<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PATINA OIL & GAS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
PATINA OIL & GAS CORPORATION
1625 BROADWAY, SUITE 2000
DENVER, COLORADO 80202
(303) 389-3600
September 19, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Meeting") of
the stockholders of Patina Oil & Gas Corporation (the "Company"), which will be
held at the Company's headquarters, 1625 Broadway, Denver, Colorado, on Friday,
October 17, 1997, at 9:00 a.m. Mountain time.
As you may know, Snyder Oil Corporation ("SOCO") currently owns 14,000,000
shares, or approximately 74%, of the Company's outstanding common stock (the
"Patina Shares"). At the Meeting, you will be asked to approve a series of
transactions (collectively, the "Transactions") which will permit the Company to
eliminate SOCO's ownership in the Company. For strategic reasons, SOCO has
decided to liquidate its stake in the Company and redeploy the proceeds in its
core business.
In simple terms, 7,500,000 Patina Shares (8,625,000 Patina Shares if the
underwriters' overallotment option is fully exercised, or such greater or lesser
number as the underwriters, the Company and SOCO may agree to include in the
Secondary Offering) will be sold to the public in an underwritten public
offering (the "Secondary Offering"). Immediately thereafter, the remaining
Patina Shares owned by SOCO (other than 70,000 Patina Shares which SOCO has
agreed to transfer to the New Preferred Stock investors referred to below) will
be repurchased by the Company (the "Patina Share Repurchase"). In the Patina
Share Repurchase, the Company will repurchase 6,430,000 Patina Shares (5,305,000
Patina Shares if the underwriters' overallotment option is fully exercised, or
such greater or lesser number if the underwriters, the Company and SOCO agree to
include fewer or additional Patina Shares in the Secondary Offering) from SOCO.
The Patina Share Repurchase will be funded through the sale to a limited number
of investors of between 1,600,000 and 2,520,000 shares (as determined by the
Company in its sole discretion) of a new issue of convertible preferred stock
(the "New Preferred Stock") and 160,000 newly issued shares of the Company's
common stock for an aggregate purchase price of up to $63.0 million and the sale
of $3.0 million of newly issued common stock to 18 members of your management
("Management Investors") at the public offering price obtained in the Secondary
Offering (with Thomas J. Edelman, the Company's Chairman and Chief Executive
Officer, purchasing $2.0 million of such shares and the other Management
Investors purchasing an aggregate of $1.0 million of such shares). To induce the
Management Investors (other than Mr. Edelman) to invest in the Company through
their purchase from the Company of $1.0 million of common stock and to enhance
their interest in its future success, the Company will simultaneously grant
these individuals 150,000 shares of restricted common stock. These shares will
vest over five years and thereby help retain the services of these key
individuals. The Company has also agreed to grant to Mr. Edelman 350,000 shares
of restricted common stock that vest over five years as consideration for his
efforts in structuring and arranging the private placement of the New Preferred
Stock. The 500,000 restricted shares granted to the Management Investors have an
aggregate value of approximately $4.85 million, based on the September 18, 1997
closing sales price per share of $9.69 for the Company's common stock (and
assuming that management's rights in such granted shares have vested in full).
In connection with the Transactions, SOCO has also agreed to transfer 70,000
Patina Shares to the New Preferred Stock investors (or their respective
affiliates) at the date of the initial sale of shares of New Preferred Stock to
such investors. The details of the Transactions are described in the enclosed
Proxy Statement, which I urge you to read carefully.
The common stock being sold to the public and management (assuming the
underwriters' overallotment is fully exercised and the public offering price is
$9.50 per share) represents 46.7% of the Company's total common stock
outstanding. Upon the consummation of the Transactions (assuming a public
offering price of $9.50 per share), the Management Investors will beneficially
own approximately 7.7% (assuming the full vesting of all shares and options
awarded to them) of the Company's total common stock outstanding.
<PAGE> 3
THE COMPANY'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
UNANIMOUSLY DETERMINED THAT THE TRANSACTIONS ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE TRANSACTIONS AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL AND ADOPTION OF THE TRANSACTIONS. In reaching its determination, your
Board of Directors considered, among other things, the recommendation of the
independent committee of the Board of Directors established to review the
fairness of the contemplated transactions (the "Independent Committee") that the
Board approve the Transactions. The Independent Committee considered the advice
of A.G. Edwards & Sons, Inc. ("A.G. Edwards") concerning the fairness, from a
financial point of view, as of September 19, 1997, to the holders of common
stock of the Company (other than SOCO) (the "Non-Affiliated Stockholders") of
the Patina Share Repurchase and 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. A.G. Edwards'
opinion is included as Annex F to the accompanying Proxy Statement. You are
urged to read the opinion in its entirety for further information with respect
to the assumptions made, matters considered and limits of the reviews undertaken
by A.G. Edwards. The terms of the New Preferred Stock provide for a maximum
conversion price of $9.50 per share, which conversion price reflects a discount
to the September 18, 1997 closing sales price per share of $9.69 for the
Company's common stock. In addition, certain directors and officers of the
Company and SOCO and certain of their respective affiliates have interests
described in the enclosed Proxy Statement that present them with conflicts of
interest as a result of the Transactions. See "Risk Factors -- Transaction
Risks" in the enclosed Proxy Statement for a discussion of risks resulting from
the consummation of the Transactions, including risks with respect to the
issuance of the New Preferred Stock and conflicts of interest of the Management
Investors and affiliates. The Company's Board of Directors and the Independent
Committee were aware of such risks and conflicts and considered them in
connection with the approval of the Transactions.
Pursuant to the Patina Share Repurchase, SOCO has agreed to vote the Patina
Shares (including its 2,000,000 shares of Series A Common Stock that are
entitled to three votes per share at all meetings of the Company's stockholders)
in favor of the Transactions. THEREFORE, AS OF THE DATE HEREOF, THE REQUISITE
NUMBER OF VOTES FOR THE APPROVAL OF THE TRANSACTIONS TO BE CONSIDERED AT THE
MEETING IS ASSURED. In addition, the Company's stockholders are not entitled to
any appraisal rights under Delaware General Corporation Law as a result of the
Transactions. However, your vote on these matters is important. We urge you to
vote your shares whether or not you plan to attend the Meeting. Please take a
few minutes now to review the Proxy Statement and to sign and date your proxy
and return it in the envelope provided. You may attend the Meeting and vote in
person even if you have previously returned your proxy.
Sincerely yours,
/s/ Thomas J. Edelman
Thomas J. Edelman
Chairman of the Board
<PAGE> 4
PATINA OIL & GAS CORPORATION
1625 BROADWAY, SUITE 2000
DENVER, COLORADO 80202
(303) 389-3600
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 17, 1997
To the Stockholders of
Patina Oil & Gas Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders (the
"Meeting") of Patina Oil & Gas Corporation, a Delaware corporation (the
"Company"), will be held at the Company's headquarters, 1625 Broadway, Denver,
Colorado, on Friday, October 17, 1997, at 9:00 a.m. Mountain time.
The Meeting is called for the purpose of considering and voting upon a
series of related transactions providing for the recapitalization of the Company
(collectively, the "Transactions"), as follows:
1. To approve a Secondary Offering of 7,500,000 Patina Shares
(8,625,000 Patina Shares if the underwriters' overallotment option is fully
exercised, or such greater or lesser number as the underwriters, the
Company and SOCO may agree to include in the Secondary Offering);
2. To approve the Patina Share Repurchase by the Company of all
remaining Patina Shares (other than 70,000 Patina Shares which SOCO has
agreed to transfer to the New Preferred Stock Investors referred to below)
owned by SOCO (6,430,000 shares, assuming no exercise of the underwriters'
overallotment option and the sale of 7,500,000 shares in the Secondary
Offering; 5,305,000 shares, assuming exercise of such option in full; or
such greater or lesser number of shares, if the Underwriters, the Company
and SOCO agree to include fewer or additional Patina Shares in the
Secondary Offering), at a price per share equal to the net offering price
received by SOCO in the Secondary Offering;
3. To approve the New Preferred Stock Issuance by the Company to a
limited number of investors of between 1,600,000 and 2,520,000 shares (as
determined by the Company in its sole discretion) of the Company's 8.5%
Convertible Preferred Stock, including the related issuance by the Company
to such investors of 160,000 shares of Common Stock;
4. To approve the Management Stock Issuances providing for the
issuance and sale by the Company to certain members of the Company's
management of $3 million of Common Stock at a price per share equal to the
public offering price to be paid in the Secondary Offering, and the grant
of 150,000 shares of restricted Common Stock to the Management Investors
(other than Thomas J. Edelman, the Company's Chairman and Chief Executive
Officer) as an inducement to invest in the Company and to enhance their
interest in its future success and the grant of 350,000 shares of
restricted Common Stock to Mr. Edelman as consideration for his efforts in
structuring and arranging the private placement of the New Preferred Stock;
and
5. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
Each of the proposals to be approved by the stockholders at the Meeting are
mutually conditioned upon the approval of the other related proposals.
Therefore, a vote against any of the proposals will have the effect of a vote
against all of the proposals.
The Board of Directors has fixed the close of business on September 2, 1997
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Meeting and any adjournment or postponement thereof. A list
of such stockholders will be open to the examination of any stockholder during
ordinary business hours for a period of ten days prior to the Meeting at the
Company's corporate offices, 1625
<PAGE> 5
Broadway, Suite 2000, Denver, Colorado. Such list will also be produced at the
time and place of the meeting and be kept open during the meeting for the
inspection by any stockholder who may be present.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/s/ Keith M. Crouch
Keith M. Crouch
Secretary
September 19, 1997
Denver, Colorado
<PAGE> 6
PATINA OIL & GAS CORPORATION
PROXY STATEMENT
This Proxy Statement ("Proxy Statement") is being furnished to common
stockholders of Patina Oil & Gas Corporation, a Delaware corporation (the
"Company" or "Patina"), in connection with the solicitation of proxies by the
Company's Board of Directors for use at a Special Meeting of the stockholders of
the Company, which will be held at the Company's headquarters, 1625 Broadway,
Denver, Colorado, on Friday, October 17, 1997, at 9:00 a.m. Mountain time, and
at any adjournments or postponements thereof (the "Meeting").
This Proxy Statement relates to a series of related transactions providing
for the recapitalization of the Company (collectively, the "Transactions"). As a
result of the Transactions, the Company's majority stockholder, Snyder Oil
Corporation ("SOCO"), will sell all of the 14,000,000 shares of Common Stock
owned by SOCO (representing approximately 74% of the outstanding Common Stock
(and approximately 79% of the aggregate voting power)) (the "Patina Shares").
Following the consummation of the Transactions, the Company will be established
as an independent entity, separate and apart from SOCO.
The Transactions are comprised of: (i) an underwritten public offering of
7,500,000 Patina Shares (8,625,000 Patina Shares if the underwriters'
overallotment option is fully exercised, or such greater or lesser number as the
underwriters, the Company and SOCO may agree to include in the Secondary
Offering), the net proceeds of which will be paid to SOCO (the "Secondary
Offering"); (ii) the repurchase by the Company of all remaining Patina Shares
that are not sold in the Secondary Offering (other than 70,000 Patina Shares
which SOCO has agreed to transfer to the New Preferred Stock Investors referred
to below), pursuant to a Share Repurchase Agreement, dated as of July 31, 1997
and as amended and restated as of September 19, 1997, between the Company and
SOCO, at a price per share equal to the net offering price received by SOCO in
the Secondary Offering (the "Patina Share Repurchase"); (iii) the issuance by
the Company to a limited number of investors of between 1,600,000 and 2,520,000
shares (as determined by the Company in its sole discretion) of the Company's
8.5% Convertible Preferred Stock (the "New Preferred Stock") pursuant to a Stock
Purchase Agreement, dated as of July 31, 1997 and as amended and restated as of
September 19, 1997, among the Company and the new preferred stock investors (the
"New Preferred Stock Investors"), including the related issuance by the Company
to such investors of 160,000 shares of Common Stock (the "New Preferred Stock
Issuance"); and (iv) the issuance and sale by the Company to eighteen members of
the Company's management (including Thomas J. Edelman, the Company's Chairman
and Chief Executive Officer) of $3 million of Common Stock at a price per share
equal to the public offering price to be paid in the Secondary Offering,
together with the grant of 150,000 shares of restricted Common Stock to the
management investors (other Mr. Edelman) as an inducement to invest in the
Company and to enhance their interest in its future success and the grant of
350,000 shares of restricted Common Stock to Mr. Edelman as consideration for
his efforts in structuring and arranging the private placement of the New
Preferred Stock (the "Management Issuances"). In addition, SOCO has agreed to
transfer 70,000 Patina Shares to the New Preferred Stock Investors (or their
respective affiliates) at the date of the initial sale of shares of New
Preferred Stock to such investors. See "Description of the Transactions."
The rules of the New York Stock Exchange (the "NYSE") require that the
Transactions be approved by the Company's stockholders at the Meeting because
the New Preferred Stock Issuance and the Management Stock Issuances are part of
the Transactions. The closing of the Transactions are therefore subject to such
approval and the satisfaction of various other conditions. Each of the proposals
to be approved by the stockholders at the Meeting are mutually conditioned upon
the approval of the other related proposals. Therefore, a vote against any of
the proposals will have the effect of a vote against all of the proposals. See
"Description of the Definitive Agreements--Preferred Stock Purchase
Agreement--Conditions to Closing."
The New Preferred Stock Issuance and the Management Stock Issuances to be
effected as part of the Transactions require the approval at the Meeting of the
holders of a majority of the total votes cast at the meeting, assuming the total
votes cast represent over 50% of the number of outstanding shares of the
Company's Common Stock, par value $.01 per share (including the Series A Common
Stock held by SOCO and referred to below, the "Common Stock"), entitled to vote
at the Meeting. Pursuant to the Patina Share Repurchase, SOCO has agreed to vote
its shares of Common Stock (including its 2,000,000 shares of Series A Common
Stock (the "Series A Common Stock") that are entitled to three votes per share
at all meetings of the Company's stockholders) in favor of the Transactions.
THEREFORE, AS OF THE DATE HEREOF, THE REQUISITE NUMBER OF VOTES FOR THE APPROVAL
OF THE TRANSACTIONS TO BE CONSIDERED AT THE MEETING IS ASSURED.
This Proxy Statement and the accompanying form of proxy (the "Proxy") are
first being mailed to stockholders of the Company on or about September 19,
1997.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY THE COMPANY'S STOCKHOLDERS BEFORE VOTING ON THE
TRANSACTIONS.
------------------------
THE DATE OF THIS PROXY STATEMENT IS SEPTEMBER 19, 1997
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION............................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................... 2
SUMMARY............................................................................. 3
General........................................................................... 3
Parties to the Transactions....................................................... 4
The Meeting....................................................................... 5
Description of the Transactions................................................... 6
Additional Related Events......................................................... 9
Approval of the Transactions; Opinion of Financial Advisor........................ 9
Sources and Uses of Funds for the Transactions.................................... 11
Interests of Certain Persons in the Transactions.................................. 11
Price Range of Common Stock and Dividend Policy................................... 12
RISK FACTORS........................................................................ 13
Transaction Risks................................................................. 13
Company Risks..................................................................... 15
Forward Looking Information....................................................... 17
THE MEETING......................................................................... 17
Date, Time and Place.............................................................. 17
Record Date, Voting and Quorum.................................................... 17
Matters To Be Considered at the Meeting; Required Vote; Appraisal Rights.......... 17
Voting of Proxies................................................................. 18
Adjournments; Revocability of Proxies............................................. 19
Solicitation of Proxies........................................................... 19
DESCRIPTION OF THE TRANSACTIONS..................................................... 19
Background of the Transactions.................................................... 19
Reasons for the Transactions...................................................... 23
Approval of the Transactions...................................................... 26
Opinion of Financial Advisor to the Independent Committee......................... 26
Interests of Certain Persons in the Transactions.................................. 31
Secondary Offering................................................................ 32
Patina Share Repurchase........................................................... 33
New Preferred Stock Issuance...................................................... 33
Management Stock Issuances........................................................ 34
Tax Consequences of Transactions; Accounting Treatment............................ 34
Sources and Uses of Funds for the Transactions.................................... 35
DESCRIPTION OF THE DEFINITIVE AGREEMENTS............................................ 35
Share Repurchase Agreement........................................................ 35
Preferred Stock Purchase Agreement................................................ 37
Management Stock Purchase Agreement and Restricted Stock Awards................... 41
SOCO Option Agreements............................................................ 42
PARTIES TO THE TRANSACTIONS......................................................... 43
The Company....................................................................... 43
Snyder Oil Corporation............................................................ 44
</TABLE>
i
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<TABLE>
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<S> <C>
New Preferred Stock Investors..................................................... 44
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA....................... 45
MANAGEMENT.......................................................................... 47
Directors and Executive Officers.................................................. 47
Change in Control Plan............................................................ 50
Edelman Employment Agreement and Related Matters.................................. 50
Stock Option Plan................................................................. 51
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................... 52
DESCRIPTION OF CERTAIN INDEBTEDNESS................................................. 53
Credit Agreement.................................................................. 53
Senior Subordinated Notes......................................................... 54
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING..................................... 54
EXPERTS............................................................................. 55
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY...... F-1
</TABLE>
ANNEX A Share Repurchase Agreement
ANNEX B Preferred Stock Purchase Agreement
ANNEX C Management Stock Purchase Agreement
ANNEX D Form of Restricted Stock Award Agreement
ANNEX E Form of SOCO Option Agreement
ANNEX F A.G. Edwards & Sons, Inc. Opinion
ii
<PAGE> 9
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 Company's Common Stock is listed on the NYSE, and
similar information concerning the Company may also be inspected and copied at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996
(file no. 1-4344); and
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1997 and June 30, 1997.
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 Proxy Statement and prior to
the Meeting 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 Proxy Statement 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 Proxy Statement. The
Company will furnish without charge to each person, including any beneficial
owner of such person, to whom a copy of this Proxy Statement 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 Proxy Statement 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).
No person is authorized to give any information or to make any
representations not contained in this Proxy Statement and, if given or made,
such information or representations should not be relied upon as having been
authorized by the Company. This Proxy Statement does not constitute the
solicitation of a Proxy from any person in any jurisdiction where such a
solicitation would be unlawful. The delivery of this Proxy Statement shall not
under any circumstances, imply or create any implication that there has been no
change in the affairs of the Company or in the information set forth or
incorporated by reference herein subsequent to the date hereof.
2
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and the Annexes hereto. This summary does not contain a
complete statement of all material information relating to the Transactions and
is subject to, and qualified in its entirety by, the more detailed information
contained or incorporated by reference in this Proxy Statement. Stockholders of
the Company should read carefully this Proxy Statement and the Annexes hereto.
Certain capitalized terms used in this Summary are defined elsewhere in this
Proxy Statement.
GENERAL
This Proxy Statement is being furnished to the Company's common
stockholders in connection with the series of related Transactions that provide
for the recapitalization of the Company. As a result of the Transactions, SOCO,
the Company's majority stockholder, will sell all of the 14,000,000 shares of
Common Stock owned by SOCO (representing approximately 74% of the outstanding
Common Stock (and approximately 79% of the aggregate voting power)). Following
the consummation of the Transactions, the Company will be established as an
independent entity, separate and apart from SOCO.
The Transactions are comprised of: (i) the Secondary Offering of 7,500,000
Patina Shares (8,625,000 Patina Shares if the underwriters' overallotment option
is fully exercised, or such greater or lesser number as the underwriters, the
Company and SOCO may agree to include in the Secondary Offering), the net
proceeds of which will be paid to SOCO; (ii) the Patina Share Repurchase by the
Company of all remaining Patina Shares that are not sold in the Secondary
Offering (other than 70,000 Patina Shares which SOCO has agreed to transfer to
the New Preferred Stock Investors referred to below), pursuant to a Share
Repurchase Agreement, dated as of July 31, 1997 and as amended and restated as
of September 19, 1997, between the Company and SOCO (the "Share Repurchase
Agreement"), at a price per share equal to the net offering price (the "Net
Offering Price") received by SOCO in the Secondary Offering; (iii) the New
Preferred Stock Issuance by the Company to the New Preferred Stock Investors of
between 1,600,000 and 2,520,000 shares (as determined by the Company in its sole
discretion) of the New Preferred Stock, including the related issuance by the
Company to such investors of 160,000 shares of Common Stock, pursuant to a Stock
Purchase Agreement, dated as of July 31, 1997 and as amended and restated as of
September 19, 1997, among the Company and the New Preferred Stock Investors (the
"Preferred Stock Purchase Agreement"); and (iv) the Management Stock Issuances
by the Company to eighteen members of the Company's management (including Thomas
J. Edelman, the Company's Chairman and Chief Executive Officer) (the "Management
Investors") of $3 million of Common Stock, at a price per share equal to the
public offering price to be paid in the Secondary Offering (the "Public Offering
Price"), together with the grant of 150,000 shares of restricted Common Stock to
the Management Investors (other than Mr. Edelman) as an inducement to invest in
the Company and to enhance their interest in its future success and the grant of
350,000 shares of restricted Common Stock to Mr. Edelman as consideration for
his efforts in structuring and arranging the private placement of the New
Preferred Stock. In addition, SOCO has agreed to transfer 70,000 Patina Shares
to the New Preferred Stock Investors (or their respective affiliates) at the
date of the sale of initial shares of New Preferred Stock to such investors. See
"Description of the Transactions."
The rules of the NYSE require that the Transactions be approved by the
Company's stockholders at the Meeting because the New Preferred Stock Issuance
and the Management Stock Issuances are part of the Transactions. The closing of
the Transactions are therefore subject to such approval and the satisfaction of
various other conditions. See "Description of the Definitive
Agreements-Preferred Stock Purchase Agreement -- Conditions to Closing."
The Company's stockholders should be aware that the consummation of the
Transactions may increase the risk associated with the Company's Common Stock.
In particular, the Company will face a number of additional risks as a result of
the Transactions, including an increased level of leverage and an increased
total debt-to-total-capitalization ratio, the addition and influence of the
holders of New Preferred Stock who 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
3
<PAGE> 11
votes entitled to be cast on most matters submitted to stockholders for a vote,
the preferences to be granted to the New Preferred Stock (including the fact
that the terms of the New Preferred Stock provide for a maximum conversion price
of $9.50 per share, which conversion price reflects a discount to the September
18, 1997 closing sales price per share of $9.69 for the Common Stock), the
continued reliance on SOCO for certain transition services and the existence of
a substantial number of additional unregistered shares of Common Stock that will
in the future be eligible for sale. In addition, the Company will continue to
face a number of Company-related risks with respect to, among other things, its
acquisition strategy and its business operations. SEE "RISK FACTORS" BEGINNING
ON PAGE 13 FOR A MORE COMPREHENSIVE DISCUSSION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY THE COMPANY'S STOCKHOLDERS BEFORE VOTING ON THE TRANSACTIONS.
PARTIES TO THE TRANSACTIONS
The Company. Patina Oil & Gas Corporation 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 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. The Company's Common Stock is traded on the NYSE under the symbol
"POG."
Following the consummation of the Transactions, the Company plans to
continue 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. See "The Parties to the Transactions -- The
Company -- Business Strategy."
SOCO. Snyder Oil Corporation has been the Company's major stockholder
since the Company's formation and currently owns approximately 74% of the
outstanding Common Stock (and approximately 79% of the aggregate voting power).
For strategic reasons, SOCO has decided to liquidate its stake in the Company
and redeploy the proceeds in its core business. Pursuant to the Transactions
described in this Proxy Statement, SOCO's ownership in the Company will be
eliminated and the Company will be positioned to pursue an independent growth
strategy. In connection with the Gerrity Acquisition, SOCO received certain
registration rights with respect to the Patina Shares entitling it to cause the
Company to register such shares following SOCO's demand therefor. In addition,
SOCO has previously agreed, as part of the Gerrity Acquisition, that SOCO would
not effect a "control sale" (defined as the sale, in a single transaction or a
series of related transactions, of a majority of the Company's outstanding
Common Stock to an unaffiliated person or "group" of persons (as such term is
defined under Section 13(d) of the Exchange Act)), unless all holders of the
Company's Common Stock were given an opportunity to participate in such control
sale. Each of SOCO, the Company and their respective boards have confirmed that
the Transactions do not qualify as a control sale and therefore the foregoing
provision is inapplicable to the consummation of the Transactions.
New Preferred Stock Investors. Pursuant to the Preferred Stock Purchase
Agreement, the New Preferred Stock Investors (none of whom is presently an
affiliate of the Company) have agreed to pay, subject to the terms and
conditions contained therein, an aggregate purchase price of between $40.0
million and $63.0 million for the shares of New Preferred Stock to be purchased
thereunder. The New Preferred Stock Investors are comprised of nine investors,
including First Reserve Fund VII, Limited Partnership, Chase Venture Capital
Associates L.P. and Highbridge International LDC. The New Preferred Stock
Investors 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% (which
percentage would increase to approximately 37% by the end of the two-year
pay-in-kind dividend period) of
4
<PAGE> 12
the votes entitled to be cast on most matters submitted to stockholders 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 Company's Board of Directors. However, as described under "Description of
the Definitive Agreements -- Preferred Stock Purchase
Agreement -- Confidentiality and Standstill Restrictions", the New Preferred
Stock Investors have agreed, for a five-year period (or, under certain
circumstance, a shorter period), to certain confidentiality and standstill
restrictions with respect to the Company's voting securities.
THE MEETING
Time, Place and Date. The Meeting of the Company's stockholders will be
held at the Company's headquarters, 1625 Broadway, Denver, Colorado, on Friday,
October 17, 1997, at 9:00 a.m. Mountain time.
Record Date, Voting and Quorum. The record date for the Meeting is
September 2, 1997 (the "Record Date"). As of the close of business on the Record
Date, there were outstanding 18,820,248 shares of Common Stock, of which
14,000,000 were shares owned by SOCO (including 2,000,000 shares of Series A
Common Stock). Only stockholders of record at the Record Date are entitled to
notice of and to vote at the Meeting. For all matters to come before the
Meeting, each share of Common Stock (other than Series A Common Stock) is
entitled to one vote per share, and each share of Series A Common Stock is
entitled to three votes per share.
The presence in person or by proxy at the Meeting of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum for the transaction of business at the Meeting. Pursuant to the Patina
Share Repurchase, SOCO has agreed to cause its shares of Common Stock to be
present at, and to be voted in favor of the Transactions at, the Meeting.
THEREFORE, AS OF THE DATE HEREOF, THE PRESENCE OF THE REQUISITE NUMBER OF SHARES
TO CONSTITUTE A QUORUM AT THE MEETING IS ASSURED.
Matters to be Considered at the Meeting; Required Vote; Appraisal
Rights. At the Meeting, the stockholders of the Company will be asked to
consider and vote upon four mutually conditioned proposals to approve the
Transactions, as follows: (i) a proposal to approve the Secondary Offering of
7,500,000 Patina Shares (8,625,000 Patina Shares if the underwriters'
overallotment option is fully exercised, or such greater or lesser number as the
underwriters, the Company and SOCO may agree to include in the Secondary
Offering); (ii) a proposal to approve the Patina Share Repurchase by the Company
of all remaining Patina Shares that are not sold in the Secondary Offering
(other than 70,000 Patina Shares which SOCO has agreed to transfer to the New
Preferred Stock Investors); (iii) a proposal to approve the New Preferred Stock
Issuance by the Company to a limited number of investors of between 1,600,000
and 2,520,000 shares (as determined by the Company in its sole discretion) of
the Company's New Preferred Stock, including the related issuance by the Company
to such investors of 160,000 shares of Common Stock; and (iv) a proposal to
approve the Management Stock Issuances providing for the issuance and sale by
the Company to the Management Investors of $3 million of Common Stock at the
Public Offering Price and the grant of 150,000 shares of restricted Common Stock
to the Management Investors (other Mr. Edelman) as an inducement to invest in
the Company and to enhance their interest in its future success and the grant of
350,000 shares of restricted Common Stock to Mr. Edelman as consideration for
his efforts in structuring and arranging the private placement of the New
Preferred Stock. Each of the proposals to be approved by the stockholders at the
Meeting are mutually conditioned upon the approval of the other related
proposals. Therefore, a vote against any of the proposals will have the effect
of a vote against all of the proposals. In addition, the stockholders of the
Company will be asked to consider and vote upon such other business as may
properly come before the Meeting.
Approval of the New Preferred Stock Issuance and the Management Stock
Issuances to be effected as part of the Transactions require the approval of the
holders of a majority of the total votes cast at the Meeting, provided that the
total votes cast represent over 50% of the number of outstanding shares of
capital stock of the Company entitled to vote at the Meeting. Pursuant to the
Patina Share Repurchase, SOCO has agreed to vote its shares of Common Stock in
favor of the Transactions. THEREFORE, AS OF THE DATE HEREOF, THE REQUISITE
NUMBER OF VOTES FOR THE APPROVAL OF THE TRANSACTIONS TO BE CONSIDERED AT THE
MEETING IS ASSURED. In addition,
5
<PAGE> 13
as of the Record Date, the directors and executive officers of the Company and
their affiliates (excluding SOCO and John C. Snyder, Chairman and Chief
Executive Officer of SOCO) owned as a group less than 1.0% of the outstanding
shares of Common Stock. Such directors and executive officers of the Company
have indicated that they and their affiliates presently intend to vote all such
shares in favor of the Transactions. See "Security Ownership of Certain
Beneficial Owners and Management."
The Company's stockholders are not entitled to any appraisal rights under
Delaware General Corporation Law as a result of the Transactions.
Voting of Proxies. All shares of Common Stock represented by properly
executed Proxies received in time for the Meeting will be voted in the manner
specified in the Proxy. Proxies that do not contain any instruction to vote for
or against or to abstain from voting on a particular matter will be voted in
favor of such matter. It is not expected that any matter other than those
referred to herein will be brought before the stockholders at the Meeting.
However, if other matters are properly presented, the persons named as proxies
will vote in accordance with their best judgment with respect to such matters,
unless authority to do so is withheld in the Proxy.
Adjournments; Revocability of Proxies. If the Meeting is adjourned for any
reason, the approval of the Transactions will be considered and voted upon by
stockholders at the subsequent reconvened meeting, if any.
A stockholder may revoke a Proxy prior to the time the shares represented
by such Proxy are voted at the Meeting by: (i) delivering to the Secretary of
the Company a written notice of revocation of a Proxy or a duly executed Proxy
relating to the same shares and matters to be considered at the Meeting bearing
a date later than the Proxy previously executed; (ii) attending and voting in
person at the Meeting; or (iii) giving notice of revocation of a Proxy at the
Meeting. Attendance at the Meeting will not in and of itself constitute
revocation of a Proxy.
Solicitation of Proxies. The Company will bear the cost of the
solicitation of Proxies. In addition to solicitation by mail, the directors,
officers and employees of the Company and its subsidiaries may solicit Proxies
from stockholders of the Company by telephone, telecopy or in person. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for out-of-pocket expenses in connection
therewith. Arrangements will be made to furnish copies of proxy materials to
fiduciaries, custodians and brokerage houses for forwarding to beneficial owners
of the Company's Common Stock. Such persons will be paid reasonable
out-of-pocket expenses.
DESCRIPTION OF THE TRANSACTIONS
The Transactions are comprised of the Secondary Offering, the Patina Share
Repurchase, the New Preferred Stock Issuance and the Management Stock Issuances,
each of which are summarized below and further described herein. See
"Description of the Transactions" and "Description of the Definitive
Agreements -- Share Repurchase Agreement", "-- Preferred Stock Purchase
Agreement" and "-- Management Stock Purchase Agreement and Restricted Stock
Awards." In addition, although the Company's management believes the summaries
set forth below reflect the anticipated final terms and provisions for the
respective agreements (based on the circumstances existing as of the date of
this Proxy Statement), the final share amounts to be issued and/or repurchased
by the Company and other provisions contained in such agreements may differ from
the amounts or provisions described below.
Secondary Offering. The Company has filed a Registration Statement on Form
S-3 with the Commission, which has not yet become effective, pursuant to which
the Company will register for sale 7,500,000 Patina Shares in the Secondary
Offering (8,625,000 Patina Shares if the underwriters' overallotment option is
fully exercised, or such greater or lesser number as the underwriters, the
Company and SOCO may agree to include in the Secondary Offering). The net
proceeds from the Secondary Offering will be paid fully to SOCO. Accordingly,
the Company will not receive any proceeds from the Secondary Offering. The
Secondary Offering will be underwritten by a syndicate consisting of Smith
Barney Inc., Morgan Stanley Dean Witter, A.G. Edwards & Sons, Inc., Jefferies &
Company, Inc. and PaineWebber Incorporated (the "Underwriters"), pursuant to an
underwriting agreement to be entered into among the Company, SOCO and the
Underwriters.
6
<PAGE> 14
The Patina Shares to be sold in the Secondary Offering may not be sold nor may
offers to buy such shares be accepted prior to the time the Registration
Statement becomes effective. The Company expects that the Registration Statement
will become effective contemporaneously with or prior to the initial sale of New
Preferred Stock. For additional information concerning the terms of the
underwriting of the Secondary Offering, see "Description of the
Transactions -- Secondary Offering."
The consummation of the Secondary Offering will be conditioned upon the
consummation of the New Preferred Stock Issuance (except in certain limited
circumstances described herein under "Description of the
Transactions -- Secondary Offering -- General") and the Patina Share Repurchase.
In addition, SOCO's obligation to consummate the Secondary Offering is
contingent upon, among other things, the Net Offering Price for the Patina
Shares being sold therein not being less than $7.0875 per share (or, based on a
5.5% gross commission for the Underwriters, a Public Offering Price of $7.50 per
share).
Patina Share Repurchase. Pursuant to the Share Repurchase Agreement, dated
as of July 31, 1997 and as amended and restated as of September 19, 1997, the
Company has agreed with SOCO to purchase the balance of the Patina Shares (other
than 70,000 Patina Shares which SOCO has agreed to transfer to the New Preferred
Stock Investors) owned by SOCO (6,430,000 shares, assuming no exercise of the
Underwriters' overallotment option and the sale of 7,500,000 shares in the
Secondary Offering; 5,305,000 shares, assuming exercise of such option in full;
or such greater or lesser number of shares, if the Underwriters, the Company and
SOCO agree to include fewer or additional Patina Shares in the Secondary
Offering), at a price per share equal to the Net Offering Price. The Company
will repurchase such Patina Shares concurrently with the initial sale of the New
Preferred Stock and the sale of Patina Shares in the Secondary Offering and the
concurrent repurchase of such Patina Shares will be a condition to the sale of
Patina Shares in the Secondary Offering.
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
Secondary 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 pursuant to the Management Stock Issuances,
together with bank borrowings, if necessary, to pay for the Patina Shares being
repurchased from SOCO.
New Preferred Stock Issuances. Pursuant to the Preferred Stock Purchase
Agreement, dated as of July 31, 1997 and as amended and restated as of September
19, 1997, the Company has agreed to sell an aggregate of between 1,600,000 and
2,520,000 shares of New Preferred Stock to the New Preferred Stock Investors at
a purchase price of $25.00 per share, for 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 more than 1,600,000 (but
less than 2,520,000) shares of New Preferred Stock concurrently with the sale of
Patina Shares in the Secondary Offering, 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). For a description
of the material terms of the New Preferred Stock, including dividend rights and
redemption, conversion and voting provisions, see "Description of the Definitive
Agreements -- Preferred Stock Purchase Agreement."
The obligations of the Company and the New Preferred Stock Investors to
consummate the New Preferred Stock Issuance are subject to certain conditions,
including receipt of approval by the Company's stockholders at the Meeting. The
Company is not obligated under the terms of the Preferred Stock Purchase
Agreement to receive any updated fairness advice from the Independent
Committee's financial advisor, A.G. Edwards & Sons, Inc., as a condition to the
issuance of the New Preferred Stock, that the terms of the New Preferred Stock
(including the conversion price thereof) continue to be fair to the Company's
Non-Affiliated Stockholders. See "Risk Factors -- Transaction
Risks -- Preferences of New Preferred Stock." The Company's Board of Directors
and the Independent Committee were aware of this fact and considered it in
connection with the approval of the Transactions. See "Description of the
Transactions -- Background of the
7
<PAGE> 15
Transactions" and "-- Reasons for the Transactions." See "Description of the
Definitive Agreements -- Preferred Stock Purchase Agreement -- Conditions to
Closing" and "-- Termination; Termination Fees."
As a part of the New Preferred Stock Issuance, 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 be entitled to receive the full amount of these
shares of Common Stock, regardless of how many shares of the New Preferred Stock
are actually issued.
Management Stock Issuances. Pursuant to a Management Stock Purchase
Agreement (the "Management Stock Purchase Agreement") entered into by the
Management Investors, the Company will sell shares of Common Stock having an
aggregate purchase price of $3.0 million, at a price per share equal to the
Public Offering Price, with Mr. Edelman committing to purchase an aggregate of
$2.0 million of shares of Common Stock (or, assuming a Public Offering Price of
$9.50 per share, 210,256 shares) and the other Management Investors committing
to purchase an aggregate of $1.0 million of shares 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. The Company
anticipates that such shares of Common Stock will be sold to the Management
Investors concurrently with the Patina Shares being sold in the Secondary
Offering and the issuance of such shares of Common Stock will be conditioned
upon the concurrent sale of the Patina Shares in the Secondary Offering.
In addition, as part of the Management Stock Issuances, the Company intends
to award to the Management Investors an aggregate of 500,000 shares of
restricted Common Stock, with Mr. Edelman receiving 350,000 shares and the other
remaining Management Investors receiving, in the aggregate, 150,000 shares. The
Management Investors' ownership of such shares of restricted Common Stock will
vest over a five-year period at the rate of 20% per year. The restricted shares
of Common Stock that will be awarded to Management Investors may not be sold
until ownership in such shares has vested.
Each of the Management Investors will agree not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following their purchase of shares of Common Stock pursuant to the Management
Stock Purchase Agreement. 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 of 1933, as amended (the "Securities
Act"), and any other applicable laws. The Company will agree to register with
the Commission for sale to the public the shares of Common Stock purchased by,
or awarded to, the Management Investors under certain limited circumstances. See
"Description of the Definitive Agreements -- Management Stock Purchase Agreement
and Restricted Stock Awards."
As described under the "Description of the Transactions -- Background of
the Transactions," the proposal for, and the negotiation of the terms of, the
Management Stock Issuance arose during the negotiations on the terms of the
Secondary Offering and the New Preferred Stock Issuance. During such
negotiations, the Underwriters and the New Preferred Stock Investors required
that Mr. Edelman make at least a three-year commitment to the Company. In
response to the Underwriters' and the New Preferred Stock Investors'
requirement, the Company and Mr. Edelman structured an enhanced equity
arrangement for Mr. Edelman and the other Management Investors that included,
among other things, the Management Stock Issuances as described above. The
restricted Common Stock to be granted to the Management Investors (other than
Mr. Edelman) has been granted to induce such Management Investors to invest in
the Company through their purchase from the Company of $1.0 million of Common
Stock and to enhance their interest in its future success. The restricted Common
Stock to be granted to Mr. Edelman has been granted as consideration for his
efforts in structuring and arranging the private placement of the New Preferred
Stock.
8
<PAGE> 16
ADDITIONAL RELATED EVENTS
In addition to the Transactions described above, the following additional
related events have occurred or are anticipated to occur at or about the time of
the closing of the Secondary Offering:
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 closing
of the Secondary Offering and the Management Stock Issuances. 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. As a condition of the
consummation of the New Preferred Stock Issuance, 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 Patina Shares are sold in the Secondary Offering, 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 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.
Grant of Options by SOCO; Delivery of 70,000 Patina Shares. In connection
with their commitment to purchase the New Preferred Stock, SOCO has granted the
New Preferred Stock Investors (or their respective affiliates), 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' Options"). SOCO has also
granted Mr. Edelman 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 "Edelman Options" and,
together with the "Investors' Options," the "SOCO Options"). In general, the
SOCO Options will only be exercisable in certain circumstances following the
termination of the Secondary Offering and the Share Repurchase Agreement. In
such events, the New Preferred Stock Investors, as holders of the Investors'
Options, will be entitled to receive an aggregate minimum payment in respect of
such options of $2 million (or a minimum payment per option share of $1.00), and
Mr. Edelman, as holder of the Edelman Option, will be entitled to receive an
aggregate minimum payment of $1,000,000 (or a minimum payment per option share
of $0.50). In addition, if the holders of SOCO Options are entitled to receive a
payment in excess of $1.25 per option share, the holder of the SOCO Option will
pay an amount equal to one-half of such excess to SOCO. Pursuant to the
agreement providing for the Investors' Options, SOCO has also agreed to transfer
70,000 Patina Shares to the New Preferred Stock Investors (or their respective
affiliates) at the date of the initial sale of shares of New Preferred Stock to
such investors. See "Description of the Definitive Agreements -- SOCO Option
Agreements."
APPROVAL OF THE TRANSACTIONS; OPINION OF FINANCIAL ADVISOR
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 the Transactions as being fair,
from a financial point of view, to the Company and its stockholders. In reaching
its conclusion as to the fairness of the Transactions, the Independent Committee
considered the written advice of A.G. Edwards & Sons, Inc., its financial
advisor ("A.G. Edwards"), which is subject to certain assumptions and
conditions, concerning the fairness from a financial point of view, as of
September 19, 1997 (based on financial information available on and as of
September 15, 1997), to the Company's stockholders (other than SOCO) (the
"Non-Affiliated Stockholders") of the Patina Share Repurchase and the
consideration to be paid to the Company for the New Preferred Stock.
9
<PAGE> 17
THE COMPANY'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
UNANIMOUSLY DETERMINED THAT THE TRANSACTIONS ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE TRANSACTIONS AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE TRANSACTIONS. In reaching its determination,
the Board of Directors considered, among other things, the recommendation of the
Independent Committee that the Board approve the Transactions and the
consideration by the Independent Committee of A.G. Edwards' fairness opinion.
Opinion of Financial Advisor. At the meeting of the Independent Committee
on September 19, 1997, A.G. Edwards, in its capacity as financial advisor to the
Independent Committee, advised the Independent Committee in writing that, as of
such date, based on financial information available on and as of September 15,
1997, and subject to the matters stated therein, the Patina Share Repurchase was
fair, from a financial point of view, to the Non-Affiliated Stockholders and
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 was fair, from a financial point of view, to the Non-Affiliated
Stockholders. A.G. Edwards' fairness opinion does not address the fairness of
all of the components of the Transactions; in particular, the Management Stock
Issuances and the Secondary Offering are not addressed in such opinion. As noted
above, A.G. Edwards is one of the Underwriters of the Secondary Offering and, in
such capacity, will receive an underwriting commission in connection with the
sale of Patina Shares thereunder. For information on the assumptions made,
matters considered and limits of the review undertaken by A.G. Edwards, see
"Description of the Transactions -- Opinion of Financial Advisor to the
Independent Committee." STOCKHOLDERS ARE URGED TO READ IN ITS ENTIRETY THE
OPINION OF A.G. EDWARDS ATTACHED AS ANNEX F TO THIS PROXY STATEMENT.
10
<PAGE> 18
SOURCES AND USES OF FUNDS FOR THE TRANSACTIONS
The following table sets forth the anticipated sources and uses of funds
applicable to the Company in connection with the consummation of the
Transactions (assuming a range of Public Offering Prices from $7.50 per share to
$9.50 per share and assuming a gross underwriting commission of 5.5%). Although
the Company's management believes the anticipated amounts set forth below are
reasonable estimates based on the circumstances existing as of the date of this
Proxy Statement, actual sources and uses may differ from those set forth below.
<TABLE>
<CAPTION>
ASSUMED PUBLIC OFFERING PRICE(a)
--------------------------------
$7.500 $8.500 $9.500
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SOURCES OF FUNDS:
Sale of New Preferred Stock................................. (b) $ 57.0 $ 57.0 $ 57.0
Sale of Common Stock to the Management Investors............ (c) 3.0 3.0 3.0
Bank borrowings/(cash available)............................ (d) (12.2) (6.1) --
----- ----- -----
Total............................................. $ 47.8 $ 53.9 $ 60.0
===== ===== =====
USES OF FUNDS:
Repurchase the balance of Patina Shares held by SOCO........ (e) $ 45.5 $ 51.6 $ 57.7
Expenses payable by the Company............................. 1.4 1.4 1.4
Loans to the Management Investors........................... (c) 0.9 0.9 0.9
----- ----- -----
Total............................................. $ 47.8 $ 53.9 $ 60.0
===== ===== =====
</TABLE>
- ---------------
(a) Based on assumed Public Offering Prices of $7.500, $8.500 and $9.500 per
share, the assumed Net Offering Prices would be $7.088, $8.033 and $8.978
per share, respectively.
(b) 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.
(c) 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 "Description of the Transactions -- Management Stock
Issuances."
(d) Assumes 7,500,000 Patina Shares are sold in the Secondary Offering and the
Underwriters' overallotment option is not exercised. At Public Offering
Prices of $7.50 and $8.50 per share, or if the Underwriters' overallotment
option is fully exercised, the Company will not need to make any bank
borrowings to finance the Patina Share Repurchase.
(e) Assumes 6,430,000 Patina Shares are repurchased from SOCO.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain directors and officers of the Company and SOCO and certain of their
respective affiliates have interests described herein that present them with
conflicts of interest as a result of the Transactions. In particular, (i) the
Management Investors will be participating in the Transactions via the
Management Stock Issuances (and the Management Investors will receive 500,000
shares of restricted Common Stock with an aggregate value of approximately $4.85
million, based on the September 18, 1997 closing sales price per share of $9.69
for the Common Stock and assuming that management's rights in such granted
shares have vested in full), (ii) Thomas Edelman has received from SOCO the
Edelman Option (which, as described herein, is only exercisable in certain
circumstances following the termination of the Secondary Offering and the Share
Repurchase Agreement, 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. See
"Description of the Transactions -- Reasons for the Transactions" and
"-- Interests of Certain Persons in the Transactions."
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<PAGE> 19
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the NYSE under the symbol "POG."
The Common Stock began trading on the NYSE 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 NYSE.
<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>
As described under "Description of the Transactions -- Background of the
Transactions", at the time that the definitive terms underlying the Transactions
were agreed to by the parties to the Transactions (including the formula for
calculating the conversion price for the New Preferred Stock and the exercise
price for the SOCO Options), the Common Stock was trading around $8.00 per
share. On July 31, 1997, the last trading day before public announcement that
the Company had agreed to the various Transactions, the high and low per share
sales price of the Common Stock on the NYSE was $8.50 and $8.38. 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. On September 18,
1997, the most recent practicable date prior to the printing of this Proxy
Statement, the high and low per share sales price of the Common Stock on the
NYSE was $9.75 and $9.69.
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 "Description of Certain
Indebtedness -- Credit Agreement."
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<PAGE> 20
RISK FACTORS
TRANSACTION RISKS
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 Patina Shares are sold in the Secondary Offering at a
Public Offering Price of $9.50 per share and that $57 million of New Preferred
Stock is issued), (i) the Company will have no additional outstanding
indebtedness (or no additional indebtedness if all $63 million of New Preferred
Stock is issued) 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 will accrue on the New Preferred Stock ($6.3 million
per year if all $63 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
total interest expense will be approximately $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. However, 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.
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, and not jointly, committed to purchase in the
aggregate a minimum of $40 million and a maximum of $63 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 $32.5
million, $22.5 million and $4.75 million, respectively (and 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 stockholders 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.
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
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<PAGE> 21
share (or $63 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. In addition, the terms of the New Preferred Stock
provide for a maximum conversion price of $9.50 per share (if the Public
Offering Price is $9.125 or higher), which conversion price reflects a discount
to the September 18, 1997 closing sales price per share of $9.69 for the Common
Stock. (If the Public Offering Price is lower than $9.125, the conversion price
will be the lower of (i) 10% over the Public Offering Price and (ii) $8.80.) The
actual discount of the conversion price for the New Preferred Stock as of the
date of its initial issuance (which is expected to occur immediately following
approval of the Transactions by the Company's stockholders at the Meeting and
the concurrent consummation of the Secondary Offering and the Patina Share
Repurchase) may be greater if the market price for the Common Stock as of such
date is higher than the market price for Common Stock as of the date of this
Proxy Statement or is equal to or greater than $9.00 but less than $9.125. For a
description of the material terms of the New Preferred Stock, including dividend
rights and redemption, conversion and voting provisions, see "Description of the
Definitive Agreements -- Preferred Stock Purchase Agreement."
Continued Reliance on SOCO. At the time of the sale of the Patina Shares
in the Secondary Offering, the Company will enter into 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.
Benefits to Affiliates and Management of the Company. Certain directors
and officers of the Company and SOCO and certain of their respective affiliates
have interests described herein that present them with conflicts of interest as
a result of the Transactions. In particular, (i) the Management Investors will
be participating in the Transactions via the Management Stock Issuances (and the
Management Investors will receive 500,000 shares of restricted Common Stock with
an aggregate value of approximately $4.85 million, based on the September 18,
1997 closing sales price per share of $9.69 for the Common Stock and assuming
that management's rights in such granted shares have vested in full), (ii)
Thomas Edelman has received from SOCO the Edelman Option (which, as described
herein, is only exercisable in certain circumstances following the termination
of the Secondary Offering and the Share Repurchase Agreement, 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). 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. See
"Description of the Transactions -- Reasons for the Transactions" and
"-- Interests of Certain Persons in the Transactions."
Effect of Stockholders' Approval at the Meeting; No Dissenters'
Rights. Pursuant to the Patina Share Repurchase, SOCO has agreed to vote its
shares of Common Stock (including its 2,000,000 shares of Series A Common Stock
that are entitled to three votes per share at all meetings of the Company's
stockholders) in favor of the Transactions. Therefore, as of the date hereof,
the requisite number of votes for the approval of the Transactions to be
considered at the Meeting is assured. The approval of the Transactions at the
Meeting may have the effect under applicable law of limiting or potentially
extinguishing possible claims that may be asserted against the Company in
connection with the Transactions, including possible claims alleging that the
Company's Board of Directors violated its fiduciary duties to stockholders as a
result of the Transactions involving directors with interests that present them
with potential conflicts. In addition, the Company's stockholders will not be
entitled to any appraisal rights under Delaware General Corporation Law as a
result of the Transactions.
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 Secondary Offering (as well as any sale
of shares of New Preferred Stock) could adversely affect the market price of the
14
<PAGE> 22
Common Stock. After giving effect to the Transactions (assuming that Patina
Shares are sold at a Public Offering Price of $9.50 per share and that $63
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, as described herein under "Description of the
Definitive Agreements -- Preferred Stock Purchase Agreement -- Registration
Rights," 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, the 160,000 shares of Common Stock to be issued by the Company at the
initial sale date to the New Preferred Stock Investors and the 70,000 Patina
Shares to be transferred by SOCO at the initial sale date to the New Preferred
Stock Investors. The Management Investors have also been granted certain limited
piggyback registration rights as described under "Description of the Definition
Agreement -- Management Stock Purchase Agreement and Restricted Stock Awards."
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 Chief Executive
Officer. Although the Company has a three-year employment agreement with Mr.
Edelman, the agreement only obligates Mr. Edelman to commit a substantial
portion of his working time to the Company; he is not required to devote all of
his time and effort to the business of the Company. 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
15
<PAGE> 23
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
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.
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.
Potential 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
Gulf Coast, Midcontinent and Appalachian 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 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 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
16
<PAGE> 24
to or originated by the Company or its employees, or if such proposals were not
specifically identified for either company, 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.
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.
FORWARD LOOKING INFORMATION
The Company's stockholders should consider carefully the risk factors
described above, in addition to the other information relating to the Company,
its capital stock and the Transactions described in this Proxy Statement, before
voting on the Transactions. This Proxy Statement contains certain
forward-looking statements, including statements containing the words
"believes," "anticipates," "expects," and words of similar 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 Proxy Statement. Certain of these
factors are discussed in more detail elsewhere in this Proxy Statement. Given
these uncertainties, the Company's stockholders are cautioned not to place undue
reliance on such forward-looking statements.
THE MEETING
DATE, TIME AND PLACE
The Meeting of the Company's stockholders will be held at the Company's
headquarters, 1625 Broadway, Denver, Colorado, on Friday, October 17, 1997, at
9:00 a.m. Mountain time.
RECORD DATE, VOTING AND QUORUM
The Record Date for the Meeting is September 2, 1997. As of the close of
business on the Record Date, there were outstanding 18,820,248 shares of Common
Stock, of which 14,000,000 were shares owned by SOCO (including 2,000,000 shares
of Series A Common Stock). Only stockholders of record at the Record Date are
entitled to notice of and to vote at the Meeting. For all matters to come before
the Meeting, each share of Common Stock (other than Series A Common Stock) is
entitled to one vote per share, and each share of Series A Common Stock is
entitled to three votes per share.
The presence in person or by proxy at the Meeting of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum for the transaction of business at the Meeting. Pursuant to the Patina
Share Repurchase, SOCO has agreed to cause its shares of Common Stock to be
present at, and to be voted in favor of the Transactions at, the Meeting.
THEREFORE, AS OF THE DATE HEREOF, THE PRESENCE OF THE REQUISITE NUMBER OF SHARES
TO CONSTITUTE A QUORUM AT THE MEETING IS ASSURED.
MATTERS TO BE CONSIDERED AT THE MEETING; REQUIRED VOTE; APPRAISAL RIGHTS
At the Meeting, the stockholders of the Company will be asked to consider
and vote upon four mutually conditioned proposals to approve the Transactions,
as follows: (i) a proposal to approve the Secondary Offering of 7,500,000 Patina
Shares (8,625,000 Patina Shares if the underwriters' overallotment option is
fully exercised, or such greater or lesser number as the underwriters, the
Company and SOCO may agree to include in the Secondary Offering); (ii) a
proposal to approve the Patina Share Repurchase by the Company of all remaining
Patina Shares that are not sold in the Secondary Offering (other than 70,000
Patina Shares which
17
<PAGE> 25
SOCO has agreed to transfer to the New Preferred Stock Investors); (iii) a
proposal to approve the New Preferred Stock Issuance by the Company to a limited
number of investors of between 1,600,000 and 2,520,000 shares (as determined by
the Company in its sole discretion) of the Company's New Preferred Stock,
including the related issuance by the Company to such investors of 160,000
shares of Common Stock; and (iv) a proposal to approve the Management Stock
Issuances providing for the issuance and sale by the Company to the Management
Investors of $3 million of Common Stock at the Public Offering Price and the
grant of 150,000 shares of restricted Common Stock to the Management Investors
(other than Mr. Edelman) as an inducement to invest in the Company and to
enhance their interest in its future success and the grant of 350,000 shares of
restricted Common Stock to Mr. Edelman as consideration for his efforts in
structuring and arranging the private placement of the New Preferred Stock. Each
of the proposals to be approved by the stockholders at the Meeting are mutually
conditioned upon the approval of the other related proposals. Therefore, a vote
against any of the proposals will have the effect of a vote against all of the
proposals. In addition, the stockholders of the Company will be asked to
consider and vote upon such other business as may properly come before the
Meeting.
Approval of the New Preferred Stock Issuance and the Management Stock
Issuances to be effected as part of the Transactions require the approval of the
holders of a majority of the total votes cast at the Meeting, provided that the
total votes cast represent over 50% of the number of outstanding shares of
capital stock of the Company entitled to vote at the Meeting. Pursuant to the
Patina Share Repurchase, SOCO has agreed to vote its shares of Common Stock in
favor of the Transactions. THEREFORE, AS OF THE DATE HEREOF, THE REQUISITE
NUMBER OF VOTES FOR THE APPROVAL OF THE TRANSACTIONS TO BE CONSIDERED AT THE
MEETING IS ASSURED. In addition, as of the Record Date, the directors and
executive officers of the Company and their affiliates (excluding SOCO and John
C. Snyder, Chairman and Chief Executive Officer of SOCO) owned as a group less
than 1.0% of the outstanding shares of Common Stock. Such directors and
executive officers of the Company have indicated that they and their affiliates
presently intend to vote all such shares in favor of the Transactions. See
"Security Ownership of Certain Beneficial Owners and Management."
The Company's stockholders are not entitled to any appraisal rights under
Delaware General Corporation Law as a result of the Transactions.
THE COMPANY'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
UNANIMOUSLY DETERMINED THAT THE TRANSACTIONS ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE TRANSACTIONS AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE TRANSACTIONS.
VOTING OF PROXIES
All shares of the Common Stock represented by properly executed Proxies
received in time for the Meeting will be voted in the manner specified in the
Proxy. Proxies that do not contain any instruction to vote for or against or to
abstain from voting on a particular matter will be voted in favor of such
matter. It is not expected that any matter other than those referred to herein
will be brought before the stockholders at the Meeting. However, if other
matters are properly presented, the persons named as proxies will vote in
accordance with their best judgment with respect to such matters, unless
authority to do so is withheld in the Proxy.
Brokers who hold shares of Common Stock in street name for customers who
are the beneficial owners of such shares are prohibited from giving a proxy to
vote such customers' shares with respect to any proposal in the absence of
specific instructions from such customers ("broker non-votes"). Abstentions do
not constitute a vote "for" or "against" any matter and will be disregarded in
the calculation of "votes cast" for the New Preferred Stock Issuance. Similarly,
broker non-votes will be treated as not present and not entitled to vote with
respect to the New Preferred Stock Issuance and therefore will be disregard in
the calculation of "votes cast" for the New Preferred Stock Issuance.
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<PAGE> 26
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Meeting is adjourned for any reason, the approval of the
Transactions will be considered and voted upon by stockholders at the subsequent
reconvened meeting, if any.
A stockholder may revoke a Proxy prior to the time the shares represented
by such Proxy are voted at the Meeting by: (i) delivering to the Secretary of
the Company a written notice of revocation of a Proxy or a duly executed Proxy
relating to the same shares and matters to be considered at the Meeting bearing
a date later than the Proxy previously executed; (ii) attending and voting in
person at the Meeting; or (iii) giving notice of revocation of a Proxy at the
Meeting. Attendance at the Meeting will not in and of itself constitute
revocation of a Proxy. Unless revoked in one of the manners set forth above,
Proxies in the form enclosed will be voted at the Meeting in accordance with
such stockholder's instructions. All written notices of revocation and other
communications with respect to revocation of Proxies should be addressed to
Patina Oil & Gas Corporation, Attention: Investor Relations, 1625 Broadway,
Suite 2000, Denver, Colorado 80202, and must be received before the taking of
the votes at the Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies. In addition
to solicitation by mail, the directors, officers and employees of the Company
and its subsidiaries may solicit Proxies from stockholders of the Company by
telephone, telecopy or in person. Such directors, officers and employees will
not be additionally compensated for any such solicitation but may be reimbursed
for out-of-pocket expenses in connection therewith. Arrangements will be made to
furnish copies of proxy materials to fiduciaries, custodians and brokerage
houses for forwarding to beneficial owners of the Company's Common Stock. Such
persons will be paid reasonable out-of-pocket expenses.
DESCRIPTION OF THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
In early 1996, the Company was formed to hold the Wattenberg assets of SOCO
and to facilitate the Gerrity Acquisition which was consummated in May 1996.
Following the Gerrity Acquisition, SOCO owned 14,000,000 shares of the Company's
Common Stock (including 2,000,000 shares of the Company's Series A Common
Stock), representing approximately 70% of the Company's outstanding Common Stock
at such time (and approximately 75% of the aggregate voting power), and the
Gerrity stockholders owned in the aggregate 6,000,000 shares of the Company's
Common Stock, representing approximately 30% of the Company's outstanding Common
Stock (and approximately 25% of the aggregate voting power). Thomas J. Edelman,
the former president of SOCO, structured and negotiated the Gerrity Acquisition
and has served as the Chief Executive Officer of the Company since its
inception. Following the Gerrity Acquisition, SOCO has been the Company's major
stockholder and currently owns approximately 74% of the Company's outstanding
Common Stock. Two of SOCO's directors, John C. Snyder and William J. Johnson,
are currently on the Company's Board of Directors.
In March 1997, Mr. Snyder initially discussed with Mr. Edelman his desire
to have Mr. Edelman structure and arrange a buyout of SOCO's entire interest in
the Company. At that time, Mr. Edelman did not commit to taking any actions in
respect of structuring and arranging such a transaction. In mid-March 1997, Mr.
Snyder met with the SOCO Board of Directors to discuss various strategic
alternatives for SOCO, including the possible divestiture of SOCO's 74% stock
ownership in the Company. Following this SOCO Board meeting, on April 2, 1997,
SOCO's Board of Directors retained Petrie Parkman & Co., Inc. as its financial
advisor ("Petrie Parkman") to advise SOCO on its various strategic alternatives.
SOCO and Petrie Parkman initially determined that, based on Petrie Parkman's
assessment of the Company and its operations and prospects, the acquisition
market for oil and gas companies in general and in the D-J Basin in particular
and the potential companies that may be interested in pursuing a business
combination with the Company, it would have been difficult to predict the level
and strength of resulting bid prices if SOCO and the Company sought to sell the
Company through an auction process. Therefore, in light of the strategic
importance to
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SOCO of divesting its shares in the Company, SOCO and Petrie Parkman determined
that a transaction in which SOCO's shares of Common Stock were repurchased by
the Company and/or sold in an underwritten public offering would give SOCO an
assured exit from its stake in the Company. In addition, SOCO desired to
structure a transaction that would not preclude the possibility of a third party
entering into a business combination with the Company in which SOCO would be
able to sell its shares of Common Stock.
In early April 1997, Mr. Edelman met with a representative of Petrie
Parkman at which meeting Petrie Parkman reiterated the SOCO Board of Directors'
desire that Mr. Edelman structure and arrange a transaction, other than an
auction for the entire Company, providing for the sale of SOCO's interest in the
Company. At this meeting, Mr. Edelman agreed that, based on SOCO's desire to
divest its interest in the Company, he would begin to review the possibility of
such a transaction, as well as exploring the possibility of other alternative
transactions. Following this meeting, Mr. Edelman preliminarily outlined a
possible transaction that contemplated the buyout of the Patina Shares through a
combination of: (i) a share repurchase by the Company of a portion of the Patina
Shares (financed in part by borrowings under the Company's existing credit
facility); and (ii) the receipt of commitments from a limited number of
investors for the purchase of newly issued equity securities of the Company
(with no public secondary offering of any Patina Shares). The initial proposed
transactions provided for the limited number of new equity investors to pay a
portion of their newly-acquired shares, with an aggregate value equal to $2.5
million, to Mr. Edelman as a promotional interest for structuring and arranging
the proposed transactions and continuing in his capacity as chief executive
officer of the Company. Mr. Edelman then contacted the Company's lead bank, as
well as a limited number of investors, regarding the possibility of
participating in the transactions that Mr. Edelman had preliminarily outlined.
Based in part on the discussions with the Company's lead bank and the
prospective investors, Mr. Edelman contacted SOCO and Petrie Parkman in late
April 1997 and confirmed with them the preliminary structure for the possible
transactions. SOCO and Petrie Parkman indicated their preliminary support for
the proposed structure.
Following receipt of SOCO's preliminary support, Mr. Edelman proceeded to
discuss the outline of the proposed transactions with members of the Company's
Board of Directors and, in mid-May 1997, the Company's Board of Directors had
its first meeting at which the proposed SOCO transaction was discussed. At that
meeting, the Company's Board of Directors agreed that an independent committee
of directors should be formed to review any proposed transactions with SOCO and
such independent committee should deliver its recommendation in respect of such
transactions to the Company's full Board of Directors. The Independent Committee
was then formed, consisting of Messrs. Robert J. Clark, Jay W. Decker and
Alexander P. Lynch (with Mr. Lynch as the chairman). The Independent Committee
decided to engage legal counsel to advise it on the various legal issues arising
in connection with the review and recommendation of transactions between the
Company and SOCO. Following its review of the terms of the proposed
transactions, the Independent Committee informed Mr. Edelman that they believed
the transactions as proposed required the Company to incur an unacceptable level
of additional bank borrowings and granted the preferred stock investors certain
economic terms, including a proposed dividend rate and a proposed conversion
rate, that were unacceptable.
On May 28, 1997, the Company's Board of Directors held its regularly
scheduled meeting during which the proposed terms for the SOCO transactions were
discussed. At this meeting, the Board, together with representatives of Petrie
Parkman, determined to add a public secondary offering for a portion of the
Patina Shares to the proposed structure and thereby reduce or eliminate the
amount of bank borrowings necessary for the Company's repurchase of Patina
Shares from SOCO. The Board directed Mr. Edelman to continue developing the
specific terms and conditions with respect to the proposed transactions,
continue his discussions with the Company's lead bank and the prospective
preferred stock investors and to arrange for an underwriting syndicate for the
public offering of a portion of the Patina Shares. Following this meeting, Mr.
Edelman enlisted the assistance of certain members of the Company's senior
management to analyze the proposed transactions, as revised, and begin
preparation of materials describing the proposed transactions, including a
preliminary draft of a private placement memorandum for the issuance of the new
series of the Company's preferred stock to a limited number of investors and a
summary description of the Company and the proposed transactions for use in a
registration statement for a public offering of Patina Shares.
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In late-May 1997 and early-June 1997, Mr. Edelman met initially with
representatives of Smith Barney Inc. ("Smith Barney") and later with
representatives of the other Underwriters to discuss the possibility of the
Underwriters making up a syndicate for a secondary stock offering of a portion
of Patina Shares. Smith Barney and the other Underwriters agreed to the proposed
engagement and they began working, together with the Company's management and
the Company's legal counsel, on a draft of a registration statement for a
secondary offering of a portion of Patina Shares.
During the first three weeks of June 1997, Mr. Edelman had numerous
discussions and meetings with representatives of First Reserve Corporation,
Chase Capital Partners and Highbridge Capital Management, the initial
prospective preferred stock investors, with the Underwriters and with individual
members of the Company's Board of Directors, in which the various terms and
conditions in respect of the proposed transactions were reviewed and negotiated.
In these discussions, the Underwriters and the New Preferred Stock Investors
required that, as part of the proposed transactions, Mr. Edelman make at least a
three-year commitment to the Company and Smith Barney, Morgan Stanley, Dean
Witter and Paine Webber, as representatives of the Underwriters, required that
Mr. Edelman not receive shares of the New Preferred Stock as his promotional
interest. In response to the Underwriters' and the New Preferred Stock
Investors' requests, in mid-June 1997, the Company and Mr. Edelman determined
that the proposed transactions would include the purchase of shares of Common
Stock by the Management Investors and the grant of shares of restricted Common
Stock to the Management Investors, together with an employment agreement for Mr.
Edelman and the grant of additional vested options to Mr. Edelman. The
promotional fee to be paid by the New Preferred Stock Investors to Mr. Edelman
was replaced by the grant by the Company of 350,000 shares of restricted Common
Stock to Mr. Edelman. In addition, Mr. Edelman proposed that the enhanced equity
arrangement for the Management Investors be included as part of the transactions
so that the other members of the Company's management would be given significant
incentives to enhance their interest in the Company's future success.
In late-June 1997, Mr. Edelman contacted Mr. Snyder and reported to him the
status of the various discussions and described the most current refinements in
respect of the proposed transactions. Mr. Snyder confirmed his and the SOCO
Board's desire to proceed with the proposed transactions and encouraged Mr.
Edelman to continue to negotiate and structure the terms of the proposed
transactions. Mr. Snyder requested, however, that Petrie Parkman, on behalf of
SOCO, be given an opportunity to contact a limited number of third parties
regarding such parties' interest in a possible business combination with the
Company. Mr. Edelman agreed that SOCO should have the opportunity to make such
contacts provided that SOCO and Petrie Parkman agree that they would inform the
Company of any proposals received and, at the time that the Underwriters
commenced their marketing efforts for the sale of Patina Shares in the
contemplated offering, SOCO and its advisors would cease for a period of time
any discussions or other activities with respect to an alternative transaction
with any third party. Following the agreement by SOCO and the Company to the
proposed arrangement, SOCO entered into confidentiality agreements with a number
of parties and provided information to, and engaged in preliminary discussions
with, such parties. However, none of those discussions advanced beyond the
preliminary stage.
Through the first part of July, the Underwriters participated in a number
of drafting sessions for the preparation of the registration statement for the
secondary offering of Patina Shares and the prospective preferred stock
investors continued to review and negotiate the terms of the preferred stock to
be issued by the Company. As a result of the Underwriters' and the prospective
stock preferred investors' respective review of the proposed transactions,
additional revisions were made to the terms of the proposed transactions.
On July 13 and 15, 1997 the Independent Committee held a telephonic meeting
at which the current status of the proposed transactions was discussed and
reviewed. At this meeting, the Independent Committee decided to engage A.G.
Edwards as its financial advisor to deliver a fairness opinion to the
Independent Committee in respect of the proposed transactions.
In mid-July 1997, Mr. Edelman confirmed with the prospective preferred
stock investors their commitments to participate in the proposed transactions,
subject to negotiation of definitive agreements. On July 17, 1997, the Company's
Board of Directors held a telephonic meeting during which the Board confirmed
its
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continued support for the proposed transactions, subject to the final
recommendation of the Independent Committee, and directed that Mr. Edelman
continue his efforts negotiating the final terms and provisions of the proposed
transactions, including the terms of his proposed employment agreement. In
late-July 1997, Mr. Edelman discussed with Mr. Snyder the most recent revisions
to the terms of the proposed transactions, and Mr. Snyder agreed to such
revisions.
On July 30, 1997, the Independent Committee held a meeting to consider the
proposed transactions, which meeting was attended by A.G. Edwards and the
Independent Committee's legal advisors. At this meeting, the Independent
Committee received A.G. Edwards' advice that, as of the date of such meeting,
subject to certain assumptions and conditions, the Patina Share Repurchase was
fair from a financial point of view to the Non-Affiliated Stockholders and 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 was fair, from a financial point of view, to the Non-Affiliated
Stockholders. A.G. Edwards also presented certain written materials to the
Independent Committee with respect to the various valuation analyses made by
A.G. Edwards. After a lengthy discussion, the Independent Committee determined
that, based on the contemplated conversion ratio set forth in the terms of the
New Preferred Stock (which was initially structured to be set at 10% over the
Public Offering Price, subject to a maximum of $8.80), the issuance of the New
Preferred Stock should be conditioned upon A.G. Edwards reconfirming and
updating its fairness report as of the date of such issuance. The Independent
Committee noted, in its discussions, that the conversion price in respect of the
New Preferred Stock (including the maximum price) had been negotiated and set at
the time that the Company's Common Stock was trading on the NYSE around $8.00
per share. On July 30, 1997, the closing sales price of the Common Stock on the
NYSE was $8.625. As a result of the Independent Committee's determination,
revisions to the proposed transactions were negotiated among the various parties
involved in the Transactions to include a condition to the initial issuance of
the New Preferred Stock that A.G. Edwards reconfirm its July 30 fairness report
as of the date of such issuance. In exchange for the addition of this condition,
the Company agreed to add a "break-up" fee payment represented by the Company's
issuance of 230,000 shares of Common Stock to the New Preferred Stock Investors
if the Company failed to issue the New Preferred Stock because of A.G. Edwards'
inability to reconfirm its earlier fairness report. Upon the agreement of the
parties to these revisions, the Independent Committee determined that it would
recommend that the Company's Board of Directors approve the Transactions as
being fair to and in the best interests of the Company and its stockholders.
On July 31, 1997, following confirmation that SOCO's Board of Directors had
approved the Transactions, the Company's Board of Directors met, together with
the Company's legal advisors, to review and approve the Transactions. Mr. Lynch,
as chairman of the Independent Committee, confirmed the Independent Committee's
recommendation that the Company's Board approve the Transactions. In addition,
the Company's legal advisors reviewed with the Company's Board the terms of the
various definitive agreements to be executed in connection with the
Transactions. After discussion and consideration, the Company's Board of
Directors voted unanimously to approve the Transactions. The Preferred Stock
Purchase Agreement and the Share Repurchase Agreement and certain of the other
related agreements were then executed and delivered by, as applicable, the
Company, SOCO, the New Preferred Stock Investors and the other signatories
thereto. On August 1, 1997, the Company and SOCO filed the Registration
Statement in respect of the Secondary Offering with the Commission and
thereafter the Transactions were publicly announced by each of the Company and
SOCO.
During the period from the end of July 1997 through early September 1997,
the market price of the Common Stock increased from approximately $8.50 per
share to approximately $9.50 per share. On September 11, 1997, the Independent
Committee held a telephonic meeting to discuss the effect of the increase in the
price of the Common Stock on the Transactions and in particular on the ability
of A.G. Edwards to reconfirm its July 30 fairness report with respect to the
issuance of the New Preferred Stock. Following discussions with A.G. Edwards,
the Independent Committee determined that, at the then current market prices for
the Common Stock, A.G. Edwards would likely be unable to reconfirm its fairness
report and therefore the Independent Committee could not continue to recommend
the Board's approval of the
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issuance of the New Preferred Stock as part of the Transactions. Following this
meeting, Mr. Lynch discussed the Independent Committee's concerns with Mr.
Edelman and confirmed with A.G. Edwards that, at the then current market prices
for the Common Stock, it would not be able to reconfirm its earlier fairness
report due to the conversion price of the New Preferred Stock being fixed at
$8.80. As a result of the Independent Committee's inability to continue to
recommend the Board's approval of the issuance of the New Preferred Stock, Mr.
Edelman contacted the New Preferred Stock Investors to negotiate additional
revisions to the terms of the New Preferred Stock. The changes agreed to by the
Company and the New Preferred Stock Investors consisted of (i) a change in the
calculation of the conversion price which results in an increase of the
conversion price to $9.50 if the Public Offering Price is equal to $9.125 or
higher (with the conversion price continuing to be calculated as originally
structured if the Public Offering Price is less than $9.125), (ii) the removal
of the condition to the initial issuance of the New Preferred Stock that A.G.
Edwards be required to reconfirm its earlier fairness report (and the removal of
the payment by the Company of the 230,000 shares of Common Stock as a "break-up"
fee if the Company failed to issue the New Preferred Stock because such
condition was not satisfied), and (iii) in exchange for the New Preferred Stock
Investors' agreement to the potential increase in the conversion price, the
issuance of an additional 60,000 shares of Common Stock by the Company and the
transfer of 70,000 Patina Shares by SOCO to the New Preferred Stock Investors at
the initial issuance of the New Preferred Stock.
At a September 19, 1997 meeting, the Independent Committee received A.G.
Edwards' written advice that, as of the date of such meeting, subject to certain
assumptions and conditions and based on financial information available on and
as of September 15, 1997, the Patina Share Repurchase was fair from a financial
point of view to the Non-Affiliated Stockholders and that, taking into account
the terms and conditions of the New Preferred Stock (including the revised terms
described above), 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 was fair, from a financial point of view, to
the Non-Affiliated Stockholders. A.G. Edwards also redelivered certain written
materials to the Independent Committee which updated the various valuation
analyses previously made by A.G. Edwards (which updated analyses are summarized
below under "Opinion of Financial Advisor to the Independent Committee"). The
Independent Committee determined that it would recommend that the Company's
Board of Directors approve the Transactions, as revised, as being fair to and in
the best interests of the Company and its stockholders.
On September 19, 1997, following confirmation that SOCO's Board of
Directors had approved the revisions to the terms of the issuance of the New
Preferred Stock (including the delivery by SOCO of the 70,000 Patina Shares to
the New Preferred Stock Investors), the Company's Board of Directors unanimously
approved the Transactions. Amendments to each of the Preferred Stock Purchase
Agreement and the Share Repurchase Agreement were then executed and delivered by
the parties thereto. On September 18, 1997, the most recent practicable date
prior to the printing of this Proxy Statement, the closing sales price of the
Common Stock on the NYSE was $9.69.
REASONS FOR THE TRANSACTIONS
At the meeting of the Company's Board of Directors on September 19, 1997,
the Board approved the Transactions and determined that the Transactions were
fair to and in the best interests of the Company and its stockholders. In
reaching this determination, the Company's Board of Directors considered the
following factors:
1. The Board considered its knowledge of the management, business,
operations, properties, assets, financial condition, operating results and
prospects of the Company, including the Company's contemplated business
strategies. See "Parties to the Transactions -- The Company -- Business
Strategy."
2. The Board considered the fact that SOCO, the holder of
approximately 74% of the Company's outstanding Common Stock, had expressed
its intention to divest its Patina Shares as part of a strategic initiative
to simplify SOCO's corporate structure, and the fact that SOCO held
registration rights in respect of the Patina Shares permitting SOCO to
demand that the Company register the Patina Shares for sale under the
Securities Act.
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3. The Board considered the various reports from the Company's
management and financial and legal advisors, and the recommendation of the
Independent Committee that the Board approve the Transactions.
4. The Board considered the oral and written presentations of A.G.
Edwards and the opinion of A.G. Edwards that as of September 19, 1997,
subject to certain assumptions and conditions, the Patina Share Repurchase
was fair from a financial point of view to the Non-Affiliated Stockholders
and 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 was fair, from a financial point of view, to the
Non-Affiliated Stockholders.
5. The Board considered the negotiations that had taken place with
SOCO, the New Preferred Stock Investors and the other parties to the
Transactions concerning the structure and arrangement of the final terms
and provisions of the Transactions (including the negotiations in September
1997 for certain revisions of the New Preferred Stock Issuance with respect
to, among other things, the issuance by the Company of an additional 60,000
shares of Common Stock to the New Preferred Stock Investors, as described
above under "-- Background of the Transactions"). In addition, the Board
considered the terms of the Management Stock Issuances and determined that
the grant of 150,000 shares of restricted Common Stock to the Management
Investors (other than Mr. Edelman) provided them with reasonable incentives
to enhance their interest in the Company's future success and to induce
them to purchase additional shares of Common Stock, based on the Company's
dependence on such Management Investors and the Company's need to arrange
and consummate the Transactions in a timely manner. The Board also
considered the grant of 350,000 shares of restricted Common Stock to Mr.
Edelman as consideration for his efforts in structuring and arranging the
private placement of the New Preferred Stock and determined that such grant
was fair based on the significance of Mr. Edelman's efforts to the
Company's ability to consummate the Transactions, the fact that the
Underwriters requested that Mr. Edelman not receive shares of New Preferred
Stock from the New Preferred Stock Investors as a promotional interest and
the fact that the Company had not engaged any broker or placement agent to
facilitate the sale of the New Preferred Stock to the New Preferred Stock
Investors (and the fact that the grant of such shares represented an
arrangement fee of approximately 5.8% (assuming that $57 million of New
Preferred Stock is issued, the full vesting of Mr. Edelman's shares and per
share price of $9.50 for such shares), which fee was considered reasonable
by the Board for the private placement of the New Preferred Stock). See
"-- Background of the Transactions."
6. The Board considered the results of discussions between SOCO and
its advisors and third parties regarding a possible business combination
with the Company. See "-- Background of the Transactions."
7. The Board considered that the consummation of the Transactions may
increase the risks associated with the Common Stock, including an increased
level of leverage, the addition and influence of the holders of New
Preferred Stock and the preferences to be granted to such New Preferred
Stock, the benefits to be provided to the Management Investors, the absence
of dissenters' rights and the number of shares eligible for future sale.
See "Risk Factors -- Transaction Risks."
8. The Board considered the fact that, although the holders of the
New Preferred Stock would own (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) as of the
closing date approximately 34% of the voting power of the Company's
outstanding voting securities (which percentage would increase to
approximately 37% by the end of the two-year pay-in-kind dividend period),
the Transactions did not result in a change of control of the Company. In
this determination, the Board considered the provisions contained in the
Preferred Stock Purchase Agreement requiring that the New Preferred Stock
Investors agree to various standstill and stock transfer restrictions that
extend, subject to certain exceptions described under "Description of the
Definitive Agreements -- Preferred Stock Purchase
Agreement -- Confidentiality and Standstill Restrictions," for a five-year
period and generally prohibit the New Preferred Stock Investors from
acquiring additional voting securities of the Company,
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disposing of any of the Company's voting securities to any person that
would be the beneficial owner of more than 7.5% of the Company's
outstanding voting securities or taking certain actions to seek control of
the Company, as well as the fact that the largest holder of New Preferred
Stock would own less than 20% of the voting power of the Company's
outstanding voting securities.
9. The Board considered the influence that designees of the New
Preferred Stock Investors will have in the Company's affairs given their
two Board seats and ownership of in the aggregate approximately 34% of the
voting power of the Company's outstanding voting securities. But the Board
considered the extent of independence that the Company will retain
following the consummation of the Transactions given the fact that the New
Preferred Stock Investors will be entitled to designate only two of the
seven directors on the Company's Board of Directors and that a majority of
the directors will be independent directors.
10. The Board considered the fact that all of the Company's existing
stockholders (other than SOCO) would retain their entire equity interest in
the Company, that the anticipated trading volume of the Company's Common
Stock would increase significantly as a result of the Secondary Offering
and that all of the Company's existing stockholders (other than SOCO) would
be able to fully participate in any future improvement in the Company's
operating performance that might occur following the consummation of the
Transactions.
11. The Board considered the benefits to the Company that would be
derived from having representatives of First Reserve Corporation and Chase
Capital Partners, affiliates of the two largest holders of the New
Preferred Stock, join the Board and assist the Board in planning the
Company's strategic course.
12. The Board considered the impact on the Company of terminating its
existing business opportunity agreement and corporate services agreement
with SOCO, effective as of the closing of the Transactions, and the need to
enter into the Transition Agreement with SOCO for the one-year period
following the closing. The Board further considered the impact of having
Messrs. Snyder and Johnson, SOCO's representatives, resign from the Board
at the closing of the Transactions.
13. The Board considered the implications of having additional
preferred stockholders in the Company owning (based on the assumptions set
forth above in paragraph number 8) initially approximately 34% in the
aggregate (and up to approximately 37% in the aggregate) of the voting
power of the Company's outstanding voting securities and the conflicts of
interest that might arise and the potential discouraging effect on other
transactions that might result from such shareholding.
14. The Board considered the purchase price of $25.00 per share for
each share of New Preferred Stock and the formula for determining the
conversion price for the New Preferred Stock (including the fact that such
conversion price could not exceed $9.50 per share, which conversion price
reflected a discount to the September 18, 1997 closing sales price per
share of $9.69 for the Common Stock), as well as the anticipated price
range for the sale of Patina Shares in the Secondary Offering, and the
relationship of such prices to the current and historical market prices of
the Common Stock. The Board noted in its considerations that the conversion
price in respect of the New Preferred Stock had been originally negotiated
and set at the time that the Common Stock was trading on the NYSE around
$8.00 per share and had been renegotiated and set at the time that the
Common Stock was trading on the NYSE around $9.50 per share. The Board
further considered that the revised terms of the New Preferred Stock did
not require as a condition to issuance that A.G. Edwards reconfirm its
earlier fairness report and that, if the market price of the Common Stock
increased from current trading levels or is equal to or greater than $9.00
but less than $9.125, the actual discount of the conversion price of the
New Preferred Stock to the market price of the Common Stock could increase.
The Board determined that the revisions providing for the removal of such
condition, together with the addition of the Company's issuance of 60,000
additional shares of Common Stock to the New Preferred Stock Investors,
were fair based on the potential increase renegotiated with the New
Preferred Stock Investors to the conversion price from the original maximum
conversion price (and in light of current and historical market prices for
the Common Stock) and the need to assure a timely completion of the
Transactions.
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15. The Board considered that the consummation of the Patina Share
Repurchase was conditioned upon the Company's receipt of sufficient funds
to finance such repurchase through the New Preferred Stock Issuance or
available bank borrowings. The Board also considered the fact that if,
under certain circumstances described herein, SOCO determined not to
proceed with the Transactions, the Company would be entitled to receive
certain expense reimbursement payments from SOCO.
The foregoing discussion of the information and factors considered and
given weight by the Company's Board of Directors is not intended to be
exhaustive. In view of the variety of factors considered in connection with its
evaluation of the Transactions, the Board did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determinations. At the meeting of the Company's
Independent Committee on September 19, 1997, the Independent Committee
determined to recommend that the Board approve the Transactions and, in reaching
this determination, the Independent Committee considered a number of factors,
including the factors outlined above (other than the factors related to the
Independent Committee's recommendation).
APPROVAL OF THE TRANSACTIONS
The Board of Directors of the Company established an Independent Committee
consisting of independent directors not affiliated with either the Company or
SOCO and such committee has recommended to the Board of Directors that the Board
approve the Transactions as being fair, from a financial point of view, to the
Company and its stockholders. In reaching its conclusion as to the fairness of
the Transactions, the Independent Committee considered the written advice of its
financial advisor, A.G. Edwards, which is subject to certain assumptions and
conditions, concerning the fairness from a financial point of view, as of
September 19, 1997, to the Non-Affiliated Stockholders of the Patina Share
Repurchase and the consideration to be paid to the Company for the New Preferred
Stock. A.G. Edwards is one of the Underwriters of the Secondary Offering. See
"-- Secondary Offering" below.
THE COMPANY'S BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS
UNANIMOUSLY DETERMINED THAT THE TRANSACTIONS ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS HAS APPROVED THE TRANSACTIONS AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE TRANSACTIONS. In reaching its determination,
the Board of Directors considered, among other things, the recommendation of the
Independent Committee that the Board approve the Transactions and the
consideration by the Independent Committee of A.G. Edwards' fairness opinion.
See "-- Reasons for the Transactions."
OPINION OF FINANCIAL ADVISOR TO THE INDEPENDENT COMMITTEE
The Independent Committee retained A.G. Edwards to act as its financial
advisor and to render an opinion (i) regarding the fairness, from a financial
point of view, to the Non-Affiliated Stockholders of the Patina Share Repurchase
and (ii) 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.
On September 19, 1997, A.G. Edwards rendered to the Independent Committee
its written opinion that, as of such date, based on financial information
available to A.G. Edwards on and as of September 15, 1997 and based upon and
subject to certain matters, (i) the Patina Share Repurchase 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, taking into
account the terms and conditions of 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. A.G.
Edwards was not requested to and will not express any opinion on the Secondary
Offering or the Management Stock Issuances or the determination by the Company
and the Board to consummate (including their determination of the manner of
consummation) any of the Transactions, including without limitation the issuance
and sale of the New Preferred Stock. A.G. Edwards' opinion assumes the
consummation of all of the Transactions.
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A.G. 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. A.G. Edwards was selected
as financial advisor based upon such expertise, its reputation in investment
banking and mergers and acquisitions, and its historical relationship with the
Company and certain of the Company's stockholders. As part of the Gerrity
Acquisition, A.G. Edwards was engaged by the Company to deliver a written
opinion regarding the fairness to Gerrity from a financial point of view, of its
entering into a certain Subordinate Loan Agreement, dated as of May 2, 1996 by
and among Gerrity, as borrower, and SOCO Wattenberg Corporation ("SWAT") and the
Company, as lenders, as amended by an amendment dated May 2, 1996, and A.G.
Edwards received a fee for that opinion. A.G. Edwards was also engaged to
deliver a written opinion regarding the fairness, from a financial point of
view, to the holders of Gerrity's 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 Gerrity, would receive in
exchange for each Depository Share 0.527 shares of the Company's Old Preferred
Stock and A.G. Edwards received a fee for such opinion. A.G. Edwards is also
engaged to be a co-managing underwriter for the Secondary Offering, for which it
will receive customary fees, and currently intends on issuing a research report
on the Company subsequent to the Secondary Offering.
In arriving at its opinion dated as of September 19, 1997, A.G. Edwards
considered (among other things): (i) the Preferred Stock Purchase Agreement, the
Share Repurchase Agreement, the draft S-3 Registration Statement and the
Preliminary Proxy Statement; (ii) available information concerning the Company
which it deemed relevant, including the Company's audited financial statements
for each of the years in the three-year period ended December 31, 1996, and the
Company's unaudited financial statements for the six-month periods ended June
30, 1997 and 1996; (iii) the unaudited capitalization of the Company at June 30,
1997 as adjusted to give effect to the Transactions, as prepared by the
Company's management; (iv) a financial forecast prepared by the Company's
management for the six months ended December 31, 1997 and the fiscal years 1997
to 2001 (which forecasts were prepared assuming (x) the Company's future oil and
gas production remains consistent with the Company's reserve report as of
December 31, 1996, (y) wellhead oil and gas prices are based upon futures
contracts quoted in July 1997 and (z) the Company's other revenues and expenses
remain consistent with past public disclosures thereof by the Company); (v)
certain other internal operating and financial information of the Company
supplied to A.G Edwards, at its request, by the Company, concerning the business
and operations of the Company for the purposes of its analysis; (vi) certain
market data of the Company's Common Stock and Old Preferred Stock; (vii) certain
publicly available information concerning certain other companies that it
believed to be generally comparable to the Company, and the trading of, and
trading markets for, certain of such companies' securities; (viii) 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 it
considered relevant; (ix) information relating to the financial terms of certain
other publicly traded and privately placed convertible preferred stock issues
and straight preferred stock issues that it considered relevant; (x) analysis
of, to the extent available, certain studies prepared by a variety of third
parties regarding premiums paid in transactions involving restricted stock; and
(xi) other information that it considered relevant to its analysis. In addition,
A.G. Edwards met with members of management of the Company to discuss certain of
the foregoing items and other matters it believed relevant to its inquiry.
In rendering its opinion dated as of September 19, 1997, A.G. Edwards has
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
A.G. Edwards for purposes of such opinion, and such opinion is conditioned upon
such information being complete and accurate in all material respects. With
respect to financial forecasts and other information provided to or otherwise
discussed with A.G. Edwards, it assumed, and it has been advised by the senior
management of the Company, that such forecasts and other information were
reasonably prepared on a basis that reflects the best currently available
estimates and business judgments of the senior management of the Company. A.G.
Edwards did not prepare or utilize different financial forecasts other than the
financial forecasts delivered to it by the Company. The Independent Committee
has not specifically engaged A.G. Edwards to, and therefore A.G. Edwards has
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not, verified the accuracy or completeness of any such information nor has A.G.
Edwards made any evaluation or appraisal of any assets or liabilities of the
Company. A.G. Edwards' September 19 opinion does not address the relative merits
of the New Preferred Stock or the Patina Share Repurchase as compared to any
other transaction in which the Company might engage and such opinion was
necessarily based upon financial information as of September 15, 1997 and other
conditions and circumstances existing and disclosed to it as of September 19,
1997.
THE FULL TEXT OF THE OPINION OF A.G. EDWARDS DATED SEPTEMBER 19, 1997
SETTING FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
REVIEWS UNDERTAKEN, IS ATTACHED HERETO AS ANNEX F TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ
THE SEPTEMBER 19 OPINION, TOGETHER WITH THE ASSUMPTIONS AND CONSIDERATIONS SET
FORTH THEREIN, IN ITS ENTIRETY. A.G. EDWARDS' SEPTEMBER 19 OPINION AS EXPRESSED
HEREIN, IN ANY EVENT, IS LIMITED TO: (I) THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE PATINA SHARE REPURCHASE TO THE NON-AFFILIATED STOCKHOLDERS AND (II)
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, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE
COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE MEETING. THE SUMMARY OF
THE SEPTEMBER 19 OPINION OF A.G. EDWARDS SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
The following is a summary of the analyses used by A.G. Edwards in
rendering its September 19 opinion.
Comparable Company Analysis. Using publicly available information, A.G.
Edwards reviewed and compared the Company with financial and operating
information of 14 publicly traded oil and gas companies (the "Comparable
Companies"). A.G. Edwards considered domestic companies primarily producing in
the Rocky Mountain region, companies primarily operating in mature basins with
blanket formations or companies that have grown primarily through an aggressive
domestic acquisition strategy. Comparable Companies considered were Barrett
Resources Corp.; Cabot Oil & Gas Corp.; Costilla Energy, Inc.; Devon Energy
Corp.; HS Resources, Inc.; Key Production Company, Inc; Lomak Petroleum, Inc.;
Mallon Resources Corp.; National Energy Group, Inc.; Plains Resources Inc.;
Prima Energy Corp.; Titan Exploration, Inc.; Tom Brown, Inc.; and Vintage
Petroleum, Inc.
A.G. Edwards considered, among other things: (i) the Comparable Companies'
market capitalization (common equity value, plus the book value of debt,
minority interest and the market value or liquidation preference of preferred
stock less cash and marketable securities) to the latest twelve months ("LTM")
earnings before interest expense, income taxes, depreciation, depletion and
amortization, exploration expense and any non-recurring revenue and expenses
("EBITDAX") and 1997 and 1998 estimated EBITDAX based on currently available
research reports as of September 15, 1997; (ii) the Comparable Companies' market
equity value to LTM cash flow from operations before changes in working capital
("CFFO") and 1997 and 1998 estimated CFFO based on FirstCall Research estimates
or currently available research reports as of September 15, 1997; (iii) the
Comparable Companies' market capitalization to 1996 million cubic feet of gas
equivalent, and (iv) the similarity of such companies to the Company. Applying
the results of this analysis to the relevant Company financial results and the
Company's management projections yielded an implied range of common equity per
share values of $8.68 to $12.95.
No company used in A.G. Edwards' analysis is identical to the Company. A.G.
Edwards' analysis involves complex considerations and judgments concerning
differences in the potential financial and operating characteristics of the
Comparable Companies and other factors regarding the trading values of the
Comparable Companies.
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Stock Repurchases from Controlling Stockholders. A.G. Edwards reviewed the
premiums paid in selected transactions in which companies acquired 20% or more
of their outstanding shares from a controlling shareholder since September 1994
(the "Selected Transactions"). The Selected Transactions consist of the
following transactions (the company that repurchased shares is listed first; the
controlling shareholder from whom shares were acquired is listed second): ShopKo
Stores, Inc./Supervalu Inc.; REFAC Technology Development Corp./Eugene M. Lang;
NutraMax Products, Inc./MEDIQ, Inc., Executive Risk Inc./Aetna Casualty and
Surety Co.; AEP Industries Inc./J. Brendan Barba; Gryphon Holdings Inc./Willis
Corroon Group plc; HPSC, Inc./Healthco International, Inc.; and Empire of
Carolina, Inc./Maurice A. Halperin and Barry S. Halperin. Analysis of these
transactions indicated a range of purchase price premiums (discounts) of
approximately -5% to 10%. Applying the results of this analysis to the Company's
common equity price of $9.625 per share (as of September 15, 1997) yielded an
implied range of common equity per share values of $9.14 to $10.59.
Discounted Cash Flow Analysis. In order to establish a range of intrinsic
values for the Company's common equity, A.G. Edwards analyzed the range of
potential values of the equity based on the results of its discounted cash flow
analysis. A.G. Edwards performed the discounted cash flow analysis using the
financial projections prepared by the Company's management, and based upon
reasonable terminal value growth rate assumptions, to estimate the value of
future cash flows set forth in such projections (which projections were prepared
by the Company assuming consummation of the Transactions on October 1, 1997 and
assuming acquisitions by the Company over the next three years totaling $25
million per year). A.G. Edwards utilized the operating cash flows for the six
months ending December 31, 1997 and the fiscal years ending December 31, 1998
through 2001, as projected by the Company's management and a range of discount
rates and terminal value growth rate assumptions.
In calculating the range of values for the Company's common equity, A.G.
Edwards used several assumptions in its discounted cash flow analysis,
including: (i) a discount rate range of 11.0% to 13.0% based upon the weighted
average cost of capital of comparable companies adjusted for specific risks
related to the Company, and (ii) a terminal growth rate range of 3.0% to 4.0%.
Based on this analysis, A.G. Edwards determined the present value of the
Company's common equity per share to be between $2.59 to $12.07.
Other Types of Minority Block Sales; Premiums and Discounts Paid. A.G.
Edwards reviewed various factors including: (i) the premiums paid in self-tender
transactions analyzed by percent of shares sought through the tender offer; (ii)
the discounts paid in private placements of publicly traded common stock; and
(iii) the gross spread underwriting discounts in secondary common stock
offerings. These studies indicated a range of purchase premiums (discounts) over
the prevailing markets price of approximately -40% to 40%. Applying the overall
results of these analyses to the Company's common equity price of $9.625 per
share (as of September 15, 1997) yielded an implied range of common equity per
share values of $5.78 to $13.46.
Convertible Preferred Pricing Analysis. In order to establish a range of
intrinsic values for the Company's New Preferred Stock, A.G. Edwards analyzed
the range of potential values as the sum of three components: (i) a straight
preferred stock; (ii) a warrant for the underlying common shares and (iii) a
value of $0.25 per New Preferred Stock share due to the additional shares of
Common Stock to be issued by the Company to the New Preferred Stock Investors.
The calculations were performed based largely upon analyses of publicly traded
securities, reduced by discounts normally observed in privately placed equity
security transactions.
A.G. Edwards analyzed the straight preferred component utilizing the
dividend rate of the New Preferred Stock of 8.50% and a discount rate comprised
of a 3.0% to 4.0% spread over the appropriate treasury security.
In calculating the range of values for the option component, A.G. Edwards
used several assumptions, along with the Black-Scholes option pricing model,
including: (i) a current Company common stock price of $9.625 per share (as of
September 15, 1997); (ii) a conversion price of $9.50, (iii) a time period of
three years; (iv) a volatility range of 35.0% to 70.0% based on the implied
volatilities of selected convertible preferred securities of selected energy
companies, the implied volatilities of certain comparably rated convertible
preferred securities and the historical volatilities of companies believed to be
comparable to the Company; and (v) a risk free rate of 6.00%. Based on this
analysis, A.G. Edwards determined the per share
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value of the New Preferred Stock as a publicly traded security to be between
$27.44 and $33.42. A.G. Edwards compared this implied value to the $25 per share
issue price to arrive at an implied discount on the New Preferred Stock as a
privately placed security of 10% to 34%. (A.G. Edwards also calculated the range
of values for the option component using a Common Stock price of $9.063 per
share and a conversion price of $8.80 and arrived at similar per share values of
the New Preferred Stock as a publicly traded security.) A.G. Edwards considered
the appropriateness of this implied discount in context with certain terms of
the New Preferred Stock including: (i) the conversion price for the New
Preferred Stock will equal (a) if the Public Offering Price is less than $9.125,
the lesser of (I) 10% over the Public Offering Price and (II) $8.80 and (b) if
the Public Offering Price is $9.125 or higher, $9.50; (ii) the absence of
registration rights for two years; (iii) dividends payable-in-kind for two
years; (iv) a two year prohibition on the investors' ability to sell any of the
Company's securities short; (v) the New Preferred Stock is not transferable for
the first year and transferability is limited in the second year; (vi) a five
year standstill restricting the acquisition of additional equity interests in
the Company, limiting dispositions to large holders and prohibiting various
actions seeking to effect a change of control of the Company; and (vii) payment
of a commitment fee in shares of Common Stock, and after considering A.G.
Edwards' review of certain studies of discounts of restricted stocks to the
prices of freely traded securities, including the following (median or mean
discounts are in parentheses): (i) private placements of 59 publicly traded
common stock issues (to the extent that such information was publicly available
from January 1, 1994 to September 15, 1997) (16%); (ii) "Institutional Purchases
of Restricted Securities"/Securities and Exchange Commission (26%); (iii)
"Discounts for Lack of Marketability for Closely Held Business
Interests"/Michael J. Maher (35%); (iv) "Revenue Ruling 77-287 Revised"/Standard
Research Consultants (45%); (v) Unpublished Report/Willamette Management
Associates, Inc. (31%); and (vi) "Discounts on Restricted Stock: The Impact of
Illiquidity on Stock Prices"/William L Silber (34%); and (vii) a review of other
selected privately placed convertible preferred securities. Based upon these
analyses and market conditions as of September 15, 1997, A.G. Edwards concluded
in its September 19 opinion that, when taken as a whole, the implied discounts
were appropriate given the terms of the New Preferred Stock and discounts
normally received in restructured equity securities transactions and therefore
the consideration to be paid to the Company for the New Preferred Stock is
comparable to other privately placed convertible preferred securities and, as a
result, is fair from a financial point of view, to the Non-Affiliated
Stockholders.
The summary of the A.G. Edwards report set forth above does not purport to
be a complete description of the main elements of A.G. Edwards' presentation to
the Independent Committee on September 19, 1997. It does not purport to be a
complete description of the analyses performed, or the matters considered, by
A.G. Edwards in rendering its September 19 opinion. A.G. Edwards believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of such analyses, without considering all analyses, or
of the above summary, without considering all factors and analyses, would create
an incomplete view of the processes underlying the analyses set forth in the
A.G. Edwards report and its September 19 fairness opinion. The fact that any
specific analyses have been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analyses.
The preparation of a fairness opinion is not necessarily susceptible to
partial analyses or summary. In rendering its September 19 fairness opinion,
A.G. Edwards applied its judgment to a variety of complex analyses and
assumptions. A.G. Edwards may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions. The assumptions made, and the judgments
applied, by A.G. Edwards in rendering its September 19 opinion are not readily
susceptible to description beyond that set forth in the written text of such
opinion itself.
In performing its analyses, A.G. Edwards made numerous assumptions with
respect to industry performance and general business and economic conditions,
which are beyond the control of the Company. The analyses performed by A.G.
Edwards are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of A.G. Edwards'
analysis of (i) the fairness, from a financial point of view, of the Patina
Share Repurchase to the Non-Affiliated Stockholders and (ii) the fairness, from
a financial point of view, of the consideration to be paid to the Company for
the New Preferred Stock, taking into account the
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terms and conditions of the New Preferred Stock, to the Non-Affiliated
Stockholders, and were provided to the Independent Committee in connection with
the delivery of A.G. Edwards' September 19 fairness opinion. In addition, as
described above, A.G. Edwards' September 19 opinion and presentation to the
Independent Committee was one of many factors taken into consideration by the
Independent Committee in making its determination to recommend that the
Company's Board of Directors approve the Transactions.
The terms of engagement of A.G. Edwards by the Independent Committee are
set forth in a letter agreement between A.G. Edwards and the Independent
Committee (the "Engagement Letter"). Pursuant to the terms of the Engagement
Letter, as compensation for rendering its financial advisory services and its
opinions to the Independent Committee, the Company agreed to pay A.G. Edwards a
fee of $250,000, payable at the time of the consummation of the initial sale of
New Preferred Stock. In addition, the Company agreed to reimburse A.G. Edwards
for the reasonable fees and expenses of A.G. Edwards' counsel and for A.G.
Edwards' travel and out-of-pocket expenses incurred in connection with its
engagement. The Company also agreed to indemnify A.G. Edwards against certain
liabilities in connection with the engagement of A.G. Edwards.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Certain directors and officers of the Company and SOCO and certain of their
respective affiliates have interests described herein that present them with
conflicts of interest as a result of the Transactions. 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.
SOCO's Participation in the Transactions. SOCO will be selling a portion
of its Patina Shares in the Secondary Offering and, in the Patina Share
Repurchase, the Company will repurchase all remaining Patina Shares that are not
sold in the Secondary Offering (other than 70,000 Patina Shares which SOCO has
agreed to transfer to the New Preferred Stock Investors), in each case as
described below under "-- Secondary Offering" and "-- Patina Share Repurchase."
As a result of the Transactions, SOCO will no longer own any Patina Shares. Each
of SOCO and the Company will bear its own expenses incurred in the Transactions
(which, in the case of the Company, are estimated to equal approximately $1.4
million), except under certain limited circumstances as described under
"Description of the Definitive Agreements -- Share Repurchase
Agreement -- Expense Payments" in which SOCO has agreed to reimburse the Company
for expenses up to certain limited amounts. Pursuant to the Preferred Stock
Purchase Agreement, SOCO has agreed to transfer 70,000 Patina Shares to the New
Preferred Stock Investors, on a pro rata basis, at the time of the initial sale
of New Preferred Stock. Pursuant to the Registration Rights Agreement between
SOCO and the Company dated May 2, 1996, the Company has agreed to bear the
expenses relating to the Secondary Offering, except for SOCO's legal expenses
and underwriting commissions, which will be paid by SOCO.
Management Stock Issuances. As described below under "-- Management Stock
Issuances," the Company has agreed to sell shares of Common Stock to the
Management Investors. In addition, the Company will award the Management
Investors, subject to certain vesting requirements, shares of restricted Common
Stock. See "Description of the Definitive Agreements -- Management Stock
Purchase Agreement and Restricted Stock Awards" for a description of the
material terms contained in the agreements related to the Management Stock
Issuances.
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 closing
of the Secondary Offering and the Management Stock Issuances. See
"Management -- Edelman Employment Agreement and Related Matters."
Certain Changes in the Company's Board of Directors. As a condition of the
consummation of the New Preferred Stock Issuance, 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
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designated Mr. William E. Macaulay and Chase Venture Capital Associates, L.P.
has designated Mr. Arnold L. Chavkin. See "Management -- Directors and Executive
Officers."
Grant of Options by SOCO. In connection with their commitment to purchase
the New Preferred Stock, SOCO has granted the New Preferred Stock Investors the
Investors' Options. SOCO has also granted Mr. Edelman the Edelman Options. In
general, the SOCO Options will only be exercisable in certain circumstances
following the termination of the Secondary Offering and the Share Repurchase
Agreement. For additional details in respect of the SOCO Options, see
"Description of Definitive Agreements -- SOCO Option Agreements."
Termination of Certain Arrangements with SOCO; Transition Agreement. At
the time Patina Shares are sold in the Secondary Offering, 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 with SOCO whereby SOCO will agree to provide the
Company with certain computer and administrative services for a period of up to
one year.
Registration Rights. As described under "Description of the Definitive
Agreements -- Preferred Stock Purchase Agreement -- Registration Rights" and
"-- Management Stock Purchase Agreement and Restricted Stock Awards," the
Company has agreed to grant certain registration rights to the New Preferred
Stock Investors pursuant to the Preferred Stock Purchase Agreement and to the
Management Investors pursuant to the Management Stock Purchase Agreement.
SECONDARY OFFERING
General. The Company has filed a Registration Statement on Form S-3 with
the Commission, which has not yet become effective, pursuant to which the
Company will register for sale 7,500,000 Patina Shares in the Secondary Offering
(8,625,000 Patina Shares if the underwriters' overallotment option is fully
exercised, or such greater or lesser number as the underwriters, the Company and
SOCO may agree to include in the Secondary Offering). The net proceeds from the
Secondary Offering will be paid fully to SOCO. Accordingly, the Company will not
receive any proceeds from the Secondary Offering. The Secondary Offering will be
underwritten by a syndicate consisting of Smith Barney Inc., Morgan Stanley Dean
Witter, A.G. Edwards & Sons, Inc., Jefferies & Company, Inc. and PaineWebber
Incorporated, pursuant to an underwriting agreement (the "Underwriting
Agreement") to be entered into among the Company, SOCO and the Underwriters. The
Patina Shares to be sold in the Secondary Offering may not be sold nor may
offers to buy such shares be accepted prior to the time the Registration
Statement becomes effective. The Company expects that the Registration Statement
will become effective contemporaneously with or prior to the initial sale of New
Preferred Stock.
The consummation of the Secondary Offering will be conditioned upon the
consummation of the New Preferred Stock Issuance (except that, in certain
circumstances, a portion of the proceeds from the sale of New Preferred Stock
will be paid to the Company up to seven business days following the sale of
Patina Shares in the Secondary Offering) and the Patina Share Repurchase. In
addition, SOCO's obligation to consummate the Secondary Offering is contingent
upon, among other things, the Net Offering Price for the Patina Shares being
sold therein not being less than $7.0875 per share (or, based on a 5.5% gross
commission for the Underwriters, a Public Offering Price of $7.50 per share).
Terms of the Underwriting for the Secondary Offering. The Underwriting
Agreement will provide that the obligations of the several Underwriters to pay
for and accept delivery of the Patina Shares offered in the Secondary Offering
will be subject to the approval of certain legal matters by counsel and to
certain other conditions. The Underwriters will be obligated to take and pay for
all Patina Shares offered thereby (other than those covered by the overallotment
option) if any such shares are taken. The Underwriters will sell the Patina
Shares directly to the public at the Public Offering Price (although part of the
Patina Shares may be sold to certain dealers at a price which represents a
concession to the Public Offering Price). The Public Offering Price, the actual
gross commission for the Underwriters (which the Company currently believes will
be a 5.5% gross commission) and any concessions in respect thereof will not be
determined until the Company
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and the Underwriters agree to the final pricing in respect of the Secondary
Offering. The determination of the Public Offering Price will in turn determine
(i) the Net Offering Price (which will reflect the gross commission to be paid
to the Underwriters), (ii) the price to be paid by the Company for Patina Shares
purchased in the Patina Share Repurchase (which will equal the Net Offering
Price), (iii) the price to be paid by the Management Investors for shares
acquired under the Management Stock Purchase Agreement (which will equal the
Public Offering Price) and (iv) the conversion price for the New Preferred Stock
(which will equal (A) if the Public Offering Price is less than $9.125, the
lesser of (I) 10% over the Public Offering Price and (II) $8.80, and (B) if the
Public Offering Price is $9.125 or higher, $9.50).
SOCO will grant to the Underwriters an overallotment option to purchase up
to an additional 1,125,000 Patina Shares on the same terms per share. The
Underwriters will be entitled to exercise such option on or before the thirtieth
day from the date of the public offering of the Patina Shares in the Secondary
Offering and only to cover over allotments made of the shares in connection with
such offering. Under the terms of the Share Repurchase Agreement, if the
Underwriters exercise their overallotment option (in part or in full), the
Company's obligation to repurchase any Patina Shares thereunder will be
automatically adjusted to reflect the additional Patina Shares sold in the
Secondary Offering.
A.G. Edwards, one of the Underwriters, has been engaged by the Independent
Committee as its financial advisor. See "-- Opinion of the Financial Advisor to
the Independent Committee." The Company and SOCO will agree to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
PATINA SHARE REPURCHASE
Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997 and as
amended and restated as of September 19, 1997, the Company has agreed with SOCO
to purchase the balance of the Patina Shares (other than 70,000 Patina Shares
which SOCO has agreed to transfer to the New Preferred Stock Investors) owned by
SOCO (6,430,000 shares, assuming no exercise of the Underwriters' overallotment
option and the sale of 7,500,000 shares in the Secondary Offering; 5,305,000
shares, assuming exercise of such option in full; or such greater or lesser
number of shares, if the underwriters, the Company and SOCO agree to include
fewer or additional Patina Shares in the Secondary Offering), at a price per
share equal to the Net Offering Price. The Company will repurchase such Patina
Shares concurrently with the sale of the New Preferred Stock and the sale of
Patina Shares in the Secondary Offering and the concurrent repurchase of such
Patina Shares will be a condition to the sale of Patina Shares in the Secondary
Offering. For a description of the material terms of the Share Repurchase
Agreement, see "Description of the Definitive Agreements -- Share Repurchase
Agreement."
NEW PREFERRED STOCK ISSUANCE
Pursuant to the Preferred Stock Purchase Agreement, dated as of July 31,
1997 and as amended and restated as of September 19, 1997, the Company has
agreed to sell an aggregate of between 1,600,000 and 2,520,000 shares of New
Preferred Stock to the New Preferred Stock Investors at a purchase price of
$25.00 per share, for 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 more than 1,600,000 (but less than 2,520,000)
shares of New Preferred Stock concurrently with the sale of Patina Shares in the
Secondary Offering, 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). As part of the New Preferred Stock
Issuance, the Company will issue to the New Preferred Stock Investors, on a pro
rata basis, at the time of the initial sale of the 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 be entitled to receive
the full amount of these shares of Common Stock, regardless of how many shares
of the New Preferred Stock are actually issued. For a description of the
material terms of the New Preferred Stock, including dividend
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<PAGE> 41
rights and redemption, conversion and voting provisions, see "Description of the
Definitive Agreements -- Preferred Stock Purchase Agreement."
MANAGEMENT STOCK ISSUANCES
Concurrently with the sale of Patina Shares in the Secondary Offering, the
Company will sell, pursuant to the Management Stock Purchase Agreement, shares
of Common Stock having an aggregate value of $3 million to the Management
Investors at a purchase price per share equal to the Public Offering Price, with
Mr. Edelman committing to purchase an aggregate of $2.0 million of shares of
Common Stock (or, assuming a Public Offering Price of $9.50 per share, 210,526
shares) and the other Management Investors committing to purchase an aggregate
of $1.0 million of shares of Common Stock (or, assuming a Public Offering Price
of $9.50 per share, 105,263 shares). 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 Common Stock purchased by, or awarded to, such Management
Investor. In addition, concurrently with the sale of Patina Shares in the
Secondary Offering, the Company also intends to award an aggregate of 500,000
shares of restricted Common Stock to the Management Investors, of which Mr.
Edelman will receive 350,000 shares and the other remaining Management Investors
receiving, in the aggregate, 150,000 shares. The ownership of such shares will
vest over a five-year period at the rate of 20% per year.
For a description of the material terms of the Management Stock Purchase
Agreement and the restricted awards, see "Description of the Definitive
Agreements -- Management Stock Purchase Agreement and Restricted Stock Awards."
TAX CONSEQUENCES OF TRANSACTIONS; ACCOUNTING TREATMENT
The Transactions will not be taxable transactions to holders of Common
Stock other than SOCO. Holders of Common Stock should note that, while the
conversion price of the New Preferred Stock will be adjusted upon the occurrence
of certain events, it will not always be subject to a "full adjustment" (as
defined in applicable U.S. Treasury regulations) upon the distribution of a
Common Stock dividend or rights to acquire such stock. As a result, the
proportionate interests in the Company of holders of Common Stock will increase
in these circumstances. Such increase will be treated as a distribution to
holders of the Company's Common Stock for United States federal income tax
purposes, taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits. The preceding tax discussion is based upon
advice received by the Company from its tax counsel, Simpson Thacher & Bartlett.
The Company's stockholders should consult their own tax advisors concerning the
tax consequences of the issuance of the New Preferred Stock in light of their
particular situations.
Upon the consummation of the Transactions, the Company will reflect in its
financial statement a reduced number of weighted average shares outstanding as a
result of the net impact on shares outstanding of the Patina Share Repurchase
taken together with the New Preferred Stock Issuances. Except for such change in
weighted average shares outstanding and the New Preferred Stock dividends, there
will not be any significant changes to the Company's accounting treatment
resulting from the consummation of the Transactions.
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<PAGE> 42
SOURCES AND USES OF FUNDS FOR THE TRANSACTIONS
The following table sets forth the anticipated sources and uses of funds
applicable to the Company in connection with the consummation of the
Transactions (assuming a range of Public Offering Prices from $7.50 per share to
$9.50 per share and assuming a gross underwriting commission of 5.5%). Although
the Company's management believes the anticipated amounts set forth below are
reasonable estimates based on the circumstances existing as of the date of this
Proxy Statement, actual sources and uses may differ from those set forth below.
<TABLE>
<CAPTION>
ASSUMED PUBLIC OFFERING PRICE(a)
--------------------------------
$7.500 $8.500 $9.500
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SOURCES OF FUNDS:
Sale of New Preferred Stock................................ (b) $57.0 $57.0 $57.0
Sale of Common Stock to the Management Investors........... (c) 3.0 3.0 3.0
Bank borrowings/(cash available)........................... (d) (12.2) (6.1) --
----- ----- -----
Total............................................ $47.8 $53.9 $60.0
===== ===== =====
USES OF FUNDS:
Repurchase the balance of Patina Shares held by SOCO....... (e) $45.5 $51.6 $57.7
Expenses payable by the Company............................ 1.4 1.4 1.4
Loans to the Management Investors.......................... (c) 0.9 0.9 0.9
----- ----- -----
Total............................................ $47.8 $53.9 $60.0
===== ===== =====
</TABLE>
- ---------------
(a) Based on assumed Public Offering Prices of $7.500, $8.500 and $9.500 per
share, the assumed Net Offering Prices would be $7.088, $8.033 and $8.978
per share, respectively.
(b) 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.
(c) 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 "Description of the Transactions -- Management Stock
Issuances."
(d) Assumes 7,500,000 Patina Shares are sold in the Secondary Offering and the
Underwriters' overallotment option is not exercised. At Public Offering
Prices of $7.50 and $8.50 per share, or if the Underwriters' overallotment
option is fully exercised, the Company will not need to make any bank
borrowings to finance the Patina Share Repurchase.
(e) Assumes 6,430,000 Patina Shares are repurchased from SOCO.
DESCRIPTION OF THE DEFINITIVE AGREEMENTS
The following are summaries of the material provisions of the Share
Repurchase Agreement, the Preferred Stock Purchase Agreement, the form of the
Management Stock Purchase Agreement, the form of the Restricted Stock Award
Agreement and the form of the SOCO Option Agreements, each of which appears as
Annex A, B, C, D and E, respectively, to this Proxy Statement, and each of which
is incorporated herein by reference. Such summaries are qualified in their
entirety by reference to the respective agreement being summarized. In addition,
although the Company's management believes the summaries set forth below reflect
the anticipated final terms and provisions for the respective agreements (based
on the circumstances existing as of the date of this Proxy Statement), the final
share amounts to be issued and/or repurchased by the Company and other
provisions contained in such agreements may differ from the amounts or
provisions described below.
SHARE REPURCHASE AGREEMENT
GENERAL
Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997 as
amended and restated as of September 19, 1997, the Company has agreed with SOCO
to purchase the balance of the Patina Shares (other than 70,000 Patina Shares
which SOCO has agreed to deliver to the New Preferred Stock Investors) owned by
SOCO (6,430,000 shares, assuming no exercise of the Underwriters' overallotment
option and the sale of 7,500,000 shares in the Secondary Offering; 5,305,000
shares, assuming exercise of such option in full; or such greater or lesser
number of shares, if the underwriters, the Company and SOCO agree to include
fewer
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<PAGE> 43
or additional Patina Shares in the Secondary Offering), at a price per share
equal to the Net Offering Price. In the Share Repurchase Agreement, SOCO has
exercised one of its demand registration rights granted to it pursuant to the
existing registration rights agreement between the Company and SOCO in respect
of the registration of the Patina Shares to be sold in the Secondary Offering.
CONDITIONS TO REPURCHASE
The Company anticipates that it will repurchase Patina Shares pursuant to
the Share Repurchase Agreement concurrently with the sale of the New Preferred
Stock and the sale of Patina Shares in the Secondary Offering and the concurrent
repurchase of such Patina Shares will be a condition to the sale of Patina
Shares in the Secondary Offering.
SOCO's obligation to close under the Share Repurchase Agreement is
conditioned upon, among other things, (i) the Public Offering Price in the
Secondary Offering not being below $7.50 per share (or, based on a gross
commission of 5.5% for the Underwriters, a Net Offering Price to SOCO of $7.0875
per share) and (ii) at least 5,000,000 Patina Shares being sold in the Secondary
Offering. The Company's obligation to close under the Share Repurchase Agreement
is conditioned upon, among other things, Messrs. Snyder and Johnson resigning
from the Company's Board of Directors. The Share Repurchase Agreement also
requires as a condition to closing that the Company's existing business
opportunity agreement and corporate services agreement with SOCO be terminated
and that the one-year Transition Agreement become effective at such closing.
EXPENSE PAYMENTS
The Company will be entitled to certain expense reimbursement payments from
SOCO under the circumstances described below.
If the Secondary Offering is not consummated for any reason and, within
twelve months (or, in certain circumstances, six months) after the Secondary
Offering is withdrawn or the Share Repurchase Agreement is terminated, SOCO
sells control of the Company in a transaction that is neither approved by the
Independent Committee nor includes at least a majority of the minority
stockholders' shares (a "SOCO Sale Transaction"), then SOCO will pay to the
Company a non-accountable expense reimbursement of $2,000,000. If the Secondary
Offering is not consummated for any reason and, within twelve months (or, in
certain circumstances, six months) after the Secondary Offering is withdrawn or
the Share Repurchase Agreement is terminated, SOCO sells control of the Company
in a transaction that is either approved by the Independent Committee or
includes at least a majority of the minority stockholders' shares (a "Company
Sale Transaction"), then SOCO will not make any expense payments to the Company.
If the Secondary Offering is not consummated for any reason and, within twelve
months (or, in certain circumstances, six months) after the Secondary Offering
is withdrawn or the Share Repurchase Agreement is terminated, neither a SOCO
Sale Transaction nor a Company Sale Transaction occurs, then SOCO will pay to
the Company a non-accountable expense reimbursement of $500,000 (unless the
Company shall have breached its representations or covenants under the Share
Repurchase Agreement).
ADDITIONAL AGREEMENTS
The Company has agreed in the Share Repurchase Agreement not to issue any
equity securities, including the New Preferred Stock (subject to certain limited
exceptions), unless the consummation of the issuance thereof is conditioned upon
the prior or simultaneous sale by SOCO of all shares of Common Stock.
SOCO has agreed in the Share Repurchase Agreement that, for a period of 30
days following the date a preliminary prospectus relating to the Secondary
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 pursuant to the Management Stock Issuances,
together with bank borrowings, if necessary, to pay for the Patina Shares being
repurchased from SOCO.
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<PAGE> 44
PREFERRED STOCK PURCHASE AGREEMENT
GENERAL
Pursuant to the Preferred Stock Purchase Agreement, dated as of July 31,
1997 as amended and restated as of September 19, 1997, the Company has agreed to
sell an aggregate of between 1,600,000 and 2,520,000 shares of New Preferred
Stock to the New Preferred Stock Investors at a purchase price of $25.00 per
share, for 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 more than 1,600,000 (but less than 2,520,000) shares of
New Preferred Stock concurrently with the sale of Patina Shares in the Secondary
Offering, 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).
TERMS OF NEW PREFERRED STOCK
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. 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 dividends 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. The New Preferred Stock ranks pari passu by its
terms with the Company's outstanding 7.125% Convertible Preferred Stock (the
"Old Preferred Stock").
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 equal to (i) if the Public Offering Price is less
than $9.125, the lesser of (A) 10% over the Public Offering Price and (B) $8.80,
and (ii) if the Public Offering Price is $9.125 or higher, $9.50. Assuming a
conversion price of $9.50 per share (which, based on the September 18, 1997
closing sales price per share of $9.69 for the Company's common stock, would be
the actual conversion price), 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.
ADDITIONAL COMMITMENT PAYMENT
As a part of the New Preferred Stock Issuance, 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 be entitled to receive the full amount of these
shares of Common Stock, regardless of how many shares of the New Preferred Stock
are actually issued.
REPRESENTATIONS AND WARRANTIES
The Preferred Stock Purchase Agreement contains customary representations
and warranties of the Company with respect to the Company and its subsidiaries
relating to, among other things: (a) organization, standing and qualification to
do business; (b) the authorization, execution, delivery, performance and
enforceability of the Preferred Stock Purchase Agreement; (c) the Company's
capital structure; (d) noncontravention with organizational documents,
agreements, contracts and governmental regulations; (e) the absence of certain
changes or events since the date of the most recent audited financial statements
37
<PAGE> 45
filed with the Commission, including material adverse changes with respect to
the Company; (f) pending or threatened material litigation, certain labor
matters and compliance with applicable laws; (g) documents filed by the Company
with the Commission, the accuracy of information contained therein and the
absence of undisclosed liabilities; (h) benefit plans, employment matters and
other matters relating to the Employee Retirement Income Security Act of 1974,
as amended; (i) compliance with applicable law; (j) absence of material change
in the business; (k) the absence of defaults or violations under material
contracts; (k) the filing of tax returns and the payment of taxes; (l) title to
material assets purported to be owned by the Company; (m) necessary licenses and
permits; (n) environmental matters; (o) brokers' fees and expenses; (p)
compliance with securities laws; (q) Board of Director approval with respect to
Section 203 of the Delaware General Corporation Law; and (r) the accuracy of the
information contained in the prospectus filed in connection with the Secondary
Offering and this Proxy Statement.
The Preferred Stock Purchase Agreement also contains customary
representations and warranties of the New Preferred Stock Investors relating to,
among other things, (a) organization, standing and similar corporate matters;
(b) the authorization, execution, delivery, performance and enforceability of
the Preferred Stock Purchase Agreement and related matters; (c) brokers' fees
and expenses; (d) non-contravention with organizational documents, agreements,
contracts and governmental regulations; (e) the absence of litigation; and (f)
investment intent.
CONDUCT OF BUSINESS PENDING THE CLOSING
Pursuant to the Preferred Stock Purchase Agreement, the Company has agreed
that until the initial closing of the New Preferred Stock Issuance, the business
of the Company will be conducted in the usual, regular and ordinary course of
business consistent with past practice and the Company will use its reasonable
best efforts to preserve substantially intact the business organization of the
Company. In addition, until such initial closing, the Company has agreed, among
other things, that neither it nor its subsidiaries will, subject to specified
exceptions: (a) make any distributions in respect of any of its capital stock,
split, combine or reclassify any of its capital stock or acquire any shares of
capital stock of the Company or any of its subsidiaries; (b) amend its
organizational documents; (c) increase the number of directors of the Board of
Directors without express written consent of the New Preferred Stock Investors;
(d) make any significant acquisitions; (e) make any significant dispositions of
any of its properties or assets; or (f) adopt a plan of complete or partial
liquidation or dissolution.
ADDITIONAL COVENANTS
Access to Information. Subject to any applicable confidentiality
restrictions, the Company has agreed to cause its subsidiaries, officers,
employees, counsel, financial advisors and authorized representatives, to afford
each of the New Preferred Stock Investors and its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to all employees, offices and other facilities and to all books
and records, and to furnish each of the New Preferred Stock Investors or its
representatives with such financial, operating and other information with
respect to the business and property of the Company and its subsidiaries as the
New Preferred Stock Investors may reasonably request.
Stockholders' Meeting. The Board has generally agreed, subject to its
fiduciary duties to the Company's stockholders, to (i) use its best efforts to
hold the Meeting for the purpose of taking action upon the New Preferred Stock
Issuance in accordance with the terms of the Preferred Stock Purchase Agreement;
(ii) recommend that the stockholders vote in favor of such transactions; (iii)
use its best efforts to cause this Proxy Statement to be mailed to the
stockholders at the earliest practicable time; and (iv) cause this Proxy
Statement to comply with the applicable Exchange Act regulations.
CONDITIONS TO CLOSING
The Company anticipates that shares of New Preferred Stock will be
initially sold to the New Preferred Stock Investors concurrently with the sale
of Patina Shares in the Secondary Offering; provided, however, that
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<PAGE> 46
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
such Patina Shares.
The obligations of the Company and the New Preferred Stock Investors to
consummate the New Preferred Stock Issuance are subject to certain conditions,
including (i) the absence of any injunction or other legal restraint or
prohibition preventing the consummation of the New Preferred Stock Issuance or
the other Transactions, (ii) the receipt of all regulatory and stockholder
approvals necessary for the consummation of the New Preferred Stock Issuance and
(iii) the prior or simultaneous closing of the Secondary Offering and the Patina
Share Repurchase. Due to certain filing exemptions available to companies
engaged in oil and gas production, the consummation of the New Preferred Stock
Issuance does not require filings to be made with the Federal Trade Commission
or the Antitrust Division of the Department of Justice under the Hart-Scott-
Rodino Act of 1976, as amended.
The New Preferred Stock Investors' obligation to close under the Preferred
Stock Purchase Agreement is conditioned upon, among other things, (i) the
continued accuracy of the Company's representations and warranties and material
compliance with its agreements, (ii) the appointment of the two board designees
of the New Preferred Stock Investors, (iii) (A) in the case of the initial sale
of New Preferred Stock, no less than 1,600,000 shares (for an aggregate purchase
price of $40.0 million) shall be sold (the "Minimum Drawdown"), and (B) in the
case of the second sale, if any, of New Preferred Stock, not more than an
aggregate of 2,520,000 shares (including the shares sold in the initial sale)
shall be sold (the "Maximum Drawdown"), and (iv) in the case of the second
closing, if any, the average price of the Company's 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 Company's obligation to close under the Preferred Stock Purchase
Agreement is conditioned upon, among other things, the continued accuracy of the
New Preferred Stock Investors' representations and warranties and material
compliance with their respective agreements. The Company is not obligated under
the terms of the Preferred Stock Purchase Agreement to receive any updated
fairness advice from the Independent Committee's financial advisor, A.G. Edwards
& Sons, Inc., as a condition to the issuance of the New Preferred Stock, that
the terms of the New Preferred Stock (including the conversion price thereof)
continue to be fair to the Company's Non-Affiliated Stockholders. See "Risk
Factors -- Transaction Risks -- Preferences of New Preferred Stock." The
Company's Board of Directors and the Independent Committee were aware of this
fact and considered it in connection with the approval of the Transactions. See
"Description of the Transactions -- Background of the Transactions" and
"-- Reasons for the Transactions."
TERMINATION; FEES AND EXPENSES
In accordance with its terms and conditions, the Preferred Stock Purchase
Agreement may be terminated at any time: (a) by the mutual written consent of
the Company and the New Preferred Stock Investors; or (b) by either the Company
or the New Preferred Stock Investors, if the initial issuance of New Preferred
Stock has not occurred or is not capable of occurring through no fault of the
party seeking to terminate on or before December 31, 1997.
In addition, the Company has agreed to reimburse the New Preferred Stock
Investors for their reasonable out-of-pocket costs and expenses, subject to a
maximum reimbursement of $100,000.
CONFIDENTIALITY AND STANDSTILL RESTRICTIONS
Confidentiality Covenants. Subject to customary exceptions, each of the
New Preferred Stock Investors has agreed to use all non-public information
received from or on behalf of the Company solely for the purpose of evaluating a
possible transaction between the Company and such New Preferred Stock Investor,
and to keep such information confidential.
Acquisition of Company Voting Securities. Each of the New Preferred Stock
Investors has agreed that for a five-year period, it will not acquire, without
prior approval of the Board of Directors, additional Common Stock or other
securities eligible to vote for the election of directors (or derivatives of
such securities)
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<PAGE> 47
(collectively, the "Company Voting Securities") that would increase its voting
power to greater than 20% of all of the Company Voting Securities outstanding.
Transfer Restrictions. 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 initial sale of New
Preferred Stock. The New Preferred Stock Investors have further agreed that: (i)
for the period from the first anniversary until the second anniversary of the
initial sale of New Preferred Stock, 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 (which consent will not be
unreasonably withheld) 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. See
"-- Registration Rights" below. In addition to the foregoing restrictions, the
New Preferred Stock Investors and their affiliates and permitted transferees
have also agreed (x) not to sell short any of the Company's securities for a
period of two years following the initial sale of New Preferred Stock and (y) to
certain standstill provisions with respect to the Company Voting Securities,
including, among other provisions, a five-year restriction on the New 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 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.
Restrictions upon Solicitations and Voting Agreements. For a five-year
period following the initial issuance of New Preferred Stock, the New Preferred
Stock Investors are prohibited from soliciting proxies, assisting any other
person in any way in the solicitation of proxies or becoming a "participant" in
a "solicitation" or assisting 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 stockholders of the Company, or recommend, request,
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
the Company Voting Securities, in each case without the prior approval of the
Independent Committee. For such five-year period, the New Preferred Stock
Investors have agreed not to form, join in or in any other way participate in a
partnership, pooling agreement, syndicate, voting trust or other group with
respect to the 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 the Company's voting securities,
in each case without the prior approval of the Independent Committee.
Change of Control Restrictions. For a five-year period following the
initial issuance of New Preferred Stock, a New Preferred Stock Investor may not
seek to effect a change in control of the Company without the prior approval of
the Independent Committee. Without limiting the generality of the foregoing, a
New Preferred Stock Investor may not (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 Company
Voting Securities beneficially owned by such New Preferred Stock Investor as of
the date of such action, (ii) publicly suggest a willingness or desire to engage
in a transaction that would result in a change of control of the Company or in
an increase in Company Voting Securities beneficially owned by such New
Preferred Stock Investor as of the date of such action, 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 in control of the Company or in an increase in the Company Voting
Securities beneficially owned by such New Preferred Stock Investor as of the
date of such action.
Acquisition Proposals. For a five-year period following the initial
issuance of New Preferred Stock, if a New Preferred Stock Investor desires to
acquire control of the Company or to increase its percentage ownership of
Company Voting Securities, such New Preferred Stock Investor must submit a
proposal to the Board of Directors. Such proposal must entail either (a) a
tender offer for all outstanding Company Voting Securities not owned by such New
Preferred Stock Investor followed by a merger transaction, or (b) a merger
40
<PAGE> 48
transaction which is conditioned on the approval of the stockholders holding a
majority of the outstanding Company Voting Securities not owned by such New
Preferred Stock Investor; and the proposal must provide that the same
consideration will be paid to all of the Company's stockholders in the tender
offer and/or merger transaction.
REGISTRATION RIGHTS
The Company has agreed to register with the Commission, following the
second anniversary of the New Preferred Stock Issuance, 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
to be issued by the Company to the New Preferred Stock Investors and the 70,000
Patina Shares to be transferred by SOCO to the New Preferred Stock Investors
(collectively, the "Registrable Securities"). The New Preferred Stock Investors
holding not less than one-third of the Registrable Securities are entitled to
make, in the aggregate, three written requests ("Demand Registrations") upon the
Company for the registration of all or part of their Registrable Securities
provided that each such Demand Registration includes at least 25% of the
aggregate number of the Registrable Securities then outstanding. The demanding
holders may also request that such Demand Registrations be in the form of an
underwritten offering. In addition, if at any time the Company proposes to file
a registration statement under the Securities Act with respect to an offering by
the Company on its own account or for the account of any other holders, the New
Preferred Stock Investors will be entitled to register their Registrable
Securities as part of such registration (the "Piggyback Registration"). In the
event that the Company is not able to fulfill all requests for Registrable
Securities to be included in Demand Registrations or Piggyback Registrations,
the New Preferred Stock Investors will be entitled to certain priorities over
other holders to have their Registrable Securities included in such
registrations. All registration expenses (other than underwriters' commissions)
will be payable by the Company. The Company will also provide customary
securities law indemnification to any party who participates in any registration
effected under the Preferred Stock Purchase Agreement.
MANAGEMENT STOCK PURCHASE AGREEMENT AND RESTRICTED STOCK AWARDS
MANAGEMENT STOCK PURCHASE AGREEMENT
Pursuant to a Management Stock Purchase Agreement entered into by the
Company and the Management Investors (including Mr. Edelman, the Chairman and
Chief Executive Officer of the Company), the Company will agree to sell shares
of Common Stock having an aggregate purchase price of $3.0 million, at a price
per share equal to the Public Offering Price. 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, which will be secured by all of
the shares of Common Stock purchased by, or awarded to, such Management
Investor.
The Company anticipates that shares of Common Stock will be sold to the
Management Investors concurrently with the Patina Shares being sold in the
Secondary Offering and the issuance of such shares of Common Stock will be
conditioned upon the concurrent sale of the Patina Shares in the Secondary
Offering.
Each of the Management Investors will agree not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following their purchase of shares of Common Stock pursuant to the Management
Stock Purchase Agreement. 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
Company will agree to provide notice of any future securities registrations made
by the Company (subject to certain exceptions) and permit the Management
Investors to request that their shares of Common Stock be included in such
registrations (subject to certain exceptions).
RESTRICTED STOCK AWARDS
The Company intends to award to the Management Investors an aggregate of
500,000 shares of restricted Common Stock, with Mr. Edelman receiving 350,000
shares and the other remaining Management Investors receiving, in the aggregate,
150,000 shares. The Management Investors' ownership of such shares of restricted
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<PAGE> 49
Common Stock will vest over a five-year period at the rate of 20% per year,
subject to the acceleration of such vesting in the event of a "change of
control" (as defined under the Company's Change of Control Plan described below
under "Management -- Change in Control Plan"). The restricted shares of Common
Stock that will be awarded to Management Investors may not be sold until
ownership in such shares has vested.
SOCO OPTION AGREEMENTS
On July 31, 1997 and as amended on September 19, 1997, SOCO entered into
separate Option Agreements (collectively, the "SOCO Option Agreements") with
each New Preferred Stock Investor and Mr. Edelman. Pursuant to the SOCO Option
Agreements entered into with the New Preferred Stock Investors, SOCO has granted
the New Preferred Stock Investors (or their respective affiliates), in
connection with and in consideration of their commitment to purchase the New
Preferred Stock, the Investors' Options to acquire an aggregate of 2,000,000
Patina Shares owned by SOCO at a price of $8.00 per share. Pursuant to the SOCO
Option Agreement entered into with Mr. Edelman and in consideration of Mr.
Edelman's efforts to arrange and structure the Transactions, SOCO has also
granted Mr. Edelman the Edelman Options to acquire 2,000,000 Patina Shares owned
by Patina at a price of $8.00 per share. In general, the SOCO Options represent
a "break-up" fee to be paid by SOCO to each of the New Preferred Stock Investors
and/or Mr. Edelman under certain limited circumstances described below. In
addition, pursuant to the SOCO Option Agreement entered into with the New
Preferred Stock Investors, SOCO has agreed to transfer 70,000 Patina Shares to
the New Preferred Investors (or their respective affiliates), on a pro rata
basis, at the time of the initial sale of New Preferred Stock.
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' Option) or $0.50 (in the case of an Edelman 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 only be exercised upon the following events ("Option
Trigger Events"): upon the cancellation of the Secondary Offering by SOCO or the
termination of the Patina Share Repurchase by SOCO other than because (a) the
Net Offering Price would be less than $7.0875 per share, (b) the Secondary
Offering is not consummated by October 29, 1997, (c) less than 5,000,000 shares
of Common Stock can be sold in the Secondary Offering, or (d) the Company
materially breaches the Share Repurchase Agreement.
Any physical exercise of the SOCO Options will be covered from Patina
Shares owned by SOCO and any cash settlement of the SOCO Options will be paid by
SOCO. However, the Company's obligations to repurchase Patina Shares 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 Patina Shares). The SOCO Options
will terminate upon the earliest to occur of (i) the consummation of the
Secondary Offering and the Patina Share Repurchase, (ii) the withdrawal of
Patina Shares from the Secondary 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 Patina Shares from the Secondary
Offering.
42
<PAGE> 50
PARTIES TO THE TRANSACTIONS
THE COMPANY
GENERAL
Patina Oil & Gas Corporation 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 Denver-Julesburg Basin. The Company was
formed in early 1996 to hold the Wattenberg assets of SOCO and to facilitate 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. The Company's Common
Stock is traded on the NYSE under the symbol "POG."
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.
BUSINESS STRATEGY
Following the consummation of the Transactions, the Company plans to
continue 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 one of the most efficient oil and natural gas producers in the United States.
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 annual general and administrative ("G&A") expenses have been reduced
to less than half those incurred by the Company's predecessor entities,
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
43
<PAGE> 51
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 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 developing 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 Patina Share Repurchase. In the event the
Company issues New Preferred Stock at the closing of the Secondary Offering, the
balance of this commitment will remain available through December 31, 1997 for
acquisition financing or for general corporate purposes.
SNYDER OIL CORPORATION
Snyder Oil Corporation has been the Company's major stockholder since its
formation and currently owns approximately 74% of the outstanding Common Stock
(and approximately 79% of the aggregate voting power). For strategic reasons,
SOCO has decided to liquidate its stake in the Company and redeploy the proceeds
in its core business. Pursuant to the Transactions described in this Proxy
Statement, SOCO's ownership in the Company will be eliminated and the Company
will be positioned to pursue an independent growth strategy. In connection with
the Gerrity Acquisition, SOCO received certain registration rights with respect
to the Patina Shares entitling it to cause the Company to register such shares
following SOCO's demand therefor. In addition, SOCO has previously agreed, as
part of the Gerrity Acquisition, that SOCO would not effect a "control sale"
(defined as the sale, in a single transaction or a series of related
transactions, of a majority of the Company's outstanding Common Stock to an
unaffiliated person or "group" of persons (as such term is defined under Section
13(d) of the Exchange Act)), unless all holders of the Company's Common Stock
were given an opportunity to participate in such control sale. Each of SOCO, the
Company and their respective boards have confirmed that the Transactions do not
qualify as a control sale and therefore the foregoing provision is inapplicable
to the consummation of the Transactions.
NEW PREFERRED STOCK INVESTORS
Pursuant to the Preferred Stock Purchase Agreement, the New Preferred Stock
Investors (none of whom is presently an affiliate of the Company) have agreed to
pay, subject to the terms and conditions contained therein, an aggregate
purchase price of between $40 million and $63 million for the shares of New
Preferred Stock to be purchased thereunder. The New Preferred Stock Investors
are comprised of nine investors, including First Reserve Fund VII, Limited
Partnership, Chase Venture Capital Associates, L.P. and Highbridge International
LDC. The New Preferred Stock Investors 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% (which percentage would increase to approximately 37% by the
end of the two-year pay-in-kind dividend period) of the votes entitled to be
cast on most matters submitted to stockholders 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 Company's Board of
Directors. However, as described under "Description of the Definitive
Agreements -- Preferred Stock Purchase Agreement -- Confidentiality and
Standstill Restrictions," the New Preferred Stock Investors have agreed, for a
five-year period (or, under certain circumstance, a shorter period), to certain
confidentiality and standstill restrictions with respect to the Company's voting
securities.
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<PAGE> 52
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 (the "Consolidated Financial
Statements") of the Company incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. See "Incorporation of
Certain Documents by Reference." The pro forma financial data of the Company
have been derived from the Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere within this Proxy Statement 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. 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 the notes thereto. This data reflects the Gerrity Acquisition in
May 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
YEAR ENDED DECEMBER 31, PRO FORMA AS
------------------------------- AS ADJUSTED 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>
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<PAGE> 53
<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 performances 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.
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<PAGE> 54
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. Rudy........................... 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 board 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
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<PAGE> 55
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 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 landsman 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 Trans-
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<PAGE> 56
Montaigne 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 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, 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
49
<PAGE> 57
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. 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, all non-vested rights under
the Company's 401(k) plan, bonus plan and deferred compensation plan and any
shares of restricted Common Stock granted to the Management Investors under the
Restricted Stock Agreements, 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 Patina Shares in the Secondary Offering
and the Management Stock Issuances. 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, Mr. Edelman may continue to engage in outside business activities at
substantially the same 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 Patina Shares in the Secondary Offering, the
Company will grant Mr. Edelman fully vested options to purchase, at the Public
Offering Price, 250,000 shares of Common Stock 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 Gulf Coast, Midcontinent and Appalachian 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
with Lomak, or other positions or business interests that he may now or
hereafter have or acquire, conflicts of interests may arise between them. 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
50
<PAGE> 58
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, 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.
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 three years.
51
<PAGE> 59
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 Secondary 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
for the Company's Common Stock. 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
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER
COMMON STOCK PRIOR TO THE OF COMMON STOCK AFTER THE TRANSACTIONS --
TRANSACTIONS(a)(b)(c) THE 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(h)..... 14,000,000 74.4% 0 * 0 *
777 Main Street
Forth 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.
52
<PAGE> 60
(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 shares transferred to the New
Preferred Stock Investors by SOCO); (ii) 315,789 shares of Common Stock to
be purchased by the Management Investors (assuming a Public Offering Price
of $9.50 per share); (iii) 6,631,579 shares of Common Stock to be 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); and (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 at 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 the Secondary Offering, and 5,305,000 to 6,430,000
shares will be repurchased by the Company as part of the Patina Share
Repurchase, and 70,000 of these shares will be transferred to the New
Preferred Stock Investors.
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
Company's 11.75% Senior Subordinated Notes due 2004 (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 Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997,
which is incorporated by reference herein.
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 a Public Offering Price of $9.50 per share, $57.0 million of New
Preferred Stock is issued, 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
53
<PAGE> 61
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, 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 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 any time.
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 in this Proxy Statement), 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 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
and, on a pro forma basis giving effect to the Transactions, will continue to
meet these ratios and accordingly is not limited in its ability to incur
additional debt.
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders' proposals to be presented at the 1998 Annual Meeting of
Stockholders of the Company must be received by the Company no later than
December 31, 1997 for inclusion in the Company's Proxy Statement and proxy card
related to the 1998 Annual Meeting.
54
<PAGE> 62
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 herein in reliance upon the report of
Arthur Andersen LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing.
Denver, Colorado
September 19, 1997
55
<PAGE> 63
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 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 Transactions on the
historical financial statements incorporated by reference or included elsewhere
in this Proxy Statement. The Unaudited Pro Forma Condensed Consolidated Balance
Sheet at June 30, 1997 was prepared as if the 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
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 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
Transactions been consummated on the dates or for the period indicated or which
may occur in the future.
F-1
<PAGE> 64
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PATINA PRO FORMA UNAUDITED
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-2
<PAGE> 65
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>
PATINA PRO FORMA UNAUDITED
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......................... -- 2,448(h) 3,778
Accretion of discount.............................. 1,330 253(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-3
<PAGE> 66
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-4
<PAGE> 67
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 shares of Common Stock 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. This 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 Patina Share Repurchase of 6,430,000 common shares from
SOCO at $8.98 per share for $57,725,325. The Patina Share Repurchase will be
financed with proceeds from issuance of 2,280,000 shares of New Preferred Stock
to the New Preferred Stock Investors (the amount that management believes is
most likely to be issued), 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 and 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 $0.25 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-5
<PAGE> 68
PATINA OIL & GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(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-6
<PAGE> 69
ANNEX A
SHARE REPURCHASE AGREEMENT
<PAGE> 70
CONFORMED COPY
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.
(b) (Section 2(b) has been left blank intentionally)
A-1
<PAGE> 71
(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
A-2
<PAGE> 72
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
A-3
<PAGE> 73
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
A-4
<PAGE> 74
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.
A-5
<PAGE> 75
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
A-6
<PAGE> 76
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.
A-7
<PAGE> 77
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
A-8
<PAGE> 78
ANNEX B
PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 79
CONFORMED COPY
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> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I.
Definitions
Section 1.01. Definitions........................................................... B-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............. B-4
Section 2.02. Closing............................................................... B-5
ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company......................... B-5
Section 3.02. Representations and Warranties of Investors........................... B-11
ARTICLE IV.
Additional Agreements of the Parties
Section 4.01. Taking of Necessary Action............................................ B-12
Section 4.02. Conduct of Business................................................... B-12
Section 4.03. Notification of Certain Matters....................................... B-13
Section 4.04. Access to Information................................................. B-13
Section 4.05. Restrictions on Sale or Transfer; Legend.............................. B-13
Section 4.06. Designated Directors.................................................. B-14
Section 4.07. New York Stock Exchange Listing....................................... B-14
Section 4.08. Use of Proceeds....................................................... B-14
Section 4.09. Approval by Company's Stockholders.................................... B-14
Section 4.10. No Additional Shares.................................................. B-15
ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect each Closing......... B-15
Section 5.02. Conditions to the Investors' Obligations.............................. B-15
Section 5.03. Conditions to the Company's Obligations to any Closing................ B-16
ARTICLE VI.
Registration Rights
Section 6.01. Definition of Registrable Shares...................................... B-17
Section 6.02. Demand Registration................................................... B-17
Section 6.03. Piggyback Registration................................................ B-18
Section 6.04. Registration Procedures............................................... B-19
Section 6.05. Conditions and Limitations............................................ B-21
Section 6.06. Information from and Certain Covenant of Holders of Registrable B-22
Shares................................................................
Section 6.07. Registration Expenses................................................. B-22
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 6.08. Indemnification; Contributions........................................ B-22
ARTICLE VII.
Standstill and Confidentiality Provisions
Section 7.01. Certain Definitions................................................... B-24
Section 7.02. Confidentiality Covenants............................................. B-25
Section 7.03. Acquisition of Company Voting Securities.............................. B-26
Section 7.04. Distribution of the Company Voting Securities......................... B-26
Section 7.05. Proxy Solicitations, etc.............................................. B-27
Section 7.06. No Voting Trusts, Pooling Agreements, or Formation of "Groups"........ B-27
Section 7.07. Limitation on Various Other Actions................................... B-27
Section 7.08. Acquisition Proposals................................................. B-28
Section 7.09. Term of Standstill and Confidentiality Provisions..................... B-29
ARTICLE VIII.
Term
Section 8.01. Termination........................................................... B-29
Section 8.02. Effect of Termination................................................. B-29
ARTICLE IX.
Miscellaneous
Section 9.01. Survival of Representations, Warranties and Agreements................ B-29
Section 9.02. Notices............................................................... B-29
Section 9.03. Entire Agreement; Amendment........................................... B-30
Section 9.04. Counterparts.......................................................... B-30
SECTION 9.05. GOVERNING LAW......................................................... B-30
Section 9.06. Public Announcements.................................................. B-30
Section 9.07. Expenses.............................................................. B-30
Section 9.08. Indemnification....................................................... B-31
Section 9.09. Successors and Assigns................................................ B-32
Section 9.10. No Third Party Rights................................................. B-32
Section 9.11. Specific Performance.................................................. B-32
Section 9.12. Captions.............................................................. B-33
Section 9.13. Severability.......................................................... B-33
Section 9.14. Mutual Waiver of Jury Trial........................................... B-33
Section 9.15. Jurisdiction.......................................................... B-33
Section 9.16. References to Other Agreements........................................ B-33
</TABLE>
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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>
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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> 86
"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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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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(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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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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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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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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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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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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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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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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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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(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> 115
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.
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<PAGE> 116
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>
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<PAGE> 117
<TABLE>
<S> <C>
HIGHBRIDGE INTERNATIONAL LDC
By: HIGHBRIDGE CAPITAL MANAGEMENT, INC.
By: /s/ RON RESNICK
------------------------------------------------
Name: Ron Resnick
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>
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<PAGE> 118
<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> 119
SCHEDULE I
SCHEDULE OF INVESTORS' COMMITMENTS
<TABLE>
<CAPTION>
NUMBER OF SHARES
AGGREGATE OF 8.5% NUMBER OF SHARES OF
COMMITMENT CONVERTIBLE PREFERRED COMMON STOCK TO BE
NAME OF INVESTOR AMOUNT STOCK TO BE PURCHASED ACQUIRED AT INITIAL CLOSING
- ------------------------------------------ ----------- --------------------- ---------------------------
<S> <C> <C> <C>
First Reserve Fund VII, Limited
Partnership............................. $32,500,000 1,300,000 82,540
Chase Venture Capital Associates, L.P..... $22,500,000 900,000 57,143
Highbridge International LDC.............. $ 4,750,000 190,000 12,063
Bedford Falls Investors, LP............... $ 2,500,000 100,000 6,349
Anthony V. Dub............................ $ 400,000 16,000 1,016
Allen Finkelson........................... $ 100,000 4,000 254
William P. Nicoletti...................... $ 100,000 4,000 254
Irik P. Sevin............................. $ 100,000 4,000 254
Peter Seaman.............................. $ 50,000 2,000 127
----------- --------- -------
Totals.......................... $63,000,000 2,520,000 160,000
</TABLE>
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<PAGE> 120
ANNEX C
MANAGEMENT STOCK PURCHASE AGREEMENT
<PAGE> 121
CONFORMED COPY
MANAGEMENT STOCK PURCHASE AGREEMENT
AMONG
PATINA OIL & GAS CORPORATION
AND
THE MANAGEMENT INVESTORS NAMED HEREIN
DATED AS OF SEPTEMBER 4, 1997
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I.
Definitions
Section 1.01. Definitions........................................................ C-2
ARTICLE II.
Sale and Purchase of Common Stock
Section 2.01. Sale and Purchase of Common Stock.................................. C-2
Section 2.02. Closing............................................................ C-3
Section 2.03. Appointment of the Representative.................................. C-3
ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company...................... C-4
Section 3.02. Representations and Warranties of Management Investors............. C-4
ARTICLE IV.
Additional Agreements of the Parties
Section 4.01. Taking of Necessary Action......................................... C-5
Section 4.02. Restrictions on Sale or Transfer; Legend........................... C-5
Section 4.03. New York Stock Exchange Listing.................................... C-6
Section 4.04. Approval by Company's Stockholders................................. C-6
Section 4.05. Company's Loans to Management Investors............................ C-6
Section 4.06. Piggyback Registration Rights...................................... C-6
Section 4.07. Use of Proceeds.................................................... C-7
ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect the Closing....... C-7
Section 5.02. Conditions to the Management Investors' Obligations................ C-7
Section 5.03. Conditions to the Company's Obligations............................ C-8
ARTICLE VI.
Term
Section 6.01. Termination........................................................ C-8
Section 6.02. Effect of Termination.............................................. C-8
ARTICLE VII.
Miscellaneous
Section 7.01. No Survival of Representations and Warranties...................... C-8
Section 7.02. Notices............................................................ C-8
Section 7.03. Entire Agreement; Amendment........................................ C-9
Section 7.04. Counterparts....................................................... C-9
</TABLE>
C-i
<PAGE> 123
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 7.05. GOVERNING LAW...................................................... C-9
Section 7.06. Public Announcements............................................... C-9
Section 7.07. Expenses........................................................... C-9
Section 7.08. Successors and Assigns............................................. C-9
Section 7.09. No Third Party Rights.............................................. C-10
Section 7.10. Captions........................................................... C-10
Section 7.11. Severability....................................................... C-10
Section 7.12. Mutual Waiver of Jury Trial........................................ C-10
EXHIBITS
A -- Form of Promissory Note
B -- Form of Pledge Agreement
SCHEDULES
I -- Schedule of Management Investors' Commitments
</TABLE>
C-ii
<PAGE> 124
MANAGEMENT STOCK PURCHASE AGREEMENT, dated as of September 4, 1997 (this
"Agreement"), among Patina Oil & Gas Corporation, a Delaware corporation (the
"Company"), and each of the management investors who execute signature pages
hereto (each a "Management Investor" and collectively, the "Management
Investors").
W I T N E S S E T H:
WHEREAS, the Company desires to create an enhanced equity arrangement to
induce the Management Investors to invest in, and the Management Investors
desire to make investments in, the Company and enhance their interest in the
Company's future success;
WHEREAS, each of the Management Investors has severally agreed to purchase,
and the Company has agreed to sell, subject to the terms and conditions of this
Agreement, the aggregate dollar amount of shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), set forth opposite such
Management Investor's name on Schedule I hereto;
WHEREAS, as a condition to and in connection with the obligations of the
Management Investors hereunder and in addition to the issuance and sale of the
Common Stock hereunder, the Company will grant shares of restricted Common Stock
to the Management Investors in accordance with and pursuant to the Company's
Restricted Stock Agreement, dated as of the date hereof (the "Restricted Stock
Agreement");
WHEREAS, the Company has 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 issuance and sale by the Company of shares of Common Stock hereunder;
WHEREAS, the Company and SOCO have entered into a Share Repurchase
Agreement (the "Share Repurchase Agreement"), 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 at a
purchase price per share equal to the net offering price (after deduction of the
underwriters' commissions and discounts) of the shares of Common Stock sold in
the Secondary Stock Offering (such redemption, the "SOCO Stock Redemption");
WHEREAS, the Company and certain new investors have entered into a Stock
Purchase Agreement (the "Preferred Stock Purchase Agreement"), pursuant to which
the Company has agreed to issue and sell to such investors up to 2,520,000
shares of the Company's 8.5% Convertible Preferred Stock, par value $.01 per
share ("8.5% Convertible Preferred Stock"), on the terms and conditions set
forth in such Preferred Stock Purchase Agreement;
WHEREAS, the Company contemplates that the proceeds from the issuance of
Common Stock hereunder, together with the proceeds from the issuance of the
Company's 8.5% Convertible Preferred Stock and new borrowings under the
Company's existing senior credit facility, will be used to pay the purchase
price for the shares redeemed in the SOCO Stock Redemption;
C-1
<PAGE> 125
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:
"Agreement" shall have the meaning set forth in the recitals hereto.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.02(a).
"Common Stock" shall have the meaning set forth in the recitals
hereto.
"Company" shall have the meaning set forth in the recitals hereto.
"Company Stockholders' Approval" shall have the meaning set forth in
Section 4.04.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Management Investor" or "Management Investors" shall have the meaning
set forth in the recitals hereto.
"NYSE" shall have the meaning set forth in Section 4.04.
"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.
"Pledge Agreement" shall have the meaning set forth in Section
2.02(b).
"Preferred Stock Purchase Agreement" shall have the meaning set forth
in the recitals hereto.
"Promissory Note" shall have the meaning set forth in Section 2.02(b).
"Public Offering Price" shall have the meaning set forth in Section
2.01.
"Representative" shall have the meaning set forth in Section 2.03.
"Restricted Stock Agreement" shall have the meaning set forth in the
recitals hereto.
"Secondary Stock Offering" shall have the meaning set forth in the
recitals hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" shall mean the United States Securities and Exchange Commission.
"Share Repurchase Agreement" shall have the meaning set forth in the
recitals hereto.
"SOCO" shall have the meaning set forth in the recitals hereto.
"SOCO Stock Redemption" shall have the meaning set forth in the
recitals hereto.
"Transfer" shall have the meaning set forth in Section 4.02.
"8.5% Convertible Preferred Stock" shall have the meaning set forth in
the recitals hereto.
ARTICLE II.
Sale and Purchase of Common Stock
Section 2.01. Sale and Purchase of Common Stock. Subject to all of the
terms and conditions of this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, at the Closing
C-2
<PAGE> 126
provided for in Section 2.02 hereof, the Company will sell to each Management
Investor, and each Management Investor will purchase from the Company, the
aggregate dollar amount of Common Stock (rounded down to the nearest whole
number of shares) set forth opposite such Management Investor's name on Schedule
I hereto, for a purchase price equal to the public offering price of shares of
Common Stock in the Secondary Stock Offering (the "Public Offering Price").
Section 2.02. Closing. (a) Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, the sale and purchase of the Common
Stock pursuant to Section 2.01 (the "Closing") shall take place 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 Representative, on
behalf of the Management Investors, or the Company, as the case may be) (the
"Closing Date"), or at such other time and place as may be mutually agreed upon
by the Representative and the Company.
(b) At the Closing: (i) the Company will deliver to each Management
Investor a certificate or certificates for the Common Stock to be sold to such
Management Investor in accordance with the provisions of Section 2.01,
registered in the respective name(s) and proportions as such Management Investor
shall have specified to the Company at least five business days prior to the
Closing; (ii) each Management Investor will deliver to the Company in full
payment for the Common Stock to be purchased pursuant to Section 2.01, (A) in
the case of each Management Investor other than Thomas J. Edelman (who shall pay
the full purchase price for the shares of Common Stock to be purchased by him
hereunder in immediately available funds (a portion of which may be provided
from Mr. Edelman's deferred compensation plan which exists for his benefit)), a
promissory note of such Management Investor, dated the date of the Closing, in a
principal amount of up to 85% of the aggregate purchase price to be paid by such
Management Investor for the shares of Common Stock to be purchased by such
Management Investor hereunder, and in substantially the form attached hereto as
Exhibit A (each a "Promissory Note"), and (B) a cashier's check for the
remaining balance (or, in the case of Mr. Edelman, for the full 100%) of the
aggregate purchase price of the shares of Common Stock to be purchased by each
Management Investor hereunder, (iii) in the case of each Management Investor
(other than Mr. Edelman), a pledge agreement of such Management Investor, dated
the date of the Closing, in substantially the form attached hereto as Exhibit B
(each a "Pledge Agreement"); and (iv) 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.
Section 2.03. Appointment of the Representative. (a) Each of the
Management Investors hereby appoint [Keith Crouch] [David Kornder] as its
representative and attorney-in-fact under this Agreement (in such capacity, the
"Representative") to perform all actions designated hereunder to be performed on
behalf of such Investor pursuant to Sections 2.02, 5.02, 5.03 and 6.01. The
Company shall be entitled to rely upon any act taken or notice or consent given
by the Representative as the act, notice or consent of the Management Investors
and shall not be obligated to investigate beyond the taking of such action or
giving of such notice or consent by the Representative.
(b) Whenever the Representative acts under Sections 2.02, 5.02, 5.03 and
6.01 or otherwise under this Agreement, the Representative shall solicit the
Management Investors in writing, describing the action to be taken in reasonable
detail, and shall act, give notice or give consent on behalf of the Management
Investors only in accordance with written instructions given by such Management
Investors that at the time hold more than 75% of the aggregate commitments for
shares of Common Stock to be purchased hereunder. If the Representative resigns
or otherwise is unable to serve as a representative pursuant to this Agreement,
the Management Investors that at the time hold more than 75% of the aggregate
commitments for shares of Common Stock to be purchased hereunder shall have the
right to appoint a successor to the Representative.
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ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Management Investors as
follows:
(a) Organization and Good Standing. 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.
(b) 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.
(c) Newly Issued Shares of Common Stock. The shares of Common Stock
to be issued and sold hereunder have been duly authorized to be so issued
and sold by all necessary corporate action. When issued and sold against
receipt of the consideration therefor, the shares of Common Stock to be
issued and sold hereunder 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. At the Closing, the Management Investors will
receive valid title to the Common Stock to be purchased on such date, free
and clear of any claim, lien, security interest or other encumbrance.
Section 3.02. Representations and Warranties of Management
Investors. Each Management Investor represents and warrants to, and agrees
with, the Company as follows:
(a) Legal Capacity. Each Management Investor has the legal capacity
to execute, deliver and perform this Agreement.
(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 Management
Investor. No other proceedings on the part of such Management 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 Management Investor and
this Agreement constitutes a valid and binding obligation of such
Management 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) Securities Act. (i) Each Management Investor is acquiring the
Common 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. Each Management Investor has been given the opportunity
to obtain any and all relevant information and documents relating to the
Common Stock (including the Company's prospectus prepared in connection
with the Secondary Stock Offering) and to ask questions and receive answers
about such documents, the Company and its business which such Management
Investor deems necessary to evaluate the merits and risks related to an
investment in the Common Stock, and such Management Investor has relied
solely on such information.
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(ii) Each Management Investor further represents and warrants that (A)
such Management Investor's financial condition is such that he or she can
afford to bear the economic risk of holding the Common Stock for an
indefinite period of time and has adequate means for providing for such
Management Investor's current needs and personal contingencies, (B) such
Management Investor can afford to suffer a complete loss of his or her
investment in the Common Stock, (C) he understands and has taken cognizance
of all risk factors related to the purchase of the Common Stock, including
those set forth in the Company's prospectus referred to above, and (D) such
Management Investor's knowledge and experience in financial and business
matters are such that he or she is capable of evaluating the merits and
risks of his or her purchase of the Common Stock as contemplated by this
Agreement.
(d) Brokers and Finders. No Management Investor 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 consummate and make effective
the transactions contemplated by this Agreement. Without limiting the foregoing,
the Company and the Management 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 Management
Investors, as the case may be, advisable for the consummation of the
transactions contemplated by this Agreement.
Section 4.02. Restrictions on Sale or Transfer; Legend. (a) The
Management Investors hereby acknowledge and agree that shares of Common Stock to
be purchased by them hereunder will be, upon the sale and purchase of such
shares in accordance with the terms hereof, "restricted securities" under the
Securities Act. The Management Investors agree that they will not, directly or
indirectly, offer, sell, transfer, assign or otherwise dispose of the beneficial
ownership of (any such act, a "Transfer") any such shares of Common Stock,
except as permitted under the Securities Act and the rules and regulations
thereunder (including, without limitation, Transfers pursuant to Rule 144 under
the Securities Act). The Management Investors further agree that, during the
180-day period following the sale of Common Stock in the Secondary Stock
Offering, they will not Transfer any shares of Common Stock.
(b) The Management Investors acknowledge and agree that as of the date
hereof the shares of Common Stock issued and sold hereunder have not been and
will not 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 Management
Investors acknowledge that, except as provided in this Agreement, the Management
Investors have no right to require the Company to register the shares of Common
Stock purchased hereunder. The Management Investors further acknowledge and
agree that each certificate for the Common Stock purchased hereunder 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
MANAGEMENT STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 4, 1997 AMONG THE
COMPANY AND THE MAN-
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AGEMENT INVESTORS REFERRED TO THEREIN A COPY OF WHICH IS ON FILE WITH THE
COMPANY. EXCEPT AS PROVIDED IN SUCH MANAGEMENT STOCK PURCHASE AGREEMENT, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT TRANSFERABLE AND ANY
PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SUCH MANAGEMENT STOCK
PURCHASE AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT.
Section 4.03. New York Stock Exchange Listing. As promptly as practicable
following the Closing Date, the Company will apply to the New York Stock
Exchange to list the shares of Common Stock issued and sold 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.
Section 4.04. Approval by Company's Stockholders. (a) The Company shall
take all action required by the rules and regulations of the New York Stock
Exchange (the "NYSE") to obtain the approval of the Company's stockholders of
the issuance and sale of the Common Stock to the Management 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 the Common Stock hereunder.
Section 4.05. Company's Loans to Management Investors. The Company will
make a loan to each of the Management Investors (other than Thomas J. Edelman)
in a principal amount of up to 85% of the aggregate purchase price to be paid
for the shares of Common Stock to be purchased by such Management Investor
hereunder. The terms and conditions of such loan (including interest rate,
interest payment dates, maturity date(s) and events of default) shall be set
forth in the Promissory Note executed and delivered by each Management Investor.
Each Management Investor (other than Mr. Edelman) that desires to make a
borrowing from the Company to fund up to 85% of the aggregate purchase price of
the shares of Common Stock to be purchased by such Management Investor hereunder
shall deliver an irrevocable written request to the Company no less than five
business days prior to the Closing stating the amount of the borrowing desired
to be made and confirming that such Management Investor will have immediately
available funds at the Closing for the balance of the purchase price to be so
paid.
Section 4.06. Piggyback Registration Rights. 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), then the Company
shall in each case give written notice of such proposed filing to the Management
Investors as soon as practicable before the anticipated filing date, and such
notice shall offer such Management Investors the opportunity to register such
number of shares of Common Stock purchased hereunder and such number of shares
of Common Stock which have vested pursuant to the Restricted Stock Agreement, in
each case as each such Management Investor may request; provided, that the
Company shall not be required to deliver such notice to any Management Investor
who, at the time such notice is to be delivered, is able to transfer, pursuant
to Rule 144 under the Securities Act, all the shares of Common Stock owned by
such Management Investor that could otherwise be included in the Company's
registered offering. Each Management Investor desiring to have his 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 Management Investor's shares for which registration is
requested. If the Company's offering is to be an underwritten offering, the
Company shall use its reasonable efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the shares of the
Management Investors 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, provided
that (i) if the registration of which the Company gives notice involves an
underwriting, the right of each Management Investor to registration pursuant to
this Section 4.06 shall, unless
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the Company otherwise agrees, be conditioned upon such Management Investor's
participation as a seller in such underwriting and execution of an underwriting
agreement with the managing underwriter or underwriters selected by the Company
and (ii) if the managing underwriter or underwriters of such offering informs
the Company that the success of the offering would be materially and adversely
affected by inclusion of the Management Investors' shares requested to be
included, then the Company shall not be required to include such shares in such
offering.
Section 4.07. Use of Proceeds. The Company will use the net proceeds
derived by it from the issuance of the shares of Common Stock hereunder to pay a
portion of the purchase price of the shares of Common Stock to be redeemed
pursuant to the SOCO Stock Redemption.
ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect the
Closing. The obligation of each party hereto to consummate the Closing
hereunder shall be subject to the satisfaction on the 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
Common Stock hereunder and the other transactions contemplated hereby 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
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 and (ii) the SOCO
Stock Redemption shall be consummated in accordance with the terms of the
Share Repurchase Agreement.
Section 5.02. Conditions to the Management Investors' Obligations. The
obligation of each Management Investor to consummate the Closing hereunder shall
be subject to the satisfaction on the 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 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 the 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 the
Closing.
(c) Restricted Stock Agreement. The Company shall have executed and
delivered to each of the Management Investors the Restricted Stock
Agreement for such Management Investor.
(d) Additional Certificates, Etc. The Company shall have executed and
delivered, or caused to be executed and delivered, to the Representative,
on behalf of the Management Investors, such certificates and other
documents related to the consummation of the transactions contemplated
hereby as may be reasonably requested by the Representative.
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Section 5.03. Conditions to the Company's Obligations. The obligation of
the Company to consummate the Closing hereunder shall be subject to the
satisfaction on the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Management 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 the Closing
Date with the same effect as though made on and as of such dates.
(b) Covenants. The Management 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 the Closing.
(c) Promissory Notes and Pledge Agreements. Each of the Management
Investors (other than Thomas J. Edelman and any other Management Investor
who shall not have borrowed any funds from the Company for any portion of
the purchase price for shares of Common Stock purchased by such Management
Investor hereunder) shall have executed and delivered to the Company a
Promissory Note and a Pledge Agreement, in each case substantially in the
form of Exhibits A and B attached hereto, respectively.
(d) Additional Certificates, Etc. Each of the Management Investors
and the Representative 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.
ARTICLE VI.
Term
Section 6.01. Termination. This Agreement may be terminated on or any
time prior to the Closing:
(a) by the mutual written consent of the Representative, on behalf of
the Management Investors, and the Company; or
(b) by either the Company or the Representative, on behalf of the
Management Investors, if the Closing shall have not have occurred on or
prior to December 31, 1997.
Section 6.02. Effect of Termination. In the event of the termination of
this Agreement as provided in Section 6.01, this Agreement shall forthwith
become void except for the provisions set forth in Article VII and there shall
be no liability or obligation on the part of the parties hereto except as
otherwise provided in this Agreement.
ARTICLE VII.
Miscellaneous
Section 7.01. No Survival of Representations and Warranties. No
representation or warranty made herein or in any certificates delivered in
connection with the Closing shall survive the Closing.
Section 7.02. 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 Management Investors, to the Management Investors, c/o
the Company at its address set forth below or such other address as set
forth in writing by any Management Investor, with a copy to the
Representative c/o the Company, at its address set forth below; and
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(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
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 7.03. Entire Agreement; Amendment. This Agreement and the
documents described herein and therein or attached or delivered pursuant hereto
or thereto 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.
Section 7.04. 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 documents.
SECTION 7.05. 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 7.06. Public Announcements. Each of the Management Investors
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 Company determines in its reasonable discretion
to publicly disclose such information or is legally obligated to disclose such
information.
Section 7.07. Expenses. Each of the parties hereto will pay its own
expenses incurred or to be incurred in connection with this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the
reasonable fees and expenses of a single legal counsel engaged on behalf of all
of the Management Investors.
Section 7.08. 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. 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.
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Section 7.09. 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 7.10. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 7.11. 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 7.12. 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.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized officers, all as of the date first above
written.
PATINA OIL & GAS CORPORATION
By: /s/ THOMAS J. EDELMAN
------------------------------------
Name: Thomas J. Edelman
Title: Chief Executive Officer
/s/ THOMAS J. EDELMAN
--------------------------------------
Thomas J. Edelman,
Chairman/Chief Executive Officer
/s/ BRIAN J. CREE
--------------------------------------
Brian J. Cree,
Executive Vice President/Chief
Operating Officer
/s/ RONALD E. DASHNER
--------------------------------------
Ronald E. Dashner,
Senior Vice President of Operations
/s/ KEITH M. CROUCH
--------------------------------------
Keith M. Crouch,
Senior Vice President General Counsel
/s/ DAVID J. KORNDER
--------------------------------------
David J. Kornder,
Vice President/Chief Financial Officer
/s/ TERRY L. RUBY
--------------------------------------
Terry L. Ruby,
Vice President, Land
/s/ DAVID SIPLE
--------------------------------------
David W. Siple,
Vice President, Land
/s/ DAVID R. MACOSKO
--------------------------------------
David R. Macosko,
Vice President, Business Operations
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/s/ CHRISTINE A. KENNEDY
--------------------------------------
Christine A. Kennedy,
Manager of Oil & Gas Marketing
/s/ KENNETH A. WONSTOLEN
--------------------------------------
Kenneth A. Wonstolen,
Manager of Environmental Affairs
/s/ BARTON R. BROOKMAN
--------------------------------------
Barton R. Brookman,
Production Manager -- Field
/s/ CLAYTON L. MILLER
--------------------------------------
Clayton L. Miller,
Services Manager -- Field
/s/ MICHAEL J. WENDLING
--------------------------------------
Michael J. Wendling,
Manager of Reservoir Engineering
/s/ SCOTT J. REASONER
--------------------------------------
Scott J. Reasoner,
Senior Operations Engineer
/s/ DONALD R. SHAW
--------------------------------------
Donald R. Shaw,
Acquisition Engineer
/s/ JON E. BOWMAN
--------------------------------------
Jon E. Bowman,
Operations Engineer
/s/ ERIC P. LIPINSKI
--------------------------------------
Eric P. Lipinski,
Senior Geologist
/s/ DAVID FLINN
--------------------------------------
David Flinn,
Senior Geologist
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SCHEDULE I
[SCHEDULE OF MANAGEMENT INVESTORS' COMMITMENTS]
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE PURCHASED (TO BE AMOUNT TO BE
DETERMINED UPON FINANCED BY THE
THE PRICING OF THE COMPANY (TO BE
PURCHASE SECONDARY STOCK REQUESTED PRIOR
NAME/TITLE COMMITMENT OFFERING) TO CLOSING)
- ------------------------------------------------- ---------- ---------------------- ---------------
<S> <C> <C> <C>
Thomas J. Edelman, Chairman and Chief Executive
Officer........................................ $2,000,000 --
Brian J. Cree, Executive Vice President/Chief
Operating Officer.............................. $ 125,000
Ronald E. Dashner, Senior Vice President
of Operations.................................. $ 100,000
Keith M. Crouch, Senior Vice President General
Counsel........................................ $ 100,000
David J. Kornder, Vice President/Chief Financial
Officer........................................ $ 100,000
Terry L. Ruby, Vice President, Land.............. $ 75,000
David W. Siple, Vice President, Land............. $ 75,000
David R. Macosko, Vice President, Business
Operations..................................... $ 75,000
Christine A. Kennedy, Manager of Oil & Gas
Marketing...................................... $ 50,000
Kenneth A. Wonstolen, Manager of Environmental
Affairs........................................ $ 50,000
Barton R. Brookman, Production Manager-Field..... $ 50,000
Clayton L. Miller, Services Manager-Field........ $ 50,000
Michael J. Wendling, Manager of Reservoir
Engineering.................................... $ 25,000
Scott J. Reasoner, Senior Operations Engineer.... $ 25,000
Donald R. Shaw, Acquisition Engineer............. $ 25,000
Jon E. Bowman, Operations Engineer............... $ 25,000
Eric P. Lipinski, Senior Geologist............... $ 25,000
David Flinn, Senior Geologist.................... $ 25,000
----------
Total.................................. $3,000,000
</TABLE>
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ANNEX D
FORM OF RESTRICTED STOCK AWARD AGREEMENT
<PAGE> 138
PATINA OIL & GAS CORPORATION
RESTRICTED STOCK AGREEMENT
------------------------
DATE OF GRANT: September 4, 1997 (the "Grant Date")
W I T N E S S E T H:
1. Grant of Restricted Stock. Patina Oil & Gas Corporation (the
"Company") on the above date has granted, and this Agreement evidences the grant
to (the "Grantee"), subject to the terms and conditions which
follow, a total of shares of Common Stock, par value $.01 per share
("Common Stock"), of the Company. The rights of the Grantee in the shares of
Common Stock granted to the Grantee shall vest at the rate of 20% per year,
commencing on January 1, 1998 (the "Initial Vesting Date").
2. Receipt and Delivery of Stock. (a) The Grantee waives receipt from the
Company of a certificate or certificates representing the shares of Common Stock
granted hereunder, registered in the Grantee's name and bearing a legend, in the
form provided in Section 2(b) below. The Grantee acknowledges and agrees that
the Company shall retain custody of such certificate or certificates until the
Grantee's rights in the shares of Common Stock represented by such certificate
or certificates vest and the restrictions imposed by Section 3 on such shares
lapse. Concurrently with the execution of this Agreement, the Grantee has
delivered to the Company an irrevocable stock power endorsed in blank.
(b) The Grantee acknowledges and agrees that each certificate for the
Common Stock granted hereunder 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 AND OTHER PROVISIONS OF A RESTRICTED
STOCK AGREEMENT DATED AS OF SEPTEMBER 4, 1997 BETWEEN THE COMPANY AND THE
GRANTEE REFERRED TO THEREIN A COPY OF WHICH IS ON FILE WITH THE COMPANY. EXCEPT
AS PROVIDED IN SUCH RESTRICTED STOCK AGREEMENT, THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE NOT TRANSFERABLE AND ANY PURPORTED TRANSFER IN VIOLATION OF
THE PROVISIONS OF SUCH RESTRICTED STOCK AGREEMENT SHALL BE VOID AND OF NO FORCE
AND EFFECT.
3. Restrictions on Transfer of Stock. (a) The Grantee hereby acknowledges
and agrees that shares of Common Stock granted hereunder will be "restricted
securities" under the Securities Act of 1933, as amended (the "Securities Act").
The Grantee agrees not to, directly or indirectly, offer, sell, transfer, assign
or otherwise dispose of the beneficial ownership (any such act, a "Transfer") of
any such shares of Common Stock, except as permitted hereunder and under the
Securities Act and the rules and regulations thereunder (including, without
limitation, Transfers pursuant to Rule 144 under the Securities Act).
(b) The restrictions on the Transfer of shares of Common Stock granted
hereunder shall lapse as follows:
(i) on the Initial Vesting Date, as to 20% of the Common Stock
granted hereunder;
(ii) on the first anniversary of the Initial Vesting Date, as to 40%
of the Common Stock granted hereunder;
(iii) on the second anniversary of the Initial Vesting Date, as to 60%
of the Common Stock granted hereunder;
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(iv) on the third anniversary of the Initial Vesting Date, as to 80%
of the Common Stock granted hereunder; and
(v) on the fourth anniversary of the Initial Vesting Date, as to 100%
of the Common Stock granted hereunder.
; provided, that, so long as the shares of Common Stock granted hereunder remain
pledged by the Grantee to the Company pursuant to that certain Pledge Agreement,
dated as of , , 1997, made by the Grantee to the Company, the
Grantee will not Transfer any shares of Common Stock granted hereunder.
Notwithstanding the foregoing, the restrictions on Transfer shall lapse as to
all of the Common Stock granted hereunder in the event that the Grantee's
employment is terminated on account of death or "Disability" (as defined in the
Company's long-term disability plan).
(c) The Grantee acknowledges and agrees that the shares of Common Stock
granted hereunder may be Transferred only in one or more transactions registered
under the Securities Act (and, where applicable, the securities laws of any
state) or as to which an exemption from the registration requirements of the
Securities Act (and, where applicable, such laws) is available. As the
restrictions on Transfer imposed by this Section on shares of Common Stock
granted hereunder lapse, the shares of Common Stock as to which such
restrictions have lapsed shall be delivered to the Grantee without the
restrictive legend on the certificate for such shares.
4. Forfeiture of Stock. (a) In the event the Grantee's employment
terminates (other than as a result or death or Disability) prior to the fourth
anniversary of the Initial Vesting Date, the Grantee's rights in the shares of
Common Stock granted hereunder as to which the restrictions in Section 3 have
not lapsed shall be as follows (it being understood that the Grantee shall not
forfeit, following any termination of such Grantee's employment with the
Company, any shares of Common Stock granted hereunder as to which the
restrictions in Section 3 have lapsed):
(i) if such termination is by the Company without Cause (as defined
below) or by the Grantee for Good Reason (as defined below), the Grantee
shall be entitled to a pro rata portion of the shares of Common Stock
scheduled to vest on the next succeeding anniversary of the Initial Vesting
Date (based on the number of days such Grantee continues to be employed
during the relevant one-year period prior to such anniversary date), and
all remaining shares of Common Stock granted hereunder as to which the
restrictions in Section 3 have not lapsed will be forfeited;
(ii) if such termination is by the Company for Cause or by the Grantee
without Good Reason, all shares of Common Stock granted hereunder as to
which the restrictions in Section 3 have not lapsed will be forfeited;
(iii) [AS TO MR. EDELMAN'S RESTRICTED STOCK AGREEMENT ONLY] if,
following the expiration of the Grantee's Employment Agreement, dated as of
July 31, 1997 (the "Grantee's Employment Agreement"), the Grantee and the
Company are not able in good faith and after reasonable efforts to reach
agreement to negotiate a mutually acceptable extension for the term of the
Grantee's employment thereunder, then the Grantee shall be entitled to all
shares scheduled to vest on the fourth anniversary of the Initial Vesting
Date, and all remaining shares of Common Stock granted hereunder as to
which the restrictions in Section 3 have not lapsed will be forfeited.
(b) The Compensation Committee of the Company's Board of Directors or its
agent shall act promptly to record forfeitures pursuant to this Section on the
stock transfer books of the Company.
(c) As used herein, the following terms shall have the following meanings:
(i) "Cause" shall mean (A) an act or acts of dishonesty by the Grantee
constituting a felony under applicable law and/or (B) any act resulting or
intending to result directly or indirectly in gain to or personal
enrichment of the Grantee at the Company's expense. Notwithstanding the
foregoing, the Grantee shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to the Grantee a
copy of a resolution duly adopted by the affirmative vote of not less than
a majority of the Compensation Committee of the Board called and held for
the purpose (after reasonable notice and opportunity for the Grantee,
together with counsel, to be heard before the Compensation
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Committee of the Board), finding that in the good faith opinion of the
Compensation Committee of the Board the Grantee engaged in the conduct
described above.
(ii) "Good Reason" shall mean, without the Grantee's written consent,
(A) a change in status, position or responsibilities which, in the
Grantee's reasonable judgment, does not represent a promotion from existing
status, position or responsibilities as in effect immediately prior to the
effective date of this Agreement (the "Effective Date") or the assignment
of any duties or responsibilities which, in the Grantee's reasonable
judgment, are inconsistent with such status, position or responsibilities
or any removal from or failure to reappoint or reelect the Grantee to any
of such positions, except in connection with the termination for total and
permanent disability, death or cause or by him other than for good reason;
(B) a reduction by the Company in the Grantee's base salary as in effect on
the Effective Date; (C) the relocation of the Grantee by the Company to any
place not within 25 miles of the location at which the Grantee performed
duties prior to the Effective Date, except for required travel on the
Company's business to an extent substantially consistent with business
travel obligations at the Effective Date; (D) the failure of the Company to
continue in effect any incentive, bonus or other compensation plan in which
the Grantee participates, including but not limited to the Company's stock
option and deferred compensation plans, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan), evidenced by the
Grantee's written consent, has been made with respect to such plan, or the
failure by the Company to continue the Grantee's participation therein, or
any action by the Company which would directly or indirectly materially
reduce participation therein; (E) the failure by the Company to continue to
provide the Grantee with benefits substantially similar to those enjoyed or
entitled under any of the Company's pension, profit sharing, life
insurance, medical, dental, health and accident, or disability plans at the
Effective Date, the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits or deprive
the Grantee of any material fringe benefit enjoyed or entitled to at the
Effective Date, or the failure by the Company to provide the number of paid
vacation and sick leave days to which the Grantee is entitled on the basis
of years of service with the Company in accordance with the Company's
normal vacation policy in effect on the Effective Date; or (F) any request
by the Company that the Grantee participate in an unlawful act or take any
action constituting a breach of the Grantee's professional standard of
conduct.
5. Dividends; Voting. If the Grantee is a shareholder of record on any
applicable record date, the Grantee shall receive any dividends on the Common
Stock granted hereunder when paid regardless of whether the restrictions imposed
by Section 3 hereof have lapsed. If the Grantee is a shareholder of record on
any applicable record date, the Grantee shall have the right to vote the Common
Stock granted hereunder regardless of whether the restrictions imposed by
Section 3 hereof have lapsed.
6. No Right to Employment. The execution and delivery of this Agreement
and the granting of Common Stock hereunder shall not constitute or be evidence
of any agreement or understanding, express or implied, on the part of the
Company or its subsidiaries to employ the Grantee for any specific period or in
any particular capacity and shall not prevent the Company or its subsidiaries
from terminating the Grantee's employment at any time with or without cause [AS
TO MR EDELMAN'S RESTRICTED STOCK AGREEMENT ONLY]; provided, that nothing in this
Section 6 shall alter or otherwise effect the Grantee's Employment Agreement.
7. Registration. The registration of the Common Stock granted hereunder
shall be governed by the Management Stock Purchase Agreement, dated as of
September 4, 1997 (the "Management Stock Purchase Agreement"), among the Company
and the management investors named therein (including the Grantee). Except as
provided in the Management Stock Purchase Agreement, the Grantee acknowledges
that the Grantee has no right to require the Company to register the shares of
Common Stock granted hereunder.
8. Change in Control. In the event of a Change in Control (as defined in
the Company's Change in Control Plan (the "Change in Control Plan")), vesting of
the Common Stock granted hereunder shall be in accordance with the Company's
Change of Control Plan.
9. Application of Laws. The granting of Common Stock hereunder shall be
subject to all applicable laws, rules and regulations and to such approvals of
any governmental agencies as may be required.
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10. Taxes. Any taxes required by federal, state or local laws to be
withheld by the Company on the delivery of Common Stock hereunder shall be paid
to the Company by the Grantee by the time such taxes are required to be paid or
deposited by the Company. Prior to the lapse of restrictions, the Grantee shall
be given the option to satisfy any tax obligations by (i) tendering cash to the
Company prior to the time of delivery or (ii) authorizing the conversion to cash
by the Company of a sufficient amount of Common Stock prior to delivery.
11. Notices. Any notices required to be given hereunder to the Company
shall be addressed to Patina Oil & Gas Corporation, 1625 Broadway, Suite 2000,
Denver, Colorado 80202 (Phone (303) 389-3600; Fax (303) 595-7407) Attention:
General Counsel, and any notice required to be given hereunder to the Grantee
shall be sent to the Grantee's address as shown on the records of the Company.
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IN WITNESS WHEREOF, the Company, by its duly authorized officer, and the
Grantee have executed this agreement in duplicate as of the Grant Date first
above written.
PATINA OIL & GAS CORPORATION
By:
--------------------------------------
Name:
Title:
GRANTEE
--------------------------------------
Name:
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ANNEX E
FORM OF SOCO OPTION AGREEMENT
<PAGE> 144
MR. EDELMAN'S OPTION AGREEMENT
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement"), is dated as of July 31,
1997 by and between Snyder Oil Corporation, a Delaware corporation ("SOCO") and
Thomas J. Edelman ("Optionee").
WHEREAS, SOCO owns beneficially and of record 14,000,000 shares (the "SOCO
Shares") of Common Stock of Patina ("Common Stock"), 2,000,000 of which are
designated Series A Common Stock;
WHEREAS, concurrently with the execution and delivery of this Agreement,
certain investors have entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") with Patina, 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, concurrently with the execution and delivery of this Agreement,
SOCO has granted options to acquire an aggregate 2,000,000 shares of Common
Stock to the purchasers of New Preferred Stock under comparable option
agreements;
WHEREAS, SOCO has given Patina notice of its current intention to sell a
portion of the shares of Common Stock owned by it in an underwritten public
offering (the "Offering");
WHEREAS, concurrently with the execution and delivery of this Agreement,
SOCO and Patina have entered into a Share Repurchase Agreement pursuant to which
Patina has agreed, among other things, to repurchase from SOCO all shares of
Common Stock owned by SOCO at the time of the consummation of the Offering that
are not sold by SOCO to the underwriters at such time (the "Repurchase");
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. Grant of Option. SOCO hereby grants Optionee an irrevocable option
(the "Option") to purchase from SOCO the number of shares of Common Stock set
forth for Optionee on the signature page hereof, subject to adjustment as
provided in Section 8 hereof (such shares being referred to herein as the
"Option Shares") in the manner set forth below at an exercise price of $8.00 per
Company Share (the "Exercise Price"), payable in cash in accordance with Section
4 hereof.
2. Exercise of Option.
(a) The following terms shall have the following respective definitions:
(i) The term "Applicable Sharing Threshold" shall mean $2,500,000.
(ii) "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 assets or
combined voting power of the outstanding capital stock of Patina.
(iii) "Qualifying Termination Event" shall mean the withdrawal of
Shares from the Offering by SOCO or the termination of the Share Repurchase
Agreement by SOCO other than because of (A) a failure of any of the
conditions set forth in Sections 3(b)(i) or 3(b)(ii) of the Share
Repurchase Agreement, (B) a failure of any of the conditions set forth in
Sections 3(b)(iii) or 3(b)(iv) of the Share Repurchase Agreement other than
as a direct result of a failure by SOCO to use commercially reasonable
efforts in connection with the Offering to take such actions as are
customarily required to be taken by a selling stockholder in an offering
such as the Offering (provided, however, that SOCO may, subject to
compliance with Section 6(c) of the Share Repurchase Agreement, continue to
pursue, but not consummate, the sale of all or part of its Shares to one or
more prospective purchasers without being deemed to fail to use such
efforts) or (C) a failure of the condition set forth in Section 3(a)(ii) of
the Share Repurchase Agreement as a result of the termination of the Stock
Purchase Agreement by any party thereto.
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(iv) The term "Spread" shall mean:
(A) the excess, if any, of
(1) the "Offer Price" for shares of Common Stock as of the date
Optionee gives the Exercise Notice under Section 2(e) or Section 2(f)
hereof (defined as the highest price per share offered for all shares of
Common Stock for which an offer is made as of such date pursuant to the
Sale Transaction that has been announced prior to such date and that has
not been terminated or withdrawn as of such date; provided, however,
that in the event that the Sale Transaction is structured primarily as
an asset sale, the Offer Price shall be equal to the average closing
price on the New York Stock Exchange for the Common Stock over a period
of 10 consecutive New York Stock Exchange trading days ("Trading Day")
ending on the third Trading Day prior to the closing of such Sale
Transaction); over
(2) the Exercise Price,
multiplied by
(B) the number of Option Shares purchasable pursuant to the Option,
but only if the Offer Price is greater than the Exercise Price.
(v) The term "Put Price" shall mean the greater of (A) $1 million and
(B) the Spread.
(b) The Option may be exercised by Optionee, in whole but not in part, at
any time after a Qualifying Termination Event and prior to the termination
hereof.
(c) The Option shall terminate upon the earliest to occur of: (i)
consummation of the Offering and the Repurchase in accordance with the Share
Repurchase Agreement, (ii) the withdrawal of the SOCO Shares from the Offering
or the termination of the Share Repurchase Agreement, in each case other than as
a result of a Qualifying Termination Event; (iii) five days after the
consummation of a Sale Transaction, and (iv) the expiration of 12 months
following any termination of the Share Repurchase 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 visit
Patina's data room after July 1, 1997 and prior to the Distribution Date (as
defined in the Share Repurchase Agreement), the Option may not be exercised
after six months following any termination of the Share Repurchase Agreement or
withdrawal of shares from the Offering (whichever is earlier). Notwithstanding
the foregoing, the Option may not be exercised by Optionee if Optionee is in
material breach of any of its material representations or warranties, or in
material breach of any of its covenants or agreements, contained in this
Agreement.
(d) SOCO agrees to notify Optionee promptly in writing if (i) a Qualifying
Termination Event occurs, (ii) a definitive agreement for a Sale Transaction has
been executed, or (iii) a Sale Transaction has been publicly announced, it being
understood that the giving of such notice by SOCO shall not be a condition to
the right of Optionee to exercise the Option.
(e) If Optionee wishes to exercise the Option, Optionee shall deliver to
SOCO a written notice (an "Exercise Notice") specifying that Optionee wishes to
exercise the Option, which notice shall be delivered to SOCO prior to the
termination of the Option. The closing of a purchase of Option Shares (a
"Closing") shall occur on the fifth business day following the date of the
Optionee's Exercise Notice at SOCO's principal executive offices, unless
otherwise agreed by SOCO and the Optionee; provided, however, that if the
Optionee elects to exercise the Optionee Put described below, the Closing shall
be subject to, and shall not occur earlier than simultaneously with, the
consummation of the applicable Sale Transaction.
(f) In lieu of purchasing shares upon exercise of the Option, Optionee may
elect to cause SOCO to repurchase the Option at the Closing (the "Optionee Put")
for a purchase price equal to the Put Price. In order to be effective, each
Exercise Notice shall specify Optionee's election to either (i) purchase the
shares of Common Stock covered by such Exercise Notice or (ii) cause the Option
to be repurchased by SOCO pursuant to the Optionee Put.
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(g) Notwithstanding the foregoing, if the Put Price for the Option exceeds
the Applicable Sharing Threshold, then the Put Price shall be reduced by, or the
exercise price shall be increased by, as applicable, an amount in cash equal to
(i) 50%, multiplied by (ii) the excess of the Put Price (prior to such
adjustment) over the Applicable Sharing Threshold.
(h) If Optionee exercises the Optionee Put pursuant to Section 2(f) hereof,
SOCO shall at the Closing pay the required amount to Optionee in immediately
available funds and Optionee shall surrender to SOCO the Option, and Optionee
shall warrant that it owns the Option free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
3. Conditions to Closing. The obligation of SOCO to transfer the Option
Shares to Optionee hereunder is subject to the conditions that no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect; provided,
however, that the Optionee shall be afforded the opportunity, by notice to SOCO,
to postpone the Closing for a reasonable period of time, not to exceed 30 days
after the date of the Exercise Notice, to enable the appropriate parties to use
commercially reasonable efforts to respond to, or remove, such impediment to
Closing.
4. Closing. At any Closing at which the Optionee Put is not exercised,
(a) SOCO will deliver to Optionee (or its designee) a single certificate in
definitive form representing the number of the Option Shares designated by
Optionee in its Exercise Notice, such certificate to be registered in the name
of Optionee and to bear the legend set forth in Section 9 hereof and (b)
Optionee will deliver to SOCO the aggregate price for the Option Shares so
designated and being purchased by wire transfer of immediately available funds
or certified check or bank check. SOCO shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 4 hereof in the name of Optionee or its
designee.
5. Representations and Warranties of SOCO. SOCO represents and warrants
to Optionee that (a) upon delivery of the Option Shares to Optionee upon the
exercise of the Option, Optionee will acquire the Option Shares free and clear
of all claims, liens, charges, encumbrances and security interests of any nature
whatsoever, (b) none of SOCO, any of its affiliates or anyone acting on its or
their behalf has issued, sold or offered any security of Patina to any person
under circumstances, or taken any other action, that would cause the sale and
transfer of the Option Shares, as contemplated by this Agreement, to be subject
to the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), as in effect on the date hereof and, assuming the
representations of Optionee contained in Section 6 hereof are true and correct,
the issuance, sale and delivery of the Option Shares hereunder upon exercise of
the Option will be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof and (c) the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein do not, and will not, conflict with or violate
any terms of any contract, note, instrument, indenture, agreement, certificate
of incorporation, bylaws, law, rule, regulation or restriction applicable to
SOCO or its affiliates (other than Patina).
6. Representations and Warranties of Optionee. Optionee represents and
warrants to SOCO that any Option Shares acquired upon exercise of the Option
will be acquired for Optionee's own account, and will not be, and the Option is
not being, acquired by Optionee with a view to the distribution thereof in
violation of any applicable provision of the Securities Act.
7. No Rights as Stockholder. No holder of the Option shall be, or have
any of the rights or privileges of, a stockholder of Patina in respect of any
shares subject to the Option unless and until such holder's exercise of the
Option (but not including an exercise of the Optionee Put) is consummated in
accordance with the provisions of this Agreement. The decision to proceed with
the Offering, the Repurchase or any other transaction relating to Patina (as
well as the terms of any such transaction) shall, as between SOCO and Optionee,
be in the absolute and sole discretion of SOCO, and nothing in this Agreement
shall create any fiduciary or other duties from SOCO to Optionee, except for
those contractual obligations expressly set forth herein.
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8. Adjustment Upon Changes in Capitalization. Without limiting any
restriction on SOCO contained in this Agreement, in the event of any change in
Common Stock by reason of stock dividends, splitups, mergers, recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the Option, and the purchase price per share provided in
Section 1 hereof shall be adjusted appropriately to restore to Optionee its
rights hereunder.
9. Restrictive Legends. Each certificate representing shares of Common
Stock issued to Optionee hereunder shall include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED
AS OF JULY 31, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
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 Optionee shall have
delivered to SOCO a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance
satisfactory to SOCO, 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 preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
10. Binding Effect; No Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party, which consent shall not be
unreasonably withheld. Nothing contained in this Agreement, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Agreement.
11. Specific Performance. The parties hereby acknowledge and agree that
the failure of SOCO to perform its agreement and covenants hereunder will cause
irreparable injury to Optionee for which damages, even if available, will not be
an adequate remedy. Accordingly, SOCO hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of SOCO's obligations and to the granting by any such court of the remedy of
specific performance of its obligations hereunder.
12. Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. If
any court or other competent authority holds any provisions of this Agreement to
be null, void or unenforceable, the parties hereto shall negotiate in good faith
the execution and delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic effects thereof.
Each party agrees that, should any court or other competent authority hold any
provision of this Agreement or part hereof to be null, void or unenforceable, or
order any party to take any action inconsistent herewith, or not take any action
required herein, the other party shall not be entitled to specific performance
of such provision or part hereof or to any
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other remedy, including without limitation money damages, for breach hereof or
of any other provision of this Agreement or part hereof as the result of such
holding or order.
14. 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 Optionee, to:
Thomas J. Edelman
667 Madison Avenue
22nd Floor
New York, New York 10021
Telecopy No.: (212) 888-6877
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.
15. 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.
16. Counterparts. This Agreement may be executed in multiple
counterparts, each of which taken together shall constitute one and the same
instrument.
17. Expenses. Except as otherwise expressly provided herein, all costs
and expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
18. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
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19. 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.
20. Extension of Time Periods. The time periods for exercise of certain
rights under Sections 2 and 4 hereof shall be extended (a) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and for the expiration of all statutory waiting periods and (b) to the extent
necessary to avoid any liability under Section 16(b) of the Securities Exchange
Act of 1934, as amended, by reason of such exercise.
21. 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 consents in writing to
such amendment.
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INVESTORS' OPTION AGREEMENT
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement"), is dated as of July 31,
1997 as amended as of September 19, 1997, by and between Snyder Oil Corporation,
a Delaware corporation ("SOCO") and the other person whose signature appears on
the signature page hereof ("Optionee").
WHEREAS, SOCO owns beneficially and of record 14,000,000 shares (the "SOCO
Shares") of Common Stock of Patina ("Common Stock"), 2,000,000 of which are
designated Series A Common Stock;
WHEREAS, concurrently with the execution and delivery of this Agreement,
Optionee and certain other persons have entered into a Stock Purchase Agreement
(as amended as of September 19, 1997, the "Stock Purchase Agreement") with
Patina, pursuant to which Optionee and such other persons 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, as a condition to Optionee's willingness to enter into the Stock
Purchase Agreement, Optionee has requested that SOCO agree, and SOCO has so
agreed, to grant to Optionee an option with respect to certain shares of the
Common Stock and to transfer to Optionee certain shares of Common Stock, on the
terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this Agreement,
SOCO (i) has granted options to the other purchasers of New Preferred Stock
under comparable option agreements, which options (together with the option
under this Agreement) cover an aggregate of 2,000,000 shares of Common Stock and
has agreed to transfer to such other purchasers (including the Optionee) an
aggregate of 70,000 shares of Common Stock and (ii) has granted options to
Thomas J. Edelman under similar option agreements, which options cover an
aggregate of 2,000,000 shares of Common Stock;
WHEREAS, SOCO has given Patina notice of its current intention to sell a
portion of the shares of Common Stock owned by it in an underwritten public
offering (the "Offering");
WHEREAS, concurrently with the execution and delivery of this Agreement,
SOCO and Patina have entered into a Share Repurchase Agreement pursuant to which
Patina has agreed, among other things, to repurchase from SOCO all but 70,000 of
the shares of Common Stock owned by SOCO at the time of the consummation of the
Offering that are not sold by SOCO to the underwriters at such time (the
"Repurchase");
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. Grant of Option. SOCO hereby grants Optionee an irrevocable option
(the "Option") to purchase from SOCO the number of shares of Common Stock set
forth for Optionee on the signature page hereof, subject to adjustment as
provided in Section 8 hereof (such shares being referred to herein as the
"Option Shares") in the manner set forth below at an exercise price of $8.00 per
Company Share (the "Exercise Price"), payable in cash in accordance with Section
4 hereof. In addition, SOCO hereby agrees to transfer to Optionee, for no
additional consideration, the number of shares of Common Stock set forth for
Optionee on the signature page hereof, which transfer shall be made
simultaneously with the Repurchase. SOCO's obligation to make such transfer is
subject to the consummation of the transactions contemplated by the Share
Repurchase Agreement.
2. Exercise of Option.
(a) The following terms shall have the following respective definitions:
(i) The term "Applicable Percentage" shall mean (A) the number of
Option Shares on the date hereof divided by (B) 2,000,000.
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(ii) The term "Applicable Sharing Threshold" shall mean (A) $2,500,000
multiplied by (B) the Applicable Percentage.
(iii) "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 assets or
combined voting power of the outstanding capital stock of Patina.
(iv) "Qualifying Termination Event" shall mean the withdrawal of
Shares from the Offering by SOCO or the termination of the Share Repurchase
Agreement by SOCO other than because of (A) a failure of any of the
conditions set forth in Sections 3(b)(i) or 3(b)(ii) of the Share
Repurchase Agreement, (B) a failure of any of the conditions set forth in
Sections 3(b)(iii) or 3(b)(iv) of the Share Repurchase Agreement other than
as a direct result of a failure by SOCO to use commercially reasonable
efforts in connection with the Offering to take such actions as are
customarily required to be taken by a selling stockholder in an offering
such as the Offering (provided, however, that SOCO may, subject to
compliance with Section 6(c) of the Share Repurchase Agreement, continue to
pursue, but not consummate, the sale of all or part of its Shares to one or
more prospective purchasers without being deemed to fail to use such
efforts) or (C) a failure of the condition set forth in Section 3(a)(ii) of
the Share Repurchase Agreement as a result of the termination of the Stock
Purchase Agreement by any party thereto.
(v) The term "Spread" shall mean:
(A) the excess, if any, of
(1) the "Offer Price" for shares of Common Stock as of the date
Optionee gives the Exercise Notice under Section 2(e) or Section 2(f)
hereof (defined as the highest price per share offered for all shares of
Common Stock for which an offer is made as of such date pursuant to the
Sale Transaction that has been announced prior to such date and that has
not been terminated or withdrawn as of such date; provided, however,
that in the event that the Sale Transaction is structured primarily as
an asset sale, the Offer Price shall be equal to the average closing
price on the New York Stock Exchange for the Common Stock over a period
of 10 consecutive New York Stock Exchange trading days ("Trading Day")
ending on the third Trading Day prior to the closing of such Sale
Transaction); over
(2) the Exercise Price,
multiplied by
(B) the number of Option Shares purchasable pursuant to the Option,
but only if the Offer Price is greater than the Exercise Price.
(vi) The term "Put Price" shall mean the greater of (A) $2 million
multiplied by the Applicable Percentage and (B) the Spread.
(b) The Option may be exercised by Optionee, in whole but not in part, at
any time after a Qualifying Termination Event and prior to the termination
hereof.
(c) The Option shall terminate upon the earliest to occur of: (i)
consummation of the Offering and the Repurchase in accordance with the Share
Repurchase Agreement, (ii) the withdrawal of the SOCO Shares from the Offering
or the termination of the Share Repurchase Agreement, in each case other than as
a result of a Qualifying Termination Event; (iii) five days after the
consummation of a Sale Transaction, and (iv) the expiration of 12 months
following any termination of the Share Repurchase 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 visit
Patina's data room after July 1, 1997 and prior to the Distribution Date (as
defined in the Share Repurchase Agreement), the Option may not be exercised
after six months following any termination of the Share Repurchase Agreement or
withdrawal of shares from the Offering (whichever is earlier). Notwithstanding
the foregoing, the Option may not be exercised by Optionee if
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Optionee (or any of its affiliates) is in material breach of any of its material
representations or warranties, or in material breach of any of its covenants or
agreements, contained in this Agreement or in the Stock Purchase Agreement.
(d) SOCO agrees to notify Optionee promptly in writing if (i) a Qualifying
Termination Event occurs, (ii) a definitive agreement for a Sale Transaction has
been executed, or (iii) a Sale Transaction has been publicly announced, it being
understood that the giving of such notice by SOCO shall not be a condition to
the right of Optionee to exercise the Option.
(e) If Optionee wishes to exercise the Option, Optionee shall deliver to
SOCO a written notice (an "Exercise Notice") specifying that Optionee wishes to
exercise the Option, which notice shall be delivered to SOCO prior to the
termination of the Option. The closing of a purchase of Option Shares (a
"Closing") shall occur on the fifth business day following the date of the
Optionee's Exercise Notice at SOCO's principal executive offices, unless
otherwise agreed by SOCO and the Optionee; provided, however, that if the
Optionee elects to exercise the Optionee Put described below, the Closing shall
be subject to, and shall not occur earlier than simultaneously with, the
consummation of the applicable Sale Transaction.
(f) If the Optionee's exercise of the Option relates to the occurrence of a
Qualifying Termination Event, in lieu of purchasing shares upon exercise of the
Option, Optionee may elect to cause SOCO to repurchase the Option at the Closing
(the "Optionee Put") for a purchase price equal to the Put Price. In order to be
effective, each Exercise Notice shall specify Optionee's election to either (i)
purchase the shares of Common Stock covered by such Exercise Notice or (ii)
cause the Option to be repurchased by SOCO pursuant to the Optionee Put.
(g) Notwithstanding the foregoing, if the Optionee's exercise of the Option
relates to the occurrence of a Qualifying Termination Event, and if the Put
Price for the Option exceeds the Applicable Sharing Threshold, then the Put
Price shall be reduced by, or the exercise price shall be increased by, as
applicable, an amount in cash equal to (i) 50%, multiplied by (ii) the excess of
the Put Price (prior to such adjustment) over the Applicable Sharing Threshold.
(h) If Optionee exercises the Optionee Put pursuant to Section 2(f) hereof,
SOCO shall at the Closing pay the required amount to Optionee in immediately
available funds and Optionee shall surrender to SOCO the Option, and Optionee
shall warrant that it owns the Option free and clear of all liens, claims,
damages, charges and encumbrances of any kind or nature whatsoever.
3. Conditions to Closing. The obligation of SOCO to transfer the Option
Shares to Optionee hereunder is subject to the conditions that no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect; provided,
however, that the Optionee shall be afforded the opportunity, by notice to SOCO,
to postpone the Closing for a reasonable period of time, not to exceed 30 days
after the date of the Exercise Notice, to enable the appropriate parties to use
commercially reasonable efforts to respond to, or remove, such impediment to
Closing.
4. Closing. At any Closing at which the Optionee Put is not exercised,
(a) SOCO will deliver to Optionee (or its designee) a single certificate in
definitive form representing the number of the Option Shares designated by
Optionee in its Exercise Notice, such certificate to be registered in the name
of Optionee and to bear the legend set forth in Section 9 hereof and (b)
Optionee will deliver to SOCO the aggregate price for the Option Shares so
designated and being purchased by wire transfer of immediately available funds
or certified check or bank check. SOCO shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 4 hereof in the name of Optionee or its
designee.
5. Representations and Warranties of SOCO. SOCO represents and warrants
to Optionee that (a) upon delivery of the Option Shares to Optionee upon the
exercise of the Option, Optionee will acquire the Option Shares free and clear
of all claims, liens, charges, encumbrances and security interests of any nature
whatsoever, (b) none of SOCO, any of its affiliates or anyone acting on its or
their behalf has issued, sold or offered any security of Patina to any person
under circumstances, or taken any other action, that would cause
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the sale and transfer of the Option Shares, as contemplated by this Agreement,
to be subject to the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), as in effect on the date hereof and, assuming
the representations of Optionee contained in Section 6 hereof are true and
correct, the issuance, sale and delivery of the Option Shares hereunder upon
exercise of the Option will be exempt from the registration and prospectus
delivery requirements of the Securities Act, as in effect on the date hereof and
(c) the execution and delivery of this Agreement and the consummation of the
transactions contemplated herein do not, and will not, conflict with or violate
any terms of any contract, note, instrument, indenture, agreement, certificate
of incorporation, bylaws, law, rule, regulation or restriction applicable to
SOCO or its affiliates (other than Patina).
6. Representations and Warranties of Optionee. Optionee represents and
warrants to SOCO that any Option Shares acquired upon exercise of the Option
will be acquired for Optionee's own account, and will not be, and the Option is
not being, acquired by Optionee with a view to the distribution thereof in
violation of any applicable provision of the Securities Act.
7. No Rights as Stockholder. No holder of the Option shall be, or have
any of the rights or privileges of, a stockholder of Patina in respect of any
shares subject to the Option unless and until such holder's exercise of the
Option (but not including an exercise of the Optionee Put) is consummated in
accordance with the provisions of this Agreement. The decision to proceed with
the Offering, the Repurchase or any other transaction relating to Patina (as
well as the terms of any such transaction) shall, as between SOCO and Optionee,
be in the absolute and sole discretion of SOCO, and nothing in this Agreement
shall create any fiduciary or other duties from SOCO to Optionee, except for
those contractual obligations expressly set forth herein.
8. Adjustment Upon Changes in Capitalization. Without limiting any
restriction on SOCO contained in this Agreement, in the event of any change in
Common Stock by reason of stock dividends, splitups, mergers, recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the Option, and the purchase price per share provided in
Section 1 hereof, as well as the type and number of shares or securities
referred to in Section 2(e), shall be adjusted appropriately to restore to
Optionee its rights hereunder.
9. Restrictive Legends. Each certificate representing shares of Common
Stock issued to Optionee hereunder shall include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED
AS OF JULY 31, 1997, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON
REQUEST.
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 Optionee shall have
delivered to SOCO a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance
satisfactory to SOCO, 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 preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
10. Binding Effect; No Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Except as expressly
provided for in this Agreement, neither this Agreement nor the rights or the
obligations of
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either party hereto are assignable, except by operation of law, or with the
written consent of the other party, which consent shall not be unreasonably
withheld. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement.
11. Specific Performance. The parties hereby acknowledge and agree that
the failure of SOCO to perform its agreement and covenants hereunder will cause
irreparable injury to Optionee for which damages, even if available, will not be
an adequate remedy. Accordingly, SOCO hereby consents to the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of SOCO's obligations and to the granting by any such court of the remedy of
specific performance of its obligations hereunder.
12. Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. If
any court or other competent authority holds any provisions of this Agreement to
be null, void or unenforceable, the parties hereto shall negotiate in good faith
the execution and delivery of an amendment to this Agreement in order, as nearly
as possible, to effectuate, to the extent permitted by law, the intent of the
parties hereto with respect to such provision and the economic effects thereof.
Each party agrees that, should any court or other competent authority hold any
provision of this Agreement or part hereof to be null, void or unenforceable, or
order any party to take any action inconsistent herewith, or not take any action
required herein, the other party shall not be entitled to specific performance
of such provision or part hereof or to any other remedy, including without
limitation money damages, for breach hereof or of any other provision of this
Agreement or part hereof as the result of such holding or order.
14. 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 Optionee, to the address set forth on the signature page hereof, and,
if applicable, with a copy to any counsel listed on the signature page hereof.
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
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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.
15. 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.
16. Counterparts. This Agreement may be executed in multiple
counterparts, each of which taken together shall constitute one and the same
instrument.
17. Expenses. Except as otherwise expressly provided herein, all costs
and expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
18. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
19. 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.
20. Extension of Time Periods. The time periods for exercise of certain
rights under Sections 2 and 4 hereof shall be extended (a) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights,
and for the expiration of all statutory waiting periods and (b) to the extent
necessary to avoid any liability under Section 16(b) of the Securities Exchange
Act of 1934, as amended, by reason of such exercise.
21. 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 consents in writing to
such amendment; provided, however, that each party hereby consents to the
amendments (and, if applicable, restatements) of the Share Repurchase Agreement
and the Stock Purchase Agreement that were executed as of September 19, 1997.
References in this Agreement to such documents shall be the form of such
document as so amended.
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ANNEX F
A.G. EDWARDS & SONS, INC. OPINION
<PAGE> 157
One North Jefferson
St. Louis, Missouri 63103
[A.G.EDWARDS & SONS, LOGO]
- ----------------------------------------------------------------------
INVESTMENTS SINCE 1887
(314) 955-3000
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 Stockholders") of the
Repurchase Transaction (defined below) and (ii) that, taking into account the
terms 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
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.
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' overallotment
option is exercised) (the "Offering") registered 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 herein 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 (ii) 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. 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 acquire 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.
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Independent Committee of the Board of Directors
September 19, 1997
Page 2
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
underwriting, 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 entering 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 and 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 or 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, 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 statements 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;
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<PAGE> 159
Independent Committee of the Board of Directors
July 30, 1997
Page 3
(viii) Reviewed certain publicly available information concerning
certain other companies that we believed to be generally
comparable to Patina, and the trading of, and 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.
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<PAGE> 160
Independent Committee of the Board of Directors
September 19, 1997
Page 4
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.
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 and does not constitute a recommendation as
to how any holder of the Patina Common Stock should vote with respect to the
Transactions.
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
F-4
<PAGE> 161
================================================================================
PATINA OIL & GAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD OCTOBER 17, 1997
The undersigned hereby appoints Thomas J. Edelman, Brian J. Cree
and Keith M. Crouch or any of them, as Proxies, each with the power to
appoint his substitute and hereby authorizes them to represent and to
vote, as designated below, all the shares of Common Stock held of
record by the undersigned on September 2, 1997, at the Special Meeting
of Stockholders to be held on October 17, 1997, at 9:00 a.m., Mountain
time, at the Company's headquarters, 1625 Broadway, Denver, Colorado.
1. APPROVAL of the Secondary Offering of 7,500,000 Patina Shares
(8,625,000 Patina Shares if the underwriters' overallotment option
is fully exercised or such greater or lesser number as the
underwriters, the Company and SOCO may agree to include in the
Secondary Offering).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. APPROVAL of the Patina Share Repurchase by the Company of all
remaining Patina Shares that are not sold in the Secondary Offering
(other than 70,000 Patina Shares which SOCO has agreed to deliver
to the New Preferred Stock Investors).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL of the New Preferred Stock Issuance by the Company to a
limited number of investors of between 1,600,000 and 2,520,000
shares (as determined by the Company in its sole discretion) of the
Company's New Preferred Stock, including the related issuance by
the Company to such investors of 160,000 shares of Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL of the Management Stock Issuances providing for the
issuance and sale by the Company to Management Investors of $3
million of Common Stock and the grant of 150,000 shares of
restricted Common Stock to the management investors (other Mr.
Edelman) as an inducement to invest in the Company and to enhance
their interest in its future success and the grant of 350,000
shares of restricted Common Stock to Mr. Edelman as consideration
for his efforts in structuring and arranging the private placement
of the New Preferred Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the Proxies are authorized to vote upon such
other business as may come before the meeting or any adjournment or
postponement thereof.
(continued, and to be signed, on other side)
<PAGE> 162
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- --------------------------------------------------------------------------------
(continued from other side)
If your address differs from that appearing hereon, please advise the
Company's transfer agent and registrar, Chase Mellon Shareholder
Services, 2323 Bryant Street Suite 2300 Dallas, Texas 75201 Attn:
David Carey, of your correct address.
THIS PROXY, DULY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS NOS. 1 THROUGH 4.
<TABLE>
<S> <C>
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
[ ]
<CAPTION>
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW MARK HERE IF YOU PLAN TO ATTEND THE MEETING
<S> <C> <C>
[ ]
</TABLE>
-----------------------------------
(Signature)
-----------------------------------
(Signature if held jointly)
Date:
-----------------------------------
(Please sign exactly as your name
appears hereon. If stock is
registered in more than one name,
each holder should sign. When
signing as an attorney,
administrator, executor, guardian
or trustee, please add your title
as such. If executed by a
corporation or other entity, the
proxy should be signed by a duly
authorized officer or other
representative.)
PLEASE SIGN, DATE AND PROMPTLY
RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
