. 7,084 5,950
Provision for (benefit from) income taxes........ -- --
------- -------
Net income....................................... 7,084 5,950
------- -------
Dividends on preferred stock..................... 1,330 2,448(h) 3,778
Accretion of discount.......................... -- 253(a) 253
------- -------
1,330 4,031
------- -------
Net income applicable to common stock............ $ 5,754 $ 1,919
======= =======
Net income per share............................. $ 0.30 $ 0.14
======= =======
Weighted average shares outstanding.............. 18,921 5,454(b)(c) 13,467
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 61
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GERRITY UNAUDITED
PATINA GERRITY PRO FORMA UNAUDITED TRANSACTION PRO FORMA
(HISTORICAL) ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........... $ 82,185 $16,540 $ $ 98,725 $ $ 98,725
Other....................... 1,003 410 1,413 1,413
------- ------- -------- --------
83,188 16,950 100,138 100,138
EXPENSES
Direct Operating............ 14,519 2,841 525(i) 17,718 17,718
(167)(j)
Exploration................. 224 434 658 658
General and
administrative........... 6,151 2,275 (476)(j) 7,425 369(f) 8,744
(525)(i) 950(g)
Interest and other.......... 14,304 4,533 361(k) 19,198 19,198
Depletion, depreciation, and
amortization............. 44,822 8,968 (2,127)(l) 51,663 51,663
------- ------- -------- --------
80,020 19,051 96,662 97,981
------- ------- -------- --------
Income (loss) before taxes.... 3,168 (2,101) 3,476 2,157
Provision for (benefit from)
income taxes................ (394) (714) 1,108(m) -- --
------- ------- -------- --------
Net income (loss)............. 3,562 (1,387) 3,476 2,157
------- ------- -------- --------
Dividends on preferred
stock....................... 2,129 1,518 (802)(n) 2,845 5,002(h) 7,847
Accretion of discount....... -- -- -- 507(a) 507
------- ------- -------- --------
2,129 1,518 2,845 8,354
------- ------- -------- --------
Net income (loss) applicable
to common stock............. $ 1,433 $(2,905) $ 631 $ (6,197)
======= ======= ======== ========
Net income (loss) per share... $ 0.08 $ 0.03 $ (0.43)
======= ======== ========
Weighted average shares
outstanding................. 17,796 19,787 14,333
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 62
PATINA OIL & GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described below.
BALANCE SHEET
(a) To reflect the issuance of 2,280,000 shares of New Preferred Stock (the
amount that Management believes is most likely to be issued) at $25.00 per
share and 160,000 common shares to the New Preferred Stock Investors for
estimated net proceeds of $57.0 million. The estimated net proceeds will be
used to repurchase common shares from SOCO. The New Preferred Stock is being
recorded at a $1,520,000 discount, representing the estimated fair value of
the 160,000 common shares issued to the New Preferred Stock Investors. The
discount will be expensed over the three year call period as additional non
cash dividend expense of $507,000 each year. The 160,000 common shares
issued to the New Preferred Stock Investors have been accounted for as
equity with the allocation of the net proceeds received from the sale of the
New Preferred Stock to be allocated to the New Preferred Stock and Common
Stock based upon the relative fair value of the securities at the date of
issuance. Under the Preferred Stock Purchase Agreement, the New Preferred
Stock Investors have agreed to purchase in the aggregate a minimum of $40.0
million and a maximum of $63.0 million of New Preferred Stock.
(b) To reflect the Repurchase of 6,420,000 common shares from SOCO at $8.98 per
share for $57,725,325. The Repurchase will be financed with proceeds from
issuance of 2,280,000 shares of New Preferred Stock to the New Preferred
Stock Investors and the issuance of 315,789 shares of Common Stock to the
Management Investors.
(c) To reflect the sale of 315,789 restricted common shares to the Management
Investors at $9.50 per share. The Company will loan 85% or $850,000 of the
purchase price to the Management Investors, excluding Mr. Edelman. The
$850,000 has been reflected as a contra account within the equity section on
the balance sheet.
(d) To reflect the granting of 500,000 restricted common shares to the
Management Investors. These restricted common shares have been accounted for
as deferred compensation within the equity section on the balance sheet at
the estimated fair value of $9.50 per share and also shown as a related
reduction in equity to be expensed over the five year vesting period.
(e) To record the estimated costs incurred in conjunction with the Transactions.
STATEMENT OF OPERATIONS
(f) To reflect the terms of the employment agreement entered into with Mr.
Edelman concurrently with the Transactions (annual base salary adjusted to
$350,000 and bonus award increased to maximum targeted amount of 100% of the
adjusted annual base salary).
(g) To reflect the compensation expense associated with the Management Investors
stock grant (100,000 common shares vested annually at an estimated fair
value of $9.50 per share).
(h) To reflect the non-cash dividends on 2,280,000 shares of New Preferred Stock
issued to the New Preferred Stock Investors. The Company has the ability to
issue up to 2,520,000 shares of New Preferred Stock. For each additional
100,000 shares of New Preferred Stock issued, the six month dividends and
annual dividends would increase by $107,000 and $219,000, respectively. In
the event the Public Offering Price of the Common Stock is greater than
$9.50 per share, for each $.25 increment above $9.50 per share, additional
non cash dividends of $750,000 per year would be recorded for two years
(assuming 2,280,000 shares of New Preferred Stock are issued).
F-6
<PAGE> 63
(i) To conform the financial statement presentation by Gerrity of various
overhead changes and recoveries to a basis consistent with that of the
Company.
(j)To reflect the reduction in direct operating and general and administrative
expenses that result from the elimination of redundant personnel, lease space
and other corporate services.
(k) To adjust interest expense to reflect the refinancing or payment of: (i)
$1,200,000 (or 1.20%) of Gerrity's 11 3/4% Senior Subordinated Notes (the
"Notes"); (ii) Gerrity's bank borrowings under the terms of the Company's
bank credit facility; (iii) the payable to parent; and (iv) transaction
costs. The interest expense reflects the Eurodollar Margin set forth in the
current bank credit agreement, which margin was applied to the current
Eurodollar Rate resulting in an average borrowing rate of approximately
6.75%.
(l) To adjust depletion, depreciation and amortization of oil and gas properties
based on the purchase price allocated to Gerrity oil and gas properties and
the use of a combined depletion, depreciation and amortization rate.
(m) To record the estimated provision for income taxes to reflect the
anticipated effective income tax rate of the combined entity after the
Gerrity Acquisition.
(n) To reduce dividends paid on Gerrity Preferred Stock reflecting the exchange
of all Gerrity Preferred Stock into Old Preferred Stock.
F-7
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders,
Patina Oil & Gas Corporation:
We have audited the accompanying consolidated balance sheets of Patina Oil
& Gas Corporation (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Patina Oil & Gas Corporation
and subsidiaries as of December 31, 1995 and 1996, and results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
February 17, 1997
F-8
<PAGE> 65
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents.................................. $ 1,000 $ 6,153 $ 10,568
Accounts receivable................................... 6,611 19,977 15,840
Inventory and other................................... 2,000 1,457 3,202
--------- --------- ---------
9,611 27,587 29,610
--------- --------- ---------
Oil and gas properties, successful efforts method....... 333,513 559,072 564,902
Accumulated depletion, deprecation and amortization... (118,919) (160,432) (183,886)
--------- --------- ---------
214,594 398,640 381,016
--------- --------- ---------
Gas facilities and other................................ 4,775 6,421 5,140
Accumulated depreciation.............................. (4,459) (4,917) (3,583)
--------- --------- ---------
316 1,504 1,557
--------- --------- ---------
Other assets, net....................................... -- 2,502 1,334
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 3,852 $ 15,063 $ 18,854
Accrued liabilities................................... 415 11,509 8,875
Payable to parent..................................... 5,344 -- --
--------- --------- ---------
9,611 26,572 27,729
--------- --------- ---------
Senior debt............................................. -- 94,500 85,000
Subordinated debt....................................... -- 103,094 97,685
Debt to parent.......................................... 75,000 -- --
Other noncurrent liabilities............................ 26,247 9,831 5,561
Commitments and contingencies
Stockholders' equity....................................
Preferred stock, $.01 par, 5,000,000 shares
authorized, -0- and 1,593,608 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 1,467,926 issued and outstanding at June
30, 1997........................................... -- 16 15
Common stock, $.01 par, 40,000,000 shares authorized,
14,000,000 and 18,886,932 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 18,820,248 issued and outstanding at June
30, 1997........................................... 140 189 188
Capital in excess of par value........................ -- 194,066 189,620
Investment by parent.................................. 113,523 -- --
Retained earnings..................................... -- 1,965 7,719
--------- --------- ---------
113,663 196,236 197,542
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========
</TABLE>
F-9
<PAGE> 66
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........................... $67,749 $50,073 $82,185 $29,816 $52,113
Other....................................... 73 29 1,003 294 227
------- ------- ------- ------- -------
67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- -------
EXPENSES
Direct operating............................ 8,110 8,867 14,519 5,401 9,322
Exploration................................. 784 416 224 149 62
General and administrative.................. 7,484 5,974 6,151 3,113 2,611
Interest and other.......................... 3,869 5,476 14,304 4,979 8,485
Depletion, depreciation and amortization.... 43,036 32,591 44,822 18,723 24,776
------- ------- ------- ------- -------
Income (loss) before taxes.................... 4,539 (3,222) 3,168 (2,255) 7,084
------- ------- ------- ------- -------
Provision (benefit) for income taxes
Current..................................... -- -- -- -- --
Deferred.................................... 1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
Net income (loss)............................. $ 2,950 $(2,094) $ 3,562 $(1,861) $ 7,084
======= ======= ======= ======= =======
Net income (loss) per common share............ $ 0.21 $ (0.15) $ 0.08 $ (0.16) $ 0.30
======= ======= ======= ======= =======
Weighted average shares outstanding........... 14,000 14,000 17,796 15,959 18,921
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 67
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN RETAINED
---------------- ---------------- EXCESS OF INVESTMENT EARNINGS
SHARES AMOUNT SHARES AMOUNT PAR VALUE BY PARENT (DEFICIT)
------ ------ ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993...... -- $ -- 14,000 $140 $ -- $ 92,725 $ --
Credit in lieu of taxes....... -- -- -- -- -- (8,190) --
Change in investment by
parent..................... -- -- -- -- -- 28,221 --
Net income.................... -- -- -- -- -- 2,950 --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1994...... -- -- 14,000 140 -- 115,706 --
Credit in lieu of taxes....... -- -- -- -- -- 1,107 --
Change in investment by
parent..................... -- -- -- -- -- (1,196) --
Net loss...................... -- -- -- -- -- (2,094) --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1995...... -- -- 14,000 140 -- 113,523 --
Credit in lieu of taxes....... -- -- -- -- -- 171 --
Change in investment by
parent..................... -- -- -- -- -- (7,514) --
Net loss through the Gerrity
Acquisition date........... -- -- -- -- -- (532) --
Gerrity Acquisition........... 1,205 12 6,000 60 194,291 (105,648) --
Issuance of common............ -- -- 4 -- 27 -- --
Repurchase of common and
warrants................... -- -- (1,117) (11) (9,722) -- --
Issuance of preferred......... 389 4 -- -- 9,470 -- --
Preferred dividends........... -- -- -- -- -- -- (2,129)
Net income subsequent to the
Gerrity Acquisition........ -- -- -- -- -- -- 4,094
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1996...... 1,594 16 18,887 189 194,066 -- 1,965
Issuance of common............ -- -- 4 -- 31 -- --
Repurchase of common and
preferred.................. (126) (1) (71) (1) (4,477) -- --
Preferred dividends........... -- -- -- -- -- -- (1,330)
Net income.................... -- -- -- -- -- -- 7,084
----- ---- ------ ---- -------- --------- -------
Balance, June 30, 1997
(Unaudited)................... 1,468 $ 15 18,820 $188 $ 189,620 $ -- $ 7,719
===== ==== ====== ==== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 68
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....................... $ 2,950 $ (2,094) $ 3,562 $(1,861) $ 7,084
Adjustments to reconcile net income
(loss) to net cash provided by
operations
Exploration expense.................. 784 416 224 149 62
Depletion, depreciation and
amortization....................... 43,036 32,591 44,822 18,723 24,776
Deferred taxes....................... 1,589 (1,128) (394) (394) --
Amortization of deferred credits..... (2,539) (2,025) (605) (646) --
Changes in current and other assets
and liabilities
Decrease (increase) in
Accounts receivable............. 3,642 1,472 (1,057) 1,384 4,015
Inventory and other............. -- -- 338 102 52
Increase (decrease) in
Accounts payable................ (1,552) (10,902) (4,249) (5,052) 4,042
Accrued liabilities............. (220) 77 4,844 1,504 (2,313)
Other liabilities............... -- -- 5,511 1,059 (4,237)
-------- -------- ------- ------- -------
Net cash provided by operations...... 47,690 18,407 52,996 14,968 33,481
-------- -------- ------- ------- -------
Investing activities
Acquisition, development and
exploration.......................... (95,596) (21,842) (8,532) (1,375) (8,348)
Gerrity Acquisition expenditures, net of
cash acquired........................ -- -- (2,375) (1,040) --
Sale of oil and gas properties.......... (782) 782 1,111 -- --
-------- -------- ------- ------- -------
Net cash used by investing........... (96,378) (21,060) (9,796) (2,415) (8,348)
-------- -------- ------- ------- -------
Financing activities
Increase (decrease) in payable/debt
to parent............................ 18,476 1,011 (80,466) (78,615) --
Increase (decrease) in indebtedness..... -- -- 72,863 96,108 (14,909)
Deferred credits........................ 1,991 2,838 814 624 --
Increase (decrease) in investment by
parent............................... 28,221 (1,196) (7,514) (7,514) --
Cost of common stock issuance........... -- -- (11,882) (9,310) --
Repurchase of common stock and
warrants............................. -- -- (9,733) (923) (4,479)
Preferred dividends..................... -- -- (2,129) (710) (1,330)
-------- -------- ------- ------- -------
Net cash realized (used) by
financing.......................... 48,688 2,653 (38,047) (340) (20,718)
-------- -------- ------- ------- -------
Increase in cash.......................... -- -- 5,153 12,213 4,415
Cash and equivalents, beginning of
period.................................. 1,000 1,000 1,000 1,000 6,153
-------- -------- ------- ------- -------
Cash and equivalents, end of period....... $ 1,000 $ 1,000 $ 6,153 $13,213 $ 10,568
======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 69
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(1) ORGANIZATION AND NATURE OF BUSINESS
The Company, a Delaware corporation, was incorporated in January 1996 to
hold the assets and operations of SOCO in the Wattenberg Field and to facilitate
the acquisition of Gerrity. Previously, SOCO's Wattenberg operations had been
conducted through SOCO or its wholly owned subsidiary, SOCO Wattenberg
Corporation ("SWAT"). On May 2, 1996, SOCO contributed the balance of its
Wattenberg assets to SWAT and transferred all of the shares of SWAT to the
Company. Immediately thereafter, Gerrity merged into another wholly owned
subsidiary of the Company. As a result of these transactions, SWAT and Gerrity
became subsidiaries of the Company. The Company's operations currently consist
of the acquisition, development, and production of oil and gas properties in the
Wattenberg field.
SOCO currently owns approximately 74% of the common stock of the Company.
In conjunction with the Gerrity Acquisition, the Company offered to exchange the
Company's preferred stock for Gerrity's preferred stock (the "Original Exchange
Offer"). A total of 1,204,847 shares were issued in exchange for approximately
75% of Gerrity's preferred stock. In October 1996, Gerrity's certificate of
incorporation was amended to provide that all shares of Gerrity's preferred
stock not exchanged in the Original Exchange Offer be exchanged for the
Company's preferred stock on the same terms as the Original Exchange Offer. Upon
consummation of this exchange, the Company had approximately 1.6 million
preferred shares outstanding.
The above transactions were accounted for as a purchase of Gerrity. The
amounts and results of operations of the Company for periods prior to the
Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. Certain amounts
in the accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the historical financial position, results
of operations and cash flows of the Company on a stand-alone basis prior to the
Gerrity Acquisition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of the remaining proved or proved developed reserves, as
applicable. Gas is converted to equivalent barrels at the rate of six Mcf to one
barrel. Amortization of capitalized costs has generally been provided over the
entire D-J Basin as the wells are located in the same reservoir. No accrual has
been provided for estimated future abandonment costs as management estimates
that salvage value will approximate such costs.
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets". SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis. During 1995, 1996,
and the six months ended June 30, 1997 the Company did not provide for any
impairments. Changes in the underlying assumptions or the amortization units
could, however, result in impairments in the future.
F-13
<PAGE> 70
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Assets
Other assets reflect the value assigned to a noncompete agreement entered
into as part of the Gerrity Acquisition. The value is being amortized over five
years at a rate intended to approximate the decline in value of the noncompete
agreement. Amortization expense for the year ended December 31, 1996 and the six
months ended June 30, 1997 was $2,632,000 and $1,167,000, respectively.
Scheduled amortization for the next five years is $333,000 for the remainder of
1997, $500,000 in 1998, and $250,000 in each of 1999 and 2000.
Section 29 Tax Credits
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits.These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $2.5 million, $2.0 million, $1.5 million and $942,000 during
1994, 1995, 1996 and the six months ended June 30, 1997, respectively. These
arrangements are expected to increase revenues through 2002.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1995, 1996 and June 30, 1997 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $1.0
million, $6.2 and $10.6 million at December 31, 1995, 1996 and June 30, 1997,
respectively. The book value approximates fair value due to the short maturity
of these instruments. The book value and estimated fair value of the Company's
debt to parent and senior debt was $75.0 million, $94.5 million and $85.0
million at December 31, 1995, 1996 and June 30, 1997, respectively. The fair
value is presented at face value given its floating rate structure. The book
value of the Notes was $103.1 million and $97.7 million and the estimated fair
value was $105.6 million and $101.5 million at December 31, 1996 and June 30,
1997, respectively. The fair value is estimated based on their price on the New
York Stock Exchange.
From time to time, the Company enters into commodity contracts to hedge the
price risk of a portion of its production. Gains and losses on such contracts
are deferred and recognized in income as an adjustment to oil and gas sales
revenues in the period to which the contracts relate.
In the fourth quarter of 1996, the Company entered into various swap sales
contracts with a weighted average oil price (NYMEX based) of $22.19 for contract
volumes of 95,000 barrels of oil for January 1997 through February 1997. The
Company recognized $113,000 of losses related to these contracts based on
settlements during the first quarter of 1997. These losses were reflected as
deductions from oil revenues in the period settled.
In the fourth quarter of 1996 and early 1997, the Company entered into
various swap sales contracts with a weighted average natural gas price
(CIG-Inside FERC based) of $3.02 for contract volumes of 2,250,000 MMBtu's of
natural gas for January 1997 through March 1997. The Company recognized $1.6
million of gains related to these contracts based on settlements during the
first quarter of 1997. These gains were reflected as additions to gas revenues
in the period settled.
F-14
<PAGE> 71
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the second quarter of 1997, the Company entered various swap sales
contracts with terms as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
QUANTITY PRICE PER
PERIOD PRODUCT (MMBtu's) MMBtu's(a) INDEX
--------------------------------- ----------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
July - September................. Natural Gas 460,000 $ 1.75 CIG
July - September................. Natural Gas 920,000 $ 2.14 NGPL
July - September................. Natural Gas 920,000 $ 2.15 PEPL
----------------
2,300,000
=============
</TABLE>
- ---------------
(a) The average wellhead price related to the above swap contracts taking into
consideration the value of the related natural gas liquids, net of any
gathering, transportation and processing fees, is estimated at $2.05 per
Mcf.
Supplemental Cash Flow Information
The Gerrity Acquisition involved cash and non-cash consideration as
presented below (in thousands):
<TABLE>
<S> <C>
Cash payments made for merger..................................... $ 14,257
Senior debt assumed............................................... 19,000
Subordinated debt assumed......................................... 105,805
Minority interest in Gerrity preferred stock not exchanged at
merger date..................................................... 9,878
Preferred stock issued............................................ 30,122
Common stock and warrants issued.................................. 46,750
Other liabilities assumed......................................... 12,423
--------
Fair value of assets acquired..................................... $238,235
========
</TABLE>
The above cash payments made include approximately $4.9 million of costs
capitalized and allocated to oil and gas properties. The above cash payments are
reduced in the accompanying consolidated statements of cash flows by $2.1
million of cash acquired in the Gerrity Acquisition.
Risks and Uncertainties
Historically, the market for oil and gas has experienced significant price
fluctuations. Prices for natural gas in the Rocky Mountain region have
traditionally been particularly volatile and have been depressed since 1994. In
large part, the decreased prices are the result of mild weather, increased
production in the region and limited transportation capacity to other regions of
the country. In the fourth quarter of 1996, both oil and natural gas prices
increased considerably, however, there can be no assurance that these increases
will be sustained. Increases or decreases in prices received could have a
significant impact on the Company's future results of operations. Subsequent to
year-end, both oil and gas prices have declined to levels similar to the
Company's realized average prices in 1996.
Other
All liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Certain amounts in prior period
consolidated financial statements have been reclassified to conform with current
classification.
All cash payments for income taxes were made by SOCO during 1994, 1995 and
through May 2, 1996 at which point the Company began paying its own taxes. The
Company was charged interest by SOCO on its debt to SOCO of $3.9 million, $5.4
million and $1.6 million during 1994, 1995 and through May 2, 1996, which was
reflected as an increase in debt to SOCO.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
F-15
<PAGE> 72
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) OIL AND GAS PROPERTIES
The cost of oil and natural gas properties at December 31, 1994, 1995 and
1996 and June 30, 1997 includes no significant unevaluated leasehold. Acreage is
generally held for exploration, development or resale and its value, if any, is
excluded from amortization. The following table sets forth costs incurred
related to oil and natural gas properties.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Acquisition..................... $ 7,556 $ 650 $218,380 $ 101
Development..................... 88,213 12,141 8,301 7,972
Exploration and other........... 1,693 429 224 62
------- ------- -------- ------
$97,462 $13,220 $226,905 $ 8,135
======= ======= ======== ======
</TABLE>
In May 1996, the Gerrity Acquisition discussed in Note 1 was consummated.
The following table summarizes the unaudited pro forma effects on the Company's
financial statements assuming that the Gerrity Acquisition and the Original
Exchange Offer had been consummated on January 1, 1995 and 1996. Future results
may differ substantially from pro forma results due to changes in these
assumptions, changes in oil and natural gas prices, production declines and
other factors. Therefore, pro forma statements cannot be considered indicative
of future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS
--------------------- ENDED
1995 1996 JUNE 30, 1996
-------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenues......................... $103,962 $100,138 $47,060
Total expenses......................... $111,300 $ 96,662 $50,713
Depletion, depreciation and
amortization......................... $ 63,383 $ 51,662 $27,945
Net income (loss)...................... $ (7,338) $ 3,476 $(3,653)
Net income (loss) per common share..... $ (0.51) $ 0.03 $ (0.27)
Weighted average shares outstanding.... 20,000 19,796 18,921
</TABLE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Bank facilities.................................. $ -- $ 94,500 $85,000
Less current portion............................. -- -- --
------- -------- -------
Senior debt, net............................... $ -- $ 94,500 $85,000
======= ======== =======
Subordinated notes............................... $ -- $103,094 $97,685
======= ======== =======
Debt to parent................................... $75,000 $ -- $ --
======= ======== =======
</TABLE>
As of July 24, 1997, the Company had approximately $173.7 million of debt
outstanding, consisting of $76.0 million of senior debt and $97.7 million of
Notes.
F-16
<PAGE> 73
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, the Company entered into an amended bank credit agreement
(the "Facility"). The Facility is a revolving credit facility in an aggregate
amount up to $140.0 million. The amount available under the Facility is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.
The borrower may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to 0.25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the six months
ended June 30, 1997, the average interest rate under the facility approximated
6.8%.
The bank credit agreement contains certain financial covenants, including
but not limited to, a maximum total debt to capitalization ratio, a maximum
total debt to EBITDA ratio and a minimum current ratio. The bank credit
agreement also contains certain negative covenants, including but not limited to
restrictions on indebtedness; certain liens; guaranties, speculative derivatives
and other similar obligations; asset dispositions; dividends, loans and
advances; creation of subsidiaries; investments; leases; acquisitions; mergers;
changes in fiscal year; transactions with affiliates; changes in business
conducted; sale and leaseback and operating lease transactions; sale of
receivables; prepayment of other indebtedness; amendments to principal
documents; negative pledge causes; issuance of securities; and non-speculative
commodity hedging.
In conjunction with the Gerrity Acquisition, the Company assumed $100
million of 11.75% Senior Subordinated Notes due July 15, 2004 issued by Gerrity
in 1994. Under purchase accounting, the Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount. Interest is payable each January 15, and July 15. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after July 15, 1999, initially at 105.875% of their principal amount, declining
to 102.938% on or after July 15, 2000 and declining to 100% on or after July 15,
2001. Upon a change of control, as defined in the Notes, the Company is
obligated to make an offer to purchase all outstanding Notes at a price of 101%
of the principal amount thereof. In addition, the Company would be obligated,
subject to certain conditions, to make offers to purchase Notes with the net
cash proceeds of certain asset sales or other dispositions of assets at a price
of 101% of the principal amount thereof. Subsequent to the Gerrity Acquisition,
the Company repurchased and retired $7.7 million of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million in the accompanying financial statements. The Notes are unsecured
general obligations of the Company and are subordinated to all senior
indebtedness of the Company and to any existing and future indebtedness of the
Company's subsidiaries.
The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly, is not limited in its ability to incur additional
debt.
Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
parent in the Company with the remaining portion being considered debt to
parent. The portion considered to be debt to parent versus an investment by
parent was a discretionary percentage determined by SOCO after consideration of
the Company's internally generated cash flows and level of capital expenditures.
Subsequent to the Gerrity Acquisition, the $75.0 million debt to parent was paid
in full and the Company does not expect SOCO to provide any additional funding.
F-17
<PAGE> 74
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On the portion of such financing which was considered to be debt to parent,
SOCO charged interest at a rate which approximated the average interest rate
being paid by SOCO under its revolving credit facility (5.5%, 7.0% and 6.9% for
1994, 1995 and the four month period ended May 2, 1996, respectively).
Scheduled maturities of indebtedness for the next five years are zero for
1997, 1998, and 1999, and $85.0 million in 2000, and zero in 2001. The long-term
portions of the credit facilities are scheduled to expire in 2000; however, it
is management's intent to review both the short-term and long-term facilities
and extend the maturities on a regular basis.
There were no cash payments for interest expense in 1994, 1995 or in the
first four months of 1996. Cash payments for interest totaled $10.5 million in
the eight months ended December 31, 1996 and $8.7 million for the six months
ended June 30, 1997.
(5) STOCKHOLDERS' EQUITY
A total of 40,000,000 common shares, $0.01 par value, are authorized of
which 18,820,248 were issued and outstanding at June 30, 1997. The Company
issued 6,000,000 common shares and 3,000,000 warrants exercisable at $12.50 in
exchange for all of the outstanding stock of Gerrity upon consummation of the
Gerrity Acquisition. Of the 18,820,248 shares outstanding, 2,000,000 are
designated as Series A Common Stock. The Series A Common Stock is identical to
the common shares except that the Series A Common Stock is entitled to three
votes per share rather than one vote per share. The Series A Common Stock is
owned by SOCO and reverts to regular common shares upon certain conditions.
Subsequent to the merger date, the Company repurchased 1,187,200 shares of
common stock, 500,000 warrants issued to Gerrity's former chief executive
officer, and 80,549 warrants for total consideration of $10.5 million. No
dividends have been paid on common stock as of June 30, 1997.
A total of 5,000,000 preferred shares, $0.01 par value, are authorized of
which 1,467,926 were issued and outstanding at June 30, 1997. In May 1996, 1.2
million shares of 7.125% preferred stock were issued to certain Gerrity
preferred shareholders electing to exchange their preferred shares in the
Original Exchange Offer. Thus there were no proceeds received related to this
issuance. In October 1996, Gerrity's certificate of incorporation was amended to
provide that all shares of Gerrity's preferred stock not exchanged in the
Original Exchange Offer be exchanged for the Company's preferred shares on the
same terms as the Original Exchange Offer. This exchange resulted in the
issuance of an additional 389,000 preferred shares. The stock is convertible
into common stock at any time at $8.61 per share. The 7.125% preferred stock is
redeemable at the option of the Company at any time after May 2, 1998 if the
average closing price of the Company's common stock for 20 of the 30 days prior
to not less than five days preceding the redemption date is greater than $12.92
per share or at any time after May 2, 1999. The liquidation preference is $25.00
per share, plus accrued and unpaid dividends. The Company paid $2.1 and $1.3
million ($1.78 per 7.125% convertible share per annum) in preferred dividends
during the year ended December 31, 1996 and for the six months ended, June 30,
1997 and had accrued an additional $354,000 at December 31, 1996 and $327,000 at
June 30, 1997 for dividends.
Earnings per share are computed by dividing net income, less dividends on
preferred stock, by weighted average common shares outstanding. Net income
(loss) applicable to common for 1994, 1995, 1996 and the six months ended June
30, 1997, was $2,950,000, ($2,094,000), $1,433,000 and $5,754,000, respectively.
Differences between primary and fully diluted earnings per share were
insignificant for all periods presented.
In 1996, the shareholders adopted a stock option plan for employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A total of 512,000
options were issued in May 1996 with an exercise price of $7.75 per common share
and 271,000 options were issued in February 1997 with an exercise
F-18
<PAGE> 75
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $9.25 per common share. The options vest over a three-year period (30%,
60%, 100%) and expire five years from date of grant.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors of the Company. The Directors' Plan
provides for each nonemployee Director to receive common shares having a market
value equal to $2,250 quarterly in payment of one-half their retainer. A total
of 3,632 shares were issued in 1996 and 2,076 shares were issued during the
first six months of 1997. It also provides for 5,000 options to be granted
annually to each nonemployee Director. A total of 20,000 options were issued in
May 1996 with an exercise price of $7.75 per common share and 20,000 options
were issued in May 1997 with an exercise price of $8.625. The options vest over
a three-year period (30%, 60%, 100%) and expire five years from date of grant.
At December 31, 1996, the Company had a fixed stock option compensation
plan, which is described above. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for these fixed stock option plans. Had compensation cost for the Company's
fixed stock option compensation plans been determined consistent with Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," the Company's net income (in thousands) and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Net income (loss)
As reported....................................................... $ 3,562
Pro forma......................................................... $ 3,281
Income (loss) per common share
As reported....................................................... $ 0.08
Pro forma......................................................... $ 0.06
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 0%; expected volatility
of 30%; risk-free interest rate of 6.4%; and expected life of 4.5 years.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and changes during the year is presented below (shares are in
thousands):
<TABLE>
<CAPTION>
1996
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Outstanding at beginning of year....................... -- $ --
Granted................................................ 532 7.75
Exercised.............................................. -- --
Forfeited.............................................. (29) 7.75
---
Outstanding at end of year............................. 503 7.75
Options exercisable at year end........................ -- --
---
Weighted-average fair value of options granted during
the year............................................. $ 2.81
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT WEIGHTED-
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICE 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- -------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
7.75...... 503,000 4.3 years $ 7.75 -- --
</TABLE>
F-19
<PAGE> 76
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) FEDERAL INCOME TAXES
Prior to the Gerrity Acquisition, the Company had been included in the tax
return of SOCO. Current and deferred income tax provisions allocated by SOCO
were determined as though the Company filed as an independent company, making
the same tax return elections used in SOCO's consolidated return. Subsequent to
the Gerrity Acquisition, the Company will not be included in the tax return of
SOCO.
A reconciliation of the statutory rate to the Company's effective rate as
they apply to the provision (benefit) for the years ended December 31, 1994,
1995, 1996 and the six months ended, June 30, 1997 follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Federal statutory rate................... 35% (35)% 35% 35%
Utilization of net deferred tax asset.... -- -- (35)% (35)%
Tax benefit recognized prior to Gerrity
Acquisition............................ -- -- (12)% --
--
--- --- ---
Effective income tax rate................ 35% (35)% (12)% --%
== === === ===
</TABLE>
For book purposes the components of the net deferred asset and liability at
December 31, 1995 and 1996, respectively, were:
<TABLE>
<CAPTION>
1995 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
NOL carryforwards..................................... $ 15,716 $24,586
Production payment receivables and other.............. 128 27,382
-------- -------
15,844 51,968
-------- -------
Deferred tax liabilities
Depreciable and depletable property................... 41,169 48,145
Investments and other................................. -- --
-------- -------
41,169 48,145
-------- -------
Deferred tax assets (liability)......................... (25,325) 3,823
-------- -------
Valuation allowance..................................... -- (3,823)
-------- -------
Net deferred tax asset (liability)...................... $(25,325) $ --
======== =======
</TABLE>
For tax purposes, the Company had regular net operating loss carryforwards
of $70.2 million and alternative minimum tax ("AMT") loss carryforwards of $35.1
million at December 31, 1996. Utilization of $31.9 million regular net operating
loss carryforwards and $31.6 million AMT loss carryforwards will be limited to
$5.2 million per year as a result of the merger of Gerrity and SWAT on May 2,
1996. These carryforwards expire from 2006 through 2011. At December 31, 1996,
the Company had alternative minimum tax credit carryforwards of $478,000 which
are available indefinitely. No cash payments were made by the Company for
federal taxes during 1995 and 1996. As discussed in Note 1, the accompanying
financial statements include certain Wattenberg operations previously owned
directly by SOCO. Accordingly, certain operating losses generated by these
properties were retained by SOCO. In addition, certain taxable income generated
by SOCO did not offset the Company's net operating loss carryforwards. Prior to
the Gerrity Acquisition, the effect of such items has been reflected as a charge
or credit in lieu of taxes in the Company's consolidated statement of changes in
stockholders' equity.
F-20
<PAGE> 77
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) MAJOR CUSTOMERS
During 1996 and the six months ended June 30, 1997, PanEnergy, Inc.
accounted for 38% and 42% of revenues, respectively. During 1994, 1995, 1996 and
the six months ended June 30, 1997, Amoco Production Company accounted for 25%,
22%, 19% and 15%, subsidiaries of SOCO accounted for 59%, 46%, 0% and 0%, and
Total Petroleum accounted for 15%, 20%, 10%, and 8% of revenues, respectively.
Management believes that the loss of any individual purchaser would not have a
long-term material adverse impact on the financial position or results of
operations of the Company.
(8) RELATED PARTY
Prior to the Gerrity Acquisition, the Company did not have its own
employees. Employees, certain office space and furniture, fixtures and equipment
were provided by SOCO. SOCO allocated general and administrative expenses to the
Company based on its estimate of expenditures incurred on behalf of the Company.
Subsequent to the Gerrity Acquisition, certain field, administrative and
executive employees of SOCO and Gerrity became employees of the Company. SOCO
will continue to provide certain services to the Company under the Transition
Agreement. During 1996 and the first six months of 1997, the Company paid
approximately $650,000 and $898,000, respectively to SOCO under a corporate
services agreement.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under non-cancellable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 1997 through 2001.
The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
(10) UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
Independent petroleum consultants directly evaluated 89%, 100% and 100% of
proved reserves at December 31, 1994, 1995 and 1996, respectively. All reserve
estimates are based on economic and operating conditions at that time. Future
net cash flows as of each year-end were computed by applying then current prices
to estimated future production less estimated future expenditures (based on
current costs) to be incurred in producing and developing the reserves. All
reserves are located onshore in the United States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant. With
respect to certain properties that historically have experienced seasonal
curtailment, the reserve estimates assume that the seasonal pattern of such
curtailment will continue in the future. There can be no assurance that actual
production will equal the estimated amounts used in the preparation of reserve
projections.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. The data in the tables below represent estimates only.
Oil and natural gas reserve engineering must be recognized as a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured in an exact way, and estimates of other engineers might differ
materially from those shown above. The accuracy of any reserve estimate is a
function of the quality of available data and engineering and geological
interpretation and judgement. Results in drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and natural gas that
are ultimately recovered.
F-21
<PAGE> 78
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUANTITIES OF PROVED RESERVES --
<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
Balance, December 31, 1993............................ 16,928 229,862
Revisions........................................... (4,450) (50,021)
Extensions, discoveries and additions............... 1,372 20,900
Production.......................................... (1,829) (23,893)
Purchases........................................... 197 1,855
Sales............................................... -- --
------ -------
Balance, December 31, 1994............................ 12,218 178,703
Revisions........................................... (3,609) (19,618)
Extensions, discoveries and additions............... 154 785
Production.......................................... (1,342) (20,981)
Purchases........................................... -- --
Sales............................................... -- (32)
------ -------
Balance, December 31, 1995............................ 7,421 138,857
Revisions........................................... 720 (1,314)
Extensions, discoveries and additions............... 194 1,342
Production.......................................... (1,688) (23,947)
Purchases........................................... 15,834 183,729
Sales............................................... (6) (2,008)
------ -------
Balance, December 31, 1996............................ 22,475 296,659
====== =======
</TABLE>
PROVED DEVELOPED RESERVES --
<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
December 31, 1993..................................... 7,365 136,765
====== =======
December 31, 1994..................................... 8,832 147,869
====== =======
December 31, 1995..................................... 6,955 133,088
====== =======
December 31, 1996..................................... 15,799 242,777
====== =======
</TABLE>
F-22
<PAGE> 79
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE --
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows............................... $ 356,224 $1,668,475
Future costs:
Production...................................... (100,505) (338,752)
Development..................................... (13,428) (160,856)
---------- ----------
Future net cash flows............................. 242,291 1,168,867
Undiscounted income taxes......................... (29,873) (294,407)
---------- ----------
After tax net cash flows.......................... 212,418 874,460
10% discount factor............................... (84,902) (374,524)
---------- ----------
Standardized measure.............................. $ 127,516 $ 499,936
========== ==========
</TABLE>
CHANGES IN STANDARDIZED MEASURE --
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year... $191,011 $161,481 $ 127,516
Revisions:
Prices and costs........................ (56,928) 2,240 351,724
Quantities.............................. (29,498) (14,230) 501
Development costs....................... (8,044) (1,182) (11,024)
Accretion of discount................... 19,101 16,148 27,619
Income taxes............................ 23,121 10,963 (129,612)
Production rates and other.............. (8,422) (21,265) (3,706)
-------- -------- ---------
Net revisions........................... (60,670) (7,326) 235,502
Extensions, discoveries and additions..... 19,583 2,064 3,791
Production................................ (58,099) (40,877) (67,666)
Future development costs incurred......... 67,484 12,192 7,906
Purchases(a).............................. 2,172 -- 193,998
Sales (b)................................. -- (18) (1,111)
-------- -------- ---------
Standardized measure, end of year......... $161,481 $127,516 $ 499,936
======== ======== =========
</TABLE>
- ---------------
(a) "Purchases" includes the present value at the end of the period acquired
during the year plus the cash flow received on such properties during the
period, rather than their estimated present value at the time of the
acquisition.
(b) "Sales" represents the present value at the beginning of the period of
properties sold, less the cash flow received on such properties during the
period.
F-23
<PAGE> 80
======================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION SET HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 10
Concurrent Transactions............... 17
Capitalization........................ 21
Use of Proceeds....................... 21
Price Range of Common Stock........... 22
Dividend Policy....................... 22
Selected Historical and Pro Forma
Consolidated Financial Data......... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 30
Management............................ 38
Security Ownership of Certain
Beneficial Owners and Management.... 43
Selling Stockholder................... 45
Description of Capital Stock.......... 45
Description of Certain Indebtedness... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Available Information................. 53
Incorporation of Certain Documents by
Reference........................... 53
Glossary of Oil and Gas Terms......... 54
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
7,500,000 SHARES
PATINA OIL & GAS
CORPORATION
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
======================================================
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES IN ISSUANCE AND DISTRIBUTION
Expenses of issuance and distribution, other than underwriting discounts
and commissions, have been estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 22,216
Transfer agent fees............................................. 15,000
Legal fees and expenses......................................... 629,000
Accounting fees................................................. 68,000
Engineering fees................................................ 5,000
Printing expenses............................................... 275,000
Blue sky fees and expenses (including fees of counsel).......... 2,000
Miscellaneous................................................... 408,784
Total................................................. $ 1,425,000
=======
</TABLE>
SOCO will not pay any portion of such expenses.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits -
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger dated as of January 16, 1996 as
amended and restated as of March 20, 1996 -- incorporated by reference to Exhibit
2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Patina Oil &
Gas Corporation (Registration No. 333-572)
4.1 Certificate of Incorporation -- incorporated herein by reference to the Exhibit
3.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-572)
4.1.1** Certificate of Designation for New Preferred Stock (included in Exhibit 10.11)
4.2 Bylaws -- incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-572)
4.3 Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and
into the Company, effective March 21, 1997 -- incorporated herein by reference to
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997
4.4* Indenture, dated as of June 30, 1994, between Gerrity Oil & Gas Corporation and
Chemical Bank (now known as The Chase Manhattan Bank)
4.4.1 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil & Gas
Corporation, the Company and The Chase Manhattan Bank (formerly known as Chemical
Bank) as Trustee -- incorporated herein by reference to Exhibit 10.1.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
(Commission file number 1-14344)
5.1* Opinion of Simpson Thacher & Bartlett as to the validity of the shares of Common
Stock of the Registrant being registered
10.1 Business Opportunity Agreement -- incorporated herein by reference to Exhibit 2.2
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.1.1* Form of Termination of Business Opportunity Agreement between the Company and
Snyder Oil Corporation
10.2 Corporate Services Agreement -- incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4 of Patina Oil & Gas Corporation (Registration
No. 333-572)
</TABLE>
II-1
<PAGE> 82
<TABLE>
<S> <C>
10.2.1* Form of Termination of Corporate Services Agreement between the Company and
Snyder Oil Corporation
10.3* Form of Transition Agreement between the Company and Snyder Oil Corporation
10.4 Credit Agreement dated as of May 2, 1996 among the Company, Gerrity Oil & Gas
Corporation and SOCO Wattenberg Corporation, as Borrowers, certain financial
institutions, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1 to the Company's Form 8-K dated May 2, 1996 (Commission
file number 1-14344)
10.4.1 First Amendment to Credit Agreement dated June 28, 1996 by and among the Company,
Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as Borrowers, and
Texas Commerce Bank National Association, as Administrative Agent, and certain
commercial lending institutions -- incorporated herein by reference to Exhibit
10.1.1 to the Company's Form 10-Q for the quarter ending June 30, 1996
(Commission file number 1-14344)
10.4.2 Second Amendment to Credit Agreement effective October 8, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative Agent,
and certain commercial lending institutions -- incorporated herein by reference
to Exhibit 10.74 of the Company's Form 10-Q for the quarter ending September 30,
1996 (Commission file number 1-14344)
10.4.3 Third Amendment to Credit Agreement effective November 1, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative Agent,
and certain commercial lending institutions -- incorporated herein by reference
to Exhibit 10.75 of the Company's Form 10-Q for the quarter ending September 30,
1996 (Commission file number 1-14344)
10.4.4 Amended and Restated Credit Agreement dated April 1, 1997 by and among the
Company, as Borrower, and Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending institutions -- incorporated
herein by reference to Exhibit 10.1.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission file number 1-14344)
10.4.5 First Amendment to the Amended and Restated Credit Agreement effective May 1,
1997 by and among the Company, as Borrower, and Texas Commerce Bank National
Association, as Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.4.6** Form of Second Amendment to the Amended and Restated Credit Agreement by and
among the Company, as Borrower, Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending institutions - incorporated
herein by reference to Exhibit 10.1.6 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission file number 1-14344)
10.5 Agreement dated July 16, 1996 by and between F. H. Smith, employee, and the
Company -- incorporated herein by reference to Exhibit 10.3 of the Company's Form
10-Q for the quarter ending June 30, 1996 (Commission file number 1-14344)
10.5.1 Deferred Compensation Plan for Selected Employees adopted by the Company
effective May 1, 1996 -- incorporated herein by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
10.5.2* Employment Agreement, dated July 31, 1997, between the Registrant and Thomas J.
Edelman
10.7 Sublease Agreement dated as of May 1, 1996 by and between Snyder Oil Corporation,
as Sublandlord, and the Company, as Subtenant -- incorporated herein by reference
to Exhibit 10.4 of the Company's Form 10-Q for the quarter ending June 30, 1996
(Commission file number 1-14344)
</TABLE>
II-2
<PAGE> 83
<TABLE>
<S> <C>
10.7.1 Sublease Agreement dated as of October 7, 1996 by and between Gerrity Oil & Gas
Corporation, as Sublandlord, and Shadownet Technologies, L.L.C. -- incorporated
herein by reference to Exhibit 10.76 of the Company's Form 10-Q for the quarter
ending September 30, 1996 (Commission file number 1-14344)
10.9 Registration Rights Agreement -- incorporated herein by reference to Exhibit 2.4
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.10 Cross Indemnification Agreement -- incorporated herein by reference to Exhibit
2.5 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.11** Stock Purchase Agreement, dated as of July 31, 1997 among the Company and the New
Preferred Stock Investors
10.12** Share Repurchase Agreement, dated as of July 31, 1997, by and between the Company
and Snyder Oil Corporation (included in Exhibit 10.11)
10.13* Management Stock Purchase Agreement, dated as of September 4, 1997, by and among
the Company and the Management Investors
10.13.1* Form of Pledge Agreement (included in exhibit 10.13)
10.13.2* Form of Promissory Note (included in exhibit 10.13)
10.14* Form of Restricted Stock Agreement, dated September 4, 1997, by and among the
Company and the Management Investors
11.1 Computation of Per Share Earnings -- incorporated herein by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends -- incorporated herein by
reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996
20** Fairness opinion of A.G. Edwards & Sons, Inc. dated July 30, 1997.
23.1* Consent of Arthur Andersen L.L.P.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
23.4* Consent of A.G. Edwards & Sons, Inc.
23.5** Consent of Coopers & Lybrand L.L.P.
24.1* Power of Attorney of directors and officers
27 Financial Data Schedule -- incorporated herein by reference to Exhibit 27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
99.1 Reserve letter from Netherland, Sewell & Associates, Inc. Dated February 5, 1997
to the Patina Oil & Gas Corporation interest as of December 31,
1996 -- incorporated herein by reference to Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
99.2* Consent of Mr. Arnold L. Chavkin to being named in the Registration Statement as
a person about to become a director of the Registrant
99.3* Consent of Mr. William E. Macaulay to being named in the Registration Statement
as a person about to become a director of the Registrant
</TABLE>
- ---------------
* Previously filed
** Filed herewith
II-3
<PAGE> 84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THE 19TH DAY OF
SEPTEMBER, 1997.
PATINA OIL & GAS CORPORATION
(Registrant)
By: /s/ BRIAN J. CREE
------------------------------------
Brian J. Cree
Executive Vice President and
Chief Operating Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- -------------------------------- -------------------
<C> <S> <C>
THOMAS J. EDELMAN* Chairman of the Board, September 19, 1997
- ---------------------------------------- President, Chief Executive
Thomas J. Edelman Officer and Director
/s/ BRIAN J. CREE Executive Vice President, Chief September 19, 1997
- ---------------------------------------- Operating Officer and Director
Brian J. Cree
DAVID J. KORNDER* Vice President and Chief September 19, 1997
- ---------------------------------------- Financial Officer
David J. Kornder
ROBERT J. CLARK* Director September 19, 1997
- ----------------------------------------
Robert J. Clark
JAY W. DECKER* Director September 19, 1997
- ----------------------------------------
Jay W. Decker
WILLIAM J. JOHNSON* Director September 19, 1997
- ----------------------------------------
William J. Johnson
ALEXANDER P. LYNCH* Director September 19, 1997
- ----------------------------------------
Alexander P. Lynch
JOHN C. SNYDER* Director September 19, 1997
- ----------------------------------------
John C. Snyder
*By: /s/ BRIAN J. CREE
- ----------------------------------------
Brian J. Cree
Attorney in Fact
</TABLE>
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger dated as of January 16, 1996
as amended and restated as of March 20, 1996 -- incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of
Patina Oil & Gas Corporation (Registration No. 333-572)
4.1 Certificate of Incorporation -- incorporated herein by reference to the Exhibit
3.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-572)
4.1.1** Certificate of Designation for New Preferred Stock (included in Exhibit 10.11)
4.2 Bylaws -- incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-572)
4.3 Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and
into the Company, effective March 21, 1997 -- incorporated herein by reference
to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997
4.4* Indenture, dated as of June 30, 1994, between Gerrity Oil & Gas Corporation and
Chemical Bank (now known as The Chase Manhattan Bank)
4.4.1 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil & Gas
Corporation, the Company and The Chase Manhattan Bank (formerly known as
Chemical Bank) as Trustee -- incorporated herein by reference to Exhibit 10.1.7
to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 (Commission file number 1-14344)
5.1* Opinion of Simpson Thacher & Bartlett as to the validity of the shares of Common
Stock of the Registrant being registered
10.1 Business Opportunity Agreement -- incorporated herein by reference to Exhibit
2.2 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.1.1* Form of Termination of Business Opportunity Agreement between the Company and
Snyder Oil Corporation
10.2 Corporate Services Agreement -- incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4 of Patina Oil & Gas Corporation (Registration
No. 333-572)
10.2.1* Form of Termination of Corporate Services Agreement between the Company and
Snyder Oil Corporation
10.3* Form of Transition Agreement between the Company and Snyder Oil Corporation
10.4 Credit Agreement dated as of May 2, 1996 among the Company, Gerrity Oil & Gas
Corporation and SOCO Wattenberg Corporation, as Borrowers, certain financial
institutions, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1 to the Company's Form 8-K dated May 2, 1996
(Commission file number 1-14344)
10.4.1 First Amendment to Credit Agreement dated June 28, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1.1 to the Company's Form 10-Q for the quarter ending
June 30, 1996 (Commission file number 1-14344)
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.4.2 Second Amendment to Credit Agreement effective October 8, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.74 of the Company's Form 10-Q for the quarter ending
September 30, 1996 (Commission file number 1-14344)
10.4.3 Third Amendment to Credit Agreement effective November 1, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.75 of the Company's Form 10-Q for the quarter ending
September 30, 1996 (Commission file number 1-14344)
10.4.4 Amended and Restated Credit Agreement dated April 1, 1997 by and among the
Company, as Borrower, and Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.4.5 First Amendment to the Amended and Restated Credit Agreement effective May 1,
1997 by and among the Company, as Borrower, and Texas Commerce Bank National
Association, as Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.4.6** Form of Second Amendment to the Amended and Restated Credit Agreement by and
among the Company, as Borrower, Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending institutions - incorporated
herein by reference to Exhibit 10.1.6 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission file number 1-14344)
10.5 Agreement dated July 16, 1996 by and between F. H. Smith, employee, and the
Company -- incorporated herein by reference to Exhibit 10.3 of the Company's
Form 10-Q for the quarter ending June 30, 1996 (Commission file number 1-14344)
10.5.1 Deferred Compensation Plan for Selected Employees adopted by the Company
effective May 1, 1996 -- incorporated herein by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
10.5.2* Employment Agreement, dated July 31, 1997, between the Registrant and Thomas J.
Edelman
10.7 Sublease Agreement dated as of May 1, 1996 by and between Snyder Oil
Corporation, as Sublandlord, and the Company, as Subtenant -- incorporated
herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter
ending June 30, 1996 (Commission file number 1-14344)
10.7.1 Sublease Agreement dated as of October 7, 1996 by and between Gerrity Oil & Gas
Corporation, as Sublandlord, and Shadownet Technologies, L.L.C. -- incorporated
herein by reference to Exhibit 10.76 of the Company's Form 10-Q for the quarter
ending September 30, 1996 (Commission file number 1-14344)
10.9 Registration Rights Agreement -- incorporated herein by reference to Exhibit 2.4
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.10 Cross Indemnification Agreement -- incorporated herein by reference to Exhibit
2.5 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.11** Stock Purchase Agreement, dated as of July 31, 1997 among the Company and the
New Preferred Stock Investors
10.12** Share Repurchase Agreement, dated as of July 31, 1997, by and between the
Company and Snyder Oil Corporation (included in Exhibit 10.11)
10.13* Management Stock Purchase Agreement, dated as of September 4, 1997, by and among
the Company and the Management Investors
10.13.1* Form of Pledge Agreement (included in exhibit 10.13)
10.13.2* Form of Promissory Note (included in exhibit 10.13)
10.14* Form of Restricted Stock Agreement, dated September 4, 1997, by and among the
Company and the Management Investors
11.1 Computation of Per Share Earnings -- incorporated herein by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends -- incorporated herein by
reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996
20** Fairness opinion of A.G. Edwards & Sons, Inc. dated July 30, 1997.
23.1* Consent of Arthur Andersen L.L.P.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
23.4* Consent of A.G. Edwards & Sons, Inc.
23.5** Consent of Coopers & Lybrand L.L.P.
24.1* Power of Attorney of directors and officers
27 Financial Data Schedule -- incorporated herein by reference to Exhibit 27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
99.1 Reserve letter from Netherland, Sewell & Associates, Inc. Dated February 5, 1997
to the Patina Oil & Gas Corporation interest as of December 31,
1996 -- incorporated herein by reference to Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
99.2* Consent of Mr. Arnold L. Chavkin to being named in the Registration Statement as
a person about to become a director of the Registrant
99.3* Consent of Mr. William E. Macaulay to being named in the Registration Statement
as a person about to become a director of the Registrant
</TABLE>
- ---------------
* Previously filed
** Filed herewith
<PAGE> 1
EXHIBIT 10.4.6
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement (this
"Second Amendment") is entered into as of the ___ day of _____, 1997, by and
among Patina Oil & Gas Corporation ("Borrower"), Texas Commerce Bank National
Association, as Administrative Agent ("Administrative Agent"), NationsBank of
Texas, N.A., as Documentary Agent ("Documentary Agent"), Wells Fargo Bank,
N.A., CIBC, Inc. and Credit Lyonnais New York Branch, as Co-Agents
("Co-Agents") and the financial institutions a party to the Credit Agreement
(as hereinafter defined) as Banks (individually a "Bank" and collectively
"Banks").
W I T N E S E T H:
WHEREAS, Borrower, Administrative Agent, Documentary Agent, Co-Agents
and Banks are parties to that certain Amended and Restated Credit Agreement
dated as of April 1, 1997, as amended by that certain First Amendment to
Amended and Restated Credit Agreement dated as of May 1, 1997, by and among
Borrower, Administrative Agent, Documentary Agent, Co-Agents and Banks (as
amended through the date hereof, the "Credit Agreement") (unless otherwise
defined herein, all terms used herein with their initial letter capitalized
shall have the meaning given such terms in the Credit Agreement); and
WHEREAS, pursuant to the Credit Agreement, Banks have made a certain
revolving credit loan to Borrower; and
WHEREAS, Borrower has filed a registration statement with the
Securities and Exchange Commission covering the sale of 8,625,000 shares (the
"Registered Shares") of Common Stock ; and
WHEREAS, Borrower has advised Banks and Agents that concurrently with
the sale of the Registered Shares Borrower intends to (a) issue and sell in
private transactions up to 2,520,000 shares of its 8.5% Convertible Preferred
Stock (the "New Preferred Stock") for an aggregate purchase price of up to
$63,000,000, (b) loan up to $850,000 (the "Management Loan") to certain
executive officers and members of the management of Borrower (the "Management
Investors"), the proceeds of which shall be used in connection with the
purchase by such Management Investors of shares of Common Stock having an
aggregate purchase price of up to $3,000,000, and (c) use the proceeds from the
sales described in clauses (a) and (b) above, together with Borrowings under
the Agreement, to purchase the balance of the Common Stock owned and held by
SOCO subsequent to the sale of the Registered Shares (the "Repurchase"); and
WHEREAS, Borrower has requested that the Credit Agreement be amended
to (a) permit Distributions in connection with the New Preferred Stock, (b)
permit the Management Loan, (c) permit the Repurchase, and (d) delete Sections
11.1(o), (p) and (q),each of which sections pertain to various control
requirements related to SOCO; and
<PAGE> 2
WHEREAS, subject to the terms and conditions set forth herein, Agents
and Banks have agreed to Borrower's requests.
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrower, each Agent and each Bank hereby agree as follows:
Section 1. Amendments. In reliance on the representations,
warranties, covenants and agreements contained in this Second Amendment, the
Credit Agreement shall be amended effective ________, 1997 in the manner
provided in this Section 1.
1.1. Amendment to Definitions. The definitions of "Loan Papers,"
"Permitted Investments," and "SOCO" contained in Section 1.1 of the Credit
Agreement shall be amended to read in full as follows:
"Loan Papers" means this Agreement, the Notes, the Restricted
Subsidiary Guarantee, the Restricted Subsidiary Pledge Agreement, the
First Amendment, the Second Amendment, all Mortgages now or at any
time hereafter delivered pursuant to Section 5.1, and all other
certificates, documents or instruments delivered in connection with
this Agreement, as the foregoing may be amended from time to time.
"Permitted Investment" means, with respect to Borrower or any
Restricted Subsidiary, (a) readily marketable direct obligations of
the United States of America, (b) fully insured time deposits and
certificates of deposit with maturities of one (1) year or less of any
commercial bank operating in the United States having capital and
surplus in excess of $50,000,000.00, (c) commercial paper of a
domestic issuer if at the time of purchase such paper is rated in one
of the two highest ratings categories of Standard and Poor's
Corporation or Moody's Investors Service, (d) any reverse repurchase
agreement entered into with a commercial bank meeting the criteria
described in clause (b) preceding which is secured by a fully
perfected security interest in a security of the type described in
clauses (a) through (c) preceding and which security has a market
value at the time such reverse repurchase agreement is entered into of
not less than 100% of the obligation of such commercial bank under
such reverse repurchase agreement, (e) Investments by Borrower and its
Restricted Subsidiaries in Borrower or Restricted Subsidiaries of
Borrower, (f) Investments outstanding as of the date hereof described
on Schedule 2 hereof, (g) the Management Loan, and (h) Investments by
Borrower and its Restricted Subsidiaries which when made, together
with all other Investments made pursuant to this clause (h) do not
exceed an amount (measured at cost) greater than five percent (5%) of
the Borrowing Base then in effect.
"SOCO" means Snyder Oil Corporation, a Delaware corporation.
2
<PAGE> 3
1.2. Additional Definitions. Section 1.1 of the Credit Agreement
shall be amended to add the following definitions to such Section:
"Management Investors" means, collectively, those certain
executive officers and members of management of Borrower purchasing
the Management Stock, including, without limitation, Thomas J.
Edelman.
"Management Loan" means a loan in the maximum aggregate
principal amount of $850,000, evidenced by those certain promissory
notes dated _____________, 1997, executed by the Management Investors
and payable to Borrower, the proceeds of which shall be used in
connection with the purchase by such Management Investors of the
Management Stock.
"Management Loan Documents" means, collectively, (a) those
certain promissory notes dated _________, 1997, in the original
aggregate principal amount of $850,000, executed by the Management
Investors and payable to Borrower, and (b) all other documents,
instruments and agreements which evidence or otherwise pertain to the
Management Loan.
"Management Stock" means Common Stock having an aggregate
purchase price of $3,000,000 which is to be issued and sold to the
Management Investors.
"New Preferred Stock" means Borrower's 8.5% Convertible
Preferred Stock containing the rights and preferences set forth in,
and issued pursuant to, the New Preferred Stock Designation.
"New Preferred Stock Designation" means the Certificate of
Designation of Rights and Preferences of 8.5% Convertible Preferred
Stock filed with the Secretary of State of Delaware on or about
______________, 1997, setting forth the rights and preferences of the
New Preferred Stock.
"New Preferred Stock Investors" means, collectively, those
Persons purchasing the New Preferred Stock, including, without
limitation, First Reserve Fund VII, Limited Partnership, Chase Venture
Capital Associates, L.P. and Highbridge International LDC.
"Offering" means the underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933,
as amended, covering the offering and sale of 8,625,000 shares of
Common Stock, 7,500,000 shares of which are being offered by SOCO, and
1,125,000 of which may be sold by SOCO upon exercise of the
underwriter's overallotment option.
3
<PAGE> 4
"Post-Offering Shares" means the balance of the Common Stock
held by SOCO subsequent to the sale of the shares of Common Stock held
by SOCO pursuant to the Offering. The Post-Offering Shares shall be
equal to the difference between (a) the 14,000,000 shares of Common
Stock held by SOCO prior to the Offering, less (b) the shares of Common
Stock held by SOCO and sold pursuant to the Offering.
"Repurchase" means the repurchase by Borrower of the
Post-Offering Shares with the proceeds from (a) the issuance and sale
of (i) up to $63,000,000 of New Preferred Stock to the New Preferred
Stock Investors, and (ii) up to $3,000,000 of Common Stock to the
Management Investors, and (b) Borrowings under the Agreement.
"Second Amendment" means the Second Amendment to Amended and
Restated Credit Agreement dated as of _______, 1997, entered into by
and among Borrower, Agents, and Banks.
1.3. Determination of Borrowing Base. Subclause (iii) contained in
Section 4.2 of the Credit Agreement shall be amended by inserting the phrase ",
obligations under the New Preferred Stock," immediately following the term
"Preferred Stock" in the second line thereof.
1.4. Restricted Payments Covenant. Section 9.2 of the Credit
Agreement shall be amended to read in full as follows:
SECTION 9.2. Restricted Payments. Neither Borrower nor
any Restricted Subsidiary of Borrower will declare or make any
Restricted Payment; provided, that, so long as no Default, Event of
Default or Borrowing Base Deficiency then exists, and provided that no
Default or Event of Default would result therefrom, Borrower shall be
permitted to (a)(i) declare and pay accrued dividends on the Preferred
Stock, (ii) declare and pay accrued dividends on the New Preferred
Stock, (iii) repurchase any of its Common Stock, Preferred Stock or
New Preferred Stock or warrants, options or other rights to acquire
such Common Stock, Preferred Stock or New Preferred Stock, and (iv)
repurchase, redeem or defease Subordinate Notes, so long as, at any
date, the sum of (x) the aggregate amount of all such dividends
declared and paid pursuant to clauses (i) and (ii) above during the
period commencing on the Closing Date to and including such date, plus
(y) the aggregate amount paid by the Borrower and its Restricted
Subsidiaries in respect of the repurchase of all such Common Stock,
Preferred Stock or New Preferred Stock or warrants, options or other
rights to acquire such Common Stock, Preferred Stock or New Preferred
Stock pursuant to clause (iii) above, plus (z) an amount equal to the
excess of the aggregate repurchase, redemption or defeasance price
paid by Borrower for all Subordinate Notes repurchased, redeemed or
defeased by Borrower
4
<PAGE> 5
subsequent to the Closing Date over the sum of 101% of the aggregate
principal balance of all such Subordinate Notes on the date of
repurchase, redemption or defeasance, plus accrued but unpaid interest
on all such Subordinate Notes redeemed, repurchased or defeased on the
date of redemption, repurchase or defeasance shall not exceed the
Restricted Payment Limit in effect at such date, and (b) consummate
and effectuate the Repurchase, which such Repurchase shall not impact
or be counted against the Restricted Payment Limit.
1.6 Amendments to Material Documents Covenant. Section 9.6 of the
Credit Agreement shall be amended to read in full as follows:
SECTION 9.6. Amendments to Material Documents. Borrower
will not, nor will Borrower permit any of its Restricted Subsidiaries
to, (a) enter into any material modification or amendment of, grant
any material consent under, or waive any material right or obligation
of any Person under (i) its certificate or articles of incorporation,
bylaws, partnership agreement, regulations or other organizational
documents, or (ii) any of the Merger Documents, or (b) enter into any
modification or amendment of, grant any consent under, or waive any
right or obligation of any Person under (i) the Indenture, (ii) the
Subordinate Notes, or (iii) the Management Loan Documents; provided,
that, in the case of clause (a)(i), Borrower may make modifications or
amendments authorizing and pertaining to the issuance of the New
Preferred Stock and related matters.
1.7 Deletions to Section 11.1. Sections 11.1(o), (p) and (q) of
the Credit Agreement shall be deleted in their entirety.
SECTION 2. Representations and Warranties. In order to induce
Agents and Banks to enter into this Second Amendment, Borrower hereby
represents and warrants to each Agent and each Bank that:
(a) each representation and warranty of Borrower and the
Restricted Subsidiaries contained in the Loan Papers are true and correct in
all material respects as of the date hereof (except to the extent that such
representations and warranties are expressly made as of a particular date, in
which event such representations and warranties were true and correct as of
such date);
(b) neither a Default nor an Event of Default has occurred which
is continuing; and
(c) Borrower has no defenses to payment, counterclaims or rights
of set-off with respect to the Obligations on the date hereof.
5
<PAGE> 6
SECTION 3. Miscellaneous.
3.1 Reaffirmation of Loan Papers; Extension of Liens. Any and all
of the terms and provisions of the Credit Agreement and the Loan Papers shall,
except as amended and modified hereby, remain in full force and effect. Borrower
hereby extends the Liens securing the Obligations until the Obligations have
been paid in full, and agrees that the amendments and modifications herein
contained shall in no manner affect or impair the Obligations or the Liens
securing payment and performance thereof.
3.2 Parties in Interest. All of the terms and provisions of this
Second Amendment shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
3.3 Legal Expenses. Borrower hereby agrees to pay on demand all
reasonable fees and expenses of counsel to Administrative Agent incurred by
Administrative Agent in connection with the preparation, negotiation and
execution of this Second Amendment and all related documents.
3.4 Counterparts. This Second Amendment may be executed in
counterparts, and all parties need not execute the same counterpart; however,
no party shall be bound by this Second Amendment until this Second Amendment
has been executed by Borrower, Agents and all Banks at which time this Second
Amendment shall be binding on, enforceable against and inure to the benefit of
Borrower, Agents and all Banks. Facsimiles shall be effective as originals.
3.5 COMPLETE AGREEMENT. THIS SECOND AMENDMENT, THE CREDIT
AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
3.6 Headings. The headings, captions and arrangements used in
this Second Amendment are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify or modify the terms of this Second
Amendment, nor affect the meaning thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their respective Authorized Officers on the
date and year first above written.
BORROWER:
PATINA OIL & GAS CORPORATION,
a Delaware corporation
By:_______________________________________
Name:_____________________________________
6
<PAGE> 7
Title:____________________________________
ADMINISTRATIVE AGENT:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By:_______________________________________
Dale S. Hurd,
Senior Vice President
DOCUMENTARY AGENT:
NATIONSBANK OF TEXAS, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CO-AGENTS:
CIBC, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:_______________________________________
Name:_____________________________________
Title:____________________________________
WELLS FARGO BANK, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
7
<PAGE> 8
BANKS:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By:_______________________________________
Dale S. Hurd,
Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CIBC, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:_______________________________________
Name:_____________________________________
Title:____________________________________
WELLS FARGO BANK, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
8
<PAGE> 9
BANK ONE, TEXAS, N.A.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SWAT hereby acknowledges and agrees that the terms and provisions of
this Second Amendment as set forth above shall not in any manner release,
diminish, impair, reduce or adversely effect the obligations of SWAT under, in
connection with, or related to any Loan Paper (to the extent a party thereto),
including, without limitation, the Restricted Subsidiary Guarantee executed and
delivered by SWAT pursuant to Section 5.2 of the Credit Agreement, and SWAT
hereby waives any common law, equitable, statutory or other rights which SWAT
might otherwise have as a result of, or in connection with, the amendments and
modifications contained in this Second Amendment.
SOCO WATTENBERG CORPORATION
By:_______________________________________
Name:_____________________________________
Title:____________________________________
9
<PAGE> 1
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
AMONG
PATINA OIL & GAS CORPORATION
AND
THE INVESTORS NAMED HEREIN
DATED AS OF JULY 31, 1997
AND AS AMENDED AND RESTATED AS OF SEPTEMBER 19, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I.
Definitions
Section 1.01. Definitions............................................................ 2
ARTICLE II.
Sale and Purchase of the 8.5% Convertible Preferred
Stock, Common Stock and Related Transactions
Section 2.01. Sale and Purchase of the Preferred Stock and Common Stock.............. 4
Section 2.02. Closing................................................................ 5
ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company.......................... 5
Section 3.02. Representations and Warranties of Investors............................ 11
ARTICLE IV.
Additional Agreements of the Parties
Section 4.01. Taking of Necessary Action............................................. 12
Section 4.02. Conduct of Business.................................................... 12
Section 4.03. Notification of Certain Matters........................................ 13
Section 4.04. Access to Information.................................................. 13
Section 4.05. Restrictions on Sale or Transfer; Legend............................... 13
Section 4.06. Designated Directors................................................... 14
Section 4.07. New York Stock Exchange Listing........................................ 14
Section 4.08. Use of Proceeds........................................................ 14
Section 4.09. Approval by Company's Stockholders..................................... 14
Section 4.10. No Additional Shares................................................... 15
ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect each Closing.......... 15
Section 5.02. Conditions to the Investors' Obligations............................... 15
Section 5.03. Conditions to the Company's Obligations to any Closing................. 16
ARTICLE VI.
Registration Rights
Section 6.01. Definition of Registrable Shares....................................... 17
Section 6.02. Demand Registration.................................................... 17
Section 6.03. Piggyback Registration................................................. 18
Section 6.04. Registration Procedures................................................ 19
Section 6.05. Conditions and Limitations............................................. 21
Section 6.06. Information from and Certain Covenant of Holders of Registrable 22
Shares.................................................................
Section 6.07. Registration Expenses.................................................. 22
</TABLE>
i
<PAGE> 3
<TABLE>
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<S> <C> <C>
Section 6.08. Indemnification; Contributions......................................... 22
ARTICLE VII.
Standstill and Confidentiality Provisions
Section 7.01. Certain Definitions.................................................... 24
Section 7.02. Confidentiality Covenants.............................................. 25
Section 7.03. Acquisition of Company Voting Securities............................... 26
Section 7.04. Distribution of the Company Voting Securities.......................... 26
Section 7.05. Proxy Solicitations, etc............................................... 27
Section 7.06. No Voting Trusts, Pooling Agreements, or Formation of "Groups"......... 27
Section 7.07. Limitation on Various Other Actions.................................... 27
Section 7.08. Acquisition Proposals.................................................. 28
Section 7.09. Term of Standstill and Confidentiality Provisions...................... 29
ARTICLE VIII.
Term
Section 8.01. Termination............................................................ 29
Section 8.02. Effect of Termination.................................................. 29
ARTICLE IX.
Miscellaneous
Section 9.01. Survival of Representations, Warranties and Agreements................. 29
Section 9.02. Notices................................................................ 29
Section 9.03. Entire Agreement; Amendment............................................ 30
Section 9.04. Counterparts........................................................... 30
SECTION 9.05. GOVERNING LAW.......................................................... 30
Section 9.06. Public Announcements................................................... 30
Section 9.07. Expenses............................................................... 30
Section 9.08. Indemnification........................................................ 31
Section 9.09. Successors and Assigns................................................. 32
Section 9.10. No Third Party Rights.................................................. 32
Section 9.11. Specific Performance................................................... 32
Section 9.12. Captions............................................................... 33
Section 9.13. Severability........................................................... 33
Section 9.14. Mutual Waiver of Jury Trial............................................ 33
Section 9.15. Jurisdiction........................................................... 33
Section 9.16. References to Other Agreements......................................... 33
</TABLE>
ii
<PAGE> 4
EXHIBITS
<TABLE>
<S> <C> <C>
A -- Form of Share Repurchase Agreement
B -- Form of SOCO Option Agreements
C -- Form of Notice of Issuance
D -- Form of Certificate of Designations
SCHEDULES
I -- Schedule of Investors' Commitments
II -- Company's Disclosure Schedules
5.02 -- Additional Certificates, Opinions, Etc.
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 31, 1997 and
as amended and restated as of September 19, 1997, among Patina Oil & Gas
Corporation, a Delaware corporation (the "Company"), and each of the investors
who execute signature pages hereto (each an "Investor" and collectively, the
"Investors").
W I T N E S S E T H :
WHEREAS, each of the Investors has severally agreed to purchase in up to
two purchases, and the Company has agreed to sell, subject to the terms and
conditions of this Agreement, up to the aggregate number of shares of the
Company's 8.5% Convertible Preferred Stock, par value $.01 per share (the "8.5%
Convertible Preferred Stock"), set forth opposite such Investor's name on
Schedule I hereto, and an aggregate of 160,000 shares of the Company's Common
Stock, par value $.01 per share ("Common Stock");
WHEREAS, prior to or at about the time of the execution and delivery of
this Agreement, the Company shall have filed a Registration Statement on Form
S-3 in connection with the registration and sale on behalf of Snyder Oil
Corporation, the majority stockholder of the Company ("SOCO") of up to 8,625,000
shares of the Company's Common Stock, owned by SOCO (such registration and sale,
the "Secondary Stock Offering"), and the consummation of the sale of Common
Stock by SOCO pursuant to the Secondary Stock Offering shall be a condition
precedent to the initial issuance and sale by the Company of shares of 8.5%
Convertible Preferred Stock hereunder;
WHEREAS, substantially simultaneously with the execution and delivery of
this Agreement, the Company and SOCO shall have entered into a Share Repurchase
Agreement (as amended as of September 19, 1997, the "Share Repurchase
Agreement"), a copy of which is attached hereto as Exhibit A, pursuant to which
the Company has agreed to repurchase from SOCO all of the remaining shares of
Common Stock owned by SOCO which have not been sold by SOCO in the Secondary
Stock Offering (other than the 70,000 shares to be transferred by SOCO to the
Investors pursuant to the SOCO Option Agreement referred to below) at a purchase
price per share equal to the net offering price (after deduction of the
underwriters' commissions and discounts) (such price, the "Net Offering Price")
of the shares of Common Stock sold in the Secondary Stock Offering (such
redemption, the "SOCO Stock Redemption");
WHEREAS, substantially simultaneously with the execution and delivery of
this Agreement, SOCO, the Company and each of the Investors (or one of such
Investor's affiliates) and Thomas J. Edelman, Chairman, Chief Executive Officer
and President of the Company ("Edelman"), shall have entered into one or more
Option Agreements (as amended as of September 19, 1997, the "SOCO Option
Agreement"), a form of which is attached hereto as Exhibit B, pursuant to which
(i) SOCO has granted to the Investors (or their affiliates) and Edelman one or
more options (collectively, the "Option on SOCO Shares") to purchase, on the
terms and conditions set forth in the SOCO Option Agreement, up to 4,000,000 of
the shares of Common Stock owned by SOCO if the Secondary Stock Offering and the
SOCO Stock Redemption do not occur or if this Agreement terminates under
circumstances set forth in Section 8.03 hereof and (ii) concurrently with the
initial closing hereunder, SOCO has agreed to transfer pursuant to the SOCO
Option Agreements an aggregate of 70,000 shares of Common Stock to the
Investors;
WHEREAS, the Company contemplates that the proceeds (or a portion thereof)
from the issuance of the 8.5% Convertible Preferred Stock sold hereunder,
together with the proceeds of new borrowings under the Company's existing senior
credit facility and restricted stock sales, will be used to pay the purchase
price for the shares redeemed in the SOCO Stock Redemption, and the Company
shall be entitled under and subject to the terms and conditions of this
Agreement to determine, in its sole discretion, the aggregate number of shares
of 8.5% Convertible Preferred Stock to be ultimately issued and sold hereunder
to fund a portion of such purchase price;
WHEREAS, in connection with the consummation of the Secondary Stock
Offering, the SOCO Stock Redemption and issuance and sale of the 8.5%
Convertible Preferred Stock hereunder, the Company contemplates issuing
additional shares of Common Stock and granting shares of restricted Common Stock
to certain senior executives of the Company as follows (collectively, such
transactions are referred to herein as
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the "Management Stock Issuances"): (i) to Edelman, (A) the issuance and sale of
$2,000,000 of shares of Common Stock to be purchased at a price per share equal
to the gross offering price in the Secondary Stock Offering and (B) the grant of
350,000 shares of restricted Common Stock and (ii) to the Company's other senior
executives, (A) the issuance and sale of an aggregate of $1,000,000 of shares of
Common Stock to be purchased at a price per share equal to the gross offering
price in the Secondary Stock Offering and (B) the grant of an aggregate of
150,000 shares of restricted Common Stock;
NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I.
Definitions
Section 1.01. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" or "affiliate" shall mean, with respect to any person (the
"target person"), any other person (the "affiliated person") which directly
or indirectly controls or is controlled by or is under common control with
such target person. As used in this definition, "control" (including its
correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
"Agreement" shall have the meaning set forth in the recitals hereto.
"Certificate of Designations" shall have the meaning set forth in
Section 2.01.
"Closing" shall mean the Initial Closing or the Second Closing, as the
context may require.
"Closing Date" shall mean the Initial Closing Date or the Second
Closing Date, as the context may require.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals
hereto.
"Company" shall have the meaning set forth in the recitals hereto.
"Company Plans" shall have the meaning set forth in Section 3.01(k).
"Company Reports" shall have the meaning set forth in Section 3.01(i).
"Company Stockholders' Approval" shall have the meaning set forth in
Section 4.09(a).
"Company's Disclosure Schedules" shall have the meaning set forth in
Section 3.01.
"Damages" shall have the meaning set forth in Section 9.08(a).
"Demand Registration" shall have the meaning set forth in Section
6.02.
"Edelman" shall have the meaning set forth in the recitals hereto.
"ERISA" shall have the meaning set forth in Section 3.01(k).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Excluded Registration Statement" shall have the meaning set forth in
Section 6.03.
"Final Determination" shall have the meaning set forth in Section
9.08(f).
"Fund VII" shall have the meaning set forth in Section 2.01(a).
"Fund VII Amount" shall have the meaning set forth in Section 2.01(a).
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"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Holder" or "Holders" shall have the meaning set forth in Section
6.01.
"HSR Act" shall have the meaning set forth in Section 3.01(g).
"Indemnified Persons" shall have the meaning set forth in Section
9.08(a).
"Initial Closing" or "Initial Closing Date" shall have the meaning set
forth in Section 2.02(a).
"Investor" or "Investors" shall have the meaning set forth in the
recitals hereto.
"knowledge" or "best knowledge" shall mean, with respect to any
Person, the actual knowledge of the officers of such Person making such
statement, assuming reasonable inquiry into the matter.
"Management Stock Issuances" shall have the meaning set forth in the
recitals hereto.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, liabilities, results of operations or financial
condition of the Company and its subsidiaries taken as a whole, (b) the
ability of the Company to perform its obligations under this Agreement or
(c) the validity or enforceability of this Agreement or the rights or
remedies of the Investors hereunder.
"Material Contracts" shall have the meaning set forth in Section
3.01(n).
"Net Offering Price" shall have the meaning set forth in the recitals
hereto.
"Notice of Issuance" shall mean the notice of issuance certificate
which may be delivered by the Company to the Investors in accordance with
the provisions of Section 2.01, which shall be in the form attached hereto
as Exhibit C.
"NYSE" shall have the meaning set forth in Section 3.01(f).
"Option on SOCO Shares" shall have the meaning set forth in the
recitals hereto.
"Person" or "person" shall mean an individual, corporation,
association, partnership, trust, joint venture, business trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"PIK Period" shall mean, with respect to the 8.5% Convertible
Preferred Stock, the two-year mandatory period during which the Company
shall be obligated to issue pay-in-kind dividends on such stock.
"Proxy Statement" shall have the meaning set forth in Section 4.09(b).
"Registrable Shares" shall have the meaning set forth in Section 6.01.
"Registration Expenses" shall have the meaning set forth in Section
6.07.
"SEC" shall mean the United States Securities and Exchange Commission.
"Second Closing" or "Second Closing Date" shall have the meaning set
forth in Section 2.02(a).
"Secondary Stock Offering" shall have the meaning set forth in the
recitals hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share Repurchase Agreement" shall have the meaning set forth in the
recitals hereto.
"SOCO Option Agreement" shall have the meaning set forth in the
recitals hereto.
"SOCO Stock Redemption" shall have the meaning set forth in the
recitals hereto.
"SOCO" shall have the meaning set forth in the recitals hereto.
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<PAGE> 8
"Subsidiary" or "subsidiary" shall mean, with respect to any
corporation (the "parent") any other corporation, association or other
business entity of which more than 50% of the shares of the voting stock
are owned or controlled, directly or indirectly, by the parent or one or
more Subsidiaries of the parent, or by the parent and one or more of its
Subsidiaries.
"Tax Returns" means any return, amended return or other report
required to be filed with respect to any Tax, including declaration of
estimated tax and information returns.
"Taxes" means any federal, state, local or foreign taxes, including
but not limited to income, gross receipts, windfall profits, value added,
severance, property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest,
additions or penalties with respect thereto and any interest in respect of
such penalties.
"Transfer" shall have the meaning set forth in Section 4.05.
"8.5% Convertible Preferred Stock" shall have the meaning set forth in
the recitals hereto.
ARTICLE II.
Sale and Purchase of the 8.5% Convertible Preferred
Stock, Common Stock and Related Transactions
Section 2.01. Sale and Purchase of the Preferred Stock and Common
Stock. (a) Subject to all of the terms and conditions of this Agreement, and in
reliance upon the representations and warranties hereinafter set forth, at the
Initial Closing provided for in Section 2.02 hereof, the Company will sell to
each Investor, and each Investor will purchase from the Company, up to the
aggregate number of shares of 8.5% Convertible Preferred Stock set forth
opposite such Investor's name on Schedule I hereto, plus that number (and no
less than that number) of shares of Common Stock opposite such Investor's name
on Schedule I hereto, for a purchase price of $25 per share of 8.5% Convertible
Preferred Stock purchased. The Company shall deliver to each Investor, not less
than three business days prior to the Initial Closing Date, a Notice of Issuance
which sets forth the number of shares of 8.5% Convertible Preferred Stock to be
sold to, and purchased by, each Investor; provided that the aggregate number of
shares of 8.5% Convertible Preferred Stock to be issued and sold at the Initial
Closing shall not be less than 1,600,000. To the extent the Initial Closing
involves the sale of less than 2,520,000 shares of 8.5% Convertible Preferred
Stock, then the shares purchased at such Closing shall be purchased pro rata by
the Investors according to the amounts set forth in Schedule I. The 8.5%
Convertible Preferred Stock will have the designations, relative rights,
preferences and limitations set forth in the Company's Certificate of
Incorporation and the Certificate of Designations in the form attached hereto as
Exhibit D (the "Certificate of Designations"). If the Notice of Issuance is
delivered to First Reserve Fund VII, Limited Partnership ("Fund VII") less than
ten business days prior to any Closing, Fund VII shall not be required to fund
its portion of the purchase price to be paid at such Closing (the "Fund VII
Amount") until ten business days after delivery of such Notice of Issuance,
provided that (A) Fund VII irrevocably and unconditionally commits to fund the
Fund VII Amount at the same time as other Investors fund such Closing and (B)
the Company shall place in escrow with counsel to the Company the securities to
be purchased with the Fund VII Amount and other Closing documents delivered at
such Closing until Fund VII pays to the Company the Fund VII Amount as set forth
above.
(b) Subject to all of the terms and conditions of this Agreement, and in
reliance upon the representations and warranties hereinafter set forth, at the
Second Closing (if any) provided for in Section 2.02 hereof, the Company will
sell to each Investor, and each Investor will purchase from the Company, for a
purchase price of $25 per share, a number of shares of 8.5% Convertible
Preferred Stock not to exceed the difference of (i) the aggregate number of
shares of 8.5% Convertible Preferred Stock set forth opposite such Investor's
name on Schedule I hereto minus (ii) the aggregate number of shares of 8.5%
Convertible Preferred Stock issued and sold to such Investor at the Initial
Closing. The Company shall deliver to each Investor, not less than ten business
days prior to the Second Closing Date, a Notice of Issuance which sets forth the
number of shares of 8.5% Convertible Preferred Stock to be sold to, and
purchased by, each Investor. Notwithstanding the foregoing, if the beneficial
ownership of Common Stock by Highbridge International LDC ("HIL"), after
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<PAGE> 9
giving effect to the shares of 8.5% Convertible Preferred Stock proposed to be
issued at the Second Closing, would exceed 5% of the total outstanding shares of
the Common Stock of the Company, HIL shall only be required to purchase shares
of 8.5% Convertible Preferred Stock to the extent that the ownership of such
shares by HIL does not exceed such 5% threshold (it being the intent that such
threshold be calculated in accordance with the "FIRPTA" regulations under the
Internal Revenue Code). To the extent the shares to be purchased by HIL are
reduced pursuant to the foregoing sentence, such shares may be purchased by the
remaining Investors pro rata according to the amounts set forth on Schedule I.
Section 2.02. Closing. (a) Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, each sale and purchase of the 8.5%
Convertible Preferred Stock pursuant to Section 2.01 (the first such sale and
purchase, together with the purchase and sale of Common Stock, shall be referred
to herein as the "Initial Closing"; and the second sale and purchase shall be
referred to herein as the "Second Closing") shall take place no later than
December 31, 1997, at the offices of Simpson Thacher & Bartlett, counsel to the
Company, at 425 Lexington Avenue, New York, New York 10017, on the first
business day following the date on which the conditions in Article V are
satisfied (or waived by the Investors or the Company, as the case may be) (the
date of the Initial Closing, the "Initial Closing Date"; and the date of the
Second Closing, the "Second Closing Date") or at such other time and place as
may be mutually agreed upon by the Investors and the Company.
(b) At each Closing: (i) the Company will deliver to each Investor a
certificate or certificates for the 8.5% Convertible Preferred Stock (A) to be
sold to such Investor in accordance with the provisions of Section 2.01 and (B)
in the case of the Initial Closing, Common Stock to be sold to such Investor
pursuant to Section 2.01, in each case registered in the respective name(s) and
proportions as such Investor shall have specified to the Company at least two
business days prior to such Closing; (ii) each Investor, in full payment for the
8.5% Convertible Preferred Stock (and, in the case of the Initial Closing,
Common Stock) to be purchased pursuant to Section 2.01 on the related Closing
Date, will deliver to the Company immediately available funds, by wire transfer
to such account as the Company shall specify at least two business days prior to
such Closing, in the amount of the purchase price to be paid hereunder pursuant
to Section 2.01; and (iii) each party shall take or cause to happen such other
actions, and shall execute and deliver such other instruments or documents, as
shall be required under Article V hereof.
ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Investors as follows (it being
understood that, in addition to any exceptions or qualifications contained
herein, the following representations and warranties shall be further qualified
by the disclosures contained in the Company's disclosure schedules that have
been previously delivered to the Investors and copies of which are attached
hereto as Schedule II (the "Company's Disclosure Schedules")):
(a) Organization and Good Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate
power and authority to own, operate and lease its properties and to carry
on its business as it is now being conducted. The Company is duly licensed
or qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which it
owns or leases properties, or conducts any business, so as to require such
qualification, except where the failure to be so licensed or qualified in
any such jurisdiction, individually or in the aggregate, would not have a
Material Adverse Effect.
(b) Organization and Good Standing of Company's Subsidiaries. Section
3.01(b) of the Company's Disclosure Schedules lists all subsidiaries of the
Company and their respective jurisdictions of incorporation. Except as set
forth in Section 3.01(b) of the Company's Disclosure Schedules, (i) the
Company owns, directly or indirectly, all the shares of outstanding capital
stock of each of its subsidiaries, free and clear of any claim, lien,
encumbrance, agreement or preemptive rights with respect thereto,
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<PAGE> 10
(ii) no equity securities of any of the Company's subsidiaries are or may
become required to be issued by reason of any options, warrants, calls or
commitments of any character whatsoever, (iii) there are outstanding no
securities or rights convertible into or exchangeable for shares of any
capital stock of any of the Company's subsidiaries and (iv) there are no
contracts, commitments, understandings or arrangements by which any of the
Company's subsidiaries is bound to issue additional shares of its capital
stock or options, warrants or rights to purchase or acquire any additional
shares of its capital stock. Each of the Company's subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and has all requisite corporate
power and authority and governmental authorizations to own, operate and
lease its properties and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each other
jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, except where the failure to
be so licensed or qualified in any such jurisdiction, individually or in
the aggregate, would not have a Material Adverse Effect.
(c) Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby has
been duly authorized by the Board of Directors of the Company. No other
corporate proceedings on the part of the Company are necessary to authorize
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and this Agreement constitutes a
valid and binding obligation of the Company enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and by an implied covenant of good faith and fair
dealing.
(d) Capitalization. Section 3.01(d) of the Company's Disclosure
Schedules sets forth (i) the authorized capital stock of the Company, the
number of shares of each class of capital stock issued and outstanding and
the number of shares of Common Stock reserved for issuance in connection
with employee benefit and stock option plans in each case as of the date
hereof, and (ii) all options, warrants, calls or commitments to issue which
may result in the issuance of equity securities of the Company, in each
case setting forth the identity of the holder thereof, the exercise or
similar price and the date of expiration or termination thereof. All of the
issued and outstanding shares of the Company's capital stock have been duly
and validly authorized and issued and are fully paid and non-assessable and
are not subject to any preemptive rights. Except as set forth in Section
3.01(d) of the Company's Disclosure Schedules, (A) no equity securities of
the Company are or may become required to be issued by reason of any
options, warrants, calls or commitments of any character whatsoever, (B)
there are outstanding no securities or rights convertible into or
exchangeable for shares of any capital stock of the Company and (C) there
are no contracts, commitments, understandings or arrangements by which the
Company is bound to issue additional shares of its capital stock or
options, warrants or rights to purchase or acquire any additional shares of
its capital stock.
(e) 8.5% Convertible Preferred Stock. The 8.5% Convertible Preferred
Stock has been duly authorized by all necessary corporate action. When
issued and sold against receipt of the consideration therefor, the 8.5%
Convertible Preferred Stock will be validly issued, fully paid and
nonassessable, will not subject the holders thereof to any personal
liability and will not be subject to any preemptive rights of any other
stockholder of the Company. A total of up to 10,000,000 shares of Common
Stock have been duly reserved for issuance upon the conversion of the 8.5%
Convertible Preferred Stock. The shares of Common Stock issuable upon
conversion of the 8.5% Convertible Preferred Stock and the shares of 8.5%
Convertible Preferred Stock issuable as dividends thereon have been duly
and validly authorized and, if and when issued, will be validly issued,
fully paid and non-assessable and will not be subject to any preemptive
rights except as contemplated by this Agreement and the Certificate of
Designations. At each Closing, the Investors will receive valid title to
the 8.5% Convertible Preferred Stock to be purchased on
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<PAGE> 11
such date, free and clear of any claim, lien, security interest or other
encumbrance (except as created by this Agreement or the Certificate of
Designations).
(f) No Conflicts. Except as set forth in Section 3.01(f) of the
Company's Disclosure Schedules, the execution, delivery and performance of
this Agreement, the consummation of the transactions by the Company
contemplated hereby and the compliance by the Company with any of the
provisions hereof will not conflict with, violate or result in a breach of
any provision of, require a consent under, or constitute a default under
(i) any provision of the certificate of incorporation, by-laws or other
governing instrument of the Company or the Certificate of Designations
(when filed with the Secretary of State of Delaware), or the certificate of
incorporation, charter, by-laws or other governing instrument of the
Company's subsidiaries, (ii) (A) any mortgage, note, indenture, lease, loan
agreement, warrant or other agreement or instrument or (B) assuming that
the clearances, filings, consents and approvals specified in Section
3.01(g) of the Company's Disclosure Schedules have been obtained or made,
any permit, concession, license, judgment, order, injunction, statute, law,
rule or regulation of any governmental entity, securities exchange or any
other Person, in the case of (A) or (B), binding on or otherwise applicable
to the Company, the Company's subsidiaries or their respective properties
or assets, or (iii) any rules and regulations of the New York Stock
Exchange, Inc. (the "NYSE") (other than in connection with the Company
Stockholders' Approval).
(g) No Consents. Except as set forth in Section 3.01(g) of the
Company's Disclosure Schedules, no consent, approval, order or
authorization of, or registration, declaration or filing with, any
governmental entity is required in connection with the execution, delivery
and performance of this Agreement by the Company and the consummation of
the transactions by the Company hereunder. The Company does not own
"non-exempt assets" (within the meaning contemplated by Section 802.4 under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), with an aggregate fair market value (as determined in
accordance with the HSR Act) of more than $15 million.
(h) Financial Statements. The Company has previously delivered to the
Investors copies of (i) the consolidated balance sheet of the Company and
its subsidiaries as of December 31 for the fiscal years 1995 and 1996, and
the related consolidated statements of operations, statements of
stockholders' equity and cash flows for the fiscal years 1994, 1995 and
1996, as reported in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, filed by the Company with the SEC
under the Exchange Act, in each case accompanied by the audit report of
Arthur Andersen LLP, independent public accountants with respect to the
Company, and (ii) the unaudited consolidated balance sheet of the Company
and the Company Subsidiaries as of June 30, 1997 and the related unaudited
consolidated statement of operations, statements of stockholders' equity
and cash flows for the three-month periods then ended as reported in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the SEC under the Exchange Act. All of such financial
statements fairly present the consolidated financial position of the
Company and its subsidiaries as of the dates shown and the results of the
consolidated operations, statements of stockholders' equity and cash flows
of the Company and its subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth, in each case subject, as to
interim statements, to changes resulting from year-end adjustments (none of
which will be material in amount and effect). All of such financial
statements have been prepared in accordance with GAAP consistently applied
during the periods involved, except as otherwise set forth in the notes
thereto, and the Company and its subsidiaries have no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise)
which are not fully reflected or reserved against in the balance sheet as
of June 30, 1997, included in such financial statements, except for
liabilities that may have arisen in the ordinary and usual course of
business and consistent with past practice and that, individually or in the
aggregate, would not have a Material Adverse Effect.
(i) Reports. The Company has timely filed, and will timely file, all
reports, registration statements, proxy statements and other materials,
together with any amendments required to be made with respect thereto, that
were required to be filed, at any time prior to any Closing, with the SEC
under the Securities Act or the Exchange Act or with the NYSE (all such
reports and statements are collectively referred to herein as the "Company
Reports"). As of their respective dates, the Company Reports, including the
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<PAGE> 12
financial statements contained therein, complied in all material respects
with all of the statutes and published rules and regulations enforced or
promulgated by the regulatory authority or exchange with which they were
filed, did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading and were complete and accurate in all
material respects.
(j) Legal Proceedings. Except as set forth in Section 3.01(j), there
are no legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations of any nature pending against the
Company or its subsidiaries or to which the Company or its subsidiaries or
any of their assets are subject, and, to the best knowledge of the Company,
there has not been threatened any such proceeding, claim, action or
governmental investigation against the Company or its subsidiaries, in each
case which individually or in the aggregate would, if adversely determined,
have a Material Adverse Effect. As of the date hereof, neither the Company
nor any of its subsidiaries is subject to any order, writ, judgment,
injunction or decree having, or which would have, a Material Adverse Effect
or which would interfere with the consummation of the transactions
contemplated by this Agreement.
(k) Employee Benefits. (i) Each "employee benefit plan" (within the
meaning of section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and any other material employee plan, agreement
or arrangement that is or has been maintained or otherwise contributed to
by the Company or its subsidiaries for the benefit of their employees
(collectively, "Company Plans") has been administered and is in material
compliance with the terms of such plan and all applicable laws, rules and
regulations.
(ii) There are no pending or, to the best knowledge of the Company,
threatened, actions, claims or lawsuits which have been asserted or
instituted involving or arising out of the Company Plans, with respect to
the operation or administration of such plans (other than routine benefit
claims).
(iii) The Company has not incurred, and no event has occurred which
would be reasonably likely to result in, (A) any liability under ERISA or
the Code, including but not limited to liability resulting from a complete
or partial withdrawal from a "multiemployer plan" (as such term is defined
in section 3(37) of ERISA) or a termination of a Company Plan which is
covered by Title IV of ERISA, but which is not a multiemployer plan or (B)
any liability to or with respect to any Company Plan except for
contributions heretofore properly paid or accrued or not due to be paid or
accrued.
(iv) No Company Plan exists which could result in the payment to any
employee of the Company or its Subsidiaries of any money or other property
or rights or accelerate or provide any other rights or benefits to any such
employee as a result of the transactions contemplated by this Agreement,
including the Management Stock Issuances, whether or not such payment would
constitute a parachute payment within the meaning of Section 280G of the
Code.
(l) Compliance with Applicable Law. The business of the Company and
its subsidiaries are in compliance in all material respects with all
applicable Federal, state, local and foreign governments' laws and
regulations, except where any failures to be so in compliance, either
individually or in the aggregate, would not have a Material Adverse Effect;
provided that to the extent oil and gas properties owned by the Company or
its subsidiaries are operated by operators other than the Company or its
subsidiaries, the Company does not have any knowledge of non-compliance and
the appropriate Person has diligently enforced all contractual obligations
of such operators to insure compliance.
(m) Absence of Certain Changes. Except as contemplated by this
Agreement and as described in Section 3.01(m) of the Company's Disclosure
Schedules, since June 30, 1997, the Company and its subsidiaries have
conducted their respective businesses in the ordinary and usual course and,
since such date, (i) there has not been any condition, event or occurrence
which had or will have a Material Adverse Effect and (ii) neither the
Company nor any of its subsidiaries has taken any of the actions prohibited
by Section 4.02.
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(n) Material Contracts. Except as set forth in Section 3.01(n) of the
Company's Disclosure Schedules, the Company has provided or made available
to the Investors true and complete copies of all written contracts,
agreements, leases, commitments and other instruments to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound (i) which require payments to be made in excess of
$1,000,000 per year for goods and/or services), (ii) which do not by their
terms expire and are not subject to termination (without penalty to the
Company or its subsidiaries as the case may be) within six months from the
date of the execution and delivery thereof, (iii) to which any director,
officer or holder of more than 5% of the outstanding shares of Common Stock
are a party or (iv) the termination of which would have a Material Adverse
Effect (the agreements set forth in clauses (i), (ii), (iii) and (iv), the
"Material Contracts"). Except as set forth in Section 3.01(n) of the
Company's Disclosure Schedules, each of the Material Contracts is a valid,
binding and enforceable agreement of the Company or its subsidiaries and,
to the best of the Company's knowledge, each other party thereto, and no
breach, default or condition exists with respect thereto which, either
individually or in the aggregate, would have a Material Adverse Effect.
(o) Taxes and Filing of Tax Returns. Except as disclosed on Section
3.01(o) of the Company's Disclosure Schedules, the Company, its
subsidiaries and its predecessors have been accurately prepared and timely
filed all material tax returns required to have been filed and have paid
all Taxes shown to be due and payable on such returns, including interest
and penalties, and all other Taxes which are payable by such party, to the
extent the same have become due and payable other than Taxes with respect
to which a failure to pay, in the aggregate, would not have a Material
Adverse Effect. Except as disclosed on Section 3.01(o) of the Company's
Disclosure Schedules, (i) the Company does not know of any proposed
material Tax assessment against the Company or its subsidiaries, and all
Tax liabilities of the Company, its subsidiaries and its predecessors are
adequately provided for and (ii) no material Tax liability of the Company,
its subsidiaries or its predecessors has been asserted for Taxes in excess
of those already paid.
(p) Title to Properties; Liens. The Company and its subsidiaries have
good and valid title to all material assets purported to be owned by it
subject only to (i) liens granted in favor the Company's senior lenders
pursuant to the Company's existing credit facility and (ii) claims, liens,
security interests or other encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect.
(q) Licenses, Permits, Etc. The Company and its subsidiaries possess
such valid franchises, certificates of convenience and necessity, operating
rights, licenses, permits, consents, authorizations, exemptions and orders
of tribunals or regulatory authorities, as are necessary or customary to
carry on its business as now being conducted, except to the extent a
failure to obtain any such item would not have a Material Adverse Effect;
provided that to the extent oil and gas properties owned by the Company or
its subsidiaries are operated by operators other than the Company or its
subsidiaries, the Company does not have any knowledge of non-compliance and
the appropriate Person has diligently enforced all contractual obligations
of such operators to insure compliance.
(r) Environmental Matters. (i) No real or personal property owned or
leased by the Company (including without limitation, oil and gas
properties) and no operations conducted thereon, and to the Company's
knowledge, no operations of any prior owner, lease or operators of any such
properties, is or has been in violation of any Applicable Environmental Law
other than violations which individually and in the aggregate would not
have, or could not reasonably be expected to have in the future, a Material
Adverse Effect, nor is any such property or operation the subject of any
existing, pending or, to the Company's knowledge, threatened action, suit,
investigation, inquiry or preceding with respect to Applicable
Environmental Laws which, individually or in the aggregate, would have, or
could not reasonably be expected to have in the future, a Material Adverse
Effect. All notices, permits, licenses, and similar authorizations, if any,
required to be obtained or filed in connection with the ownership or
operation of any and all real and personal property owned, leased or
operated by the Company or its subsidiaries, including, without limitation,
notices, licenses, orders, permits and authorizations required in
connection with any past or present treatment, storage, disposal, or
release, by the Company or its predecessors of hazardous substances,
petroleums, or solid waste into the environment, have been duly
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<PAGE> 14
obtained or filed except to the extent the failure to obtain or file such
notices, licenses, permits and authorizations would not have a Material
Adverse Effect at the present time or in the future. To the Company's
knowledge, all hazardous substances, if any, generated at any and all real
and personal property operated by the Company or its subsidiaries have been
transported, treated, and disposed of only by carriers maintaining valid
permits under RCRA and any other Applicable Environmental Laws. Except as
disclosed in the Section 3.01(r) of the Company's Disclosure Schedules,
there has been no release or threatened release of any quantity of any
hazardous substances or petroleum on, to or from any real or personal
property owned, leased, or operated by the Company or its subsidiaries or
predecessors which was not in compliance with Applicable Environmental Laws
other than releases which, individually or in the aggregate, would not have
a Material Adverse Effect at the present time or in the future.
(ii) "Applicable Environmental Law" shall mean any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority or any board of fire underwriters (or other body exercising
similar functions), affecting any real or personal property owned, operated
or leased by the Company or its subsidiaries or any other operation of the
Company or its subsidiaries in any way pertaining to health, safety or the
environment, including, without limitation, all applicable zoning
ordinances and building codes, flood disaster laws and health, safety and
environmental laws and regulations, and further including without
limitation, (A) the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended from time to time, herein
collectively referred to as "CERCLA"), (B) the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Recovery Act of 1976, as amended by the Solid Waste Disposal
Act of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, herein referred to as "RCRA"), (C) the Safe
Drinking Water Act, as amended, (D) the Toxic Substances Control Act, as
amended, (E) the Clean Air Act, as amended, (F) Emergency Planning and
Community Right-to-Know Act, (G) the Clean Water Act, (H) the Occupational
Safety and Health Act of 1970, as amended, (I) the laws, rules and
regulations of any state having jurisdiction over any real or personal
property owned, operated or leased by the Company or its subsidiaries or
any other operation of the Company or its subsidiaries which relate to
health, safety or the environment, as each may be amended from time to
time, and (H) any federal, state, county or municipal laws, ordinance or
regulations which may now or hereafter require removal of asbestos or other
hazardous substances or impose any liability related to asbestos or other
hazardous substances. The terms hazardous substance, petroleum, release and
threatened release have the meanings specified in CERCLA, and the terms
solid waste and disposal (or disposed) have the meanings specified in RCRA;
provided, however, in the event either CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment with respect to
all provisions of this Agreement; and provided further that, to the extent
the laws of the state in which any real or personal property owned,
operated or leased by the Company or its subsidiaries is located establish
a meaning for hazardous substance, petroleum, release, solid waste or
disposal which is broader than that specified in either CERCLA or RCRA,
such broader meaning shall apply in so far as such broader meaning is
applicable to the real or personal property owned, operated or leased by
the Company or its subsidiaries and located in such state.
(s) Brokers and Finders. Neither the Company nor any of its
subsidiaries nor any of their respective officers, directors, employees or
agents has utilized any broker, finder, placement agent or financial
advisor or incurred any liability for any fees or commissions in connection
with any of the transactions contemplated hereby, except that the special
committee of the Company's Board of Directors has engaged A.G. Edward &
Sons, Inc. to deliver a fairness opinion in connection with this Agreement.
(t) DGCL Section 203. The Board of Directors of the Company has taken
all action necessary to exempt from the provisions of Section 203 of the
Delaware General Corporation Law ("Section 203"), to the extent applicable,
this Agreement, any acquisition by the Investors of 8.5% Convertible
Preferred
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<PAGE> 15
Stock pursuant to this Agreement and the Certificate of Designations and
any conversion by the Investors of 8.5% Convertible Preferred Stock into
Common Stock.
(u) Accuracy of Information in Proxy Statement and Prospectus. Each
of the Proxy Statement and the Company's Prospectus prepared in connection
with the Secondary Stock Offering (and any amendments or supplements
thereto), on the date filed with the SEC and on the date declared effective
by the SEC (in the case of the Prospectus), will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Section 3.02. Representations and Warranties of Investors. Each Investor
represents and warrants to, and agrees with, the Company as follows:
(a) Organization and Good Standing. Each Investor is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder.
(b) Authorization. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been authorized by all necessary action on behalf of such Investor. No
other proceedings on the part of such Investor are necessary to authorize
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Investor and this Agreement constitutes a
valid and binding obligation of such Investor enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and by an implied covenant of good faith and fair
dealing.
(c) No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions by such Investor
contemplated hereby and the compliance by such Investor with any of the
provisions hereof will not conflict with, violate or result in a breach of
any provision of, require a consent under, or constitute a default under,
(i) in the case of any Investor that is not a natural person, any provision
of the limited partnership agreement, certificate of incorporation, by-laws
or other governing instrument of such Investor, as the case may be, or (ii)
(A) any mortgage, note, indenture, lease, loan agreement, warrant or other
agreement or instrument or (B) any permit, concession, license, judgment,
order, injunction, statute, law, rule or regulation of any governmental
entity, securities exchange or any other Person, in the case of (A) or (B),
binding on or otherwise applicable to such Investor or its or his
properties or assets.
(d) No Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is
required in connection with the execution, delivery and performance of this
Agreement by such Investor and the consummation of the transactions by such
Investor hereunder, except for any filings with the SEC required to be made
by it or him after any Closing.
(e) Legal Proceedings. There are no legal, administrative,
arbitration or other proceedings, claims, actions or governmental
investigations of any nature pending against such Investor or to which such
Investor or any of its or his assets are subject, and, to the best
knowledge of such Investor, there has not been threatened any such
proceeding, claim, action or governmental investigation against such
Investor in each case which, if adversely determined, would interfere with
the consummation of the transactions contemplated by this Agreement. As of
the date hereof, such Investor is not subject to any order, writ, judgment,
injunction or decree which would interfere with the consummation of the
transactions contemplated by this Agreement.
(f) Securities Act. Such Investor is acquiring the 8.5% Convertible
Preferred Stock solely for the purpose of investment and not with a view
to, or for resale in connection with, any distribution thereof in violation
of the Securities Act.
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(g) Brokers and Finders. Neither such Investor nor (if applicable)
any of its officers, directors, employees or agents has utilized any
broker, finder, placement agent or financial advisor or incurred any
liability for any fees or commissions in connection with any of the
transactions contemplated hereby.
ARTICLE IV.
Additional Agreements of the Parties
Section 4.01. Taking of Necessary Action. Each of the parties hereto
agrees to use all reasonable efforts promptly to take or cause to be taken all
action and promptly to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to fulfill the conditions,
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the foregoing, the Company and the Investors will, and the
Company shall cause its subsidiaries to, each use all reasonable efforts to make
all filings and obtain all consents of governmental entities or other persons
relating to such party which may be necessary or, in the opinion of the Company
or the Investors, as the case may be, advisable for the consummation of the
transactions contemplated by this Agreement.
Section 4.02. Conduct of Business. Except as otherwise required to
perform its obligations under this Agreement or any agreement or arrangement
contemplated herein, from the date hereof to the Initial Closing Date, the
Company shall, and shall cause each of its subsidiaries to:
(a) conduct its operations in accordance with its ordinary course of
business and consistent with past practice;
(b) unless required pursuant to the terms of this Agreement, or
consented to in writing by the Investors, not amend or in any way alter its
certificate of incorporation or by-laws;
(c) not engage in any other act, other than in the ordinary course of
business and consistent with past practice, that would have a Material
Adverse Effect or in any way delay or impair consummation of the
transactions contemplated by this Agreement;
(d) not change the number of shares of the authorized or issued
capital stock of the Company, issue or grant any security, option, warrant,
call, commitment, subscription, or agreement of any character relating to
the authorized or issued capital stock of the Company or any of its
subsidiaries, or any securities convertible into shares of such stock
(except for grants of options to purchase Common Stock previously approved
by the Company's Board of Directors to be granted pursuant to existing
employee benefit plans of the Company and except in connection with any
transaction permitted by Section 4.02(g) below), split, combine or
reclassify any shares of the capital stock of the Company, declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of the capital stock of the
Company, or redeem or otherwise acquire any shares of such capital stock;
(e) not increase the number of directors of the Board of Directors of
the Company without the express written consent of the Investors;
(f) not change its accounting policies or procedures;
(g) not acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, except for such transactions which in the aggregate involve
consideration of less than $10,000,000 (or, with the consent of the
Investors holding a majority of the aggregate commitments hereunder,
$15,000,000);
(h) not sell, lease, encumber or otherwise dispose of, or agree to
sell, lease (whether such lease is an operating or capital lease), encumber
or otherwise dispose of, any of its assets other than dispositions in the
ordinary course of business consistent with past practice which are not
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole and except for any other such
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<PAGE> 17
transactions which are on market terms and which involve aggregate
consideration of less than $1,000,000;
(i) not authorize, recommend, propose or announce an intention to
adopt a plan of complete or partial liquidation or dissolution of the
Company or any of its subsidiaries; and
(j) not do any other act which would cause any representation or
warranty in this Agreement to be or become untrue in any material respect.
Section 4.03. Notification of Certain Matters. The Company shall promptly
provide the Investors with copies of all filings made by the Company with the
SEC, any other governmental authority or stock exchange in connection with this
Agreement and the transactions contemplated hereby.
Section 4.04. Access to Information. Subject to any applicable
confidentiality restrictions, between the date hereof and the Initial Closing
Date, the Company will give each Investor and its authorized representatives
reasonable access to all employees, plants, offices, warehouses and other
facilities and to all books and records of the Company and its subsidiaries,
will permit each Investor and its authorized representatives to make such
inspections as such Investor may reasonably request and will cause the Company's
and its subsidiaries' officers to furnish such Investor or its representatives
with such financial and operating data and other information with respect to the
business and properties of the Company and its subsidiaries as such Investor may
from time to time reasonably request.
Section 4.05. Restrictions on Sale or Transfer; Legend. (a) The Investors
hereby acknowledge and agree that shares of 8.5% Convertible Preferred Stock
will be, upon the sale and purchase of such shares in accordance with the terms
hereof, "restricted securities" under the Securities Act. The Investors further
agree that they will not, directly or indirectly, offer, sell, transfer, assign,
pledge, hypothecate or otherwise dispose, including through the use of any
derivative instrument or arrangement, of the beneficial ownership of (any such
act, a "Transfer") any 8.5% Convertible Preferred Stock or Common Stock issued
or issuable upon conversion of the 8.5% Convertible Preferred Stock or any
shares of Common Stock otherwise acquired hereunder, except in accordance with
the provisions contained in Article VII hereof. In addition, prior to the end of
the PIK Period, the Investors will not engage in any "short sales" of Common
Stock or any other securities of the Company, including through the use of any
derivative instrument or arrangement.
(b) The Investors acknowledge and agree that as of the date hereof neither
the 8.5% Convertible Preferred Stock nor the shares of Common Stock issuable
upon conversion thereof or any shares of Common Stock otherwise acquired
hereunder have been nor will be registered under the Securities Act or the
securities laws of any state and that they may be sold or otherwise disposed of
only in one or more transactions registered under the Securities Act (and, where
applicable, such laws) or as to which an exemption from the registration
requirements of the Securities Act (and, where applicable, such laws) is
available. The Investors acknowledge that, except as provided in this Agreement,
the Investors have no right to require the Company to register the 8.5%
Convertible Preferred Stock or such Common Stock. The Investors further
acknowledge and agree that each certificate for the 8.5% Convertible Preferred
Stock and such Common Stock shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS CERTIFICATE IS ISSUED PURSUANT TO
AND SUBJECT TO THE RESTRICTIONS ON TRANSFER, VOTING AND OTHER PROVISIONS OF A
STOCK PURCHASE AGREEMENT DATED AS OF JULY 31, 1997 AS AMENDED AS OF SEPTEMBER
19, 1997 AMONG THE COMPANY AND THE INVESTORS REFERRED TO THEREIN A COPY OF WHICH
IS ON FILE WITH THE COMPANY. EXCEPT AS PROVIDED IN SUCH STOCK PURCHASE
AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT TRANSFERABLE
AND
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ANY PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SUCH STOCK PURCHASE
AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Investor holding such
certificate shall have delivered to the Company a copy of a letter from the
staff of the SEC, or an opinion of counsel, in form and substance satisfactory
to the Company, to the effect that such legend is not required for purposes of
the Securities Act; (ii) the reference to the provisions to this Agreement in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the proceeding clauses (i) and (ii) are
both satisfied. In addition, such certificates shall bear any other legend as
may be required by law.
Section 4.06. Designated Directors. The Company hereby agrees to cause
Arnold L. Chavkin and William E. Macaulay to be elected to the Company's Board
of Directors as of the Initial Closing Date to fill vacancies on the Board that
will exist at that date.
Section 4.07. New York Stock Exchange Listing. As promptly as practicable
following the Initial Closing Date, the Company will apply to the New York Stock
Exchange to list the shares of Common Stock into which the 8.5% Convertible
Preferred Stock may be converted and the other Shares of Common Stock acquired
hereunder, and the Company will use its reasonable efforts to cause such shares
to be listed on the New York Stock Exchange as promptly thereafter as
practicable. At any time during which the 8.5% Convertible Preferred Stock is
outstanding, the Company agrees that it shall not, without the consent of the
Investors that own at least 97% of the outstanding 8.5% Convertible Preferred
Stock, register the 8.5% Convertible Preferred Stock under Section 12 of the
Exchange Act.
Section 4.08. Use of Proceeds. The Company will use the net proceeds
derived by it from the issuance of the shares of 8.5% Convertible Preferred
Stock and the Common Stock in the Initial Closing to pay a portion of the
purchase price of the shares of Common Stock to be redeemed pursuant to the SOCO
Stock Redemption. The Company will use the net proceeds derived by it from the
issuance of the shares of 8.5% Convertible Preferred Stock in the Second Closing
in the manner approved by the Company's Board of Directors.
Section 4.09. Approval by Company's Stockholders. (a) The Company shall
take all action required by the NYSE's rules and regulations to obtain the
approval of the Company's stockholders of the issuance and sale of 8.5%
Convertible Preferred Stock to the Investors hereunder, which consent may be
obtained (subject to the applicable rules and regulations of the NYSE, the
Exchange Act and other applicable laws) via the written consent of the requisite
percentage of the Company's stockholders (the "Company Stockholders' Approval").
Subject to its fiduciary duties under applicable law, the Company's Board of
Directors shall recommend that the Company's stockholders approve the issuance
and sale of 8.5% Convertible Preferred Stock hereunder.
(b) Promptly following the date hereof, the Company will prepare and file
with the SEC a proxy statement to be distributed to the Company's stockholders
in connection with the issuance and sale of the 8.5% Convertible Preferred Stock
hereunder, including any amendments or supplements thereto (the "Proxy
Statement"). The Company will use all reasonable efforts to have or cause the
Proxy Statement to be declared effective as promptly as practicable. The Company
agrees to provide the Investors and their respective counsel with any written
comments the Company or its counsel may receive from the SEC with respect to the
Proxy Statement promptly after the receipt of such comments. The form and
substance of the Proxy Statement shall be determined by the Company, in its
reasonable discretion. The Company will use all reasonable efforts to cause the
Proxy Statement (i) not to contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading and (ii) to comply as to form in all material
respects with the applicable provisions of the Exchange Act and the rules and
regulations thereunder.
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Section 4.10. No Additional Shares. The Company shall not issue or sell
shares of 8.5% Convertible Preferred Stock except as contemplated under this
Agreement.
ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect each
Closing. The obligation of each party hereto to consummate each Closing
hereunder shall be subject to the satisfaction on the related Closing Date of
each of the following conditions:
(a) No Injunction. There shall not be in effect any order, decree,
ruling or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(b) Regulatory Approvals and Company Stockholders' Approval. All
regulatory approvals necessary for the consummation of the issuance of the
8.5% Convertible Preferred Stock to be issued and sold hereunder on such
Closing Date and the other transactions contemplated hereby to occur by
such Closing Date shall have been obtained and there shall have been no
material modification to the terms of the transactions contemplated by this
Agreement. The Company Stockholders' Approval shall have been obtained.
(c) Related Transactions. Prior to or simultaneously with the Initial
Closing, (i) the Secondary Stock Offering shall be consummated in the
manner contemplated by the Prospectus contained in the Company's
Registration Statement on Form S-3 filed with the SEC, (ii) the SOCO Stock
Redemption shall be consummated in accordance with the terms of the Share
Repurchase Agreement and (iii) SOCO shall issue to the Investors 70,000
shares of Common Stock pursuant to the SOCO Option Agreement.
Section 5.02. Conditions to the Investors' Obligations. The obligation of
each Investor to consummate each Closing hereunder shall be subject to the
satisfaction on the related Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement which are qualified
as to materiality or refer to a Material Adverse Effect shall be true and
correct, and which are not so qualified shall be true and correct in all
material respects, in each case, as of the date of this Agreement and on
and as of such Closing Date with the same effect as though made on and as
of such dates.
(b) Covenants. The Company shall have performed in all material
respects all obligations and complied with all agreements, undertakings,
covenants and conditions required by it to be performed at or prior to such
Closing.
(c) Officer's Certificate. The Investors shall have received from the
Company a certificate, signed by an executive officer of the Company, to
the effect that the conditions set forth in the foregoing clauses (a) and
(b) have been satisfied with respect to it.
(d) Certificate of Designations. The Certificate of Designations
shall have been duly filed with the Secretary of State of Delaware.
(e) Board of Directors. The nominees designated by the Investor to be
directors in accordance with Section 4.06 shall have been duly elected or
appointed, effective as of the Initial Closing, to the Board of Directors
of the Company.
(f) No Change of Control. There shall not have occurred, on or prior
to such Closing, an acquisition (by tender offer, exchange offer, merger
consolidation, share exchange or otherwise) by a third party of the Company
(or its shares or assets) in which such third party acquires, directly or
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<PAGE> 20
indirectly, at least a majority of the combined voting power of the
outstanding capital stock of the Company.
(g) Minimum and Maximum Drawdowns. In the case of the Initial
Closing, the aggregate number of shares of 8.5% Convertible Preferred Stock
to be issued and sold at the Initial Closing shall not be less than
1,600,000, and, in the case of the Second Closing, the aggregate number of
shares of 8.5% Convertible Preferred Stock to be issued and sold at the
Second Closing shall not exceed the difference of (i) 2,520,000 minus (ii)
the aggregate number of shares of 8.5% Convertible Preferred Stock issued
and sold to the Investors at the Initial Closing.
(h) Additional Conditions to Second Closing. In the case of the
Second Closing, each of the following shall have occurred: (i) the
Company's Board of Directors shall have approved of the Company's proposed
use of the net proceeds derived by the Company from the issuance of the
shares of 8.5% Convertible Preferred Stock in the Second Closing; (ii) the
average closing sales price of a share of the Company's Common Stock for
the ten NYSE trading days ending prior to the date the Notice of Issuance
for such Second Closing Date is delivered shall equal or exceed 90% of the
public offering price of shares of Common Stock in the Secondary Stock
Offering; and (iii) the Second Closing Date shall occur on or prior to
December 31, 1997.
(i) Additional Certificates, Opinions Etc. The Company shall have
executed and delivered, or caused to be executed and delivered, to the
Investors, such certificates and other documents related to the
consummation of the transactions contemplated hereby as may be reasonably
requested by the Investors, including (i) an opinion of Simpson Thacher &
Bartlett, counsel to the Company, reasonably satisfactory to counsel for
the Investors, as to (A) validity of, and due authorization by the
Company's Board of, this Agreement and the transactions contemplated
herein, (B) compliance by the Company with Section 7.24 of the Amended and
Restated Agreement and Plan of Merger, dated as of March 20, 1996, among
SOCO, the Company and Gerrity Oil & Gas Corporation, (C) due issuance of
the 8.5% Convertible Preferred Stock and the Common Stock issued hereunder
at the Initial Closing and (D) other issues reasonably requested by the
Investors, and (ii) the agreements and certificates set forth in Schedule
5.02 hereof.
Section 5.03. Conditions to the Company's Obligations to any Closing. The
obligation of the Company to consummate each Closing hereunder shall be subject
to the satisfaction on the related Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Investors contained in this Agreement which are qualified
as to materiality shall be true and correct, and which are not so qualified
shall be true and correct in all material respects, in each case, as of the
date of this Agreement and on and as of such Closing Date with the same
effect as though made on and as of such dates.
(b) Covenants. The Investors shall have performed in all material
respects all obligations and complied with all agreements, undertakings,
covenants and conditions required by it to be performed at or prior to such
Closing.
(c) Officer's Certificate. The Company shall have received from each
of the Investors, a certificate, signed by such Investor to the effect that
the conditions set forth in the foregoing clauses (a) and (b) have been
satisfied with respect to such Investor.
(d) Additional Certificates, Etc. Each of the Investors shall have
executed and delivered, or caused to be executed and delivered, to the
Company such certificates and other documents related to the consummation
of the transactions contemplated hereby as may be reasonably requested by
the Company.
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ARTICLE VI.
Registration Rights
Section 6.01. Definition of Registrable Shares. As used in this
Agreement, "Registrable Shares" shall mean all shares of 8.5% Convertible
Preferred Stock (and/or the shares of Common Stock into which such shares of
Preferred Stock are convertible), the shares of Common Stock acquired hereunder
and the shares of Common Stock acquired pursuant to the SOCO Option Agreement by
the Investors at or after any Closing Date, together with any securities issued
or issuable with respect to any such 8.5% Convertible Preferred Stock (or such
Common Stock) by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Registrable Shares, such
securities shall cease to be Registrable Shares when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such securities shall
have been distributed pursuant to Rule 144 (or any successor provision) under
the Securities Act (provided that if all Registrable Shares are then eligible
for sale pursuant to Rule 144 at the same time, without limitation as to volume,
then all such Registrable Shares shall cease to be Registrable Shares), (iii)
such securities shall have been otherwise transferred, new certificates
representing such securities not bearing a legend restricting transfer shall
have been delivered by the Company and subsequent disposition of such securities
shall not require registration or qualification of such securities under the
Securities Act or any similar state law then in force, (iv) such securities
shall have ceased to be outstanding, or (v) the holder or holders thereof shall
agree in writing that such Registrable Shares shall no longer be Registrable
Shares (the Investors and any permitted assignee of the Investors' rights and
duties hereunder are referred to herein as the "Holders" or individually as a
"Holder").
Section 6.02. Demand Registration. (a) Request for Registration. Subject
to the conditions and limitations set forth in Section 6.05, at any time after
the PIK Period, the Holder or Holders of not less than one-third of Registrable
Shares then outstanding may make a written request for registration under the
Securities Act of all or part of its or their Registrable Shares pursuant to
this Section 6.02 (a "Demand Registration"); provided that the number of shares
of Registrable Shares proposed to be sold shall be at least 25% of the aggregate
number of shares of Registrable Shares then outstanding (subject to appropriate
adjustment for any stock dividend, stock split, combination, recapitalization,
merger, consolidation, reorganization or similar occurrence); and provided
further that the Holders shall be entitled to no more than three demands in the
aggregate. Such request will specify the aggregate number of shares of
Registrable Shares proposed to be sold and will also specify the intended method
of disposition thereof. Within ten days after receipt of such request, the
Company will give written notice of such registration request to all other
Holders of Registrable Shares and include in such registration all Registrable
Shares with regard to which the Company has received written requests for
inclusion therein within fifteen business days after the receipt by the
applicable Holders of the Company's notice. Each such request will also specify
the aggregate number of shares of Registrable Shares to be registered and the
intended method of disposition thereof.
(b) Priority on Demand Registration. If the Holders of a majority in
number of shares of the Registrable Shares to be registered in a Demand
Registration so elect, the offering of such Registrable Shares pursuant to such
Demand Registration shall be in the form of an underwritten offering. In such
event, if the managing underwriter or underwriters of such offering deliver a
written opinion to the Company and the Holders that either because of (A) the
kind of securities that the Holders, the Company and any other persons or
entities intend to include in such offering, or (B) the size of the offering
that the Holders, the Company and other persons or entities intend to make, the
success of the offering would be materially and adversely affected by inclusion
of the Registrable Shares requested to be included, then (i) in the event that
the size of the offering is the basis of such managing underwriter's opinion,
the number of shares to be offered shall be reduced in the following order to
achieve the amount recommended by such managing underwriter: (x) first, shares
proposed to be offered by persons or entities other than the Holders and the
Company shall be reduced or eliminated to achieve the recommended amount, (y)
next, shares proposed to be offered by the Company shall be reduced or
eliminated to achieve the recommended amount, and (z) finally, shares proposed
to be offered by the Holders shall be reduced on a pro rata basis among the
Holders on the basis of the number of
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Registrable Shares owned by the Holders; and (ii) in the event that the
combination of securities to be offered is the basis of such managing
underwriter's opinion, then shares will be excluded from such offering in the
order specified in the preceding clause (i). To the extent Registrable Shares so
requested to be registered are excluded from such offering, then the Holders
shall have the right to one additional Demand Registration under this Section
6.02 with respect to such Registrable Shares, provided that the failure of such
Registrable Shares to be registered is through no fault of such Holder. In
connection with any Demand Registration, the Company agrees that it shall not,
without the consent of the Holders of a majority in number of shares of the
Registrable Shares to be registered in such Demand Registration and the manager
of the underwriting, transfer or sell Common Stock in a public distribution
prior to 90 days (or such other shorter period of time as the manager of the
underwriting may require) after the effective date of the registration
statement.
(c) Selection of Underwriters and Counsel. If any Demand Registration is
in the form of an underwritten offering, the Holders of a majority in number of
the shares of Registrable Shares to be registered will select and obtain the
services of the investment banker or investment bankers and manager or managers
that will administer the offering and the counsel to such investment bankers and
managers; provided that such investment bankers, managers and counsel are
reasonably acceptable to the Company.
Section 6.03. Piggyback Registration. If the Company proposes to file a
registration statement under the Securities Act with respect to an offering for
its own account of any class of its equity securities (other than a registration
statement on Form S-8 (or any successor form) or any other registration
statement relating solely to director and/or employee benefit plans or filed in
connection with an exchange offer, a transaction to which Rule 145 (or any
successor rule) under the Securities Act applies or an offering of securities
solely to the Company's existing stockholders) (each, an "Excluded Registration
Statement"), then the Company shall in each case give written notice of such
proposed filing to the Holders of Registrable Shares as soon as practicable (but
no later than ten business days) before the anticipated filing date, and such
notice shall offer such Holders the opportunity to register such number of
shares of Registrable Shares as each such Holder may request. Each Holder of
Registrable Shares desiring to have such holder's Registrable Shares included in
such registration statement shall so advise the Company in writing within five
business days after the date of the Company's notice, setting forth the amount
of such Holder's Registrable Shares for which registration is requested. If the
Company's offering is to be an underwritten offering, the Company shall, subject
to the further provisions of this Agreement, use its reasonable efforts to cause
the managing underwriter or underwriters of a proposed underwritten offering to
permit the Holders of the Registrable Shares requested to be included in the
registration for such offering to include such securities in such offering on
the same terms and conditions as any similar securities of the Company included
therein. Moreover, if the registration of which the Company gives notice
involves an underwriting, the right of each Holder to registration pursuant to
this Section 6.03 shall, unless the Company otherwise agrees, be conditioned
upon such Holder's participation as a seller in such underwriting and its
execution of an underwriting agreement with the managing underwriter or
underwriters selected by the Company. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering deliver a written opinion
to the Holders of Registrable Shares that either because of (A) the kind of
securities that the Holders, the Company and any other persons or entities
intend to include in such offering or (B) the size of the offering that the
Holders, the Company and other persons or entities intend to make, the success
of the offering would be materially and adversely affected by inclusion of the
Registrable Shares requested to be included, then (i) in the event that the size
of the offering is the basis of such managing underwriter's opinion, the number
of shares to be offered shall be reduced in the following order to achieve the
amount recommended by such managing underwriter: (w) first, shares proposed to
be offered by persons or entities other than the Holders, the Company and
persons or entities exercising demand registration rights shall be reduced or
eliminated to achieve the recommended amount, (x) next, shares proposed to be
offered by the Holders shall be reduced (or eliminated) on a pro rata basis
among the Holders on the basis of the number of Registrable Shares owned by the
Holders, (y) next, shares proposed to be offered by the Company shall be reduced
or eliminated, and (z) finally, shares proposed to be offered by persons or
entities exercising demand registration rights shall be reduced; and (ii) in the
event that the combination of securities to be offered is the basis of such
managing underwriter's opinion, then shares will be excluded from such offering
in the order specified in the preceding clause (i). Any Registrable Shares
excluded from an underwriting shall be withdrawn from registration and shall
not, without the consent of the
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<PAGE> 23
Company and the manager of the underwriting, be transferred in a public
distribution prior to the earlier of 90 days (or such other shorter period of
time as the manager of the underwriting may require) after the effective date of
the registration statement or 120 days after the date the Holders of such
Registrable Shares are notified of such exclusion; provided that any shares of
Holders excluded from an underwriting shall, to the extent practicable in the
discretion of the managing underwriter and the Company, be the first shares sold
in an over-allotment sale for the related offering.
Section 6.04. Registration Procedures. Whenever, pursuant to Section 6.02
or 6.03, any of the Holders of Registrable Shares has requested that any
Registrable Shares be registered, the Company will, subject to the provisions of
Section 6.05, use reasonable best efforts to effect the registration and the
sale of such Registrable Shares in accordance with the intended method of
disposition thereof as promptly as practicable, and in connection with any such
request, the Company will:
(a) in connection with a request pursuant to Section 6.02, prepare and
file with the SEC, as promptly as practicable (and not later than 30 days
(if a Form S-2 or S-3 is to be used) or 60 days (if a Form S-1 is to be
used) after receipt of a request to file a registration statement with
respect to Registrable Shares), a registration statement on any form for
which the Company then qualified and which counsel for the Company shall
deem appropriate and which form shall be available for the sale of such
Registrable Shares in accordance with the intended method of distribution
thereof, and use its reasonable best efforts to cause such registration
statement to become effective; provided that if the Company shall furnish
to the Holders making such a request a certificate signed by either the
chief financial officer or the chief accounting officer of the Company
stating that in such officer's good faith judgment it would be
significantly disadvantageous to the Company for such a registration
statement to be filed on or before the date filing would be required
(including without limitation the required disclosure of material
non-public information prior to the time that it would otherwise be
required by applicable law or securities exchange regulation to be
disclosed), the Company shall have an additional period of not more than 90
days within which to file such registration statement and provided further
(i) that, before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to one counsel
selected by the Holders of a majority in number of shares of the
Registrable Shares covered by such registration statement copies of all
such documents proposed to be filed, which documents will be subject to the
review of such counsel, and (ii) that after the filing of the registration
statement, the Company will promptly notify each of the selling Holders of
Registrable Shares of any stop order issued or, to the knowledge of the
Company, threatened by the SEC and take all reasonable actions to prevent
the entry of such stop order or to remove it if entered;
(b) in connection with a registration pursuant to Section 6.02,
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period
of not less than 60 days or such shorter period as shall terminate when all
shares of Registrable Shares covered by such registration statement have
been sold (but not before the expiration of the 90-day period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable), and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the selling Holders thereof set forth in such registration
statement;
(c) as soon as reasonably practicable, furnish to each of the selling
Holders, prior to filing a registration statement, copies of such
registration statement as proposed to be filed, and thereafter furnish to
such selling Holders such number of copies of such registration statement,
each amendment and supplement thereto (in each case, if specified by such
Holder including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as a selling Holder may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by such selling
Holder;
(d) with reasonable promptness, use its reasonable best efforts to
register or qualify (or cause to be registered or qualified) such
Registrable Shares under such other securities or blue sky laws of such
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<PAGE> 24
jurisdictions within the United States as any selling Holder (or managing
underwriter in the case of an underwriting offering) reasonably (in light
of such selling Holder's or managing underwriter's intended plan of
distribution) requests and do any and all other acts and things that may be
reasonably necessary or advisable to enable such selling Holder to
consummate the disposition in such jurisdictions of the Registrable Shares
owned by such selling Holder; provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 6.04(d),
(ii) subject itself to taxation in any such jurisdiction or (iii) consent
to general service of process in any such jurisdiction;
(e) with reasonable promptness, use its reasonable best efforts to
cause the Registrable Shares covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Company to enable the selling Holder or Holders thereof to consummate
the disposition of such Registrable Shares;
(f) promptly notify each selling Holder of such Registrable Shares, at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the occurrence of any event known to the
Company requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated
therein as necessary to make statements therein not misleading and promptly
make available to each selling Holder any such supplement or amendment;
(g) in connection with a request pursuant to Section 6.02, enter into
an underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company;
(h) with reasonable promptness make available for inspection by any
selling Holder, any underwriter participating in any disposition pursuant
to such registration statement, and any attorney, accountant or other agent
retained by any such selling Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as
well as access at reasonable times to the Company's executive officers, key
employees, independent accountants and independent reserve engineers as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers and employees to
supply all information reasonably requested for such purpose by any such
Inspector in connection with such registration statement; provided,
however, that the selection of any Inspector other than a selling Holder
shall be subject to the consent of the Company, which shall not be
unreasonably withheld. Each Inspector that actually reviews Records
supplied by the Company that include information that the Company
determines, in good faith, to be confidential ("Confidential Information")
shall be required, prior to any such review, to execute an agreement with
the Company providing that such Inspector shall not disclose any
Confidential Information unless such disclosure is required by applicable
law or legal process. Each selling Holder of Registrable Shares agrees that
Confidential Information obtained by it as a result of such inspections
shall not be used by it as the basis for any transactions in securities of
the Company unless and until such information is made generally available
to the public. Each selling Holder of Registrable Shares further agrees
that it will, upon learning that disclosure of Confidential Information is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the Confidential Information. Each selling Holder
also agrees that the due diligence investigation made by the Inspectors
shall be conducted in a manner that will not unreasonably disrupt the
operations of the Company or the work performed by the Company's officers
and employees;
(i) in the event such sale is pursuant to an underwriting offering,
use its reasonable best efforts to obtain a comfort letter or letters from
the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by comfort letters as the
managing underwriter reasonably requests;
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<PAGE> 25
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of twelve months, beginning within two months after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act; and
(k) with reasonable promptness, use its reasonable best efforts to
cause all such Registrable Shares to be listed on each securities exchange
on which the Common Stock of the Company is then listed, provided that the
applicable listing requirements are satisfied.
Each selling Holder of Registrable Shares agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 6.04(f), such selling Holder will forthwith discontinue disposition of
Registrable Shares pursuant to the registration statement covering such
Registrable Shares until such selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 6.04(f) hereof, and,
if so directed by the Company, each selling Holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such selling Holder's possession, of the prospectus covering such Registrable
Shares current at the time of receipt of such notice. In the event the Company
shall give any such notice, the Company shall extend the period during which
such registration statement shall be maintained effective pursuant to this
Agreement (including the period referred to in Section 6.04(b)) by the greater
of 30 days or by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 6.04(f) hereof to and
including the date when each selling Holder of Registrable Shares covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 6.04(f) hereof. Each selling
Holder also agrees to notify the Company if any event relating to such selling
Holder occurs that would require the preparation of a supplement or amendment to
the prospectus so that such prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 6.05. Conditions and Limitations. (a) The Company's obligations
under Section 6.02 shall be subject to the following limitations:
(i) the Company need not file a registration statement either (i)
during the period starting with the date 60 days prior to the Company's
estimated date of filing of, and ending 90 days after the effective date
of, any registration statement pertaining to securities of the Company
(other than an Excluded Registration Statement), provided that if such
Company registration statement is not filed within 90 days after the first
date on which the Company notifies a Holder of Registrable Shares that it
will delay a Demand Registration pursuant to this clause (i), the Company
may not further postpone such Demand Registration pursuant to this clause;
or (ii) during the period specified in the first proviso of Section
6.04(a);
(ii) the Company shall not be required to furnish any audited
financial statements other than those audited statements customarily
prepared at the end of its fiscal year, or to furnish any unaudited
financial information with respect to any period other than its regularly
reported interim quarterly periods unless in the absence of such other
unaudited financial information the registration statement would contain an
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(iii) except as provided in Section 6.02(b), the Company shall not be
required to file more than three Demand Registrations. A registration
statement will not count as a Demand Registration until it has become
effective; and
(iv) the Company shall have received the information and documents
specified in Section 6.06 and each selling Holder shall have observed or
performed its other covenants and conditions contained in such section.
(b) The Company's obligation under Section 6.03 shall be subject to
the limitations and conditions specified in such Section and in Section
6.05(a) above, and to the condition that the Company may at
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any time terminate its proposal to register its shares and discontinue its
efforts to cause a registration statement to become or remain effective.
Section 6.06. Information from and Certain Covenant of Holders of
Registrable Shares. The Holders for whom Registrable Shares are to be
registered pursuant to this Agreement shall provide to the Company such
information regarding the Registrable Shares to be so registered, the Holder and
the intended method of disposition of each Registrable Shares as shall
reasonably be required in connection with the action to be taken. Any Holder
whose Registrable Shares is included in a registration statement pursuant to
this Agreement shall execute all consents, powers of attorney, registration
statements and other documents reasonably required to be signed by it in order
to cause such registration statement to become effective. Each selling Holder
covenants that, in disposing of such Holder's shares, each Holder will comply
with all applicable Rules of the SEC adopted pursuant to the Exchange Act.
Section 6.07. Registration Expenses. All Registration Expenses (as
defined herein) will be borne by the Company. Underwriting discounts and
commissions applicable to the sale of Registrable Shares shall be borne by each
selling Holder of the Registrable Shares to which such discount or commission
relates, and each selling Holder shall be responsible for the fees and expenses
of any legal counsel, accountants or other agents retained by such selling
Holder and all other out-of-pocket expenses incurred by such selling Holder in
connection with any registration under this Agreement. All of the expenses
referred to in the preceding sentence will be excluded from the term
"Registration Expenses".
As used herein, the term "Registration Expenses" means all expenses
incident to the Company's performance of or compliance with the obligations
imposed upon it in this Article VI (whether or not the registration in
connection with which such expenses are incurred ultimately becomes effective),
including without limitation all registration and filing fees, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Shares), rating agency fees, printing expenses, messenger and
delivery expenses incurred by the Company, internal expenses incurred by the
Company (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed, and fees and disbursements of counsel for the Company
and its independent certified public accountants (including the expenses of any
comfort letters required by or incident to such performance), securities acts
liability insurance (if the Company elects to obtain such insurance), the
reasonable fees and expenses of any special experts retained by the Company and
the fees and expenses of other persons retained by the Company in connection
with such registration.
Section 6.08. Indemnification; Contributions. (a) Indemnification by the
Company. The Company agrees to indemnify and hold harmless each selling Holder
of Registrable Shares, its officers, directors and agents and each person, if
any, who controls such selling Holder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Shares or in any amendment
or supplement thereto or in any preliminary prospectus relating to the
Registrable Shares, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such selling Holder or on
such selling Holder's behalf expressly for use therein and provided further,
that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus for which such selling
Holder had the primary responsibility to distribute, the indemnity agreement
contained in this Section 6.08(a) shall not apply to the extent that any such
loss, claim, damage, liability or expense results from the fact that a copy of
the final prospectus was not sent or given to the person asserting any such
losses, claims, damages, liabilities or expenses at or prior to the written
confirmation of the sale of the Registrable Shares concerned to such person if a
final prospectus is made available by the Company on a timely basis. The Company
also agrees to include in any underwriting
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agreement with any underwriters of the Registrable Shares provisions
indemnifying and providing for contribution to such underwriters, their officers
and directors and each person who controls such underwriters on substantially
the same basis as the provisions of this Section 6.08 indemnifying and providing
for contribution to the selling Holders.
(b) Indemnification by Holders of Registrable Shares. Each selling Holder
agrees to indemnify and hold harmless the Company, its officers, directors and
agents and each person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Shares or in
any amendment or supplement thereto or in any preliminary prospectus relating to
the Registrable Shares, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided (i) that such
losses, claims, damages, liabilities or expenses arise out of, or, are based
upon any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such selling Holder or on
such selling Holder's behalf expressly for use therein, (ii) that with respect
to any untrue statement or omission or alleged untrue statement or omission made
in any preliminary prospectus, the indemnity agreement contained in this Section
6.08(b) shall not apply to the extent that any such loss, claim, damage,
liability or expense results from the fact that a copy of the final prospectus
was not sent or given to the person asserting any such losses, claims, damages,
liabilities or expenses at or prior to the written confirmation of the sale of
the Registrable Shares concerned to such person, and (iii) that no selling
Holder shall be liable for any indemnification under this Section 6.08 in an
aggregate amount that exceeds the total net proceeds (before deducting expenses
other than underwriting discounts or commissions) received by such selling
Holder from the offering. Each selling Holder also agrees to include in any
underwriting agreement with underwriters of the Registrable Shares provisions
indemnifying and providing for contribution to such underwriters, their officers
and directors and each person who controls such underwriters on substantially
the same basis as the provisions of this Section 6.08 indemnifying and providing
for contribution to the Company.
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any indemnified party hereunder in respect of which indemnity may be sought from
an indemnifying party, the indemnifying party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such indemnified
party, and shall assume the payment of all expenses. Such indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the indemnifying party
shall have failed to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to such indemnified party, or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both such indemnified party and such indemnifying party and such
indemnified party shall have been advised by counsel in writing that there may
be one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party, in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel reasonably acceptable to the
indemnifying party at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action of
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified party, which firm shall be designated in writing by such indemnified
party. The indemnifying party shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled with
its written consent, or if there is a final judgment for the plaintiff in any
such action or proceeding, the indemnifying party agrees to indemnify and hold
harmless such indemnified party from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment.
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(d) Contribution. If the indemnification provided for in this Section 6.08
is unavailable to the Company or the selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments, in such proportion
as is appropriate to reflect the relative fault of each such party in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative fault of each such party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 6.08(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by each indemnified
party in connection with investigation or defending any such action or claim.
Notwithstanding the provisions of this Section 6.08(d), no selling Holder shall
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Shares of such selling Holder were offered to the
public exceeds the amount of any damages which such selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(i) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE VII.
Standstill and Confidentiality Provisions
Section 7.01. Certain Definitions. As used in this Article VII, the
following terms shall have the following meanings:
(a) "Company Voting Securities" shall mean, collectively, Common
Stock, any preferred stock of the Company that is entitled to vote
generally for the election of directors, any other class or series of
Company securities that is entitled to vote generally for the election of
directors and any other securities, warrants or options or rights of any
nature (whether or not issued by the Company) that are convertible into,
exchangeable for, or exercisable for the purchase of, or otherwise give the
holder thereof any rights in respect of, Common Stock, Company preferred
stock that is entitled to vote generally for the election of directors, or
any other class or series of Company securities that is entitled to vote
generally for the election of directors.
(b) "Effective Date" shall mean the date hereof.
(c) The "Combined Voting Power" at any measurement date shall mean the
total number of votes which could have been cast in an election of
directors of the Company had a meeting of the shareholders of the Company
been duly held based upon a record date as of the measurement date if all
Company Voting Securities then outstanding and entitled to vote at such
meeting were present and voted to the fullest extent possible at such
meeting.
(d) The terms "beneficial ownership" and "group" shall have the
respective meanings ascribed to such terms pursuant to Regulation 13D-G
adopted by the SEC under the Exchange Act, as in effect on the date hereof.
(e) "Independent Committee" shall mean the special committee of the
Board of Directors of the Company which has been formed to consider a
possible transaction between SOCO and the Company and related matters, the
membership of which committee shall initially consist of Robert J. Clark,
Jay W.
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Decker and Alexander Lynch, it being understood that any changes in the
membership of such committee shall be effective only if they are
unanimously approved by the Board of Directors of the Company prior to such
change.
(f) "Prior Approval" of (i) the Independent Committee shall mean the
due adoption by a majority of the members of the Independent Committee of a
resolution setting forth the Independent Committee's approval of a
particular action or matter, which resolution shall have been recorded in
the minutes of meetings of the Independent Committee, or (ii) the Board of
Directors of the Company shall mean the due adoption by a majority of the
members of the Board of Directors in accordance with the Bylaws of the
Company of a resolution setting forth the approval of the Board of
Directors of a particular action or matter, which resolution shall have
been recorded in the minutes of meetings of the Board of Directors of the
Company.
(g) The term "Approval Body" shall mean the Independent Committee;
provided, however, that with respect to any transaction (i) proposed by or
on behalf of any Investor prior to the time that such Investor beneficially
owns more than 20% of the outstanding Company Voting Securities and (ii) in
which the proposed consideration to be offered to all holders of Common
Stock is identical on a per share basis, the Approval Body for such
transaction shall be the Board of Directors of the Company.
(h) The term "Limitation Period" shall mean a period of two years
after the Effective Date; provided, however, that if during such two-year
period any Investor has either (i) acquired any amount of the Company
Voting Securities pursuant to this Agreement, (ii) acquired more than 5.0%
of the Combined Voting Power in any other manner, or (iii) acquired any
Company Voting Securities in any other manner which, when added to Company
Voting Securities previously held by such Investor, gives such Investor
more than 10.0% of the Combined Voting Power, then in any such event the
Limitation Period shall mean a period of five years after the Effective
Date.
(i) The term "affiliate" shall mean, with respect to any Investor and
its managing partner, any other person (the "affiliated person") which
directly or indirectly is controlled by such Investor (or its managing
partner), provided that no affiliated person that is a portfolio company of
such Investor (or its managing partner) shall be considered an affiliate of
any such Investor and its managing partner for purposes of this Article
VII.
Section 7.02. Confidentiality Covenants. (a) Evaluation Material. (i)
Each Investor hereby agrees to treat any information concerning the Company
(whether prepared by the Company, SOCO, their advisors or otherwise) which will
be furnished to such Investor by or on behalf of the Company, SOCO or their
advisors in accordance with the provisions of this Section 7.02 (herein referred
to as the "Evaluation Material") and to take or abstain from taking certain
other actions herein set forth. The term "Evaluation Material" includes all
non-public information in any form concerning the Company and its subsidiaries
and affiliates that is provided to each Investor or its directors, officers,
employees, agents or advisors by or on behalf of the Company. The term
"Evaluation Material" does not include information which an Investor can
demonstrate (A) is already in such Investor's possession, provided that such
information is not known by such Investor after reasonable inquiry to be subject
to another confidentiality agreement with or other obligation of secrecy to the
Company or another party, (B) becomes generally available to the public other
than as a result of a disclosure by such Investor or its directors, officers,
employees, agents or advisors, or (C) becomes available to such Investor, or is
independently developed by such Investor, on a non-confidential basis from a
source other than the Company, SOCO or their advisors, provided that such source
is not known by such Investor, after reasonable inquiry, to be bound by a
confidentiality agreement with or other obligation of secrecy to the Company or
another party.
(ii) Each Investor hereby agrees that the Evaluation Material will be used
solely for the purpose of evaluating a possible transaction between the Company
and such Investor (and/or, if applicable, SOCO), and that such information will
be kept confidential by such Investor and its advisors; provided, however, that
(A) any of such information may be disclosed to such Investor's directors,
officers, employees, advisors and potential financing sources and
representatives of such Investor's advisors and potential financing sources
(collectively, "Representatives") who need to know such information for the
purpose of evaluating any such
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possible transaction between the Company and such Investor (and/or, if
applicable, SOCO) (it being understood that such Representatives shall be
informed by such Investor of the confidential nature of such information and
shall be directed by such Investor to treat such information confidentially),
and (B) any disclosure of such information may be made to which the Company
consents in writing.
(iii) If any Investor or any of its Representatives are requested to
disclose any Evaluation Material, such Investor shall promptly notify the
Company to permit the Company to seek a protective order or to take other
appropriate action. Each Investor shall also cooperate in the Company's efforts
to obtain a protective order or other reasonable assurance that the confidential
treatment shall be accorded the Evaluation Material. If, in the absence of a
protective order, any Investor or any of its Representatives are, in the written
opinion of such Investor's counsel addressed to the Company, compelled as a
matter of law to disclose the Evaluation Material, such Investor may disclose to
the party compelling disclosure only such part of the Evaluation Material as is
required by law to be disclosed and such Investor shall use its reasonable best
efforts to obtain confidential treatment therefor.
(iv) Each Investor hereby acknowledges that it is aware, and that it will
advise such Representatives who are informed as to the matters which are the
subject of this Section 7.02, that the United States securities laws prohibit
any person who has received from an issuer material, non-public information
concerning the matters which are the subject of this Section 7.02 from
purchasing or selling securities of such issuer or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
(b) Treatment of Materials. In the event that no Closing occurs hereunder
prior to the termination of this Agreement, each Investor shall, upon request,
promptly redeliver to the Company all written Evaluation Material and any other
written material containing or reflecting any information in the Evaluation
Material (whether prepared by or on behalf of the Company, its advisors or
otherwise) and will not retain any copies, extracts or other reproductions in
whole or in part of such written material, and, upon request by the Company, all
documents, memoranda, notes and other writings whatsoever prepared by such
Investor or its Representatives based on the information in the Evaluation
Material shall be destroyed.
Section 7.03. Acquisition of Company Voting Securities. If an Investor
has acquired Company Voting Securities pursuant to this Agreement or the SOCO
Option Agreement, including any conversion of the 8.5% Convertible Preferred
Stock into Common Stock (an "Authorized Purchase") during the Limitation Period
without the Prior Approval of the Approval Body, neither such Investor nor any
of its affiliates shall thereafter, directly or indirectly, acquire, offer to
acquire, agree to acquire, become the beneficial owner of or obtain any rights
in respect of any additional Company Voting Securities, by purchase or
otherwise, or take any action in furtherance thereof, if the effect of such
acquisition, agreement or other action would be (either immediately or upon
consummation of any such acquisition, agreement or other action, or expiration
of any period of time provided in any such acquisition, agreement or other
action) to increase the aggregate beneficial ownership of Company Voting
Securities by such Investor and its affiliates to such number of Company Voting
Securities that represents or possesses greater than 20.0% of the Combined
Voting Power of Company Voting Securities. Notwithstanding the foregoing maximum
percentage limitations, (i) an Investor shall not be obligated to dispose of any
Company Voting Securities beneficially owned in violation of such maximum
percentage limitations if, and solely to the extent that, its beneficial
ownership is or will be increased solely as a result of a repurchase of any
Company Voting Securities by the Company or any of its subsidiaries if such
repurchase shall have received the Prior Approval of the Board of Directors, and
(ii) the foregoing shall not prohibit any purchase of Company Voting Securities
directly from the Company (including pursuant to the exercise of rights,
oversubscription rights or standby purchase obligations in connection with
rights offerings by the Company). For purposes of calculating the maximum
percentage limitations, all Company Voting Securities that are the subject of a
right, option, agreement, arrangement or understanding pursuant to which an
Investor or any of its affiliates has the right to obtain beneficial ownership
of such securities in the future shall also be deemed to be beneficially owned
by such Investor or its affiliate.
Section 7.04. Distribution of the Company Voting Securities. (a) Each
Investor hereby agrees that (subject to the last sentence of this Section
7.04(a)), (i) prior to the first anniversary of the Initial Closing
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Date, neither such Investor nor any of its affiliates shall, directly or
indirectly, Transfer any Company Voting Security to any person, (ii) during the
period commencing on the first anniversary of the Initial Closing Date until the
second anniversary thereof, neither such Investor nor any of its affiliates
shall, directly or indirectly, Transfer any Company Voting Security to any
person, except as permitted under applicable securities laws and (except for
Transfers pursuant to Rule 144 under the Securities Act) with the Prior Approval
of the Approval Body (which approval will not be unreasonably withheld) (and any
permitted transferee of such Transfer (except Transfers pursuant to Rule 144
under the Securities Act) shall agree to be bound by the provisions in this
subsection, and (iii) on and after the second anniversary of the Initial Closing
Date, such Investor shall be entitled to Transfer any Company Voting Security to
any person, subject solely to any applicable securities law restrictions. In
addition to the foregoing Transfer provisions, during the Limitation Period,
neither an Investor nor any of its affiliates shall, directly or indirectly,
Transfer any Company Voting Security in a transaction that would result in a
Transfer to any person or group that, to the knowledge of such Investor, upon
consummation of such Transfer, would, directly or indirectly, have beneficial
ownership of or the right to acquire beneficial ownership of such number of
Company Voting Securities as represent greater than 7.5% of the Combined Voting
Power, except in response to a Qualifying Offer (as defined in Section
7.04(b)(i)) or to a Qualified Buyer (as defined in Section 7.04(b)(ii)) or
pursuant to an underwritten public offering or pursuant to Rule 144 under the
Securities Act.
(b) Notwithstanding Section 7.04(a), (i) on and after the eleventh business
day after commencement of a tender or exchange offer made by a person who is not
an affiliate of an Investor for outstanding Company Voting Securities, such
Investor may tender or exchange any Company Voting Securities beneficially owned
by it pursuant to such offer if such offer shall have received the Prior
Approval of the Independent Committee (or the Independent Committee shall not
have made a recommendation to reject such offer) (a "Qualifying Offer"), and/or
(ii) such Investor may sell Company Voting Securities to a buyer (a "Qualified
Buyer") who would thereafter own Company Voting Securities representing greater
than 20.0% of the Combined Voting Power if such buyer shall have executed a
confidentiality and standstill agreement having substantially the same terms as
are contained in this Article VII.
Section 7.05. Proxy Solicitations, etc. During the Limitation Period,
neither an Investor nor any of its affiliates shall solicit proxies, assist any
other person in any way, directly or indirectly, in the solicitation of proxies,
become a "participant" in a "solicitation," or assist any "participant" in a
"solicitation" (as such terms are defined in Rule 14a-1 of Regulation 14A under
the Exchange Act) in opposition to the recommendation of the Independent
Committee, or submit any proposal for the vote of shareholders of the Company,
or recommend or request or induce or attempt to induce any other person to take
any such actions, or seek to advise, encourage or influence any other person
with respect to the voting of Company Voting Securities, in each case without
the Prior Approval of the Independent Committee. Nothing in this Section 7.05
shall restrict any Investor or its affiliates from otherwise voting its shares
of Company Voting Securities.
Section 7.06. No Voting Trusts, Pooling Agreements, or Formation of
"Groups". During the Limitation Period, neither an Investor nor any of its
affiliates shall form, join in or in any other way participate in a partnership,
pooling agreement, syndicate, voting trust or other "group" with respect to
Company Voting Securities, or enter into any agreement or arrangement or
otherwise act in concert with any other person, for the purpose of acquiring,
holding, voting or disposing of Company Voting Securities, in each case without
the Prior Approval of the Independent Committee. Notwithstanding the foregoing
provisions of this Section 7.06, nothing in this Section 7.06 shall in any way
limit the ability of an Investor to pursue or consummate an Authorized Purchase
in compliance with Section 7.03 or to exercise its rights under this Agreement.
Section 7.07. Limitation on Various Other Actions. During the Limitation
Period, neither an Investor nor any of its affiliates shall take any action,
alone or in concert with any other person, to seek to effect a change in control
of the Company or otherwise seek to circumvent the limitations of the provisions
of this Article VII. Without limiting the generality of the foregoing, without
the Prior Approval of the Independent Committee, neither an Investor nor any of
its affiliates shall (i) present to the Company, its stockholders or any third
party any proposal that can reasonably be expected to result in a change of
control of the Company or in an increase in the Combined Voting Power of Company
Voting Securities beneficially owned in the
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aggregate by such Investor and its affiliates beyond the percentage beneficially
owned by them as of the date on which such proposal is made (except in full
compliance with the terms of Section 7.08), (ii) publicly suggest or announce
its willingness or desire to engage in a transaction or group of transactions or
have another person engage in a transaction or group of transactions that would
result in a change of control of the Company or in an increase in the Combined
Voting Power of Company Voting Securities beneficially owned in the aggregate by
such Investor and its affiliates beyond the percentage beneficially owned by
them as of the date on which such announcement is made, or (iii) initiate,
request, induce, encourage or attempt to induce or give encouragement to any
other person to initiate any proposal that can reasonably be expected to result
in a change of control of the Company or in an increase in the Combined Voting
Power of Company Voting Securities beneficially owned in the aggregate by such
Investor and its affiliates beyond the percentage beneficially owned by them as
of the date of such action. Notwithstanding the foregoing provisions of this
Section 7.07, nothing in this Section 7.07 shall in any way limit the ability of
such Investor to pursue or consummate an Authorized Purchase in compliance with
Section 7.03.
Section 7.08. Acquisition Proposals. (a) During the Limitation Period,
notwithstanding any provision in this Article VII to the contrary, if an
Investor desires to submit a proposal to acquire control of the Company or to
increase its percentage ownership of Company Voting Securities beyond its
percentage ownership as of the date on which such proposal is submitted, it may
do so only by notifying the chairman of the Approval Body and complying with all
of the following procedures:
(i) such Investor may only submit to the Company a proposal having the
following terms (the "Proposal"):
(A) the Proposal entails either (1) a tender offer for all
outstanding Company Voting Securities not owned by such Investor and its
affiliates which offer is conditioned upon a majority of the outstanding
Company Voting Securities not owned by such Investor and its affiliates
having been tendered, followed by a merger transaction, or (2) a merger
transaction which is conditioned on the approval of stockholders holding
a majority of the outstanding Company Voting Securities not owned by
such Investor and its affiliates; and
(B) the Proposal provides that the same consideration will be paid
to all of the Company's stockholders (other than such Investor and its
affiliates) in the tender offer and/or merger transaction.
(ii) The Approval Body shall retain a reputable investment banking
firm to advise the Approval Body with respect to the fairness of the
Proposal to the stockholders of the Company other than such Investor and
its affiliates from a financial point of view, and the Approval Body shall
retain independent counsel to advise it with respect to the Proposal.
(iii) The Proposal shall have received the Prior Approval of the
Approval Body, which shall not give its approval unless it has received an
opinion from such investment banking firm, in form and substance reasonably
acceptable to the Approval Body, that the Proposal is fair to the
stockholders of the Company other than such Investor and its affiliates
from a financial point of view.
(b) Unless all of the preconditions set forth in Sections 7.08(a)(i),
7.08(a)(ii) and 7.08(a)(iii) have been satisfied, the Proposal shall not be
presented to the Company's stockholders and such Investor shall withdraw the
Proposal.
(c) Each Investor shall not, and shall direct its Representatives not to,
disclose to any person either the fact that discussions or negotiations are
taking place concerning a possible transaction as contemplated by the Proposal
or any of the terms or other facts with respect to any such possible
transaction, in each case without the Prior Approval of the Approval Body.
(d) Notwithstanding the foregoing provisions of this Section 7.08, nothing
in this Section 7.08 shall in any way limit the ability of an Investor to pursue
or consummate an Authorized Purchase in compliance with Section 7.03 without
complying with the procedures set forth in this Section 3.6.
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Section 7.09. Term of Standstill and Confidentiality Provisions. Unless
the provisions contained in this Article VII specifically provide for earlier
termination with respect to any particular right or obligation, the provisions
contained in this Article VII shall terminate on the last day of the Limitation
Period notwithstanding an earlier termination of this Agreement pursuant to
Article VIII.
ARTICLE VIII.
Term
Section 8.01. Termination. This Agreement may be terminated on or any
time prior to the Initial Closing (provided that no such termination shall be
effective if (i) such termination is for the sole purpose of removing one or
more Investors from this Agreement and (ii) the Company and the remaining
Investors contemplate, as of the date of such termination, to enter into a
transaction comparable to the transaction provided for by this Agreement):
(a) by the mutual written consent of the Investors and the Company; or
(b) by either the Company or the Investors, if the Initial Closing
shall not have occurred or is not capable of occurring (and the party
claiming that such Closing is incapable of occurring demonstrates such fact
beyond a reasonable doubt) on or prior to December 31, 1997, unless the
failure of such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on or before the
Initial Closing, provided that, if a non-defaulting Investor is otherwise
entitled to terminate this Agreement but such termination is prohibited
because of a default by another Investor, such non-defaulting Investor may
terminate its commitment hereunder following 10 days' prior written notice
to the Company, unless during such 10-day period the Company has replaced
or otherwise terminated the commitment of each defaulting Investor.
Section 8.02. Effect of Termination. In the event of the termination of
this Agreement as provided in Section 8.01, this Agreement shall forthwith
become void except for the obligations set forth in Article VII and Sections
9.02 through 9.15 and there shall be no liability or obligation on the part of
the parties hereto except as otherwise provided in this Agreement. The
termination of this Agreement under Section 8.01(b) shall not relieve either
party of any liability for breach of this Agreement prior to the date of
termination.
ARTICLE IX.
Miscellaneous
Section 9.01. Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made herein or in any certificates
delivered in connection with any Closing shall survive such Closing.
Section 9.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered
personally, by telecopier or sent by overnight courier as follows:
(a) If to the Investors, to the address or telecopy number set forth
below their name on the signature pages hereto;
(b) If to the Company, to:
Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, Colorado 80202
Phone: (303) 389-3600
Fax: (303) 595-7407
Attention: General Counsel
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With copies to:
Thomas J. Edelman,
Chairman of Patina Oil & Gas Corporation
667 Madison Avenue, 22nd Floor
New York, New York 10021
Phone: (212) 371-1117
Fax: (212) 888-6877
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Phone: (212) 455-2000
Fax: (212) 455-2502
Attention: Robert L. Friedman, Esq.
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 9.03. Entire Agreement; Amendment. This Agreement and the
Certificate of Designations and the documents described herein and therein or
attached or delivered pursuant hereto or thereto or contemporaneously herewith
set forth the entire agreement among the parties hereto with respect to the
transactions contemplated by this Agreement. Any provision of this Agreement may
be amended or modified in whole or in part at any time by an agreement in
writing among the parties hereto executed in the same manner as this Agreement;
provided that any amendment, modification or waiver to be delivered hereunder on
behalf of the Investors shall be effective against all of the Investors if
Investors holding 65% or more of the aggregate commitments hereunder shall agree
to such amendment, modification or waiver; provided, however that no such
amendment, modification or waiver (i) shall disproportionately disadvantage an
Investor, (ii) shall reduce or increase any Investor's commitment hereunder or
(iii) reduce the dividend rate or other principal economic terms of the 8.5%
Convertible Preferred Stock to be purchased hereunder, in each case without the
consent of the Investor affected thereby. No failure on the part of any party to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof nor shall any single or partial exercise by any party of any right
preclude any other or future exercise thereof or the exercise of any other
right. No investigation by the Investors of the Company prior to or after the
date hereof shall prevent the Investors from exercising any right hereunder or
be deemed to be a waiver of any such right.
Section 9.04. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same document.
SECTION 9.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
Section 9.06. Public Announcements. Each of the parties hereto agrees to
hold in strict confidence and not to disclose to others the status of any
discussions among the parties with respect to the subject matter of this
Agreement until such time as the parties mutually agree to publicly disclose
such information or are legally obligated to disclose such information. Subject
to the provisions of the previous sentence, the parties hereto will cooperate
with each other in the development and distribution of all news releases and
other public information disclosures with respect to this Agreement and any of
the transactions contemplated hereby, and no party hereto will make any news
releases or other information disclosures with respect to the subject matter of
this Agreement without the prior consent of the other parties hereto.
Section 9.07. Expenses. (a) Except as provided in Sections 6.07 and
9.07(b), each of the parties hereto will pay its own expenses incurred or to be
incurred in connection with this Agreement and the
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transactions contemplated hereby. None of the parties hereto shall engage any
broker, finder or agent or agree to pay to any person any broker's fee, finder's
fee, commission or other similar form of compensation in connection with this
Agreement or the transactions contemplated hereby, except as provided in Section
3.01(s) hereof.
(b) At or following the Initial Closing (or the termination of this
Agreement, as the case may be), the Company shall promptly pay the Investors for
all reasonable costs and out-of-pocket expenses incurred by them in connection
with the negotiation of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation the reasonable fees and
expenses of the Investors' counsel up to a maximum expense reimbursement
pursuant to this Section 9.07(b) of $100,000.
Section 9.08. Indemnification. (a) Indemnification and Payment of Damages
by the Company. The Company will indemnify and hold harmless the Investors and
its controlling persons and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage or expense (including reasonable attorneys' fees and expenses)
(collectively, "Damages") actually incurred by the Indemnified Persons, arising,
directly or indirectly, from or in connection with: (i) any representation or
warranty specifically made by the Company in this Agreement which is qualified
as to materiality not being true and correct as of the date hereof and any
Closing Date, and any representation or warranty specifically made by the
Company in this Agreement which is not so qualified not being true and correct
in all material respects as of the date hereof and any Closing Date, or (ii) any
breach by the Company of any covenant or obligation of the Company specifically
contained in this Agreement. The remedies provided in this Section 9.08 will be
the sole remedies available to the Investors and the other Indemnified Persons
with respect to the matters referred to in this Section 9.08, provided that the
foregoing shall not limit any right to terminate this Agreement, specific
performance or injunctive relief that a party may otherwise have.
(b) Indemnification and Payment of Damages by the Investors. Each Investor
severally, but not jointly, will indemnify and hold harmless the Company, and
will pay to the Company the amount of any Damages actually incurred by the
Company, arising, directly or indirectly, from or in connection with (i) any
representation or warranty specifically made by such Investor in this Agreement
which is qualified as to materiality not being true and correct as of the date
hereof and any Closing Date, and any representation or warranty specifically
made by such Investor in this Agreement which is not so qualified not being true
and correct in all material respects as of the date hereof or any Closing Date,
or (ii) any breach by the Investors of any covenant or obligation of such
Investor specifically contained in this Agreement. The remedies provided in this
Section 9.08 will be the sole remedies available to the Company with respect to
the matters referred to in this Section 9.08, provided that the foregoing shall
not limit any right to terminate this Agreement, specific performance or
injunctive relief that a party may otherwise have.
(c) Time Limitations. The Company will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to any Closing
Date, other than those in Section 3.01(a), (c), (e), (o) or (r), unless on or
before the first anniversary of the last Closing Date to occur, the Investors
notify the Company of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by the Investors; a claim with
respect to Section 3.01(o) or (r) may be brought at any time on or before the
third anniversary of the last Closing Date; and a claim with respect to Section
3.01(a), (c) or (e) will survive indefinitely. The Investors will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to any Closing Date, unless on or before the first anniversary of the last
Closing Date, the Company notifies the Investors of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by the
Company.
(d) Limitations On Amount. (i) The Company will have no liability to any
Investor pursuant to Section 9.08(a) until the total of all Damages owed to such
Investor with respect to such matters exceeds such Investor's pro rata interest
(based on its aggregate commitment hereunder) of $1,000,000, and then only for
the amount by which such Damages exceed such pro rata interest of $1,000,000.
The liability of the Company pursuant to Section 9.08 shall not exceed such
Investor's pro rata interest (based on its aggregate
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commitment hereunder) of $5,000,000 in the aggregate (provided that, if the
amount of Damages exceeds $5,000,000, the Investors' remedy shall be the
recision of the issuance and sale of the 8.5% Convertible Preferred Stock
hereunder with the Company repurchasing, at the purchase price, such stock).
(ii) Each Investor will have no liability to the Company pursuant to
Section 9.08(b) until the total of all Damages with respect to such matters
exceeds such Investor's pro rata interest (based on its aggregate commitment
hereunder) of $1,000,000, and then only for the amount by which such Damages
exceed such pro rata interest of $1,000,000. The liability of an Investor to the
Company pursuant to Section 9.08 shall not exceed such Investor's pro rata
interest (based on its aggregate commitment hereunder) of $5,000,000 in the
aggregate.
(e) Other Limitations. The Company will have no liability to an Investor
or the Indemnified Persons for any breach of representation or warranty to the
extent that the Company can establish that such Investor had actual knowledge of
the facts which form the basis of such claim prior to the applicable Closing
Date. The Investors will have no liability to the Company for any breach of
representation or warranty to the extent that the Investors can establish that
the Company had actual knowledge of the facts which form the basis of such claim
prior to the applicable Closing Date.
(f) Procedure for Indemnification. Promptly upon an indemnified party
under Section 9.08(a) or 9.08(b) becoming aware of a claim it may have against
an indemnifying party under such Section, such indemnified party will if a claim
is to be made against an indemnifying party under such Section, give notice to
the indemnifying party, but the failure so to notify the indemnifying party will
not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that it shall have been materially prejudiced by the indemnifying party's
failure to give such notice. The parties shall cooperate in resolving questions
as to Damages payable under Section 9.08(a) or 9.08(b) and determining the
amount of any Damages payable. If the parties shall not be able, for a period of
30 days, to concur and agree upon the amount of Damages payable under said
Section, as applicable, either party may, upon the expiration of such number of
days, submit such difference to a court of competent jurisdiction in the United
States of America for final determination. The final determination of such court
with respect to any difference so submitted, after all appeals have been taken
or the time to appeal shall have expired (the "Final Determination"), shall be
conclusive and binding upon the parties. Promptly after the exact amount and
nature of any Damages under Section 9.08(a) or 9.08(b) payable has been
determined or agreed upon by the parties or fixed by a Final Determination, the
indemnifying party shall pay such Damages to the indemnified party. Such Damages
shall be deemed to be due and payable by the indemnifying party as of a date no
later than the date when notice of the claim therefor was first given to the
indemnifying party on behalf of the indemnified party.
Section 9.09. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Neither this Agreement nor any of the parties' rights,
interests or obligations hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto; provided that, if
any Investor fails to fulfill its obligation to fund its commitment for shares
of 8.5% Convertible Preferred Stock hereunder, such defaulting Investor's
commitment obligation hereunder may be assigned to one or more other
non-defaulting Investor (which assignment shall occur no later than the
applicable Closing Date and any non-defaulting Investor accepting such
additional commitment shall execute and deliver an appropriate amendment or
supplement to this Agreement reflecting such assignment). No assignment shall
relieve the assigning party of any of its obligations hereunder. Any attempted
assignment of this Agreement in breach of this provision shall be void and of no
effect.
Section 9.10. No Third Party Rights. Nothing in this Agreement, expressed
or implied, shall or is intended to confer upon any person other than the
parties hereto or their respective successors or assigns any rights or remedies
of any nature or kind whatsoever under or by reason of this Agreement.
Section 9.11. Specific Performance. The Company acknowledges that the
rights granted to the Investors in this Agreement are of a special, unique and
extraordinary character, and that any breach of this Agreement by the Company
could not be compensated for by damages. Accordingly, if the Company breaches
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<PAGE> 37
its obligations under this Agreement, the Investors shall be entitled, in
addition to any other remedies that they may have, to enforcement of this
Agreement by a decree of specific performance requiring the Company to fulfill
its obligations under this Agreement.
Section 9.12. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 9.13. Severability. Should any part of this Agreement for any
reason be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and effect
as if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part or parts which may, for any reason, be hereafter
declared invalid.
Section 9.14. Mutual Waiver of Jury Trial. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
Therefore, to achieve the best combination of the benefits of the judicial
system and of arbitration, the parties hereto waive all right to trial by jury
in any action, suit or proceeding brought to enforce or defend any rights or
remedies under this Agreement.
Section 9.15. Jurisdiction. The courts of the State of New York in New
York County and the United States District Court for the Southern District of
New York shall have jurisdiction over the parties with respect to any dispute or
controversy between them arising under or in connection with this agreement and,
by execution and delivery of this Agreement, each of the parties to this
Agreement submits to the jurisdiction of those courts, including but not limited
to the in personam and subject matter jurisdiction of those courts, waives any
objections to such jurisdiction on the grounds of venue or forum non conveniens,
the absence of in personam or subject matter jurisdiction and any similar
grounds, consents to service of process by mail (in accordance with Section
9.02) or any other manner permitted by law, and irrevocably agrees to be bound
by any judgment rendered thereby in connection with this Agreement.
Section 9.16. References to Other Agreements. To the extent that this
Agreement refers to any other agreement, or any provision thereof, such
reference shall be deemed to be to such agreement or provision in the form
initially executed by the parties thereto (regardless of whether such agreement
or provision is amended) unless and to the extent that (a) such amendment does
not adversely affect the non-signing party or (b) the non-signing party consent
in writing to such amendment; provided, however, that each party consents to the
amendments (and, if applicable, restatements) of the Share Repurchase Agreement
and the Stock Option Agreements that were executed as of September 19, 1997 and
references in this Agreement to such documents shall be the form of such
document as so amended.
33
<PAGE> 38
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized officers, all as of the dates written
above.
<TABLE>
<S> <C>
PATINA OIL & GAS CORPORATION
By: /s/ THOMAS J. EDELMAN
----------------------------------------------------
Name: Thomas J. Edelman
Title: Chairman and Chief Executive Officer
FIRST RESERVE FUND VII, LIMITED PARTNERSHIP
By: First Reserve Corporation, its General Partner
By: /s/ WILLIAM E. MACAULAY
----------------------------------------------------
Name: William E. Macaulay
Title: President and Chief Executive Officer
With copy to:
Thomas R. Denison, Esq. 475 Steamboat Road
Gibson Dunn & Crutcher LLP Greenwich, Connecticut 06830
1801 California Street Phone: (203) 625-2502
Suite 4100 Fax: (203) 661-6729
Denver, Colorado 80202
Phone: (303) 298-5734
Fax: (303) 313-2823
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its General Partner
By: /s/ ARNOLD L. CHAVKIN
----------------------------------------------------
Name: Arnold L. Chavkin
Title: General Partner
With copy to:
Harvey Eisenberg, Esq.
O'Sullivan, Graev & Karabell c/o Chase Capital Partners
30 Rockefeller Plaza, 41st Floor 380 Madison Avenue, 12th Floor
New York, New York 10112 New York, New York 10017
Phone: (212) 408-2416 Phone: (212) 622-3100
Fax: (212) 408-0646 Fax: (212) 622-3101
</TABLE>
34
<PAGE> 39
<TABLE>
<S> <C>
HIGHBRIDGE INTERNATIONAL LDC
By: HIGHBRIDGE CAPITAL MANAGEMENT, INC.
By: /s/ GLENN R. DUBIN
------------------------------------------------
Name: Glenn R. Dubin
Title: Co-Chairman
With copy to:
Ron Resnick, Esq.
c/o Highbridge Capital c/o Highbridge Capital Management, Inc.
Management, Inc. 767 Fifth Avenue, 23rd Floor
767 Fifth Avenue, 23rd Floor New York, New York 10153
New York, New York 10153 Phone: (212) 751-4510
Phone: (212) 751-4510 Fax: (212) 486-9379
Fax: (212) 759-6010
BEDFORD FALLS INVESTORS, LP
By: Metropolitan Capital Advisors, LP
its General Partner
By: Metropolitan Capital Advisors, Inc.
By: /s/ JEFFREY SCHWARZ
----------------------------------------------------
Jeffrey Schwarz
Chief Executive Officer
660 Madison Avenue, 20th Floor
New York, NY 10021
Phone: (212) 486-8100
Fax: (212) 486-8819
/s/ ANTHONY V. DUB
----------------------------------------------------
Anthony V. Dub
c/o Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010
Phone: (212) 325-4800
Fax: (212) 325-8266
</TABLE>
35
<PAGE> 40
<TABLE>
<S> <C>
/s/ ALLEN FINKELSON
----------------------------------------------------
Allen Finkelson
c/o Cravath, Swain & Moore
Worldwide Plaza
825 Eighth Avenue -- 46th Floor
New York, NY 10019
Phone: (212) 474-1262
Fax: (212) 765-1047
/s/ WILLIAM P. NICOLETTI
----------------------------------------------------
William P. Nicoletti
c/o Nicoletti & Company Inc.
1155 Avenue of the Americas, 29th Floor
New York, NY 10036
Phone: (212) 819-2640
Fax: (212) 391-7420
/s/ IRIK P. SEVIN
----------------------------------------------------
Irik P. Sevin
c/o Petroleum Heat & Power Co., Inc.
2187 Atlantic Street
P.O. Box 1457
Stamford, CT 06904
Phone: (203) 325-5450
Fax: (203) 328-7421
/s/ PETER SEAMAN
----------------------------------------------------
Peter Seaman
c/o Universal Studios
100 Universal City Plaza
Universal Building #507
Suite 3G
Universal City, CA 91608
</TABLE>
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<PAGE> 41
EXHIBIT A
[FORM OF SHARE REPURCHASE AGREEMENT]
This Amended and Restated Share Repurchase Agreement (this "Agreement") is
dated as of July 31, 1997 and amended and restated as of September 19, 1997 by
and between Snyder Oil Corporation, a Delaware corporation ("SOCO") and Patina
Oil & Gas Corporation, a Delaware corporation ("Patina").
WHEREAS, SOCO owns beneficially and of record 14,000,000 shares (the
"Shares") of Common Stock of Patina ("Common Stock"), 2,000,000 of which are
designated Series A Common Stock;
WHEREAS, SOCO and Patina have entered into that certain Registration Rights
Agreement dated as of May 2, 1996 (the "Registration Rights Agreement"),
pursuant to which SOCO has certain rights to cause Patina, at its expense, to
register the sale of Shares by SOCO under the Securities Act of 1933, as amended
(the "Securities Act");
WHEREAS, SOCO desires, subject to the terms and conditions set forth in
this Agreement, to sell all but 70,000 of the Shares through a combination of:
(i) an underwritten secondary offering of a portion of the Shares by SOCO (the
"Offering") and (ii) a repurchase of all but 70,000 of the Shares not sold in
the Offering by Patina, which repurchase would be consummated simultaneously
with the consummation of the Offering (the "Repurchase");
WHEREAS, SOCO and Patina acknowledge that certain third parties may have an
interest in pursuing an acquisition of all or a portion of the capital stock of
Patina, and that it would be in the best interests of Patina and its
stockholders to permit those third parties ("Prospective Purchasers") to review
certain confidential information relating to Patina and its assets, liabilities
and operations, provided that such Prospective Purchasers execute a
confidentiality and standstill agreement mutually acceptable to SOCO and Patina;
WHEREAS, Patina and certain investors (the "Investors") have entered into a
Stock Purchase Agreement dated as of July 31, 1997 (as amended, the "Stock
Purchase Agreement") pursuant to which such investors have agreed to acquire
shares of 8.5% Convertible Preferred Stock (the "New Preferred Stock"), of
Patina on the terms and subject to the conditions set forth therein;
WHEREAS, SOCO has (i) granted options to the Investors (or, in certain
instances, affiliates thereof) to purchase an aggregate of 2,000,000 shares of
Common Stock and (ii) agreed to transfer to such optionees an aggregate of
70,000 Shares, in each case pursuant to and subject to the terms and conditions
set forth in the Stock Option Agreements with such optionees (as amended, the
"Stock Option Agreement");
NOW THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Demand Registration. Pursuant to Section 2(A) of the Registration
Rights Agreement, SOCO hereby requests registration of at least 5,000,000 Shares
and not more than 7,500,000 Shares (in each case, before giving effect to any
underwriter's overallotment option). Patina acknowledges that such request has
been made in accordance with the Registration Rights Agreement and satisfied the
requirements set forth in Section 2(A). Notwithstanding any provision in this
Agreement to the contrary, SOCO reserves the right, in its absolute and sole
discretion, to withdraw the Shares from the Offering at any time prior to the
Distribution Date (as defined below) by giving notice to Patina.
2. Repurchase.
(a) If the Offering is consummated, Patina hereby agrees to purchase from
SOCO, and SOCO agrees to sell to Patina, all the Shares owned by SOCO at the
time of the consummation of the Offering (the "Closing") except for (i) those
Shares that are sold by SOCO to the underwriters at the Closing and (ii) the
70,000 Shares that SOCO is required to transfer to the Investors pursuant to the
Stock Option Agreement (as amended) with such Investors.
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<PAGE> 42
(b) (Section 2(b) has been left blank intentionally)
(c) Any Shares required to be repurchased by Patina pursuant to this
Section 2 shall be repurchased for a purchase price equal to the public offering
price in the Offering less underwriters' discounts and commissions, in each case
as shown on the cover page of the final prospectus for the Offering, but without
any deduction for expenses (the "Net Offering Price").
(d) Notwithstanding the foregoing, upon the occurrence of a First Reserve
Funding Delay, then Patina shall not be required to purchase a number of Shares
equal to the First Reserve Shares until the "Fund VII Amount" (as defined in the
Stock Purchase Agreement) is funded by First Reserve Fund VII, Limited
Partnership ("First Reserve") and Patina shall pay as additional consideration
for the First Reserve Shares interest on the Fund VII Amount based upon the
Applicable Rate, with interest accruing from the Closing Date until the receipt
by SOCO of the Fund VII Amount.
(i) The term "Applicable Rate" shall mean an interest rate per annum
equal to (A) 1% plus (B) an interest rate per annum shown on page 3750 of
the Dow Jones & Company Telerate screen or any successor page as the
composite offered rate for London interbank deposits with a period equal to
one month as shown under the heading "USD", as of 11:00 A.M. (London time)
on the day of the Closing; provided that the applicable rate determined
pursuant to this definition shall be rounded to the nearest whole multiple
of 1/16 of 1% per annum, if such rate is not such a multiple.
(ii) A "First Reserve Funding Delay" shall occur if First Reserve
shall not have delivered funds to Patina at the Closing but instead shall
have delivered to Patina an irrevocable, unconditional commitment to fund
the Fund VII Amount within ten business days after delivery of the Notice
of Issuance in accordance with the Stock Purchase Agreement.
(iii) The term "First Reserve Shares" shall mean the maximum number of
whole shares of Common Stock that can be purchased with the First Reserve
Amount at a purchase price equal to the Net Offering Price.
(iv) The term "Notice of Issuance" shall have the meaning set forth in
the Stock Purchase Agreement.
(e) If and to the extent that the underwriters in the Offering do not
exercise any overallotment option (the "Overallotment Option") granted to them
by SOCO in such a manner that such exercise can be consummated at the Closing,
then Patina agrees to repurchase any Shares that remain subject to the
Overallotment Option, but Patina shall acquire such Shares subject to such
Overallotment Option.
(f) Patina represents and warrants that it has sufficient surplus under the
Delaware General Corporation Law in order to effect the Repurchase and agrees
that it will not take any action that would cause it to cease to have sufficient
surplus for such purpose.
3. Conditions to the Obligations of the Parties.
(a) The obligations of both parties to consummate the transactions
contemplated hereby shall be subject to the satisfaction or waiver of the
following conditions:
(i) The registration statement in connection with the Offering shall
have become effective under the Securities Act, and no stop order shall
have been issued in connection therewith; and
(ii) Patina shall have received sufficient funds from the sale by
Patina of capital stock and/or borrowings under Patina's existing credit
facility to pay the full purchase price under the Repurchase; provided,
however, that the occurrence of a First Reserve Funding Delay shall be
deemed receipt of the Fund VII Amount for purposes of this clause (ii).
(b) In addition to the conditions set forth in Section 3(a), the
obligations of SOCO to consummate the transactions contemplated hereby shall be
subject to the satisfaction or waiver of the following conditions:
(i) The representations and warranties of Patina contained herein
shall be made again as of the Closing, and such representations and
warranties shall be true and correct in all material respects as of
2
<PAGE> 43
the date hereof and the Closing, and Patina shall have provided SOCO with
an officer's certificate to such effect;
(ii) Patina shall have materially complied with its covenants to be
complied with under this Agreement and the Registration Rights Agreement
prior to the Closing, and Patina shall have provided SOCO with an officer's
certificate to such effect;
(iii) The Net Offering Price in the Offering shall not be less than
$7.0875 per Share;
(iv) The Offering shall have been consummated with respect to at least
5 million Shares on or prior to the earlier of (A) the termination of the
Offering Period (as defined below) and (B) 90 days after July 31, 1997;
(v) Documents in form reasonably acceptable to SOCO terminating the
Business Opportunity Agreement (the "Business Opportunity Agreement") and
the Corporate Services Agreement (the "Corporate Services Agreement"), each
of which is between SOCO and Patina and each of which is dated as of May 2,
1996, shall have been executed and delivered by Patina, effective as of the
Closing; and
(vi) A Transition Agreement in such form as shall be mutually
agreeable to SOCO and Patina in their reasonable judgment shall have been
executed by Patina (the "Transition Agreement"), effective as of the
Closing.
(c) In addition to the conditions set forth in Section 3(a), the
obligations of Patina to consummate the transactions contemplated hereby shall
be subject to the satisfaction or waiver of the following conditions:
(i) SOCO shall have complied with its covenants to be complied with
under this Agreement and the Registration Rights Agreement prior to the
Closing, and SOCO shall have provided Patina with an officer's certificate
to such effect;
(ii) John C. Snyder and William J. Johnson shall have tendered their
resignations as directors of Patina, effective as of the Closing;
(iii) Documents in form reasonably acceptable to Patina terminating
the Business Opportunity Agreement and the Corporate Services Agreement
shall have been executed and delivered by SOCO, effective as of the
Closing; and
(iv) The Transition Agreement shall have been executed and delivered
by SOCO, effective as of the Closing.
4. Expenses.
(a) The following terms shall have the following respective definitions:
(i) "Sale Transaction" shall mean an acquisition (by tender offer,
exchange offer, merger, consolidation, share exchange or otherwise) by a
third party of Patina (or its shares or assets) in which such third party
acquires, directly or indirectly, at least a majority of the combined
voting power of the outstanding capital stock of Patina.
(ii) "Company Sale Transaction" shall mean a Sale Transaction that is
(A) approved by the Independent Committee (as defined in the
Confidentiality and Standstill Agreement described below) or (B) in which
the holders of a majority of the Common Stock (excluding any shares
beneficially owned by SOCO or any subsidiary thereof) sell or otherwise
transfer their shares pursuant to such Sale Transaction.
(iii) "SOCO Sale Transaction" shall mean a Sale Transaction other than
a Company Sale Transaction.
(iv) "Applicable Period" shall mean the period beginning on July 31,
1997 and ending 12 months following any termination of this Agreement or
withdrawal of shares from the Offering (whichever is earlier); provided,
however, that with respect to any Sale Transaction involving an acquiror
that does not
3
<PAGE> 44
visit Patina's data room after July 1, 1997 and prior to the Distribution
Date, the term Applicable Period shall mean the period beginning on July
31, 1997 and ending six months following any termination of this Agreement
or withdrawal of shares from the Offering (whichever is earlier).
(b) If (i) the Offering is not consummated for any reason and (ii) a SOCO
Sale Transaction is consummated prior to the end of the Applicable Period, then
SOCO shall pay Patina a non-accountable expense reimbursement of $2 million.
(c) If (i) the Offering is not consummated for any reason and (ii) a
Company Sale Transaction is consummated prior to the end of the Applicable
Period, then SOCO shall not be obligated to pay any of Patina's costs or
expenses and Patina shall be solely responsible therefor.
(d) If (i) the Offering is not consummated for any reason and (ii) neither
a SOCO Sale Transaction nor a Company Sale Transaction is consummated prior to
the end of the Applicable Period, then SOCO shall pay Patina a non-accountable
expense reimbursement of $500,000; provided, however, that no such reimbursement
shall be required if any of the conditions set forth in Section 3(b)(i) or
3(b)(ii) shall not have been satisfied.
(e) If the Offering and Repurchase are consummated, then SOCO shall not be
obligated to pay any of Patina's costs or expenses and Patina shall be solely
responsible therefor.
(f) Except as otherwise expressly provided in this Agreement or the
Registration Rights Agreement, each party shall be responsible for its expenses
in connection with the transactions contemplated by this Agreement.
5. Taking of Necessary Action; Cooperation and Exchange of Information.
(a) Each of the parties hereto agrees to use all reasonable efforts
promptly to take or cause all action and promptly to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, SOCO agrees to vote in favor
of any matter submitted to Patina's stockholders by Patina that is required by
law or applicable securities exchange regulation to be approved by Patina's
stockholders in order to consummate the transactions contemplated by the Stock
Purchase Agreement. Notwithstanding the foregoing provisions of this paragraph
(a), SOCO's obligations under this paragraph (a) shall be subject to the
provisions of the final sentence of Section 1 hereof and the parties acknowledge
that SOCO may continue to pursue the sale of all or part of its Shares to one or
more Prospective Purchasers.
(b) Patina agrees that it will not issue directly or indirectly any equity
securities of Patina or any subsidiary of Patina or any securities exercisable
for or convertible into any such equity securities, or agree to do so, unless
the consummation of the issuance thereof is conditioned upon the occurrence of
the sale by SOCO of all shares of Common Stock held by SOCO prior to or
simultaneously with such issuance. Patina will promptly provide SOCO with true
and complete copies of any agreements entered into by Patina in connection with
the foregoing, and shall not amend or waive any covenant or condition contained
in any such agreement in a manner that is inconsistent with the provisions of
this paragraph (b). Notwithstanding the foregoing, Patina may issue equity
securities as consideration in acquisition transactions so long as the aggregate
fair market value of any equity securities so issued does not exceed $10
million. For purposes of this paragraph (b), the fair market value of Common
Stock shall be the closing price on the New York Stock Exchange on the trading
day immediately preceding the consummation of the applicable acquisition
transaction and for any other equity security shall be determined by in good
faith by the Board of Directors of Patina.
(c) Patina and SOCO agree to (and to use all reasonable efforts to cause
their respective officers, directors, employees, underwriters and advisors to)
cooperate with each other in connection with the Offering, the Repurchase and
the investigation of Patina by Prospective Purchasers, and to promptly disclose
to each other any material developments in connection with such activities.
Patina agrees that it will conduct its business in the ordinary course of
business, consistent with past practice. Except in the ordinary course of
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<PAGE> 45
business, neither Patina nor any of its officers, directors, employees,
underwriters or advisors will contact any of the Prospective Purchasers without
reasonable advance notice to SOCO. Furthermore, Patina agrees that neither it
nor any of its officers, directors, employees, underwriters or advisors will
enter into any material acquisition transaction or discuss any such transaction
with any Prospective Purchaser or any other third party, without reasonable
advance notice to SOCO.
(d) Patina hereby represents and covenants to SOCO that any proxy statement
distributed by Patina to its stockholders in connection with the transactions
contemplated hereby and any related proxy soliciting material (and any
amendments or supplements thereto), on the date filed with the Securities and
Exchange Commission on the date mailed to Patina's stockholders, and on the date
of any related stockholder meeting, will comply in all material respects with
all applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
no representation or covenant is given in this paragraph (d) with respect to
information furnished in writing by SOCO for use by Patina in any such proxy
statement or proxy soliciting materials.
6. Confidentiality and Standstill Agreement.
(a) SOCO hereby agrees that prior to any Prospective Purchaser's being
given access to any confidential information regarding Patina or its assets,
liabilities or operations, such Prospective Purchaser must execute a
Confidentiality and Standstill Agreement substantially in the form attached
hereto as Appendix I, and Patina agrees that any significant, substantive
modifications to the form of any such agreement will be submitted to SOCO for
its approval prior to the execution thereof by a Prospective Purchaser. For
purposes of this Agreement, a change to the Confidentiality and Standstill
Agreement that adversely affects SOCO's rights shall be deemed, without
limitation, a "significant, substantive modification." Furthermore, Patina will
not enter into an amendment to any such agreement without the prior consent of
SOCO.
(b) SOCO agrees it will not take any action one of the intended
consequences of which is to permit any Prospective Purchaser to enjoy a right
denied to such Prospective Purchaser in its Confidentiality and Standstill
Agreement or avoid an obligation or restriction set forth in such agreement.
(c) SOCO hereby agrees that for a 30-day period (the "Offering Period")
commencing on the date that a preliminary prospectus relating to the Offering is
broadly distributed to prospective offerees in the Offering (the "Distribution
Date"), SOCO and its affiliates will (i) cease all discussions and contacts with
any Prospective Purchasers (regardless of whether previously contacted by SOCO)
with respect to the acquisition of securities or assets of Patina, (ii) not take
any action with respect to, or in pursuit of, the acquisition of securities or
assets of Patina by any third party, and (iii) not resume any such activities
prior to the end of the Offering Period. Patina will give SOCO at least seven
calendar days' notice of the expected Distribution Date (which will not be prior
to the date that is 45 days after the date hereof) and in no event shall the
restrictions set forth in this paragraph commence until seven days after the
most recent such notice to SOCO by Patina.
7. Amendments. This Agreement may be amended or modified upon the written
consent thereto of Patina and SOCO.
8. Termination. This Agreement may be terminated upon by SOCO upon the
failure of any condition set forth in Section 3(a) or 3(b) upon five business
days notice to Patina. This Agreement may be terminated upon by Patina upon the
failure of any condition set forth in Section 3(a) or 3(c) upon five business
days notice to SOCO.
9. Assignments. This Agreement shall be binding on and inure to the
benefit of the respective successors and assigns of the parties hereto.
10. Entire Agreement; Governing Law. This Agreement constitutes the
entire agreement of the parties relating to the subject matter hereof and all
prior or contemporaneous written or oral agreements are merged herein. This
Agreement shall be governed by the laws of the State of Delaware.
5
<PAGE> 46
11. Notices. Any notice, request, instruction, correspondence or other
document to be given hereunder by either party to the other (herein collectively
called "Notice") shall be in writing and delivered personally or mailed, postage
prepaid, or by telegram or telecopier, as follows:
If to SOCO:
Snyder Oil Corporation
777 Main Street, Suite 2500
Fort Worth, Texas 76012
Phone: (817) 882-5905
Telecopy No.: (817) 882-5982
Attention: General Counsel
With a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Phone: (713) 758-2346
Telecopy No.: (713) 758-2346
Attention: J. Mark Metts, Esq.
If to Patina:
Patina Oil & Gas Corporation
1625 Broadway
Denver, Colorado 80202
Attention: General Counsel
Phone: (303) 389-3600
Telecopy No.: (303) 595-7407
With copies to:
Thomas J. Edelman
Chairman of Patina Oil & Gas Corporation
667 Madison Avenue, 22nd Floor
New York, New York 10021
Phone: (212) 371-1117
Telecopy No.: (212) 888-6877
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Phone: (212) 455-2000
Telecopy No.: (212) 455-2502
Attention: Robert L. Friedman, Esq.
Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. Any party may change any address
to which Notice is to be given to it by giving Notice as provided above of such
change of address.
12. Counterparts. This Agreement may be executed in multiple
counterparts, each of which taken together shall constitute one and the same
instrument.
13. References to Other Agreements. To the extent that this Agreement
refers to any other agreement, or any provision thereof, such reference shall be
deemed to be to such agreement or provision in the form
6
<PAGE> 47
initially executed by the parties thereto (regardless of whether such agreement
or provision is amended) unless and to the extent that (a) such amendment does
not adversely affect the non-signing party or (b) the non-signing party consents
in writing to such amendment; provided, however, that each party hereby consents
to the amendments (and, if applicable, restatements) of the Stock Option
Agreements and the Stock Purchase Agreement that were executed as of September
19, 1997 and references in this Agreement to such documents shall be in the form
of such document as so amended.
7
<PAGE> 48
IN WITNESS WHEREOF, SOCO and Patina have caused this Agreement to be signed
by their respective officers thereunto duly authorized.
SNYDER OIL CORPORATION
By: /s/ PETER E. LORENZEN
------------------------------------
Name: Peter E. Lorenzen
Title: Vice President
PATINA OIL & GAS CORPORATION
By: /s/ THOMAS J. EDELMAN
------------------------------------
Name: Thomas J. Edelman
Title: Chairman
8
<PAGE> 49
EXHIBIT B
[FORM OF SOCO OPTION AGREEMENT]
<PAGE> 50
EXHIBIT C
NOTICE OF ISSUANCE
Patina Oil & Gas Corporation (the "Company") hereby provides notice
to the investors (the "Investors") that it will sell ______ shares of 8.5%
Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock"),
for an aggregate purchase price of $_________ to the Investors on _______ __,
1997 (the "Sale Date") in accordance with the terms of Section 2.01 of the Stock
Purchase Agreement dated as of July 31, 1997, between the Investors and the
Company (the "Preferred Stock Purchase Agreement"). Unless otherwise specified,
terms capitalized but not defined herein will have the same meanings ascribed to
them in the Preferred Stock Purchase Agreement.
Certificates for the shares of Preferred Stock shall be delivered to
you at ___________ in the names and denominations specified to us by you in
writing not later than _________ __, 1997 [2 business days prior to the sale]
against delivery to the Company of the aggregate purchase price specified above
in immediately available funds by wire transfer to the Company's account at
____________.
IN WITNESS WHEREOF, the Company has caused this Notice to be duly
executed and delivered as of____________ __, 1997.
PATINA OIL & GAS CORPORATION
By:_______________
Name:
Title:
<PAGE> 51
EXHIBIT D
PATINA OIL & GAS CORPORATION
CERTIFICATE OF DESIGNATION
OF
8.5% CONVERTIBLE PAY-IN-KIND PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law,
Patina Oil & Gas Corporation, a Delaware corporation (the "Corporation"), hereby
certifies that the following resolutions were duly adopted by its Board of
Directors on July 31, 1997 to set forth the powers, designations, preferences
and relative, participating, optional or other rights of its 8.5% Convertible
Pay-In-Kind Preferred Stock;
RESOLVED, that, pursuant to the authority granted to the Board of
Directors in the Certificate of Incorporation, there is hereby created, and the
Corporation is hereby authorized to issue, a series of Preferred Stock (as
defined in the Certificate of Incorporation) having the following powers,
designations, preferences and rights:
I. Designation of Series and Number of Shares. The series of the
Preferred Stock shall be designated 8.5% Convertible Pay-In-Kind Preferred Stock
(the "Convertible PIK Preferred Stock") and shall consist of 2,600,000 shares,
plus up to 500,000 additional shares of Convertible PIK Preferred Stock to be
issued as dividends on the Convertible PIK Preferred Stock pursuant to Section
III hereof. The initial liquidation preference of the Convertible PIK Preferred
Stock shall be $25 per share (the "Liquidation Value").
II. Rank. All shares of Convertible PIK Preferred Stock shall rank
prior, both as to payment of dividends and as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, to all of the Corporation's now or hereafter issued Common Stock,
par value $.01 per share ("Common Stock"), and to all of the Corporation's
hereafter issued capital stock which by its terms ranks junior to the
Convertible PIK Preferred Stock both as to the payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, when and if issued (the Common
Stock and any such other capital stock being herein referred to as "Junior
Stock"). The Convertible PIK Preferred Stock shall, with respect to payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, rank on a parity with the Corporation's
outstanding 7.125% Convertible Preferred Stock.
III. Dividends. The holders of Convertible PIK Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds at the time legally available therefor, dividends at an annual rate of
$2.125 per share. Such dividends shall be cumulative and shall accrue and be
payable in equal quarterly payments of $0.53125 per share on March 31, June 30,
September 30 and December 31 of each year (each of such dates being a "Dividend
Payment Date") (except that if any such date is a Saturday, Sunday or legal
holiday, then such dividend shall be payable on the next day that is not a
Saturday, Sunday or legal holiday), to holders of record at the close of
business on the date specified by the Board of Directors (or, to the extent
permitted by applicable law, a duly authorized committee thereof) at the time
such dividend is declared, in preference to dividends on the Junior Stock,
commencing
<PAGE> 52
on the Dividend Payment Date next succeeding the issuance date of the
Convertible PIK Preferred Stock (the "Issue Date"). Any such dividend record
date shall be not less than ten days and not more than sixty days prior to the
relevant Dividend Payment Date. Dividend payments with respect to shares of
Convertible PIK Preferred Stock in respect of each quarterly dividend period
ending on or prior to the second anniversary of the Issue Date (or portion of
such quarterly dividend period in the case of the dividend period in which the
second anniversary of the Issue Date occurs) relating to such shares shall be
made in additional shares of Convertible PIK Preferred Stock. On and after the
second anniversary of the Issue Date relating to shares of Convertible PIK
Preferred Stock, dividends on such Convertible PIK Preferred Stock shall be paid
only in cash. Dividend payments made in shares of Convertible PIK Preferred
Stock shall be made by issuing shares (or fractions thereof) with an aggregate
Liquidation Value equal to the amount of such dividends. All dividends paid with
respect to shares of Convertible PIK Preferred Stock pursuant to this Section
III shall be paid pro rata to the holders entitled thereto. All shares of
Convertible PIK Preferred Stock issued as a dividend will thereupon be duly
authorized, validly issued, fully paid and nonassessable.
Holders of Convertible PIK Preferred Stock will not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the full
cumulative dividends provided for herein. Dividend payments which are in arrears
shall bear interest at an annual rate of 8.5%, compounded quarterly from the
date of the related Dividend Payment Date to the date such dividend is paid.
Dividends payable on the Convertible PIK Preferred Stock for the first quarterly
dividend period following the Issue Date (or any other dividend payable for a
period less than a full quarterly period) shall be computed on the basis of a
360-day year of twelve 30-day months. In the case of shares of Convertible PIK
Preferred Stock issued on the Issue Date, dividends shall accrue and be
cumulative from such date. In the case of shares of Convertible PIK Preferred
Stock issued as a dividend on shares of Convertible PIK Preferred Stock,
dividends shall accrue and be cumulative from the Dividend Payment Date in
respect of which such shares were issued as a dividend.
Each fractional share of Convertible PIK Preferred Stock outstanding
shall be entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of Convertible PIK Preferred Stock
pursuant to this Section III, and all such dividends with respect to such
outstanding fractional shares shall be cumulative and shall accrue (whether or
not declared), and shall be payable in the same manner and at such times as
provided for in this Section III with respect to dividends on each outstanding
share of Convertible PIK Preferred Stock. Each fractional share of Convertible
PIK Preferred Stock outstanding shall also be entitled to a ratably
proportionate amount of any other distributions made with respect to each
outstanding share of Convertible PIK Preferred Stock, and all such distributions
shall be payable in the same manner and at the same time as distributions on
each outstanding share of Convertible PIK Preferred Stock.
For purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are authorized to close in New York, New York and the
term "business day" shall mean any day other than a Saturday, Sunday or legal
holiday. No dividend record date shall be the same as a date set for the
redemption of any shares of Convertible PIK Preferred Stock under Section V. If
a dividend record date fixed by the Board of Directors is prior to a redemption
date then or theretofore set under Section V, it shall be at least six business
days prior to such redemption date. Nothing contained herein shall limit the
Board of Directors' discretion to establish a dividend record date that is
subsequent to a redemption date then or theretofore established, without regard
to the effect of such record date on the dividend
<PAGE> 53
rights of holders of Convertible PIK Preferred Stock who elect to convert under
Section VI prior to the redemption date. Holders of shares of Convertible PIK
Preferred Stock that are redeemed under Section V on a redemption date that
falls between the record date and the payment date for a dividend shall be
entitled to receive the dividend, except to the extent the price paid upon
redemption reflects such dividend as an accrued dividend as provided in Section
V. Subject to the next paragraph of this Section III, dividends on account of
arrears for any past dividend period may be declared and paid at any time,
without reference to any Dividend Payment Date.
No dividend or other distributions, other than dividends payable
solely in shares of Junior Stock, shall be declared, paid or set apart for
payment on shares of Junior Stock or any other capital stock of the Corporation
which by its terms ranks junior as to dividends to the Convertible PIK Preferred
Stock (the Junior Stock and any such other class or series of the Corporation's
capital stock being herein referred to as "Junior Dividend Stock"), unless and
until all accrued and unpaid dividends on the Convertible PIK Preferred Stock
for all Dividend Payment Dates occurring on or before the payment date of such
dividends or other distributions on Junior Dividend Stock shall have been paid
or declared and set apart for payment.
No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Junior Dividend Stock or any class or series of
the Corporation's capital stock which by its terms ranks junior to the
Convertible PIK Preferred Stock as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(the Junior Stock and any class or series of the Corporation's capital stock
which by its terms rank junior to the Convertible PIK Preferred Stock as to such
distributions being herein referred to as "Junior Liquidation Stock"), shall be
made unless and until accrued and unpaid dividends on the Convertible PIK
Preferred Stock for all Dividend Payment Dates occurring on or before such
payment for such Junior Dividend Stock or Junior Liquidation Stock shall have
been paid or declared and set apart for payment.
No full dividends shall be declared, paid or set apart for payment
on shares of any class or series of the Corporation's capital stock whether
existing or hereafter issued and which by its terms ranks, as to dividends, on a
parity with the Convertible PIK Preferred Stock, including the Corporation's
7.125% Convertible Preferred Stock (any such class or series of the
Corporation's capital stock being herein referred to as "Parity Dividend Stock")
for any period unless full cumulative dividends have been, or contemporaneously
are, paid or declared and set apart for payment on the Convertible PIK Preferred
Stock for all Dividend Payment Dates occurring on or before the payment date of
such dividends on Parity Dividend Stock. No dividends shall be paid on Parity
Dividend Stock except on dates on which dividends are paid on the Convertible
PIK Preferred Stock. All dividends paid or declared and set apart for payment on
the Convertible PIK Preferred Stock and any Parity Dividend Stock shall be paid
or declared and set apart for payment pro rata so that the amount of dividend
paid or declared and set apart for payment per share on the Convertible PIK
Preferred Stock and the Parity Dividend Stock on any date shall in all cases
bear to each other the same ratio that accrued and unpaid dividends to the date
of payment on the Convertible PIK Preferred Stock and the Parity Dividend Stock
bear to each other.
No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Parity Dividend Stock or any class or series of
the Corporation's capital stock which by its terms ranks on a parity with the
Convertible PIK Preferred Stock as to distributions of assets upon liquidation,
<PAGE> 54
dissolution or winding up of the Corporation, whether voluntary or involuntary,
including the Corporation's 7.125% Convertible Preferred Stock (any such class
or series of the Corporation's capital stock being herein referred to as "Parity
Liquidation Stock"), shall be made, and, other than dividends to the extent
permitted by the preceding paragraph, no distributions shall be declared, paid
or set apart for payment on shares of Parity Dividend Stock or Parity
Liquidation Stock, unless all accrued and unpaid dividends on the Convertible
PIK Preferred Stock for all Dividend Payment Dates occurring on or before such
payment for, or the payment date of such distributions on, such Parity Dividend
Stock or Parity Liquidation Stock shall have been paid or declared and set apart
for payment.
Any reference to "distribution" contained in this Section III shall
not be deemed, except as expressly stated, to include any distribution made in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
IV. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of shares of Convertible PIK Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution to
stockholders an amount equal to the dividends accrued and unpaid on such shares
on the date of final distribution to such holders, whether or not declared,
without interest, plus a sum equal to $25.00 per share, and no more, before any
payment shall be made or any assets distributed to the holders of shares of
Junior Liquidation Stock. The entire assets of the Corporation available for
distribution to stockholders shall be distributed ratably among the holders of
the Convertible PIK Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation preferences of the shares of the Convertible PIK Preferred Stock,
the holders of such shares shall not be entitled to any further participation in
any distribution of assets by the Corporation. The voluntary sale, lease,
exchange or transfer of all or substantially all of the Corporation's property
or assets to, or its consolidation or merger with, one or more corporations
shall not be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation.
V. Redemption at Option of the Corporation. Convertible PIK
Preferred Stock may not be redeemed by the Corporation prior to September 30,
2000. Subject to the foregoing, Convertible PIK Preferred Stock may be redeemed
by the Corporation, at its option on any date set by the Board of Directors, in
whole or in part at any time, subject to the limitations, if any, imposed by
applicable law, for an amount in cash equal to the following redemption prices
per share if redeemed during the 12-month period beginning on September 30 of
any year indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- Per Share
---------
<S> <C>
2000...........................................$ 26.50
2001...........................................$ 26.00
2002...........................................$ 25.50
2003 and thereafter............................$ 25.00
</TABLE>
<PAGE> 55
plus, in each case, an amount in cash equal to all per share dividends on the
Convertible PIK Preferred Stock accrued and unpaid thereon, whether or not
declared, through the date prior to the date fixed for redemption, such sum
being hereinafter referred to as the "Redemption Price."
No redemption date shall be the same as a dividend record date fixed
under Section III. If a redemption date established by the Board of Directors is
after a dividend record date then or theretofore fixed under Section III, it
shall be at least six business days after such dividend record date. Nothing
contained herein shall limit the Board of Directors' discretion to establish a
redemption date that is prior to a dividend record date then or theretofore
fixed, without regard to the effect of such redemption date on the dividend
rights of holders of Convertible PIK Preferred Stock who elect to convert under
Section VI prior to the redemption date.
In the case of the redemption of less than all of the then
outstanding Convertible PIK Preferred Stock, the Corporation shall designate by
lot, or in such other manner as the Board of Directors may determine to be fair,
the shares to be redeemed, or shall affect such redemption pro rata.
Notwithstanding the foregoing, the Corporation shall not redeem less than all of
the Convertible PIK Preferred Stock at any time outstanding until all dividends
accrued and in arrears upon all Convertible PIK Preferred Stock then outstanding
shall have been paid in full for all past dividend periods.
Not more than ninety nor less than thirty days prior to the date
fixed for redemption by the Board of Directors, notice thereof by first class
mail, postage prepaid, shall be given to the holders of record of the shares of
Convertible PIK Preferred Stock to be redeemed, addressed to such holders at
their last addresses as shown upon the stock transfer books of the Corporation.
Each such notice of redemption shall specify, the shares being redeemed, the
date fixed for redemption, the Redemption Price, the place or places of payment,
that payment will be made upon presentation and surrender of the shares of
Convertible PIK Preferred Stock, that on and after the date fixed for redemption
dividends will cease to accrue on such shares, the conversion price pursuant to
Section VI and that the right of holders to convert shares of Convertible PIK
Preferred Stock shall terminate at the close of business on the fifth business
day prior to the date fixed for redemption (unless the Corporation defaults in
the payment of the Redemption Price).
If and only if there are more than ten holders of Convertible PIK
Preferred Stock, any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of
shares of Convertible PIK Preferred Stock receives such notice. If there are
less than ten holders of Convertible PIK Preferred Stock, notice shall be
effective if given in accordance with Section 9.02 of the Stock Purchase
Agreement pursuant to which the Convertible PIK Preferred Stock is issued.
Failure to give such notice by mail or any defect in such notice to the holders
of any shares designated for redemption shall not affect the validity of the
proceedings for the redemption of any other shares of Convertible PIK Preferred
Stock. On or after the date fixed for redemption as stated in such notice, each
holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
less than all the shares evidenced by any such surrendered certificate are
redeemed, a new certificate shall be issued evidencing the unredeemed shares.
<PAGE> 56
Notice having been given as aforesaid, if, on the date fixed for
redemption, funds necessary for the redemption shall be available therefor and
shall have been deposited with a bank or trust company with irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Convertible PIK Preferred Stock, then, notwithstanding that the certificates
evidencing any shares so called for redemption shall not have been surrendered,
dividends with respect to the shares so called shall cease to accrue on and
after the date fixed for redemption, such shares shall no longer be deemed
outstanding, the holders thereof shall cease to be stockholders of the
Corporation and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor) shall terminate.
If funds legally available for such purpose are not sufficient for redemption of
the shares of Convertible PIK Preferred Stock which were to be redeemed, then
the certificates evidencing such shares shall be deemed not to be surrendered,
such shares shall remain outstanding and the right of holders of shares of
Convertible PIK Preferred Stock thereafter shall continue to be only those of a
holder of shares of the Convertible PIK Preferred Stock.
The shares of Convertible PIK Preferred Stock shall not be subject
to the operation of any mandatory purchase, retirement or sinking fund.
VI. Conversion Provisions.
(a) Right of Conversion. Each full or fractional share of
Convertible PIK Preferred Stock shall be convertible at the option of the holder
thereof, at any time from the issue date until the close of business on the
fifth business day prior to any date fixed for redemption of such share as
herein provided, into fully paid and nonassessable shares of Common Stock, at a
rate per full share of Convertible PIK Preferred Stock equal to the aggregate
Liquidation Value of the Convertible PIK Preferred Stock to be converted divided
by a conversion price which shall initially be $_______ (the "Conversion Price")
[amount to be the lesser of (i) if the public offering price is less than $9.125
(A) 110% of the public offering price for the secondary stock offering or (B)
$8.80 per share and (ii) if the public offering price is $9.125 or higher,
$9.50].
(b) Conversion Procedures. Any holder of shares of Convertible PIK
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Convertible
PIK Preferred Stock at the office of the transfer agent for the Convertible PIK
Preferred Stock which certificate or certificates, if the Corporation shall so
require, shall be duly endorsed to the Corporation or in blank, or accompanied
by proper instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects to convert
such shares of Convertible PIK Preferred Stock and specifying the name or names
(with address or addresses) in which a certificate or certificates evidencing
shares of Common Stock are to be issued.
Except as otherwise described in this paragraph, no payments or
adjustments in respect of dividends on shares of Convertible PIK Preferred Stock
surrendered for conversion, whether paid or unpaid and whether or not in
arrears, or on account of any dividend on the Common Stock issued upon
conversion shall be made by the Corporation upon the conversion of any shares of
Convertible PIK Preferred Stock. The holder of record of shares of Convertible
PIK Preferred Stock on a dividend record date who surrenders such
<PAGE> 57
shares for conversion during the period between such dividend record date and
the corresponding dividend payment date will be entitled to receive the dividend
on such dividend payment date.
The Corporation shall, as soon as practicable after such surrender
of certificates evidencing shares of Convertible PIK Preferred Stock accompanied
by the written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Convertible PIK Preferred Stock were so surrendered, or to the
nominee of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, together with
a cash adjustment in respect of any fraction of a share of Common Stock as
hereinafter provided. Such conversion shall be deemed to have been made as of
the date of such surrender of the shares of Convertible PIK Preferred Stock to
be converted, and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Convertible PIK Preferred Stock shall be
treated for all purposes as the record holder or holders of such Common Stock on
such date.
(c) Adjustment of Conversion Price. The Conversion Price at which a
share of Convertible PIK Preferred Stock is convertible into Common Stock shall
be subject to adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in Common Stock or shall pay
or make a dividend or other distribution on any other class or series of
capital stock of the Corporation which dividend or distribution includes
or is convertible into Common Stock, the Conversion Price in effect at the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting or included in such
dividend or other distribution (or in the case of a dividend consisting of
securities convertible into Common Stock, the number of shares of Common
Stock into which such securities are convertible), such reduction to
become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
subparagraph (i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation. The Corporation shall not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Corporation.
(ii) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall
otherwise issue (a) Common Stock (excluding any restricted stock issued to
management of the Company and approved by the Board), (b) rights or
warrants (excluding incentive stock options approved by the Board)
entitling the holders thereof to subscribe for or purchase shares of
Common Stock or (c) any security convertible into Common Stock at a price
per share less than the current market price per share (determined as
provided in subparagraph (vi) of this Section VI(c)) of the Common Stock
on the date fixed for the determination of stockholders entitled to
receive such rights or warrants, the Conversion Price in effect at the
opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall
<PAGE> 58
be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription,
exercise, conversion or purchase would purchase at such current market
price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective immediately
after the opening of business on the day following the date fixed for such
determination. In case any rights, warrants or convertible securities
referred to in this subparagraph (ii) in respect of which an adjustment
shall have been made shall expire unexercised within 45 days after the
same shall have been distributed or issued by the Corporation, the
Conversion Price shall be readjusted at the time of such expiration to the
Conversion Price that would have been in effect if no adjustment had been
made on account of the distribution or issuance of such expired rights or
warrants.
(iii) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Price in effect at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in case
the Corporation shall, by dividend or otherwise, distribute to all holders
of its Common Stock evidences of its indebtedness, shares of any class or
series of capital stock, cash or assets (including securities, but
excluding any rights, warrants or convertible securities referred to in
subparagraph (ii) of this Section VI(c), any dividend or distribution paid
exclusively in cash and any dividend or distribution referred to in
subparagraph (i) of this Section VI(c)), the Conversion Price in effect on
the day following the date fixed for the payment of such distribution (the
date fixed for payment being referred to as the "Reference Date") shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the current market price per share (determined as
provided in subparagraph (vi) of this Section VI(c)) of the Common Stock
on the Reference Date less the fair market value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) on the Reference
Date of the portion of the evidences of indebtedness, shares of capital
stock, cash and assets so distributed applicable to one share of Common
Stock, and the denominator shall be such current market price per share of
the Common Stock, such reduction to become effective immediately prior to
the opening of business on the day following the Reference Date. If the
Board of Directors determines the fair market value of any distribution
for purposes of this subparagraph (iv) by reference to the actual or when
issued trading market for any securities comprising such distribution, it
must in doing so consider the prices in such market over the same period
used in computing the current market price per share of Common Stock
pursuant to subparagraph (vi) of this Section VI(c). For purposes of this
subparagraph (iv), any dividend
<PAGE> 59
or distribution that includes shares of Common Stock or rights or warrants
to subscribe for or purchase shares of Common Stock shall be deemed to be
(1) a dividend or distribution of the evidences of indebtedness, cash,
assets or shares of capital stock other than such shares of Common Stock
or rights or warrants (making any conversion price reduction required by
this subparagraph (iv)) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants
(making any further Conversion Price reduction required by subparagraph
(i) or (ii) of this Section VI(c)), except (A) the Reference Date of such
dividend or distribution as defined in this subparagraph (iv) shall be
substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution," "the date fixed
for the determination of stockholders entitled to receive such rights or
warrants" and "the date fixed for such determination" within the meaning
of subparagraphs (i) and (ii) of this Section VI(c) and (B) any shares of
Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of subparagraph (i) of this Section
VI(c)).
(v) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding (A) cash
that is part of a distribution referred to in (iv) above and (B) in the
case of any quarterly cash dividend on the Common Stock, the portion
thereof that does not exceed the per share amount of the next preceding
quarterly cash dividend on the Common Stock (as adjusted to appropriately
reflect any of the events referred to in subparagraphs (i), (ii), (iii),
(iv) and (v) of this Section VI(c)), or all of such quarterly cash
dividend if the amount thereof per share of Common Stock multiplied by
four does not exceed 5% of the current market price per share (determined
as provided in paragraph (vi) of this Section VI(c)) of the Common Stock
on the Trading Day (as defined in Section VI(h)) next preceding the date
of declaration of such dividend), the Conversion Price in effect
immediately prior to the opening of business on the day following the date
fixed for the payment of such distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the
current market price per share (determined as provided in subparagraph
(vi) of this Section VI(c)) of the Common Stock on the date fixed for the
payment of such distribution less the amount of cash so distributed and
not excluded as provided above applicable to one share of Common Stock,
and the denominator shall be such current market price per share of the
Common Stock, such reduction to become effective immediately prior to the
opening of business on the day following the date fixed for the payment of
such distribution.
(vi) For the purpose of any computation under subparagraph (ii),
(iv) or (v) of this Section VI(c), the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily
Closing Prices (as defined in Section VI(h)) for the five consecutive
Trading Days ending with and including the date in question; provided,
however, that (1) if the "ex" date (as hereinafter defined) for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to subparagraph
(i), (ii), (iii), (iv) or (v) above ("Other Event") occurs after the fifth
Trading Day prior to the date in question and prior to the "ex" date for
the issuance or distribution requiring such computation (the "Current
Event"), the Closing Price for each Trading Day prior to the "ex" date for
such Other Event shall be adjusted by multiplying such Closing Price by
the same fraction by which the Conversion Price is so required to be
adjusted as a result of such Other
<PAGE> 60
Event, (2) if the "ex" date for any Other Event occurs after the "ex" date
for the Current Event and on or prior to the date in question, the Closing
Price for each Trading Day on and after the "ex" date for any Other Event
shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted
as a result of such Other Event, (3) if the "ex" date for any Other Event
occurs on the "ex" date for the Current Event, one of those events shall
be deemed for purposes of clauses (1) and (2) of this proviso to have an
"ex" date occurring prior to the "ex" date for the other event, and (4) if
the "ex" date for the Current Event is on or prior to the date in
question, after taking into account any adjustment required pursuant to
clause (2) of this proviso, the Closing Price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto the amount of any
cash and the fair market value on the date in question (as determined in
good faith by the Board of Directors in a manner consistent with any
determination of such value for purposes of paragraph (iv) or (v) of
Section VI(c), whose determination shall be conclusive and described in a
resolution of the Board of Directors) of the portion of the rights,
warrants, evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock. For purposes of
this paragraph, the term "ex" date, (x) when used with respect to any
issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from
which the Closing Price was obtained without the right to receive such
issuance or distribution and (y) when used with respect to any subdivision
or combination of shares of Common Stock, means the first date on which
the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes effective.
(vii) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in
the Conversion Price; provided, however, that any adjustments which by
reason of this subparagraph (vii) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment or in
any conversion pursuant to this Section VI.
(viii) Whenever the Conversion Price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted Conversion
Price and shall prepare a certificate signed by the Treasurer of the
Corporation setting forth the adjusted Conversion Price and showing
in reasonable detail the facts upon which such adjustment is based,
and such certificate shall forthwith be filed with the transfer
agent for the Convertible PIK Preferred Stock; and
(2) as soon as practicable after the adjustment, the
Corporation shall mail to all record holders of Convertible PIK
Preferred Stock at their last address as they shall appear upon the
stock transfer books of the Corporation a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price.
(ix) The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least
twenty days, the reduction is irrevocable during the period and the Board
of Directors of the Corporation shall have made a determination that such
reduction would be in the best interest of the Corporation, which
determination shall be
<PAGE> 61
conclusive. Whenever the Conversion Price is reduced pursuant to the
preceding sentence, the Corporation shall mail to holders of record of the
Convertible PIK Preferred Stock a notice of the reduction at least fifteen
days prior to the date the reduced Conversion Price takes effect, and such
notice shall state the reduced Conversion Price and the period it will be
in effect.
(d) No Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Convertible PIK Preferred Stock. If more than one
certificate evidencing shares of Convertible PIK Preferred Stock shall be
surrendered for conversion at such time by the holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Convertible PIK Preferred Stock so surrendered. Instead of
any fractional share of Common Stock that would otherwise be issuable to a
holder upon conversion of any shares of Convertible PIK Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional share in
an amount equal to the fraction of the Closing Price of the Common Stock on the
day of conversion or, if the day of conversion is not a Trading Day, on the next
preceding Trading Day.
(e) Reclassification Consolidation, Merger or Sale of Assets. In the
event that the Corporation shall be a party to any transaction pursuant to which
the Common Stock is converted into the right to receive other securities, cash
or other property (including without limitation any capitalization or
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination of the Common Stock), any consolidation of the
Corporation with, or merger of the Corporation into, any other person, any
merger of another person into the Corporation (other than a merger which does
not result in a reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), any sale or transfer of all or
substantially all of the assets of the Corporation or any share exchange), then
lawful provisions shall be made as part of the terms of such transaction whereby
the holder of each share of Convertible PIK Preferred Stock then outstanding
shall have the right thereafter to convert such share only into the kind and
amount of securities, cash and other property receivable upon such transaction
by a holder of the number of shares of Common Stock into which such share of
Convertible PIK Preferred Stock might have been converted immediately prior to
such transaction. The Corporation or the person formed by such consolidation or
resulting from such merger or which acquires such shares or which acquires the
Corporation's shares, as the case may be, shall make provisions in its
certificate or articles of incorporation or other constituting document to
establish such right. Adjustments for events subsequent to the effective date of
such a consolidation, merger, sale or transfer of assets shall be as nearly
equivalent as may be practicable to the adjustments provided for herein. In any
such event, effective provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any contract of
sale, conveyance, lease, transfer or otherwise so that the provisions set forth
herein for the protection of the rights of the holder of Convertible PIK
Preferred Stock shall thereafter continue to be applicable, and any such
resulting or surviving corporation shall expressly assume the obligation to pay
dividends and deliver, upon conversion, such shares of common stock, other
securities, or cash as set forth herein. The above provisions shall similarly
apply to successive transactions of the foregoing type.
(f) Reservation of Shares, Etc. The Corporation shall at all times
reserve and keep available, free from preemptive rights out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Convertible PIK Preferred Stock, such number of shares of its Common
<PAGE> 62
Stock as shall from time to time be sufficient to effect the conversion of all
shares of Convertible PIK Preferred Stock from time to time outstanding. The
Corporation shall from time to time, in accordance with the laws of the State of
Delaware, in good faith and as expeditiously as possible endeavor to cause the
authorized number of shares of Common Stock to be increased if at any time the
number of shares of authorized and unissued Common Stock shall not be sufficient
to permit the conversion of all the then outstanding shares of Convertible PIK
Preferred Stock.
If any shares of Common Stock required to be reserved for purposes
of conversion of the Convertible PIK Preferred Stock hereunder require
registration with or approval of any governmental authority under any Federal or
State law before such shares may be issued upon conversion, the Corporation will
in good faith and as expeditiously as possible endeavor to cause such shares to
be duly registered or approved as the case may be. If the Common Stock is listed
on any national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of Common Stock issuable upon conversion of the
Convertible PIK Preferred Stock, for so long as the Common Stock continues to be
so listed.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend payable in cash out of its
retained earnings other than any special or nonrecurring or other
extraordinary dividend or (2) declare or authorize a redemption or
repurchase of in excess of 10% of the then outstanding shares of Common
Stock;
(ii) the Corporation shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares
of stock of any class or series or of any other rights or warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation shall
be required, or of the sale or merger of all or substantially all of the
assets of the Corporation or of any share exchange whereby the Common
Stock is converted into other securities, cash or other property;
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; or
(v) of any other event which would require an adjustment to the
Conversion Price under subparagraph VI(c);
then the Corporation shall cause to be filed with the transfer agent for the
Convertible PIK Preferred Stock, and shall cause to be mailed to the holders of
record of the Convertible PIK Preferred Stock, at their last addresses as they
shall appear upon the stock transfer books of the Corporation, at least fifteen
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x)
<PAGE> 63
the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, redemption, repurchase, or grant of rights or warrants
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution, redemption,
repurchase, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation, winding up or other event is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation,
winding up or other event (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice).
(h) Definitions. The following definitions shall apply to terms used
in this Section VI:
(i) "Closing Price" of any common stock on any day shall mean the
last reported sale price regular way on such day or, in case no such sale
takes place on such day, the average of the reported closing bid and asked
prices regular way of the common stock in each case on the principal
national securities exchange or quotation system on which the common stock
is listed or admitted to trading or quoted, or, if not listed or admitted
to trading or quoted on any national securities exchange or quotation
system, the average of the closing bid and asked prices of the common
stock in the over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similarly generally
accepted reporting service, or, if not so available in such manner, as
furnished by any New York Stock Exchange member firm selected from time to
time by the Board of Directors of the Corporation for that purpose.
(ii) "Trading Day" shall mean a day on which securities are traded
on the national securities exchange or quotation system or in the
over-the-counter market used to determine the Closing Price.
VII. Voting Rights. (a) General. The holders of shares of
Convertible PIK Preferred Stock shall not have any voting rights except as set
forth below or as otherwise from time to time required by law. In connection
with any right to vote, each holder of shares of Convertible PIK Preferred Stock
shall be entitled to a number of votes which is equal to the whole number of
shares of Common Stock that could be obtained upon conversion of one share of
Convertible PIK Preferred Stock at the then applicable Conversion Price. Any
shares of Convertible PIK Preferred Stock owned, directly or indirectly, by any
entity of which the Corporation owns, directly or indirectly, a majority of the
shares entitled to vote for directors, shall not have voting rights hereunder
and shall not be counted in determining the presence of a quorum.
(b) Designated Director Voting Rights. On the Issue Date, in
addition to any other rights to elect directors which the holders of Convertible
PIK Preferred Stock may have, the two holders with the greatest number of shares
held of record of Convertible PIK Preferred Stock shall have the right to each
elect a director of the Corporation to fill the vacancies that occur at such
date who shall continue to serve during the period in which any shares of
Convertible PIK Preferred Stock remain outstanding. If
<PAGE> 64
there is only one holder of outstanding Convertible PIK Preferred Stock, such
holder shall elect both directors. The right of the holders of shares of
Convertible Preferred Stock to vote for and elect such two additional directors
shall terminate when all outstanding shares of Convertible PIK Preferred Stock
shall have been redeemed or otherwise retired. The term of office of all
directors so elected shall terminate as provided in the Corporation's by-laws.
The foregoing right of the holders of shares of Convertible
Preferred Stock with respect to the election of two directors may be exercised
initially at any annual meeting of stockholders or at any special meeting of
stockholders held for such purpose, or by the written consent of the holders of
Convertible PIK Preferred Stock without a meeting pursuant to Section 228 of the
Delaware General Corporation Law and thereafter at such annual meeting or by
written consent. The president of the Corporation shall within twenty days after
the delivery to the Corporation at its principal office of a written request for
a special meeting signed by the holders of at least 10% of all outstanding
shares of Convertible PIK Preferred Stock, call a special meeting of the holders
of Convertible PIK Preferred Stock to be held within sixty days after the
delivery of such request for the purpose of electing such additional directors.
The holders of shares of Convertible PIK Preferred Stock referred to
above voting as a class shall have the right to remove without cause at any time
and replace any directors such holders shall have elected pursuant to this
Section VII(b). In case of a vacancy occurring in the office of any director so
elected pursuant to this Section VII(b), the holder of Convertible PIK Preferred
Stock referred to above who elected the director which created such vacancy may,
at a special meeting of the holders or by written consent as provided above,
elect a successor to hold office for the unexpired term of such director.
(c) Default Voting Rights. Whenever dividends on the Convertible PIK
Preferred Stock or any other class or series of Preferred Stock shall be in
arrears in an aggregate amount equal to at least four quarterly dividends
(whether or not consecutive), (i) the number of members of the Board of
Directors of the Corporation shall be increased by two, effective as of the time
of election of such directors as hereinafter provided and (ii) in addition to
any other rights to elect directors which the holders of Convertible PIK
Preferred Stock may have, the holders of shares of Convertible PIK Preferred
Stock (voting separately as a class with all other affected classes or series of
Preferred Stock upon which like voting rights have been conferred and are
exercisable) shall have the exclusive right to vote for and elect such two
additional directors of the Corporation who shall continue to serve during the
period such dividends remain in arrears. The right of the holders of shares of
Convertible PIK Preferred Stock to vote for such two additional directors shall
terminate when all accrued and unpaid dividends on the Convertible PIK Preferred
Stock and all other affected classes or series of Preferred Stock have been
declared and paid or set apart for payment. The term of office of all directors
so elected shall terminate immediately upon the termination of the right of the
holders of shares of Convertible PIK Preferred Stock and such Preferred Stock to
vote for such two additional directors, and the number of directors of the Board
of Directors of the Corporation shall immediately thereafter be reduced by two.
The foregoing right of the holders of shares of Convertible PIK
Preferred Stock with respect to the election of two directors may be exercised
at any annual meeting of stockholders or at any special meeting of stockholders
held for such purpose. If the right to elect directors shall have accrued to the
holders of shares of Convertible PIK Preferred Stock more than ninety days
preceding the date
<PAGE> 65
established for the next annual meeting of stockholders, the president of the
Corporation shall within ten days after the delivery to the Corporation at its
principal office of a written request for a special meeting signed by the
holders of at least 10% of all outstanding shares of Convertible PIK Preferred
Stock, call a special meeting of the holders of Convertible PIK Preferred Stock
to be held within forty-five days after the delivery of such request for the
purpose of electing such additional directors.
The holders of shares of Convertible PIK Preferred Stock and any
Preferred Stock referred to above voting as a class shall have the right to
remove without cause at any time and replace any directors such holders shall
have elected pursuant to this Section VII(c).
(d) Class Voting. So long as any shares of the Corporation's
Convertible PIK Preferred Stock are outstanding the Corporation shall not,
without the affirmative vote or consent of the holders of at least 66-2/3% of
all outstanding shares of the Corporation's Convertible PIK Preferred Stock,
voting or consenting separately as a class without regard to series:
(i) create any class of stock convertible into Common Stock that by
its terms ranks prior to any outstanding Convertible PIK Preferred Stock
of the Corporation as to dividends or upon liquidation or increase the
authorized number of shares of any such class;
(ii) alter or change any of the provisions of the Corporation's
Certificate of Incorporation so as adversely to affect the relative rights
and preferences of any outstanding Convertible PIK Preferred Stock of the
Corporation (including, without limitation an increase in the size of the
Board); provided, however that the creation, amendment or reclassification
of any class of stock, that by its terms ranks junior to shares of
Convertible PIK Preferred Stock of the Corporation as to dividends or upon
liquidation or an increase in the authorized number of shares of any such
class shall not give rise to any such voting right; or
(iii) increase the authorized number of shares of the Corporation's
Preferred Stock.
VIII. Outstanding Shares; Status of Acquired Shares.
(a) Outstanding Shares. For purposes of this Certificate of
Designation, all shares of Convertible PIK Preferred Stock issued by the
Corporation shall be deemed outstanding except: (i) from the date fixed for
redemption pursuant to Section V, all shares of Convertible PIK Preferred Stock
that have been so called for redemption under Section V, to the extent provided
thereunder; (ii) from the date surrender of certificates evidencing shares of
Convertible PIK Preferred Stock, all shares of Convertible PIK Preferred Stock
converted into Common Stock; and (iii) from the date of registration of
transfer, all shares of Convertible PIK Preferred Stock owned, directly or
indirectly, by any entity of which the Corporation owns, directly or indirectly,
a majority of the shares entitled to vote for directors.
(b) Reacquired Shares. Shares of Convertible PIK Preferred Stock
redeemed by the Corporation, received upon conversion pursuant to Section VI or
otherwise acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, and may thereafter be issued, but not as shares of Convertible PIK
Preferred Stock.
<PAGE> 66
IX. Partial Payments. Upon an optional redemption by the
Corporation, if at any time the Corporation does not pay amounts sufficient to
redeem all Convertible PIK Preferred Stock, then such funds which are paid shall
be applied to redeem such shares of Convertible PIK Preferred Stock as the
Corporation may designate by lot or in such other manner as the Board of
Directors may determine to be fair, or such redemption shall be effected pro
rata.
X. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
XI. Miscellaneous. (a) Transfer Taxes. The Corporation shall pay any
and all stock transfer and documentary stamp taxes that may be payable in
respect of any issuance of delivery of shares of Convertible PIK Preferred Stock
or shares of Common Stock or other securities issued on account of Convertible
PIK Preferred Stock pursuant hereto or certificates or instruments evidencing
such shares or securities. The Corporation shall not, however, be required to
pay any such tax which may be payable in respect of any transfer involved in the
issuance or delivery of shares of Convertible PIK Preferred Stock or Common
Stock or other securities in a name other than that in which the shares of
Convertible PIK Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(b) Failure to Designate Stockholder or Payee. In the event that a
holder of shares of Convertible PIK Preferred Stock shall not by written notice
designate the name in which shares of Common Stock to be issued upon conversion
of such shares should be registered or to whom payment upon redemption of shares
of Convertible PIK Preferred Stock should be made or the address to which the
certificates or instruments evidencing such shares or such payment, should be
sent, the Corporation shall be entitled to register such shares and or such
payment in the name of the holder of such Convertible PIK Preferred Stock as
shown on the
<PAGE> 67
records of the Corporation and to send the certificates or instruments
evidencing such shares or such payment, to the address of such holder shown on
the records of the Corporation.
IN WITNESS WHEREOF, Patina Oil & Gas Corporation has caused this
Certificate of Designation to be signed on its behalf by Thomas J. Edelman, its
President, and Keith M. Crouch, its Secretary, this 31st day of July, 1997.
PATINA OIL & GAS CORPORATION
By:_____________________________________
Thomas J. Edelman, President
ATTEST:
_______________________________________
Keith M. Crouch, Secretary
<PAGE> 68
SCHEDULE I
SCHEDULE OF INVESTORS' COMMITMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES
AGGREGATE OF 8.5%
COMMITMENT CONVERTIBLE PREFERRED NUMBER OF SHARES OF COMMON STOCK
NAME OF INVESTOR AMOUNT STOCK TO BE PURCHASED TO BE ACQUIRED AT INITIAL CLOSING
----------- --------------------- ---------------------------------
<S> <C> <C> <C>
First Reserve Fund
VII, Limited Partnership .... $32,500,000 1,300,000 51,587
Chase Venture Capital
Associates, L.P. ............ $22,500,000 900,000 35,714
Highbridge International LDC $ 4,750,000 190,000 7,540
Bedford Falls Investors, LP. . $ 2,500,000 100,000 3,968
Anthony V. Dub ............... $ 400,000 16,000 635
Allen Finkelson .............. $ 100,000 4,000 159
William P. Nicoletti ......... $ 100,000 4,000 159
Irik P. Sevin ................ $ 100,000 4,000 159
Peter Seaman ................. $ 50,000 2,000 79
=========== ========= =======
Totals ....................... $63,000,000 2,520,000 100,000
</TABLE>
<PAGE> 69
SCHEDULE II
COMPANY'S DISCLOSURE SCHEDULES
The Disclosure Schedule is delivered pursuant to Section 3.01 of the
Stock Purchase Agreement, dated July 31, 1997 (the "Agreement"), among Patina
Oil & Gas Corporation, a Delaware corporation (the "Company"), and certain
investors (the "Investors"). All capitalized terms used herein and not otherwise
specifically defined herein shall have the meanings ascribed to such terms in
the Agreement.
The purpose of this Disclosure Schedule is to disclose certain
information to the Investor that may be relevant to, or are exceptions to, the
representations and warranties of the Company set forth in the Agreement. The
Company's representations and warranties in the Agreement are qualified by the
disclosure included or deemed to be included in this Disclosure Schedule, and
the Company shall not be deemed to be in breach of any of such representations
and warranties in connection with the information disclosed or referred to in
this Disclosure Schedule. In the event any conflicts or inconsistencies exist
between the Agreement and this Disclosure Schedule, this Disclosure Schedule
shall prevail.
This Disclosure Schedule is deemed to include by reference all
matters and information contained in any annual, quarterly, or other report,
proxy statement, or registration statement filed by the Company and its
subsidiaries with the Securities and Exchange Commission prior to the date
hereof. In addition, this Disclosure Schedule is deemed to include by reference
all matters and information contained in that certain data room made available
to the Investors by the Company in connection with the transactions contemplated
by this Agreement. Each of the specific disclosures attached shall not be
construed as being either (i) limited to qualifying the applicable referenced
representation or (ii) an admission or statement as to the materiality of the
disclosed items.
<PAGE> 70
ORGANIZATION AND GOOD STANDING OF
SECTION 3.01(b) COMPANY'S SUBSIDIARIES
- --------------- ------------------------------
Subsidiary Jurisdiction
- ---------- ------------
SOCO Wattenberg Corporation DE
Patina Well Services, Inc. CO
The shares of each of the aforementioned subsidiaries have been pledged to Texas
Commerce Bank, as agent, pursuant to the Amended and Restated Credit Agreement,
dated as of April 1, 1997 (the "Amended and Restated Credit Agreement"), among
the Company and certain financial institutions.
<PAGE> 71
SECTION 3.01(d) CAPITALIZATION
- --------------- --------------
<TABLE>
<CAPTION>
=====================================================================================
Number of Number of
Authorized Shares Authorized Shares
Issued and Reserved for
Outstanding Future Issuance
Number of (including Treasury Under Existing
Class of Stock Authorized Shares Shares) Agreements
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
1. Common 38,000,000 18,820,248 17,992,552(1)
- -------------------------------------------------------------------------------------
2. Common Series A 2,000,000 2,000,000 0
- -------------------------------------------------------------------------------------
3. Preferred 5,000,000 1,467,926 3,406,392(2)
- -------------------------------------------------------------------------------------
4. Warrants 3,000,000 2,919,451(3) 0
=====================================================================================
</TABLE>
- --------
(1) Net of 1,187,200 shares of Common Stock repurchased and retired by the
Company. Includes shares of Common Stock for issuance as follows:
Stock Options 788,960
Warrants 2,919,451
Preferred Stock 4,262,271
(2) Net of 125,682 shares of Preferred Stock repurchased and retired by the
Company.
(3) Net of 80,549 Warrants repurchased and retired by the Company.
<PAGE> 72
SECTION 3.01(f) NO CONFLICTS
- --------------- ------------
The Amended and Restated Credit Agreement.
<PAGE> 73
SECTION 3.01(g) NO CONSENTS
- --------------- -----------
The Company must file a Registration Statement on Form S-3 with the SEC in
connection with the Secondary Stock Offering.
<PAGE> 74
SECTION 3.01(j) LEGAL PROCEEDING
- --------------- ----------------
None.
<PAGE> 75
SECTION 3.01(m) ABSENCE OF CERTAIN CHANGES
- --------------- --------------------------
None.
<PAGE> 76
SECTION 3.01(n) MATERIAL CONTRACTS
- --------------- ------------------
None.
<PAGE> 77
SECTION 3.01(o) TAXES AND FILING OF TAX RETURNS
- --------------- -------------------------------
1. Audit of federal income tax return for 1993 through 1995. The Company has
executed Form 870 accepting an over-assessment of taxes (a refund) of
$10,225 for 1993 and no change in taxes for the years 1992, 1994 and 1995.
2. Audit of Colorado income tax return for 1992. A notice of deficiency for
taxes of $136,760 has been received, which the Company is appealing. The
Company has established reserves for this deficiency, plus interest.
3. Audit of Colorado sales and use taxes for 1990 through 1993. A notice of
deficiency has been received, which the Company is appealing. The Company
has established a reserve of $50,000.
4. Audit of Colorado severance tax return for 1991 through 1993. A notice of
deficiency for taxes of $478,363 has been received, which the Company is
protesting. The Company has established a reserve of $511,000.
<PAGE> 78
SCHEDULE II
SECTION 3.01(r) ENVIRONMENTAL MATTERS
- --------------- ---------------------
None.
<PAGE> 1
Exhibit 20
[Letterhead of A.G. Edwards & Sons, Inc.]
September 19, 1997
Independent Committee of the Board of Directors
c/o Patina Oil & Gas Corporation
1625 Broadway
Denver, Colorado 80202
Members of the Independent Committee of the Board of Directors:
You have requested our opinion (i) regarding the fairness, from a financial
point of view, to the holders of the Common Stock of Patina Oil & Gas
Corporation ("Patina" or the "Company") (the "Patina Common Stock") other than
Snyder Oil Corporation ("Snyder") (the "Non-Affiliated Stockholder") of the
Repurchase Transaction (defined below) and (ii) that, taking into account the
teens and conditions of the 8.5% convertible pay-in-kind preferred stock (the
"New Preferred Stock"), the consideration to be paid to the Company for the New
Preformed Stock is comparable to other privately placed convertible preferred
equity securities and, as a result, is fair, from a financial point of view, to
the Non-Affiliated Stockholders.
We understand that Snyder owns 14,000,000 shares of Patina Common Stock,
7,500,000 of which are being sold by Snyder in an underwritten secondary public
offering by the Company ($8,625,000 shares if the underwriters' overaIlotment
option is exercised) (the "Offering") on Form S-3, Registration No. 333-32671
(the "Registration Statement). We further understand that the Company intends to
repurchase Snyder's remaining shares of Patina Common Stock at a price per share
equal to the net per share price to be received by Snyder in the Offering (the
"Repurchase Transaction"). To finance the Repurchase Transaction, the Company
intends to sell in private transactions up to 2,520,000 shares of the New
Preferred Stock for a purchase price of $25.00 per share to a limited number of
private investors and shares of Patina Common Stock having a value of $3,000,000
(presuming a per share value equal to the per share price to be paid by
investors in the Offering) to certain members of management of the Company,
supplemented by bank borrowings if necessary. The New Preferred Stock investors
will also receive 230,000 shares of Patina Common Stock as consideration for
their commitment to purchase the New Preferred Stock 70,000 of which will be
effectively financed by a contribution of shares of Patina Common Stock from
Snyder. The members of management of the Company will also be awarded 500,000
shares of restricted Patina Common Stock, subject to certain vesting
requirements. The issuance of the Patina Common Stock to management of the
Company and the New Preferred Stock to investors described in the three
preceding sentences are referred to herein as the "Concurrent Transactions." The
Offering, the Repurchase Transaction and the Concurrent Transactions are
collectively referred to begin as the "Transactions." A.G. Edwards & Sons,
Inc.'s ("Edwards") opinion regarding the Repurchase Transaction and the
Concurrent Transactions will be limited to the opinion expressly set forth in
clauses (i) and (b) of the first sentence of this letter. Edwards was not
requested to and will not express any opinion on the Offering or the
determination by the Company and the Board to consummate (including their
determination of the manner of consummation) the Repurchase Transaction or any
of the Concurrent Transactions, including without limitation the issuance and
sale of the New Preferred Stock.
1
<PAGE> 2
Assuming that relevant conditions and circumstances do not change materially,
this opinion will be confirmed in a final opinion to be delivered to the
Independent Committee as of the date of the consummation of the initial sale of
the New Preferred Stock. This opinion assumes the consummation of all of the
Transactions and upon the expiration, unexercised, of the option granted by
Snyder to the New Preferred Stock investors to acquires shares of Patina Common
Stock and that the Transactions will be consummated on the terms and conditions
described in the Proxy Statement, as defined hereafter. We have been informed
that, if Edwards does not, at the time of the closing of the initial sale of the
New Preferred Stock, confirm its advice that taking into account the terms and
conditions of the New Preferred Stock, the consideration to be paid to the
Company for the New Preferred Stock is comparable to other privately placed
convertible preferred equity securities and, as a result is fair, from a
financial point of view, to the Non-Affiliated Stockholders, the Company shall
have the right to decline to sell any shares of New Preferred Stock in
connection with the consummation of the Transactions.
Edwards is a nationally recognized securities and investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, private placements and valuations for
estate, corporate and other purposes. As part of the process whereby Patina was
formed by the consolidation of certain assets and operations of Gerrity Oil &
Gas Corporation ("GOG") and Snyder, Edwards was engaged by the Company to
deliver a written opinion regarding the fairness to GOG from a financial point
of view, of its ensuing into a certain Subordinate Loan Agreement, dated as of
May 2, 1996 by and among GOG, as borrower, and SOCO Wattenberg Corporation
("SWAT") and the Company, as lenders, as amended by an amendment dated May 2,
1996, and Edwards received a fee for that opinion. Edwards was also engaged to
deliver a written opinion regarding the fairness, from a financial point of
view, to the holders of GOG Preferred Stock of a transaction pursuant to which
holders of Depository Shares, representing an interest in one-eighth of a share
of the $12.00 Convertible Preferred Stock of GOG, would receive in exchange for
each Depository Share 0.527 shares of Patina's Convertible Preferred Stock, and
Edwards received a fee for that opinion. Edwards is also engaged to be a
co-managing underwriter for the Offering, for which it will receive customary
fees, and currently intends on issuing a research report on Patina subsequent to
the Offering. The consummation of the Transactions are conditioned on one
another. We are not aware of any present or contemplated relationships between
Edwards and the Company, or the Stockholders thereof which, in our opinion,
would affect our ability to render a fair independent opinion in this matter.
In connection with this opinion, we have, among other things:
(i) Reviewed the terms of the draft Stock Purchase Agreement, the
Share Repurchase Agreement, the draft S-3 Registration Statement and
related documents, the preliminary proxy statement dated on or prior to
September 17, 1997 (without giving effect to any amendment of supplement
thereto, the "Proxy Statement") and related documents (collectively, the
"Agreements");
(ii) Held discussions with members of the management and members of the
Board of Directors of the Company regarding the Company, its operations and
strategy and its position within the oil and natural gas industry;
(iii) Reviewed available information concerning Patina which we deemed
relevant, including the Company's audited financial statements for each of
the years in the three-year period ended December 31, 1996,
2
<PAGE> 3
and the Company's unaudited financial statements for the six-month
periods ended June 30, 1997 and 1996;
(iv) Reviewed the unaudited capitalization of the Company at June 30,
1997 as adjusted to give effect to the Transactions, as prepared by
Patina's management;
(v) Reviewed the projected financial statement of the Company and
conducted interviews with the management of the Company regarding the
material assumptions that underlie the projections;
(vi) Reviewed certain other operating and financial information of
Patina concerning the business and operations of Patina;
(vii) Reviewed certain market data of Patina's Common Stock and Old
Preferred Stock;
(viii) Reviewed certain publicly available information concerning certain
other companies that we believed to be generally comparable to Patina, and
the trading of, and the trading markets for, certain such companies'
securities;
(ix) Reviewed information relating to the financial terms of certain
transactions, including selected share repurchases from control
shareholders, selected self-tender transactions and selected private
placements of publicly traded common stock that we considered relevant;
(x) Reviewed information relating to the financial terms of certain
other publicly traded and privately placed convertible preferred stock
issues and straight preferred stock issues that we considered relevant:
(xi) Reviewed an analysis of, to the extent available, certain studies
prepared by a variety of third parties regarding premiums paid in
transactions involving restricted stock; and
(xii) Reviewed other information which we considered relevant to our
analysis.
In preparing our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fair presentation of
all financial and other information, publicly available or furnished to, or
otherwise discussed with or reviewed by Edwards for purposes of our opinion, and
our opinion is conditioned upon such information being complete and accurate in
all material respects. We have not been engaged to, and therefore we have not,
verified the accuracy or completeness of any such information. We have assumed
that financial forecasts supplied to or otherwise made available to us reflect
the best currently available estimates and judgments of the management of the
Company, as to the expected future financial performance of the Company, and we
have not independently verified such information or assumptions nor do we
express any opinion with respect thereto. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals, In rendering our opinion, we have also
assumed that the Transactions will be consummated on the terms contained in the
Agreements, without any waiver of any material terms or conditions by the
Company.
3
<PAGE> 4
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date hereof
as expressly set forth in the last paragraph. We have not been asked to and will
not update this opinion after the date hereof including upon consummation of the
Transactions.
It is understood that this letter is for the information of the Independent
Committee of the Board of Directors only and may not be relied upon or used for
any purpose without our prior written consent, except that this opinion may be
summarized and, with our oral approval, included in its entirety in a proxy
statement to Patina's stockholders. This opinion may not be otherwise
summarized, excerpted from or otherwise publicly referred to without our prior
written consent (it being understood that we have consented to the disclosure
and inclusion of this opinion in the Registration Statement).
Based upon and subject to the foregoing, it is our opinion that, based on
financial information available to Edwards on and as of September 15, 1997, (i)
the Repurchase Transaction is fair, from a financial point of view, to the
Non-Affiliated Stockholders and (ii) the consideration to be paid to the Company
for the New Preferred Stock is comparable to other privately placed convertible
preferred equity securities and, as a result is fair, from a financial point of
view, to the Non-Affiliated Stockholders.
Very truly yours,
A.G. Edwards & Sons, Inc.
By:/s/ Douglas E. Reynolds
Douglas E. Reynolds
Vice President
4
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated March 30, 1994 on our audit of the consolidated
financial statements for the year ended December 31, 1993 of Gerrity Oil & Gas
Corporation, appearing in the amended registration statement on Form S-4 of
Patina Oil & Gas Corporation (Registration No. 333-12007) filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933.
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
September 18, 1997
