PRELIMINARY COPY
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:
/x/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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:
<PAGE>
PATINA OIL & GAS CORPORATION
1625 Broadway, Suite 2000
Denver, Colorado 80202
(303) 389-3600
August __, 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 [Location], on _____, September __, 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. The Transactions
will also greatly enhance the liquidity of the Company's common stock, bring
to the Company several substantial and committed new investors and better
align the interests of stockholders and management. In simple terms, the
majority of the Patina Shares will be sold to the public in an underwritten
public offering (the "Secondary Offering"). Immediately thereafter, the
Company will repurchase all of SOCO's remaining stock (the "Patina Share
Repurchase"). The Patina Share Repurchase will be funded through the sale of
up to $63 million of a new issue of convertible preferred stock (the "New
Preferred Stock") and the sale of $3 million of newly issued common stock to
up to 18 members of your management at the public offering price obtained in
the Secondary Offering. To induce management to invest in the Company and to
enhance their interest in its future success, the Company will simultaneously
grant these individuals 500,000 shares of restricted common stock. These
shares will vest over five years and thereby help retain the services of
these key individuals. The details of the Transactions are described in the
enclosed Proxy Statement, which I urge you to read carefully.
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 July 30, 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.
<PAGE>
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. We are enthusiastic
about the Company's potential over the next few years and believe that the
elimination of SOCO's ownership will provide us far greater flexibility in
pursuing the Company's long-term growth and profitability. We greatly
appreciate your support and confidence.
Sincerely yours,
Thomas J. Edelman
Chairman of the Board
<PAGE>
PATINA OIL & GAS CORPORATION
1625 Broadway, Suite 2000
Denver, Colorado 80202
(303) 389-3600
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER __, 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 [Location], on _______, September __, 1997, at
9:00 a.m. Mountain time.
The Meeting is called for the purpose of considering and voting upon:
1. A proposal to approve a series of related transactions
providing for the recapitalization of the Company
(collectively, the "Transactions"), which are comprised of:
(i) a Secondary Offering of 7,500,000 Patina Shares
(8,625,000 Patina Shares if the underwriters' overallotment
option is fully exercised); (ii) the Patina Share Repurchase
by the Company of all remaining Patina Shares that are not
sold in the Secondary Offering; (iii) 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; and (iv) 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 and the grant to
such management investors of 500,000 shares of restricted
Common Stock.
2. Matters incident to the conduct of the Meeting or any
adjournments or postponements thereof.
Under certain circumstances described in the accompanying Proxy
Statement, the Company may elect either not to consummate the New Preferred
Stock Issuance as part of the Transactions (in which case the Company
anticipates that it will fund the Patina Share Repurchase through available
borrowings under the Company's credit facility) or to revise the terms of the
New Preferred Stock Issuance prior to the consummation thereof.
The Board of Directors has fixed the close of business on August __,
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 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.
<PAGE>
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
Keith M. Crouch
Secretary
August __, 1997
Denver, Colorado
<PAGE>
PRELIMINARY COPY
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 [Location], on _____, September __,
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), 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, pursuant to a Share Repurchase Agreement, dated as of July 31,
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 pursuant to a Stock Purchase Agreement, dated as of July 31, 1997,
among the Company and the new preferred stock investors (the "New Preferred
Stock Issuance"); and (iv) the issuance and sale by the Company to up 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 to such management investors
of 500,000 shares of restricted Common Stock (the "Management Stock
Issuances"). 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.
Under certain circumstances described herein, the Company may elect either
not to consummate the New Preferred Stock Issuance as part of the
Transactions (in which case the Company anticipates that it will fund the
<PAGE>
Patina Share Repurchase through available borrowings under the Company's
credit facility) or to revise the terms of the New Preferred Stock Issuance
prior to the consummation thereof. 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 August __,
1997.
___________
See "Risk Factors" beginning on page 14 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 August __, 1997
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . 10
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Parties to the Transactions . . . . . . . . . . . . . . . . . . 13
The Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Description of the Transactions . . . . . . . . . . . . . . . . 15
Additional Related Events . . . . . . . . . . . . . . . . . . . 18
Approval of the Transactions; . . . . . . . . . . . . . . . . . 19
Sources and Uses of Funds for the Transactions . . . . . . . . . 20
Interests of Certain Persons in the Transactions . . . . . . . . 21
Price Range of Common Stock and Dividend Policy . . . . . . . . 21
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Company Risks . . . . . . . . . . . . . . . . . . . . . . . . . 23
Forward Looking Information . . . . . . . . . . . . . . . . . . 26
THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Date, Time and Place . . . . . . . . . . . . . . . . . . . . . . 26
Record Date, Voting and Quorum . . . . . . . . . . . . . . . . . 26
Matters To Be Considered at the Meeting; Required Vote;
Appraisal Rights . . . . . . . . . . . . . . . . . . . . 27
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . 28
Adjournments; Revocability of Proxies . . . . . . . . . . . . . 28
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . 28
DESCRIPTION OF THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 29
Background of the Transactions . . . . . . . . . . . . . . . . . 29
Reasons for the Transactions . . . . . . . . . . . . . . . . . . 32
Approval of the Transactions . . . . . . . . . . . . . . . . . . 35
Opinion of Financial Advisor to the Independent Committee . . . 36
Interests of Certain Persons in the Transactions . . . . . . . . 42
Secondary Offering . . . . . . . . . . . . . . . . . . . . . . . 43
Patina Share Repurchase . . . . . . . . . . . . . . . . . . . . 44
New Preferred Stock Issuance . . . . . . . . . . . . . . . . . . 44
Management Stock Issuances . . . . . . . . . . . . . . . . . . . 44
Tax Consequences of Transactions; Accounting Treatment . . . . . 45
Sources and Uses of Funds for the Transactions . . . . . . . . . 45
DESCRIPTION OF THE DEFINITIVE AGREEMENTS . . . . . . . . . . . . . . . . 46
Share Repurchase Agreement . . . . . . . . . . . . . . . . . . . 46
Preferred Stock Purchase Agreement . . . . . . . . . . . . . . . 48
Management Stock Purchase Agreement and Restricted Stock
Awards . . . . . . . . . . . . . . . . . . . . . . . . . 54
SOCO Option Agreements . . . . . . . . . . . . . . . . . . . . . 55
PARTIES TO THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 56
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Snyder Oil Corporation . . . . . . . . . . . . . . . . . . . . . 57
New Preferred Stock Investors . . . . . . . . . . . . . . . . . 58
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA . . . . . . 59
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Directors and Executive Officers . . . . . . . . . . . . . . . . 62
Change in Control Plan . . . . . . . . . . . . . . . . . . . . . 65
Edelman Employment Agreement and Related Matters . . . . . . . . 66
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . 68
DESCRIPTION OF CERTAIN INDEBTEDNESS . . . . . . . . . . . . . . . . . . . 69
Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . 69
Senior Subordinated Notes . . . . . . . . . . . . . . . . . . . 70
STOCKHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING . . . . . . . . . . . . . 71
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 72
ANNEX A Share Repurchase Agreement
ANNEX B Preferred Stock Purchase Agreement
ANNEX C Form of Management Stock Purchase Agreement
ANNEX D Form of Restricted Stock Award Agreement
ANNEX E Form of SOCO Option Agreements
ANNEX F A.G. Edwards & Sons, Inc. Opinion
<PAGE>
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; 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
<PAGE>
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.
<PAGE>
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), 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, pursuant
to a Share Repurchase Agreement, dated as of July 31, 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 a limited number of investors (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 Company's 8.5% Convertible Preferred
Stock (the "New Preferred Stock") pursuant to a Stock Purchase Agreement,
dated as of July 31, 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 up 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
to such Management Investors of 500,000 shares of restricted Common Stock.
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. Under certain circumstances
described herein, the Company may elect either not to consummate the New
Preferred Stock Issuance as part of the Transactions (in which case the
Company anticipates that it will fund the Patina Share Repurchase through
available borrowings under the Company's credit facility) or to revise the
terms of the New Preferred Stock Issuance prior to the consummation thereof.
See "Description of the Definitive Agreements--Preferred Stock Purchase
Agreement--Conditions to Closing."
<PAGE>
See "Risk Factors" beginning on page 14 for a 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 and maintaining 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 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
<PAGE>
Investors are comprised of a limited number of 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 $8.80 per share and that no currently outstanding warrants
or options have been exercised) up to approximately 35% (which percentage
would increase to approximately 40% 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.
The Meeting
Time, Place and Date. The Meeting of the Company's stockholders will
be held at [Location], on _____, September __, 1997, at 9:00 a.m. Mountain
time.
Record Date, Voting and Quorum. The record date for the Meeting is
August __, 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 Company will be asked to
consider and vote upon (i) a proposal to approve the Transactions, which are
comprised of (A) a Secondary Offering of 7,500,000 Patina Shares (8,625,000
Patina Shares if the underwriters' overallotment option is fully exercised),
(B) the Patina Share Repurchase by the Company of all remaining Patina Shares
that are not sold in the Secondary Offering, (C) 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, and (D) 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 by the Company to such Management Investors of 500,000 shares of
restricted Common Stock, and (ii) 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
<PAGE>
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.
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
<PAGE>
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). 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.
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 Definitive
Agreements--Preferred Stock Purchase Agreement--Conditions to Closing") and
the Patina Share Repurchase.
Patina Share Repurchase. Pursuant to the Share Repurchase Agreement,
dated as of July 31, 1997, the Company has agreed with SOCO to purchase the
balance of the Patina Shares (6,500,000 shares, assuming no exercise of the
Underwriters' overallotment option and the sale of 7,500,000 shares in the
Secondary Offering; 5,375,000 shares, assuming exercise of such option in
full), 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.
<PAGE>
New Preferred Stock Issuances. Pursuant to the Preferred Stock
Purchase Agreement, dated as of July 31, 1997, the Company has agreed to sell
an aggregate of between 1,600,000 and 2,520,000 shares of 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. Under the Preferred Stock Purchase Agreement, if the
Independent Committee's financial advisor, A.G. Edwards & Sons, Inc. ("A.G.
Edwards"), does not, at the time of the closing of the initial sale of New
Preferred Stock, confirm its advice that, taking into account the terms and
conditions of the New Preferred Stock, the consideration to be paid to the
Company for the New Preferred Stock is comparable to other privately placed
convertible preferred equity securities and as a result is fair, from a
financial point of view, to the Company's stockholders (other than SOCO) (the
"Non-Affiliated Stockholders"), then the Company shall have the right to
decline to sell any shares of New Preferred Stock in connection with the
consummation of the Transactions. In such event, the Company may be
obligated to issue an aggregate of 230,000 shares of Common Stock to the New
Preferred Stock Investors as a termination fee. In such circumstances, the
Company may elect either not to consummate the New Preferred Stock Issuance
as part of the Transactions (in which case the Company anticipates that it
will fund the Patina Share Repurchase through available borrowings under the
Company's credit facility) or to revise the terms of the New Preferred Stock
Issuance prior to the consummation thereof. 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 Investors' prior commitment to
purchase the New Preferred Stock, the Company will issue to them, on a pro
rata basis, at the time of the initial sale of the shares of New Preferred
Stock, an aggregate of 100,000 shares of Common Stock. 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, if any shares of New Preferred Stock are issued.
Management Stock Issuances. Pursuant to a Management Stock Purchase
Agreement (the "Management Stock Purchase Agreement") to be entered into by
the Management Investors prior to or concurrently with the sale of Patina
Shares in the Secondary Offering, 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. The Company will lend each
Management Investor (other than Mr. Edelman) up to 85% of such purchase price
<PAGE>
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 to induce them
to invest in the Company and to enhance their interest in the Company's
future success that included, among other things, the Management Stock
Issuances as described above.
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
<PAGE>
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. In connection with their commitment to
purchase the New Preferred Stock, SOCO has granted the New Preferred Stock
Investors, 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. For
additional details in respect of the SOCO Options, 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 oral advice, confirmed
later in writing, of A.G. Edwards, which is subject to certain assumptions
and conditions, concerning the fairness from a financial point of view, as of
July 30, 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. Assuming that relevant conditions and circumstances do not
change materially, A.G. Edwards' advice will be confirmed in a final opinion
to be delivered to the Independent Committee as of the date of the
consummation of the initial sale of New Preferred Stock and is conditioned
upon the occurrence of all the Transactions and the expiration, unexercised,
of the SOCO Options. As noted above, A.G. Edwards is one of the Underwriters
of the Secondary Offering.
<PAGE>
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 July 30, 1997, A.G. Edwards, in its capacity as financial
advisor to the Independent Committee, orally advised the Independent
Committee that, as of such date and based on 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.
Subsequent to such meeting, A.G. Edwards delivered its written opinion, dated
as of July 30, 1997, confirming the advice A.G. Edwards gave to the
Independent Committee at the July 30 meeting. 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.
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 Public Offering Price of $8.50 per share). 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.
<PAGE>
<TABLE>
<CAPTION>
In Millions
-----------------------
<S> <C>
Sources of Funds:
Sale of New Preferred Stock . . . . . . . . . . $40.0<F1>
Sale of Common Stock to the Management
Investors . . . . . . . . . . . . . . . . . 3.0<F2>
Bank borrowings . . . . . . . . . . . . . . . . 11.0<F3>
-----
Total $54.0
=====
Uses of Funds:
Repurchase the balance of Patina Shares held by
SOCO in the Patina Share Repurchase . . . . $52.2<F4>
Expenses payable by the Company . . . . . . . . 0.9
Loans to the Management Investors . . . . . . . 0.9<F2>
-----
Total. . . . . . . . . . . . . . . . . . . $54.0
=====
____________________
<FN>
<F1> Assumes 1,600,000 shares of New Preferred Stock are sold to the New
Preferred Stock Investors at a price per share of $25.00.
<F2> 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."
<F3> Assumes 7,500,000 Patina Shares are sold in the Secondary Offering and
the Underwriters' overallotment option is not exercised. If the
Underwriters' overallotment option is fully exercised, the Company
will not need to make any bank borrowings to finance the Patina Share
Repurchase.
<F4> Assumes the Company will repurchase 6,500,000 Patina Shares from SOCO
at a Net Offering Price of $8.0325 per share.
</TABLE>
Interests of Certain Persons in the Transactions
Certain directors and officers of the Company and SOCO and certain of
their respective affiliates, as well as certain nominees of the New Preferred
Stock Investors, have interests described herein that may present them with
potential conflicts of interest as a result of the Transactions. The
Company's Board of Directors and the Independent Committee were aware of such
potential 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."
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
<PAGE>
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 August
__, 1997) . . . . . . . . . . __.__ __.__
</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 sales price of the Common Stock on the NYSE was $8.50 and
$8.375. 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 August __, 1997, the most recent practicable date prior to
the printing of this Proxy Statement, the high and low sales price of the
Common Stock on the NYSE was $_.__ and $_.__.
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."
<PAGE>
RISK FACTORS
Company Risks
Acquisition Risks. The Company's growth has been attributable in
significant part to acquisitions. The Company expects to continue to evaluate
and, where appropriate, pursue acquisition opportunities on terms management
considers satisfactory. There can be no assurance that suitable acquisitions
will be identified in the future or that the Company will be able to finance
such acquisitions on favorable terms. In connection with consummating any
significant future acquisitions, the Company will require additional debt or
equity financing, which may not be available or, if available, may not be on
terms that are acceptable to the Company. In addition, the Company competes
against other companies for acquisitions, and there can be no assurance that
the Company will be successful in the acquisition of any material property
interests. Furthermore, there can be no assurance that any future
acquisitions made by the Company will be integrated successfully into the
Company's operations or will achieve desired rates of return.
Successful acquisitions require an assessment of recoverable reserves,
exploration potential, future oil and natural gas prices, operating costs, as
well as environmental and other risks beyond the Company's control. In
connection with such assessments, the Company performs a review of the
subject properties that it believes to be generally consistent with industry
practices. Nonetheless, the resulting assessments are necessarily inexact and
their accuracy inherently uncertain, and such a review may not reveal all
existing or potential problems, nor will it necessarily permit the Company to
become sufficiently familiar with the properties to fully assess their merits
and efficiencies. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even
when an inspection is undertaken.
Significant acquisitions can change the nature of the operations and
business of the Company depending upon the character of the acquired
properties, which may be substantially different in operating and geologic
characteristics or geographic location from existing properties.
Dependence on Key Personnel. The continued growth of the Company
depends, and will continue to depend in the foreseeable future, on the
services of its officers and key employees who have extensive experience and
expertise in evaluating and analyzing potential acquisitions and managing the
Company's oil and natural gas properties, including Mr. Edelman, the
Company's 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 at the highest
<PAGE>
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.
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 $193.7 million and its ratio of total debt-to-total
capitalization would have been 51%. Such indebtedness does not include the
Company's dividend obligations with respect to the New Preferred Stock or the
Old Preferred Stock. The Company's level of indebtedness will have several
important effects on its future operations, including: (i) 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; (ii) covenants contained in the Company's debt obligations 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; and (iii) 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
<PAGE>
assurance that the Company's future performance will not be adversely
affected by some or all of these factors.
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
hedged through September 1997. In the future, the Company may increase the
percentage of its production covered by hedging arrangements. Pursuant to the
terms of the Company's Credit Agreement, dated as of April 1, 1997 (the
"Credit Agreement"), the Company is permitted to hedge up to 75% of its
anticipated oil and natural gas production for the duration of the relevant
hedge contracts.
Influence of New Preferred Stock Investors. Holders of the New
Preferred Stock will have (assuming that 2,520,000 shares of New Preferred
Stock are issued and are convertible at $8.80 per share and that no currently
outstanding warrants or options have been exercised) up to approximately 35%
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.
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.
Certain Business Interests of Chief Executive Officer. Mr. Edelman, the
Chief Executive Officer of the Company, also serves as Chairman of Lomak
Petroleum, Inc. ("Lomak"), a publicly traded oil and gas company. The Company
currently has no business relationships with Lomak, and Lomak does not own
<PAGE>
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. See "Management---
Edelman Employment Agreement and Related Matters."
Shares Eligible for Future Sale. 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 Common
Stock.
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 Company disclaims any obligation to update any such factors or to
publicly announce the results of any revisions to any of the forward-looking
statements contained in this Proxy Statement to reflect future events or
developments.
THE MEETING
Date, Time and Place
The Meeting of the Company's stockholders will be held at [Location], on
_____, September __, 1997, at 9:00 a.m. Mountain time.
Record Date, Voting and Quorum
The Record Date for the Meeting is August __, 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
<PAGE>
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 Company will be asked to consider
and vote upon (i) a proposal to approve the Transactions, which are comprised
of (A) a Secondary Offering of 7,500,000 Patina Shares (8,625,000 Patina
Shares if the underwriters' overallotment option is fully exercised), (B) the
Patina Share Repurchase by the Company of all remaining Patina Shares that
are not sold in the Secondary Offering, (C) 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, and (D) 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 by the Company to such Management Investors of 500,000 shares of
restricted Common Stock, and (ii) 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."
Under certain circumstances described under "Description of the
Definitive Agreements--Preferred Stock Purchase Agreement--Conditions to
Closing", the Company may elect either not to consummate the New Preferred
Stock Issuance as part of the Transactions (in which case the Company
anticipates that it will fund the Patina Share Repurchase through available
borrowings under the Company's credit facility) or to revise the terms of the
New Preferred Stock Issuance prior to the consummation thereof.
The Company's stockholders are not entitled to any appraisal rights
under Delaware General Corporation Law as a result of the Transactions.
<PAGE>
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 Company's 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.
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
<PAGE>
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. as its financial advisor ("Petrie Parkman") to advise SOCO on its
various strategic alternatives.
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
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); (ii) the receipt of commitments from a limited number of
investors for the purchase of newly issued equity securities of the Company;
and/or (iii) a public secondary offering for a portion of the Patina Shares.
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,
<PAGE>
Mr. Edelman contacted SOCO and Petrie Parkman in late April 1997 and
described to 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 separate 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.
In mid- to late-May 1997, Mr. Edelman enlisted the assistance of certain
members of the Company's senior management to analyze the proposed
transactions, as well as various alternatives, and begin preparation of
materials describing the proposed transactions, including a preliminary draft
of a private placement memorandum for the issuance of a 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.
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. The Company's Board of Directors 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.
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. In response to
the Underwriters' and the New Preferred Stock Investors' request, the Company
and Mr. Edelman structured an enhanced equity arrangement for Mr. Edelman and
the other Management Investors to induce them to invest in the Company and to
<PAGE>
enhance their interest in the Company's future success that included, among
other things, a renewed employment agreement for Mr. Edelman, the purchase of
shares of Common Stock by the Management Investors, the grant of restricted
Common Stock to the Management Investors and the grant of additional vested
options to Mr. Edelman.
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, as of the date of this Proxy Statement, 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 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. A.G. Edwards delivered its oral
<PAGE>
advice (which was later confirmed in writing) to the Independent Committee
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. 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 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 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.
As a result of the Independent Committee's determination, final revisions to
the proposed transactions were negotiated among the various parties involved
in the Transactions, which final revisions are reflected in the Transactions
as described in this Proxy Statement. Upon the agreement of the parties to
these final 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 final 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.
Reasons for the Transactions
At the meeting of the Company's Board of Directors on July 31, 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 a
number of factors, including without limitation the following:
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."
<PAGE>
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.
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 July 30, 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. 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 the terms and conditions of the Preferred
Stock Purchase Agreement, the Management Stock Purchase Agreement and
the other agreements entered into or to be entered into in connection
with the Transactions. 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, 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.
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 $8.80 per share and
that no currently outstanding warrants or options have been exercised)
as of the closing date approximately 35% of the voting power of the
Company's outstanding voting securities (which percentage would increase
to approximately 40% 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 standstill
restrictions referred to above, including the provisions prohibiting the
<PAGE>
New Preferred Stock Investors from seeking to effect any change of
control of the Company during the five-year restricted period, 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 35% 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 35% in
the aggregate (and up to approximately 40% 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 $8.80 per share), 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 Company's Common Stock. The Board
noted in its considerations that the conversion price in respect of the
New Preferred Stock (including the maximum price) had been negotiated
<PAGE>
and set at the time that the Company's Common Stock was trading on the
NYSE around $8.00 per share.
15. The Board considered the fact that the New Preferred Stock
Issuance was conditioned upon A.G. Edwards' confirmation that 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 as of the date of such issuance. In
addition, 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 July 30, 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
oral advice, confirmed later in writing, 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 July 30, 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. Assuming that
relevant conditions and circumstances do not change materially, A.G. Edwards'
advice will be confirmed in an opinion to be delivered to the Independent
Committee as of the date of the consummation of the initial sale of New
Preferred Stock and is conditioned upon the occurrence of all the
Transactions and the expiration, unexercised, of the SOCO Options. 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
<PAGE>
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 July 30, 1997, A.G. Edwards rendered to the Independent Committee its
oral opinion (which was later confirmed in writing) that, as of such date 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. Assuming that relevant conditions and
circumstances do not change materially, A.G. Edwards will confirm the advice
contained in its July 30 opinion in a final opinion to be delivered to the
Independent Committee as of the date of the consummation of the initial sale
of New Preferred Stock. If A.G. Edwards does not, at the time of the
consummation of the initial sale of New Preferred Stock, confirm its advice
regarding the fairness to the Non-Affiliated Stockholders from a financial
point of view, of the consideration to be paid to the Company for the New
Preferred Stock, the Company shall have the right to decline to sell any
shares of New Preferred Stock in connection with the consummation of the
Transactions. See "Description of the Definitive Agreements--Preferred Stock
Purchase Agreement--Conditions to Closing." A.G. Edwards was not requested
to and will not express any opinion on the Secondary Offering 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, and the final opinion will be
conditioned upon, the consummation of all of the Transactions and will be
further conditioned on the expiration, unexercised, of the SOCO Options
granted by SOCO to the New Preferred Stock Investors and Mr. Edelman.
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
<PAGE>
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 July 30, 1997, A.G. Edwards
considered (among other things): (i) the draft Stock Purchase Agreement, the
draft Stock Repurchase Agreement and the draft S-3 Registration 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;
(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 July 30, 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. The Independent Committee has not specifically engaged A.G.
Edwards to, and therefore A.G. Edwards has 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' July
<PAGE>
30 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 July 25, 1997 and other conditions and circumstances
existing and disclosed to it as of July 30, 1997.
The full text of the opinion of A.G. Edwards dated July 30, 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 July 30 opinion, together with the assumptions and considerations
set forth therein, in its entirety. A.G. Edwards' July 30 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 July 30 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 July 30 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 July 25, 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
July 25, 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 $5.97 to
$11.75.
<PAGE>
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.
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
$8.625 per share (as of July 25, 1997) yielded an implied range of common
equity per share values of $8.19 to $9.49.
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.
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) 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 $3.74 to $13.45.
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 $8.625 per share (as of July 25, 1997)
yielded an implied range of common equity per share values of $5.18 to
$12.08.
Convertible Preferred Pricing Analysis. In order to establish a range
of intrinsic values for the Company's New Preferred stock, A.G. Edwards
<PAGE>
analyzed the range of potential values as the sum of two components: (i) a
straight preferred stock; and (ii) a warrant for the underlying common
shares. 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 $8.625 per
share (as of July 25, 1997); (ii) a conversion price of $8.80, (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 5.94%.
Based on this analysis, A.G. Edwards determined the per share value of the
New Preferred Stock as a publicly traded security to be between $27.11 and
$33.25. 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 8% to 33%. A.G. Edwards considered the
appropriateness of this implied discount in context with certain terms of the
New Preferred Stock including: (i) the cap on the conversion price of $8.80
(which upon subsequent request of the Independent Committee, A.G. Edwards
estimated the value separately at between $1.0 and $2.0 per preferred share);
(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; and (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 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 July 25, 1997) (16%); (ii) "Institutional
Purchases of Restricted Securities"/Securities and Exchange Commission (26%);
(iii) "Discounts for Lack of Marketability for Closely Hold 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%). Based upon these analyses and market conditions as of July 30, 1997,
A.G. Edwards concluded in its July 30 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. These results were confirmed after
A.G. Edwards reviewed, for reasonableness, the terms of the New Preferred
<PAGE>
Stock against information available to A.G. Edwards on other selected
privately placed convertible preferred securities.
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 July 30, 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 July 30 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 July 30
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 July 30 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 July 30 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
result, 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 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' July 30 fairness opinion. In addition, as
described above, A.G. Edwards' July 30 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 Letters"). 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 rendering of
the final opinion as 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.
<PAGE>
Interests of Certain Persons in the Transactions
Certain directors and officers of the Company and SOCO and certain of
their respective affiliates, as well as certain nominees of the New Preferred
Stock Investors, have interests described herein that may present them with
potential conflicts of interest as a result of the Transactions. The
Company's Board of Directors and the Independent Committee were aware of such
potential 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, in each case as described below
under "--Secondary Offering" and --Patina Share Repurchase." As a result of
the Transactions, SOCO will sell all 14,000,000 Patina Shares that it
currently owns.
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
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. 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
<PAGE>
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). 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 in certain limited
circumstances described herein under "Description of the Definitive
Agreements--Preferred Stock Purchase Agreement--Conditions to Closing") and
the Patina Share Repurchase.
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
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
<PAGE>
Preferred Stock (which will equal the lesser of (A) 10% over the Public
Offering Price and (B) $8.80).
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 remaining Patina
Shares 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, the
Company has agreed with SOCO to purchase the balance of the Patina Shares
(6,500,000 shares, assuming no exercise of the Underwriters' overallotment
option and the sale of 7,500,000 shares in the Secondary Offering; 5,375,000
shares, assuming exercise of such option in full), 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, 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."
Management Stock Issuances
<PAGE>
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 (352,941
shares of Common Stock assuming a price per share equal to a Public Offering
Price of $8.50 per share) to the Management Investors at a purchase price per
share equal to the Public Offering Price. In connection with these sales, the
Company will loan to each Management Investor (other than Mr. Edelman) up to
85% of such purchase price pursuant to five-year 8.5% loans which will be
secured by all of the shares of 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. 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 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.
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 Public Offering Price of $8.50 per share). 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.
<PAGE>
<TABLE>
<CAPTION>
In Millions
-----------------------
<S> <C>
Sources of Funds:
Sale of New Preferred Stock . . . . . . . . . . $40.0<F1>
Sale of Common Stock to the Management
Investors . . . . . . . . . . . . . . . . . . . 3.0<F2>
11.0<F3>
Bank borrowings . . . . . . . . . . . . . . . . -----
$54.0
Total . . . . . . . . . . . . . . . . . . . =====
Uses of Funds:
Repurchase the balance of Patina Shares held by
SOCO in the Patina Share Repurchase . . . . $52.2<F4>
Expenses payable by the Company . . . . . . . . 0.9
0.9<F2>
Loans to the Management Investors . . . . . . . -----
$54.0
Total . . . . . . . . . . . . . . . . . . . =====
____________________
<FN>
<F1> Assumes 1,600,000 shares of New Preferred Stock are sold to the New
Preferred Stock Investors at a price per share of $25.00.
<F2> The Management Investors will purchase $3.0 million of Common Stock at
the Public Offering Price, of which up to $850,000 will be funded with
loans from the Company. See "--Management Stock Issuances."
<F3> Assumes 7,500,000 Patina Shares are sold in the Secondary Offering and
the Underwriters' overallotment option is not exercised. If the
Underwriters' overallotment option is fully exercised, the Company
will not need to make any bank borrowings to finance the Patina Share
Repurchase.
<F4> Assumes the Company will repurchase 6,500,000 Patina Shares from SOCO
at a Net Offering Price of $8.0325 per share.
</TABLE>
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
<PAGE>
General
Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997, the
Company has agreed with SOCO to purchase the balance of the Patina Shares
(6,500,000 shares, assuming no exercise of the Underwriters' overallotment
option and the sale of 7,500,000 shares in the Secondary Offering; 5,375,000
shares, assuming exercise of such option in full), 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-
<PAGE>
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.
Preferred Stock Purchase Agreement
General
Pursuant to the Preferred Stock Purchase Agreement, dated as of July 31,
1997, the Company has agreed to sell an aggregate of between 1,600,000 and
2,520,000 shares of 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 dividend 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
<PAGE>
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 at the
option of the holders thereof at any time at a conversion price equal to the
lesser of (i) 10% over the Public Offering Price and (ii) $8.80. 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 Investors' prior commitment to
purchase the New Preferred Stock, the Company will issue to them, on a pro
rata basis, at the time of the initial sale of the shares of New Preferred
Stock, an aggregate of 100,000 shares of Common Stock. 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, if any shares of New Preferred Stock are 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 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
<PAGE>
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
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
<PAGE>
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. In addition, if the
Independent Committee's financial advisor, A.G. Edwards, does not, at the
time of the closing of the initial sale of New Preferred Stock, confirm its
advice that taking into account the terms and conditions of the New Preferred
Stock, the consideration to be paid to the Company for the New Preferred
Stock is comparable to other privately placed convertible preferred equity
securities and, as a result is fair, from a financial point of view, to the
Non-Affiliated Stockholders, then the Company shall have the right to decline
to sell any shares of New Preferred Stock in connection with the consummation
of the Transactions. In such event, the Company may be obligated to issue an
aggregate of 230,000 shares of Common Stock to the New Preferred Stock
Investors as a termination fee, as described below under "--Termination;
Termination Fees." In such circumstances, the Company may elect either not
to consummate the New Preferred Stock Issuance as part of the Transactions
(in which case the Company anticipates that it will fund the Patina Share
Repurchase through available borrowings under the Company's credit facility)
or to revise the terms of the New Preferred Stock Issuance prior to the
consummation thereof.
Termination; Termination Fees
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; (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; or
(c) by the Company, if the Company fails to obtain a "bring-down" opinion
from its financial advisor, dated as of the date of the initial issuance of
New Preferred Stock, that the consideration received by the Company for the
<PAGE>
New Preferred Stock Issuance is fair from a financial point of view to the
Company as of such date.
If the Company exercises its right terminate the Preferred Stock
Purchase Agreement pursuant to the provision described in clause (c) of the
preceding paragraph and the New Preferred Stock Investors are not, as a
result thereof, entitled to exercise their SOCO Options (as described below
under "--SOCO Option Agreements"), the Company shall promptly issue to the
New Preferred Stock Investors, on a pro rata basis, an aggregate of 230,000
shares of Common Stock. If the Company exercises this right, the New
Preferred Stock Investors shall not have any obligation to purchase any
shares of New Preferred Stock thereafter, and the shares of Common Stock so
issued shall be treated as "Registrable Securities" for purposes of the
registration rights granted to the New Preferred Stock Investors.
In addition, if SOCO determines not to sell Patina Shares in the
Secondary Offering because the Net Offering Price is less than $7.0875 per
share, 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) (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
<PAGE>
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 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.
<PAGE>
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 and the 100,000 shares of Common Stock issued to the New Preferred
Stock Investors (collectively, the "Registrable Securities") in consideration
for their prior commitment to purchase shares of New Preferred Stock. 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 to be entered into by
the Company and the Management Investors (including Mr. Edelman, the Chairman
and Chief Executive Officer of the Company) prior to or concurrently with the
sale of Patina Shares in the Secondary Offering, 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 register with the Commission for
<PAGE>
sale to the public the shares of Common Stock purchased by, or awarded to,
the Management Investors under certain limited circumstances.
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 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.
SOCO Option Agreements
On July 31, 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, in connection with 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, 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. 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 (i) 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 or (ii) in
the case of the Investors' Options only, (a) the Company elects not to sell
any shares of New Preferred Stock to the New Preferred Stock Investors in
connection with the sale of Patina Shares in the Secondary Offering and (b)
SOCO elects to sell at least 12,000,000 shares of Common Stock in the
Secondary Offering or pursuant to the Share Repurchase Agreement or otherwise
within 20 business days following the date the Company elects not to sell any
shares of New Preferred Stock. In the case of an exercise pursuant to clause
(ii) above, the SOCO Options must be physically settled and the New Preferred
Stock Investors are not required to pay any portion of the Option Exercise
Value in excess of $1.25 to SOCO.
<PAGE>
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 and maintaining 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.
<PAGE>
Operate Properties. The Company prefers to operate its properties in
order to exercise greater control over the timing and plans for future
development, well workovers, production enhancements and lease operating
expenses, as well as the marketing of oil and natural gas production. The
Company currently operates approximately 3,175 (or 90%) of the 3,550
producing wells in which it owns an interest and these operated properties
account for approximately 98% of the pretax present value of its year-end
1996 producing reserves.
Exploit Existing Reserves. The Company seeks to maximize the value of
its properties by increasing production and recoverable reserves through the
active development, recompletion and exploitation of its properties. At
December 31, 1996, the Company had 728 proved undeveloped drilling locations
and 605 recompletion opportunities. A recompletion can increase per well
producing reserves by up to 100% at less than half the cost of drilling a new
well. During the past 12 months, the Company has focused extensively on frac
design and stimulation techniques. Early results have shown an increase in
productivity on newly drilled wells and recompletions. The Company initiated
a refrac program in 1996 and, to date, the Company has successfully performed
seven refracs and identified approximately 100 wells suitable for refrac. The
Company's year-end reserve report does not include any reserves attributable
to the refrac program. During 1996, the Company successfully drilled 12
development wells and recompleted an additional 61 wells at a total capital
cost of $8.5 million. The Company's existing 1997 capital expenditure budget
provides $15 million for the drilling of 35 new 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.
Maintain Financial Flexibility. The Company is committed to developing
and maintaining its financial flexibility. Since the Gerrity Acquisition, the
Company has reduced its indebtedness by over $40 million and has repurchased
$14.4 million of its equity securities. At June 30, 1997, assuming the
consummation of the Transactions, the Company would have had a debt-to-book
capitalization ratio of approximately 51%. 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
<PAGE>
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 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 a limited number of
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 $8.80 per share and that no
currently outstanding warrants or options have been exercised) up to
approximately 35% (which percentage would increase to approximately 40% 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.
<PAGE>
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>
Year Ended December 31, Six Months Ended June 30,
------------------------------------- ---------------------------------------
Pro Forma As
As Adjusted Adjusted
1994 1995 1996 1996<F1><F2> 1996 1997 1997<F2>
----------- ----------- ----------- ----------- ----------- ------------ -----------
(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 7,425 3,113 2,611 2,611
Interest and other . . . . 3,869 5,476 14,304 19,968 4,979 8,485 8,870
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 97,432 32,365 45,256 45,641
------- ------- ------- -------- ------- ------- -------
Income (loss) before taxes . 4,539 (3,222) 3,168 2,706 (2,255) 7,084 6,699
Provision (benefit) for
income taxes . . . . . . . . 1,589 (1,128) (394) -- (394) -- --
------- ------- ------- ------- ------- ------- -------
<PAGE>
Net income (loss) . . . . . . $ 2,950 $(2,094) $ 3,562 $ 2,706 $(1,861) $ 7,084 $ 6,699
======= ======= ======= ======== ======= ======= =======
Net income (loss) per
common share . . . . . . . $ 0.21 $ (0.15) $ 0.08 $ (0.25) $ (0.16) $ 0.30 $ 0.27
======= ======= ======= ======== ======= ======= =======
Weighted average shares
outstanding . . . . . . . 14,000 14,000 17,796 14,240 15,959 18,921 13,374
======= ======= ======= ======== ======= ======= =======
Other Financial Data
EBITDA(c) . . . . . . . . . . $52,228 $35,194 $62,489 $ 74,966 $21,539 $40,328 $40,328
Operating cash flow(d) . . . 45,820 27,760 47,609 54,422 15,971 31,922 31,537
Capital expenditures(e) . . . (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
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
As of December 31, As of June 30, 1997
----------------------------------------- ---------------------------
As
1994 1995 1996 Actual Adjusted<F2>
------------ ------------ ------------ ------------ -------------
(Unaudited)
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 . . . . . . . . 246,686 224,521 430,233 413,517 414,367
Long-term debt . . . . . . . 79,333 75,000 197,594 182,685 193,685
Stockholders' equity . . . . 115,846 113,663 196,236 197,542 187,392
</TABLE>
____________________
[FN]
<F1> Pro forma to give effect to the Gerrity Acquisition as if it had
occurred on the first day of the period presented.
<F2> As adjusted to give effect to the Transactions (assuming a Public
Offering Price of $8.50 per share, the purchase by the Management
Investors of 352,941 shares of Common Stock at the Public Offering
Price, the issuance by the Company of $40.0 million of New Preferred
Stock and the repurchase by the Company of 6,500,000 shares of Common
Stock from SOCO at a Net Offering Price of $8.0325 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.
<F3> EBITDA represents net income (loss) plus income taxes, exploration
expense, interest expense and depletion, depreciation, and
amortization expense. EBITDA is not presented as an indicator of the
Company's operating performance, an indicator of cash available for
discretionary spending or a measure of liquidity. EBITDA may not be
comparable to other similarly titled measures of other companies. The
<PAGE>
Company's credit agreement requires the maintenance of certain EBITDA
ratios. See "Description of Certain Indebtedness -- Credit Agreement."
<F4> Represents cash flow from operations before net changes in non-cash
working capital accounts.
<F5> Capital expenditures do not include $218.4 million of non-cash
acquisitions in 1996.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information about the executive
officers and directors of the Company:
Name Age Position
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
Senior Vice President and General
Keith M. Crouch . . . . . 50 Counsel
Ronald E. Dashner . . . . 44 Senior Vice President, Operations
Vice President and Chief
David J. Kornder . . . . 36 Financial Officer
David R. Macosko . . . . 35 Vice President
Terry L. Rudy . . . . . . 38 Vice President
David W. Siple . . . . . 37 Vice President
<F1>Arnold L. Chavkin . . 46 Director
Robert J. Clark . . . . . 52 Director
Jay W. Decker . . . . . . 44 Director
<F1>William J. Johnson . 63 Director
Alexander P. Lynch . . . 45 Director
<F1>William E. Macaulay . 51 Director
<F1>John C. Snyder . . . 55 Director
____________________
[FN]
<F1> 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. 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
<PAGE>
Company from 1989 to 1990 and served in various accounting capacities with
that company from 1987 to 1990. Prior to that, Mr. Cree was employed as an
accountant at the public accounting firm of Deloitte, Haskins & Sells. Mr.
Cree received his Bachelor of Arts Degree in Accounting from the University
of Northern Iowa.
Keith M. Crouch has served as Senior Vice President and General Counsel
of the Company since May 1996. Prior to the Gerrity Acquisition, he was a
Vice President of Gerrity commencing in 1993 and was appointed a Director in
1994. From 1992 to 1993, Mr. Crouch served as Corporate Counsel to Gerrity.
Prior to joining Gerrity, Mr. Crouch was in private practice with the law
firms of Gorsuch, Kirgis, Campbell Walker 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
<PAGE>
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-
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
<PAGE>
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 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
<PAGE>
executives and key managers are entitled to receive payments, including an
amount ranging from 34% to 150% of their base compensation in the year the
payment is to be made plus an amount equal to their most recent bonus.
Further, upon a change in control all non-vested securities of the Company
held by employees (as defined in the Change in Control Plan) including non-
vested options to purchase Common Stock held by employees and all non-vested
rights under the Company's 401(k) plan, bonus plan and deferred compensation
plan vest automatically.
Edelman Employment Agreement and Related Matters
Mr. Edelman, the Chief Executive Officer of the Company, has entered
into an employment agreement (the "Employment Agreement"), which will become
effective concurrently with the sale of Patina Shares in the Secondary
Offering and the Management Stock Issuances. Under the Employment Agreement,
the Company has agreed to employ Mr. Edelman for a period of three years,
renewable annually, at a base salary of $350,000 per year, subject to
adjustment by mutual agreement. Pursuant to the Employment Agreement, Mr.
Edelman will be obligated to commit a substantial portion of his working time
to the Company but, under the terms of the Employment Agreement, he is not
required to devote all of his time and efforts to the business of the
Company. 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 250,000
shares of Common Stock pursuant to the Company's stock option plan described
below under "Stock Option Plan."
Mr. Edelman is also Chairman of Lomak, a publicly traded oil and gas
company. The Company currently has no business relationships with Lomak and
Lomak does not own any of the Company's securities. Although the Company does
not believe that any conflicts have arisen, or are likely to arise, as a
result of Mr. Edelman's position with Lomak, because of Mr. Edelman's
position at Lomak, conflicts of interests may arise between the Company and
Lomak. The Company intends that the terms of any future transactions and
agreements between the Company and Lomak will be substantially as favorable
to the Company as could be obtained from third parties. 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
<PAGE>
Company's Certificate of Incorporation or Bylaws, nor the certificate of
incorporation or bylaws of Lomak limit a director's fiduciary duty with
respect to potential conflicts of interests.
Stock Option Plan
The Company's stock option plan, which is administered by the
Compensation Committee, provides for the granting of options to purchase
shares of Common Stock to key employees of the Company and certain other
persons who are not employees of the Company, but who from time to time
provide substantial advice or other assistance or services to the Company.
The plan permits options to acquire up to 3,000,000 shares of Common Stock to
be outstanding at any one time. During 1996, options to purchase 512,000
shares of Common Stock were granted to 50 employees at an average exercise
price of $7.75 per share. During 1997, options to purchase 271,000 shares of
Common Stock were granted to 56 employees at an average exercise price of
$9.25 per common share. The exercise price of all such options was equal to
the fair market value of the Common Stock on the date of grant. All options
granted during 1996 and 1997 were for a term of five years, with 30% of the
options becoming exercisable after one year, an additional 30% becoming
exercisable after two years and the remaining options becoming exercisable
after the three years.
<PAGE>
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>
Amount of Beneficial
Ownership Prior to Percent of Common Percent of Common
the Transactions Stock Owned Before Stock Owned After the
<F2><F3><F4> the Transactions Transactions<F5>
Name and Address of Beneficial Owner
<S> <C> <C> <C>
Thomas J. Edelman . . . . . . . . . . . . . . . . . . 30,000 <F1> 3.7%
Brian J. Cree . . . . . . . . . . . . . . . . . . . . 39,278 <F1> <F1>
Keith M. Crouch . . . . . . . . . . . . . . . . . . . 9,652 <F1> <F1>
Ronald E. Dashner . . . . . . . . . . . . . . . . . . 8,400 <F1> <F1>
David J. Kornder . . . . . . . . . . . . . . . . . . 7,227 <F1> <F1>
Jay W. Decker . . . . . . . . . . . . . . . . . . . . 2,927 <F1> <F1>
Robert J. Clark . . . . . . . . . . . . . . . . . . . 2,927 <F1> <F1>
Alexander P. Lynch . . . . . . . . . . . . . . . . . 2,927 <F1> <F1>
Arnold L. Chavkin<F6> . . . . . . . . . . . . . . . . 0 <F1> 11.7%
William E. Macaulay<F7> . . . . . . . . . . . . . . . 0 <F1> 18.3%
All executive officers and directors as a group . . . 125,723 <F1> 26.5%
Snyder Oil Corporation . . . . . . . . . . . . . . . 14,000,000<F8> 74.4% <F1>
777 Main Street
Forth Worth, Texas 76102
Stark Investments . . . . . . . . . . . . . . . . . . 1,464,420 7.2% 6.7%
150 West Market Street
Mequon, Wisconsin 53092
First Reserve Fund VII, Limited Partnership . . . . . 0 <F1> 18.3%
475 Steamboat Road
Greenwich, Connecticut 06830
Chase Venture Capital Associates, L.P. . . . . . . . 0 <F1> 11.7%
380 Madison Avenue, 12th Floor
New York, New York 10017
</TABLE>
____________________
[FN]
<F1> Less than 1%
<F2> As of June 30, 1997.
<F3> 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.
<PAGE>
<F4> 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.
<F5> For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes: (i) 100,000 shares of Common Stock issued
to the New Preferred Stock Investors; (ii) 352,941 shares of Common
Stock to be purchased by the Management Investors (assuming a Public
Offering Price of $8.50 per share); (iii) 7,159,091 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 $8.80 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: (i)
the 500,000 shares of restricted Common Stock awarded to the
Management Investors and (ii) 100,000 shares of Common Stock to be
issued to the New Preferred Stock Investors under certain
circumstances.
<F6> Mr. Chavkin may be deemed to share beneficial ownership of the 828,000
shares of New Preferred Stock and 2,385,130 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.
<F7> Mr. Macaulay may be deemed to share beneficial ownership of the
1,300,000 shares of New Preferred Stock and 3,744,769 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.
<F8> 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 the
remaining 5,375,000 to 6,500,000 shares will be repurchased by the
Company as part of the Patina Share Repurchase.
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.
<PAGE>
Assuming a Public Offering Price of $8.50 per share, and the closing of
the Transactions as of June 30, 1997, the Company would have had
approximately $14 million of availability under the Credit Agreement on such
date. In the event the sale of the New Preferred Stock is insufficient to
fund the repurchase of the shares of Common Stock owned by SOCO, the Credit
Agreement will permit the Company to fund up to $14.9 million of any
shortfall through borrowings under the Credit Agreement.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to .25% (the "Applicable Margin") or (b) the Federal Funds Effective
Rate plus 0.5% plus the Applicable Margin; or (ii) the rate at which
Eurodollar deposits for one, two, three or six months (as selected by the
Company) are offered in the interbank Eurodollar market plus a margin which
fluctuates from 0.625% to 1.125%, determined by a debt to EBITDA ratio.
During the six months ended June 30, 1997, the average interest rate under
the facility approximated 6.9%.
The Credit Agreement contains certain financial covenants, including but
not limited to a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio and a minimum current ratio and various other negative
covenants that could limit the Company's ability to incur other debt, dispose
of assets, pay dividends or repurchase securities. Borrowings under the
Credit Agreement mature in 2000 but may be prepaid at anytime.
Senior Subordinated Notes
In connection with the Gerrity Acquisition, the Company assumed $100
million principal amount of the Notes issued by Gerrity in 1994. The Notes
have been reflected in the financial statements since the Gerrity Acquisition
at a book value of 105.875% of their principal amount. Interest is payable
each January 15, and July 15. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 1999,
initially at 105.875% of their principal amount, declining to 102.938% on or
after July 15, 2000 and declining to 100% on or after July 15, 2001. Upon a
change of control, as defined in the Notes, 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 stockholders and affiliates, create liens, sell assets,
engage in mergers and consolidations and make investments in unrestricted
subsidiaries.
<PAGE>
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.
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
August __, 1997
<PAGE>
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.
<PAGE>
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Unaudited
Patina Historical Adjustments Pro Forma
-------------------- -------------------- --------------------
<S> <C> <C> <C>
ASSETS
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 29,610 $ $ 29,610
Oil and gas properties and equipment, net . . . . . . . . . . . 382,573 382,573
Other noncurrent assets, net . . . . . . . . . . . . . . . . . 1,334 850<F3> 2,184
-------- -------- --------
$413,517 $ 850 $414,367
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities . . . . . . . . . . . . . . . . . . . . . . $ 27,729 $ $ 27,729
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 182,685 10,061<F2> 193,685
939<F4>
Other noncurrent liabilities . . . . . . . . . . . . . . . . . 5,561 5,561
Stockholders' equity
Preferred stock, $.01 par . . . . . . . . . . . . . . . . . 15 16 <F1> 31
Common stock, $.01 par . . . . . . . . . . . . . . . . . . . 188 (65)<F2> 133
10 <F3>
Capital in excess of par value . . . . . . . . . . . . . . . 189,620 (52,146)<F2> 179,509
39,984 <F1>
2,990 <F3>
(939)<F4>
Retained earnings . . . . . . . . . . . . . . . . . . . . . 7,719 7,719
-------- -------- --------
197,542 2,850 187,392
-------- -------- --------
$413,517 $ 850 $414,367
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Unaudited
Patina Historical Adjustments Pro Forma
-------------------- ------------------------- ----------------------
<S> <C> <C> <C>
Revenues
Oil and natural gas sales . . . . . . . . . . . . . $52,113 $ $52,113
Other . . . . . . . . . . . . . . . . . . . . . . . 227 227
------- -------
52,340 52,340
------- -------
Expenses
Direct Operating . . . . . . . . . . . . . . . . . . 9,322 9,322
Exploration . . . . . . . . . . . . . . . . . . . . 62 62
General and administrative . . . . . . . . . . . . . 2,611 2,611
Interest and other . . . . . . . . . . . . . . . . . 8,485 385<F5> 8,870
Depletion, depreciation, and amortization . . . . . 24,776 24,776
------- ------- -------
45,256 45,641
------- ------- -------
Income before taxes . . . . . . . . . . . . . . . . . . 7,084 6,699
------- -------
Provision for (benefit from) income taxes . . . . . . . -- --
------- ------- -------
Dividends on preferred stock . . . . . . . . . . . . . 1,330 1,718<F6> 3,048
------- ------- -------
Net income applicable to common stock . . . . . . . . . $ 5,754 $ 3,651
======= =======
Net income per share . . . . . . . . . . . . . . . . . $ 0.30 $ 0.27
======= =======
Weighted average shares outstanding . . . . . . . . . . 18,921 (5,547)<F2><F3> 13,374
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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>
Patina Gerrity Pro Forma Unaudited
(Historical) Acquisition Adjustments Pro Forma
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales . . . . . . . . . . . . $ 82,185 $ 16,540 $ $ 98,725
Other . . . . . . . . . . . . . . . . . . 1,003 410 1,413
-------- -------- --------
83,188 16,950 100,138
-------- -------- --------
Expenses
Direct Operating . . . . . . . . . . . . . 14,519 2,841 525 <F7> 17,718
(167)<F8>
Exploration . . . . . . . . . . . . . . . 224 434 658
General and administrative . . . . . . . . 6,151 2,275 (476)<F8> 7,425
(525)<F7>
Interest and other . . . . . . . . . . . . 14,304 4,533 361 <F9> 19,968
770 <F5>
Depletion, depreciation, and amortization 44,822 8,968 (2,127)<F10> 51,663
-------- -------- -------- --------
80,020 19,051 97,432
-------- -------- --------
Income (loss) before taxes . . . . . . . . 3,168 (2,101) 2,706
-------- --------
Provision for (benefit from) income taxes (394) (714) 1,108 <F11> --
-------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . 3,562 (1,387) 2,706
-------- -------- --------
Dividends on preferred stock . . . . . . . 2,129 1,518 (802)<F12> 6,195
3,350 <F6>
-------- -------- --------
Net income (loss) applicable to common
stock . . . . . . . . . . . . . . . . . . $ 1,433 $ (2,905) $ (3,489)
======== ======== ========
Net income (loss) per share . . . . . . . $ 0.08 $ (0.25)
======== ========
Weighted average shares outstanding . . . 17,796 14,240
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
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
<F1> To reflect the issuance of 1,600,000 shares of New Preferred Stock at
$25.00 per share to the New Preferred Stock Investors. The estimated
net proceeds of $40,000,000 will be used to repurchase common shares
from SOCO.
<F2> To reflect the Patina Share Repurchase of 6,500,000 common shares
from SOCO at $8.03 per share for $52,211,250. The Patina Share
Repurchase will be financed with proceeds from issuance of 1,600,000
shares of New Preferred Stock to the New Preferred Stock Investors
and $10.1 million of borrowings under the Company's bank credit
facility.
<F3> To reflect the sale of 352,941 restricted common shares and granting
of 600,000 restricted common shares to Mr. Edelman, the Management
Investors and the New Preferred Stock Investors. The Company will
loan 85% or $850,000 of the purchase price to the Management
Investors, excluding Mr. Edelman.
<F4> To record the estimated costs incurred in conjunction with the
Transactions.
Statement of Operations
<F5> To adjust interest expense to reflect the increase in bank borrowings
under the Company's Credit Agreement due to the shortfall in proceeds
netted from the issuance of $40.0 million of New Preferred Stock, the
Management Investors purchase of restricted Common Stock, and the
repurchase of $52.2 million of common stock owned by SOCO, net of
transaction costs.
<F6> To reflect the non-cash dividends on the New Preferred Stock issued
to the New Preferred Stock Investors.
<F7> To conform the financial statement presentation by Gerrity of various
overhead changes and recoveries to a basis consistent with that of
the Company.
<F8> 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.
<F9> 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,
<PAGE>
which margin was applied to the current Eurodollar Rate resulting in
an average borrowing rate of approximately 6.75%.
<F10> 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.
<F11> To record the estimated provision for income taxes to reflect the
anticipated effective income tax rate of the combined entity after
the Gerrity Acquisition.
<F12> To reduce dividends paid on Gerrity Preferred Stock reflecting the
exchange of all Gerrity Preferred Stock into Old Preferred Stock.
<PAGE>
ANNEX A
SHARE REPURCHASE AGREEMENT
This Share Repurchase Agreement (this "Agreement") is dated as of July
31, 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 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 any 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, concurrently with the execution and delivery of this Agreement,
Patina and certain investors (the "Investors") have entered into a Stock
Purchase Agreement (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, concurrently with the execution and delivery of this Agreement,
SOCO has granted options to the Investors (or, in certain instances,
affiliates thereof) to purchase an aggregate of 2,000,000 shares of Common
Stock pursuant to Stock Option Agreements with such optionees (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
<PAGE>
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, any Shares owned by SOCO at the
time of the consummation of the Offering (the "Closing") that are not sold by
SOCO to the underwriters at the Closing.
(b) Notwithstanding the foregoing, if the consummation of the Offering
and the Repurchase would result in a Qualifying Termination Event specified
in Section 2(a)(iv)(y) of the Stock Option Agreements, then Patina shall not
purchase any shares subject to the options granted in the Stock Option
Agreements unless and until any Shares underlying options granted under the
Stock Option Agreements have not been purchased upon exercise thereof, in
which case Patina shall purchase all such Shares on the second business day
following the expiration of such options.
(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
<PAGE>
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 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 the date
hereof;
<PAGE>
(v) Documents in form reasonable 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 reasonable 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 the
date hereof and ending 12 months following any termination of the this
Agreement or withdrawal of shares from the Offering (whichever is
earlier); provided, however, that with respect to any Sale Transaction
<PAGE>
involving an acquiror that does not 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 the date hereof 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 issue
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
<PAGE>
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 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.
<PAGE>
(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.
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
<PAGE>
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 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.
<PAGE>
IN WITNESS WHEREOF, SOCO and Patina have caused this Agreement to be
signed by their respective officers thereunto duly authorized.
SNYDER OIL CORPORATION
By: _______________________________
Name:
Title:
PATINA OIL & GAS CORPORATION
By: _______________________________
Name:
Title:
<PAGE>
Appendix I
CONFIDENTIALITY AND STANDSTILL AGREEMENT
CONFIDENTIALITY AND STANDSTILL AGREEMENT dated as of ____________,
1997 ("Agreement"), between PATINA OIL & GAS CORPORATION (the "Company"), and
_____________________ ("Buyer").
W I T N E S S E T H:
WHEREAS, Buyer may be interested in proposing a transaction either
to the Company or the Company's controlling stockholder, Snyder Oil
Corporation ("SOCO"), involving the acquisition by Buyer of some or all of
the Company's Common Stock ("Common Stock"), and Buyer and the Company have
reached certain understandings regarding Buyer's receipt of non-public
information concerning the Company and various limitations on its actions
with respect to the Company and Buyer's potential holdings of Common Stock;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings:
1.1 "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.
1.2 "Effective Date" means the date hereof.
1.3 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.
1.4 The terms "beneficial ownership," "person" and "group" shall
have the respective meanings ascribed to such terms pursuant to Regulation
13D-G adopted by the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as in effect on the date hereof. The term
"affiliate" shall have the meaning ascribed to such term pursuant to Rule
12b-2 under the Exchange Act, as in effect on the date hereof.
<PAGE>
1.5 "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. 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.
1.6 "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.
1.7 The term "Approval Body" shall mean the Independent Committee;
provided, however, that with respect to any transaction (i) proposed by or on
behalf of Buyer prior to the time that Buyer 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.
1.8 The term "Limitation Period" shall mean a period of two years
after the Effective Date; provided, however, that if during such two-year
period Buyer has either (a) acquired any amount of Common Stock pursuant to
an Authorized SOCO Purchase, (b) acquired more than 5.0% of the Combined
Voting Power in any other manner, or (c) acquired any Company Voting
Securities in any other manner which, when added to Company Voting Securities
previously held by Buyer, gives Buyer 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.
Section 2. Confidentiality Covenants.
2.1 Evaluation Material. (a) Buyer hereby agrees to treat any
information concerning the Company (whether prepared by the Company, SOCO,
their advisors or otherwise) which will be furnished to Buyer by or on behalf
of the Company, SOCO or their advisors in accordance with the provisions of
this Section 2 (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 Buyer or its directors, officers, employees, agents or advisors by or on
behalf of the Company. The term "Evaluation Material" does not include
information which Buyer can demonstrate (i) is already in Buyer's possession,
provided that such information is not known by Buyer after reasonable inquiry
to be subject to another confidentiality agreement with or other obligation
of secrecy to the Company or another party, (ii) becomes generally available
to the public other than as a result of a disclosure by Buyer or its
directors, officers, employees, agents or advisors, or (iii) becomes
available to Buyer, or is independently developed by Buyer, on a
non-confidential basis from a source other than the Company, SOCO or their
<PAGE>
advisors, provided that such source is not known by Buyer, after reasonable
inquiry, to be bound by a confidentiality agreement with or other obligation
of secrecy to the Company or another party.
(b) Buyer hereby agrees that the Evaluation Material will be used
solely for the purpose of evaluating a possible transaction between the
Company and Buyer (and/or, if applicable, SOCO), and that such information
will be kept confidential by Buyer and its advisors; provided, however, that
(i) any of such information may be disclosed to Buyer's directors, officers,
employees, advisors and potential financing sources and representatives of
Buyer's advisors and potential financing sources (collectively,
"Representatives") who need to know such information for the purpose of
evaluating any such possible transaction between the Company and Buyer
(and/or, if applicable, SOCO) (it being understood that such Representatives
shall be informed by Buyer of the confidential nature of such information and
shall be directed by Buyer to treat such information confidentially), and
(ii) any disclosure of such information may be made to which the Company
consents in writing.
(c) If Buyer or any of its Representatives are requested to
disclose any Evaluation Material, Buyer shall promptly notify the Company to
permit the Company to seek a protective order or to take other appropriate
action. Buyer 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, Buyer or any of its Representatives are, in the written
opinion of Buyer's counsel addressed to the Company, compelled as a matter of
law to disclose the Evaluation Material, Buyer may disclose to the party
compelling disclosure only such part of the Evaluation Material as is
required by law to be disclosed and Buyer shall use its reasonable best
efforts to obtain confidential treatment therefor.
(d) Buyer 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 2, 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 2 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.
2.2 Nondisclosure. Without the prior written consent of the
Company, Buyer will not, and will direct its Representatives not to, disclose
to any person either the fact that discussions or negotiations are taking
place concerning a possible transaction between the Company and Buyer
(and/or, if applicable, SOCO) or any of the terms, conditions or other facts
with respect to any such possible transaction, including the status thereof.
2.3 Solicitation of Employees. Buyer hereby agrees that, for a
period of one year from the date of this Agreement, neither Buyer nor any of
its affiliates will solicit any employee of the Company to become an employee
of Buyer or any of its subsidiaries or affiliates unless in any such case the
Company shall have consented in advance in writing to such action; provided,
however, that nothing in this Section 2.3 shall prevent any general newspaper
solicitation not directed at the Company's employees.
<PAGE>
2.4 Accuracy or Completeness. Buyer acknowledges that neither the
Company, SOCO nor any of their officers, directors, employees,
representatives or advisors have made or make any representation or warranty
as to the accuracy or completeness of any Evaluation Material. Buyer agrees
that neither the Company nor any of their officers, directors, employees,
representatives or advisors shall have any liability to Buyer or any of its
representatives or advisors resulting from the use of the Evaluation
Material.
2.5 Treatment of Materials. In the event that Buyer does not
proceed with the contemplated transaction within a reasonable time, Buyer
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.
Upon request by the Company, all documents, memoranda, notes and other
writings whatsoever prepared by Buyer or its Representatives based on the
information in the Evaluation Material shall be destroyed.
2.6 No Agreement. Buyer hereby agrees that unless and until a
definitive agreement between the Company or SOCO and Buyer with respect to
any transaction contemplated by the parties hereto has been executed and
delivered, neither the Company nor SOCO nor Buyer will be under any legal
obligation of any kind whatsoever with respect to such a transaction by
virtue of this Agreement or any other written or oral expression with respect
to such a transaction by any of its directors, officers, employees, agents or
any other representatives or its advisors or representatives thereof except,
in the case of this Agreement, for the matters specifically agreed to herein.
The agreement set forth in this Section 2.6 may be modified or waived only by
a separate writing by the Company and Buyer expressly modifying or waiving
such agreement.
2.7 Officers and Directors. Buyer agrees that all references
herein to agreements by Buyer or to obligations of Buyer shall be deemed to
have been made, and/or refer to, Buyer, on behalf of itself, its affiliates
and its Representatives. Buyer agrees to be responsible for any breach of
this Agreement by its Representatives.
Section 3. Covenants with Respect to the Company Voting Securities
and Other Matters.
3.1 Acquisition of Company Voting Securities.
(a) Without the Prior Approval of the Approval Body, neither Buyer
nor any of its affiliates shall, directly or indirectly, acquire, offer to
acquire, agree to acquire, become the beneficial owner of or obtain any
rights in respect of any Company Voting Securities, by purchase or otherwise,
or take any action in furtherance thereof, except that Buyer may purchase all
of the shares of Common Stock then owned by SOCO subject to compliance by
Buyer with the provisions of 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 (an "Authorized SOCO Purchase").
(b) If Buyer has acquired Common Stock pursuant to an Authorized
SOCO Purchase, without the Prior Approval of the Approval Body, neither Buyer
nor any of its affiliates shall thereafter, directly or indirectly, acquire,
<PAGE>
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 Buyer 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, (A) Buyer 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
Independent Committee, and (B) 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 Buyer 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 Buyer or its affiliate.
3.2 Distribution of the Company Voting Securities.
(a) During the Limitation Period, neither Buyer nor any of its
affiliates shall, directly or indirectly, sell, transfer any beneficial
interest in, pledge, hypothecate or otherwise dispose of any Company Voting
Security in a transaction that would result in a transfer to any person or
group that, to the knowledge of Buyer, upon consummation of such sale,
transfer or disposition, 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 20.0% of the Combined
Voting Power, except (i) in response to a Qualifying Offer (as defined in
Section 3.2(b)(i)) or (ii) to a Qualified Buyer (as defined in
Section 3.2(b)(ii)).
(b) Notwithstanding Section 3.2(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 Buyer for outstanding Company Voting
Securities, Buyer 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 (a "Qualifying
Offer"), and (ii) Buyer 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 this Agreement.
3.3 Proxy Solicitations, etc. During the Limitation Period,
neither Buyer 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
<PAGE>
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; provided, however, that the foregoing provision shall not be
applicable to Buyer so long as Buyer owns all of the shares of Common Stock
acquired by Buyer in an Authorized SOCO Purchase (provided that at the time
of such purchase Buyer acquired all shares of Common Stock then owned by SOCO
and also provided that such shares represented more than 50% of the Combined
Voting Power at the time of such purchase).
3.4 No Voting Trusts, Pooling Agreements, or Formation of
"Groups". During the Limitation Period, neither Buyer 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 3.4,
nothing in this Section 3.4 shall in any way limit the ability of Buyer to
pursue or consummate an Authorized SOCO Purchase in compliance with Section
3.1(a); provided, further, that so long as Buyer owns all of the shares of
Common Stock acquired by Buyer in an Authorized SOCO Purchase, then the
provisions of this Section 3.4 shall not prohibit the deemed formation of any
"group" solely as a result of a proxy solicitation or other activities
specifically permitted by the proviso of Section 3.3.
3.5 Limitation on Various Other Actions. During the Limitation
Period, neither Buyer 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 Section 3. Without limiting the generality of the foregoing, without
the Prior Approval of the Independent Committee, neither Buyer 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 aggregate by Buyer 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 3.6), (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
Buyer 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
Buyer and its affiliates beyond the percentage beneficially owned by them as
of the date of such action. Notwithstanding the foregoing provisions of this
Section 3.5, nothing in this Section 3.5 shall in any way limit the ability
of Buyer to pursue or consummate an Authorized SOCO Purchase in compliance
<PAGE>
with Section 3.1(a); provided, further, that so long as Buyer owns all of the
shares of Common Stock acquired by Buyer in an Authorized SOCO Purchase, then
the provisions of this Section 3.5 shall not prohibit or be deemed to
restrict proxy solicitation or other activities specifically permitted by the
proviso of Section 3.3.
3.6 Acquisition Proposals.
(a) During the Limitation Period, notwithstanding any provision in
this Section 3 to the contrary, if Buyer 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) Buyer 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 Buyer and its
affiliates which offer is conditioned upon a majority of the
outstanding Company Voting Securities not owned by Buyer 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 Buyer and its affiliates; and
(B) the Proposal provides that the same consideration will be
paid to all of the Company's stockholders (other than Buyer 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 Buyer 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 Buyer and its affiliates from
a financial point of view.
(b) Unless all of the preconditions set forth in
Sections 3.6(a)(i), 3.6(a)(ii) and 3.6(a)(iii) have been satisfied, the
Proposal shall not be presented to the Company's stockholders and Buyer shall
withdraw the Proposal.
(c) Buyer 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 3.6,
nothing in this Section 3.6 shall in any way limit the ability of Buyer to
<PAGE>
pursue or consummate an Authorized SOCO Purchase in compliance with Section
3.1(a) without complying with the procedures set forth in this Section 3.6.
3.7 Secondary Offering.
(a) The Company has filed, or will shortly be filing, with the SEC
a registration statement on Form S-3 registering the public offering of
shares of Common Stock held by SOCO (the "Offering"). Buyer 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 (the "Distribution Date"), neither Buyer nor any of its
affiliates will do any of the following:
(i) submit any proposal to the Independent Committee that would
otherwise have been permitted by the provisions of Section 3.6, or take
any other actions with respect to any such proposal; or
(ii) take any actions with respect to any purchase of Company
Voting Securities held by SOCO.
(b) If on the Distribution Date Buyer or any of its affiliates
shall have been in discussions with third parties (including SOCO) or shall
have been taking other steps to pursue either a proposal that would otherwise
have been permitted by the provisions of Section 3.6 or a purchase of Company
Voting Securities held by SOCO, Buyer and its affiliates shall immediately
cease all such discussions and all such other steps and not resume them prior
to the end of the Offering Period.
Section 4. Term of Agreement.
Unless this Agreement specifically provides for earlier termination
with respect to any particular right or obligation, this Agreement shall
terminate on the last day of the Limitation Period.
Section 5. Remedies.
Buyer and the Company acknowledge and agree that (i) the provisions
of this Agreement are reasonable and necessary to protect the proper and
legitimate interests of the parties hereto, and (ii) the parties would be
irreparably damaged in the event any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled
to preliminary and permanent injunctive relief to prevent breaches of the
provisions of this Agreement by the other party without the necessity of
proving actual damages or of posting any bond, and to enforce specifically
the terms and provisions hereof and thereof in any court of the United States
or any state thereof having jurisdiction, which rights shall be cumulative
and in addition to any other remedy to which the parties may be entitled
hereunder or at law or equity.
Section 6. General Provisions.
6.1 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without
giving effect to any conflicts of law provisions.
<PAGE>
6.2 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The parties hereto agree that they will
use their best efforts at all times to support and defend this Agreement.
6.3 Amendments. This Agreement may be amended only by an
agreement in writing signed by each of the parties hereto; provided, however,
that any amendment executed by the Company must receive the Prior Approval of
the Independent Committee.
6.4 No Waiver. The parties hereto agree that no failure or delay
by the Company in exercising any right, power or privilege herein shall
operate as a waiver thereof, nor shall any simple or partial exercise thereof
preclude any other or further exercise hereunder or the exercise of any
right, power or privilege hereunder.
6.5 Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
6.6 Counterparts. This Agreement shall become binding when one or
more counterparts hereof, individually or taken together, bears the
signatures of each of the parties hereto. This Agreement may be executed in
any number of counterparts, each of which shall be an original as against the
party whose signature appears thereon, or on whose behalf such counterpart is
executed, but all of which taken together shall be one and the same
agreement.
6.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the successors and assigns
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, all as of the date first above written.
PATINA OIL & GAS CORPORATION
By:__________________________
_____________________________
By:__________________________
<PAGE>
ANNEX B
CONFORMED COPY
STOCK PURCHASE AGREEMENT
Among
PATINA OIL & GAS CORPORATION
and
THE INVESTORS NAMED HEREIN
Dated as of July 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
Definitions . . . . . . . . . . . . . . . 2
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 2
ARTICLE II.
Sale and Purchase of the 8.5% Convertible Preferred
Stock, Common Stock and Related Transactions . . . . . . 5
Section 2.01. Sale and Purchase of the Preferred Stock
and Common Stock. . . . . . . . . . . . . . . 5
Section 2.02. Closing . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III.
Representations and Warranties . . . . . . . . . . . 7
Section 3.01. Representations and Warranties of the
Company . . . . . . . . . . . . . . . . . . . 7
Section 3.02. Representations and Warranties of Investors. . . 15
ARTICLE IV.
Additional Agreements of the Parties . . . . . . . . 16
Section 4.01. Taking of Necessary Action . . . . . . . . . . 16
Section 4.02. Conduct of Business . . . . . . . . . . . . . . 16
Section 4.03. Notification of Certain Matters . . . . . . . . 17
Section 4.04. Access to Information . . . . . . . . . . . . . 17
Section 4.05. Restrictions on Sale or Transfer; Legend . . . 17
Section 4.06. Designated Directors . . . . . . . . . . . . . 18
Section 4.07. New York Stock Exchange Listing . . . . . . . . 19
Section 4.08. Use of Proceeds . . . . . . . . . . . . . . . . 19
Section 4.09. Approval by Company's Stockholders . . . . . . 19
Section 4.10. No Additional Shares . . . . . . . . . . . . . 19
ARTICLE V.
Conditions Precedent . . . . . . . . . . . . 20
Section 5.01. Conditions to Each Party's Obligations to
Effect each Closing . . . . . . . . . . . . . 20
Section 5.02. Conditions to the Investors' Obligations . . . . 20
Section 5.03. Conditions to the Company's Obligations to
any Closing . . . . . . . . . . . . . . . . . 21
Section 5.04. Conditions to the Company's Obligations to
the Initial Closing . . . . . . . . . . . . . 22
<PAGE>
ARTICLE VI.
Registration Rights . . . . . . . . . . . . 22
Section 6.01. Definition of Registrable Shares . . . . . . . 22
Section 6.02. Demand Registration . . . . . . . . . . . . . . 23
Section 6.03. Piggyback Registration . . . . . . . . . . . . 24
Section 6.04. Registration Procedures . . . . . . . . . . . . 25
Section 6.05. Conditions and Limitations . . . . . . . . . . 28
Section 6.06. Information from and Certain Covenant of
Holders of Registrable Shares . . . . . . . . 29
Section 6.07. Registration Expenses. . . . . . . . . . . . . 29
Section 6.08. Indemnification; Contributions. . . . . . . . . 30
ARTICLE VII.
Standstill and Confidentiality Provisions. . . . . . . 32
Section 7.01. Certain Definitions . . . . . . . . . . . . . . 32
Section 7.02. Confidentiality Covenants . . . . . . . . . . . 34
Section 7.03. Acquisition of Company Voting Securities . . . 35
Section 7.04. Distribution of the Company Voting
Securities . . . . . . . . . . . . . . . . . 35
Section 7.05. Proxy Solicitations, etc. . . . . . . . . . . . 36
Section 7.06. No Voting Trusts, Pooling Agreements, or
Formation of "Groups" . . . . . . . . . . . . 36
Section 7.07. Limitation on Various Other Actions . . . . . . 37
Section 7.08. Acquisition Proposals . . . . . . . . . . . . . 37
Section 7.09. Term of Standstill and Confidentiality
Provisions . . . . . . . . . . . . . . . . . 38
ARTICLE VIII.
Term . . . . . . . . . . . . . . . . 38
Section 8.01. Termination . . . . . . . . . . . . . . . . . . 38
Section 8.02. Effect of Termination . . . . . . . . . . . . . 39
Section 8.03. Termination Fee . . . . . . . . . . . . . . . . 39
ARTICLE IX.
Miscellaneous . . . . . . . . . . . . . 40
Section 9.01. Survival of Representations, Warranties and
Agreements. . . . . . . . . . . . . . . . . . 40
Section 9.02. Notices . . . . . . . . . . . . . . . . . . . . 40
Section 9.03. Entire Agreement; Amendment . . . . . . . . . . 40
Section 9.04. Counterparts . . . . . . . . . . . . . . . . . 41
SECTION 9.05. GOVERNING LAW . . . . . . . . . . . . . . . . . 41
Section 9.06. Public Announcements . . . . . . . . . . . . . 41
Section 9.07. Expenses . . . . . . . . . . . . . . . . . . . 41
Section 9.08. Indemnification . . . . . . . . . . . . . . . . 41
Section 9.09. Successors and Assigns . . . . . . . . . . . . 43
Section 9.10. No Third Party Rights. . . . . . . . . . . . . 44
Section 9.11. Specific Performance . . . . . . . . . . . . . 44
Section 9.12. Captions . . . . . . . . . . . . . . . . . . . 44
Section 9.13. Severability . . . . . . . . . . . . . . . . . 44
<PAGE>
Section 9.14. Mutual Waiver of Jury Trial . . . . . . . . . . 44
Section 9.15. Jurisdiction . . . . . . . . . . . . . . . . . 44
Section 9.16. References to Other Agreements . . . . . . . . 45
EXHIBITS
A - Form of Share Repurchase Agreement
B - Form of SOCO Option Agreement
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.
<PAGE>
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 31,
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 100,000 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 (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 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 (collectively, the "SOCO Option
Agreement"), a form of which is attached hereto as Exhibit B, pursuant to
which 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;
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
<PAGE>
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 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.
<PAGE>
"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).
"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.
<PAGE>
"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.
<PAGE>
"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.
"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
<PAGE>
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 any 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 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";
<PAGE>
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, (ii) no equity securities of any of the
Company's subsidiaries are or may become required to be issued by reason
<PAGE>
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
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
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, 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 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 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 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 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
<PAGE>
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 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 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.
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.
<PAGE>
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, 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 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.
<PAGE>
(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 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
<PAGE>
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.
Section 5.04. Conditions to the Company's Obligations to the
Initial Closing. The obligation of the Company to consummate the Initial
Closing hereunder shall be subject to the receipt by the Company's Board of
Directors of an opinion of its financial advisor, reasonably satisfactory to
the Board of Directors that the consideration received by the Company for the
issuance of securities to the Investors at the Initial Closing is fair from a
financial point of view to the Company, such opinion shall be as of or
updated as of the date of the Initial Closing.
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) and the shares of Common Stock issued as
Additional Consideration owned 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
<PAGE>
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 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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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;
(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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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. 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
<PAGE>
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 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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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.
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
<PAGE>
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;
(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; or
(c) by the Company, if the condition to the Initial Closing set
forth in Section 5.04 shall not have been satisfied.
Section 8.02. Effect of Termination. Except as provided in
Section 8.03, 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.
Section 8.03. Termination Fee. If this Agreement is terminated
pursuant to Section 8.01(b) due, in whole or in part, to the failure of the
condition precedent set forth in Section 5.04, the Company shall, immediately
upon such termination but subject to the last sentence of this Section 8.03,
(i) issue and deliver to the Investors an aggregate of 230,000 shares of the
Company's Common Stock ("Termination Shares"), which shall be fully paid,
validly issued and non-assessable when issued, such shares to be issued to
each respective Investor ratably based on the amount by which the number of
shares set forth opposite such Investor's name on Schedule I hereto bears to
the total number of shares for all Investors set forth on Schedule I (except
that only such Termination Shares payable to First Reserve Fund VII, Limited
Partnership shall instead be payable to First Reserve Corporation), and (ii)
pay to Investors the costs and expenses described in Section 9.07(b),
notwithstanding any SOCO determination not to sell Common Stock in the
Secondary Stock Offering. Upon issuance, the Termination Shares shall become
"Registerable Shares" as set forth in Article VI, which shall survive such
termination, except that Investors shall be entitled to only one Demand
Registration with respect to the Termination Shares. Notwithstanding the
foregoing, no Termination Shares shall be issued if the Option on SOCO Shares
shall have become exercisable (whether or not the Investors elect to exercise
the Option on SOCO Shares).
<PAGE>
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
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
<PAGE>
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
documents.
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 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) In the event that SOCO determines not to sell its Common Stock
in the Secondary Stock Offering because the proposed Net Offering Price is
less than $7.0875 per share, then 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
<PAGE>
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 commitment hereunder) of $5,000,000 in the aggregate (provided
that, if the amount of Damages exceeds $5,000,000, the Investors' remedy
<PAGE>
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
<PAGE>
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 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.
<PAGE>
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.
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: 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
<PAGE>
With copy to:
Harvey Eisenberg, Esq. HIGHBRIDGE INTERNATIONAL LDC
O'Sullivan, Graev & Karabell
30 Rockefeller Plaza, 41st Floor By: HIGHBRIDGE CAPITAL MANAGEMENT,
New York, New York 10112 INC.
Phone: (212) 408-2416
Fax: (212) 408-0646 By: /s/ Glenn R. Dubin
Name: Glenn R. Dubin
Title: Co-Chairman
With copy to:
Ron Resnick, Esq. c/o Highbridge Capital Management,
c/o Highbridge Capital Management, Inc.
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
/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
<PAGE>
/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
<PAGE>
SCHEDULE I
SCHEDULE OF INVESTORS' COMMITMENTS
<TABLE>
<CAPTION>
of 8.5% Common Stock to be
Aggregate Convertible Preferred Acquired at Initial
Name of Investor Commitment Amount Stock to be Purchased Closing
- -------------------------------------------------- ----------------------- -------------------------- -------------------------
<S> <C> <C> <C>
First Reserve Fund VII, Limited Partnership . . . $32,500,000 1,300,000 51,587
Chase Venture Capital Associates, L.P. . . . . . $22,500,000 900,000 35,714
Highbridge International LDC . . . . . . . . . . $ 4,750,000 190,000 7,540
Bedford Falls Investors, LP . . . . . . . . . . . $ 2,500,000 100,000 3,968
Anthony V. Dub . . . . . . . . . . . . . . . . . $ 400,000 16,000 635
Allen Finkelson . . . . . . . . . . . . . . . . . $ 100,000 4,000 159
William P. Nicoletti . . . . . . . . . . . . . . $ 100,000 4,000 159
Irik P. Sevin . . . . . . . . . . . . . . . . . . $ 100,000 4,000 159
Peter Seaman . . . . . . . . . . . . . . . . . . $ 50,000 2,000 79
Totals . . . . . . . . . . . . . . . . . . . . . $63,000,000 2,520,000 100,000
</TABLE>
<PAGE>
SCHEDULE II
COMPANY'S DISCLOSURE SCHEDULES
The Disclosure Schedule is delivered pursuant to Section 3.01 of
the Stock Purchase Agreement, dated July 31, 1997 (the "Agreement"), among
Patina Oil & Gas Corporation, a Delaware corporation (the "Company"), and
certain investors (the "Investors"). All capitalized terms used herein and
not otherwise specifically defined herein shall have the meanings ascribed to
such terms in the Agreement.
The purpose of this Disclosure Schedule is to disclose certain
information to the Investor that may be relevant to, or are exceptions to,
the representations and warranties of the Company set forth in the Agreement.
The Company's representations and warranties in the Agreement are qualified
by the disclosure included or deemed to be included in this Disclosure
Schedule, and the Company shall not be deemed to be in breach of any of such
representations and warranties in connection with the information disclosed
or referred to in this Disclosure Schedule. In the event any conflicts or
inconsistencies exist between the Agreement and this Disclosure Schedule,
this Disclosure Schedule shall prevail.
This Disclosure Schedule is deemed to include by reference all
matters and information contained in any annual, quarterly, or other report,
proxy statement, or registration statement filed by the Company and its
subsidiaries with the Securities and Exchange Commission prior to the date
hereof. In addition, this Disclosure Schedule is deemed to include by
reference all matters and information contained in that certain data room
made available to the Investors by the Company in connection with the
transactions contemplated by this Agreement. Each of the specific
disclosures attached shall not be construed as being either (i) limited to
qualifying the applicable referenced representation or (ii) an admission or
statement as to the materiality of the disclosed items.
<PAGE>
Organization and Good Standing of
Section 3.01(b) Company's Subsidiaries
Subsidiary Jurisdiction
SOCO Wattenberg Corporation DE
Patina Well Services, Inc. CO
The shares of each of the aforementioned subsidiaries have been pledged to
Texas Commerce Bank, as agent, pursuant to the Amended and Restated Credit
Agreement, dated as of April 1, 1997 (the "Amended and Restated Credit
Agreement"), among the Company and certain financial institutions.
<PAGE>
Section 3.01(d) Capitalization
<TABLE>
<CAPTION>
Number of Number of
Authorized Shares Issued Authorized Shares
and Reserved for
Outstanding Future Issuance
Number of (including Treasury Under Existing
Class of Stock Authorized Shares Shares) Agreements
<S> <C> <C> <C>
1. Common 38,000,000 18,820,248 17,992,552<F1>
2. Common Series A 2,000,000 2,000,000 0
3. Preferred 5,000,000 1,467,926 3,406,392<F2>
4. Warrants 3,000,000 2,919,451<F3> 0
</TABLE>
[FN]
<F1> Net of 1,187,200 shares of Common Stock repurchased and retired by the
Company. Includes shares of Common Stock for issuance as follows:
Stock Options 788,960
Warrants 2,919,451
Preferred Stock 4,262,271
<F2> Net of 125,682 shares of Preferred Stock repurchased and retired by the
Company.
<F3> Net of 80,549 Warrants repurchased and retired by the Company.
<PAGE>
Section 3.01(f) No Conflicts
The Amended and Restated Credit Agreement.
<PAGE>
Section 3.01(g) No Consents
The Company must file a Registration Statement on Form S-3 with the SEC
in connection with the Secondary Stock Offering.
<PAGE>
Section 3.01(j) Legal Proceeding
None.
<PAGE>
Section 3.01(m) Absence of Certain Changes
None.
<PAGE>
Section 3.01(n) Material Contracts
None.
<PAGE>
Section 3.01(o) Taxes and Filing of Tax Returns
1. Audit of federal income tax return for 1993 through 1995. The Company
has executed Form 870 accepting an over-assessment of taxes (a refund)
of $10,225 for 1993 and no change in taxes for the years 1992, 1994 and
1995.
2. Audit of Colorado income tax return for 1992. A notice of deficiency
for taxes of $136,760 has been received, which the Company is appealing.
The Company has established reserves for this deficiency, plus interest.
3. Audit of Colorado sales and use taxes for 1990 through 1993. A notice
of deficiency has been received, which the Company is appealing. The
Company has established a reserve of $50,000.
4. Audit of Colorado severance tax return for 1991 through 1993. A notice
of deficiency for taxes of $478,363 has been received, which the Company
is protesting. The Company has established a reserve of $511,000.
<PAGE>
Section 3.01(r) Environmental Matters
None.
<PAGE>
SCHEDULE 5.02
[SBA CERTIFICATES]
<PAGE>
EXHIBIT A
[FORM OF SHARE REPURCHASE AGREEMENT]
<PAGE>
EXHIBIT B
[FORM OF SOCO OPTION AGREEMENT]
<PAGE>
EXHIBIT C
NOTICE OF ISSUANCE
Patina Oil & Gas Corporation (the "Company") hereby provides notice
to the investors (the "Investors") that it will sell ______ shares of 8.5%
Convertible Preferred Stock, par value $.01 per share (the "Preferred
Stock"), for an aggregate purchase price of $_________ to the Investors on
_______ __, 1997 (the "Sale Date") in accordance with the terms of Section
2.01 of the Stock Purchase Agreement dated as of July 31, 1997, between the
Investors and the Company (the "Preferred Stock Purchase Agreement"). Unless
otherwise specified, terms capitalized but not defined herein will have the
same meanings ascribed to them in the Preferred Stock Purchase Agreement.
Certificates for the shares of Preferred Stock shall be delivered
to you at ___________ in the names and denominations specified to us by you
in writing not later than _________ __, 1997 [2 business days prior to the
sale] against delivery to the Company of the aggregate purchase price
specified above in immediately available funds by wire transfer to the
Company's account at ____________.
IN WITNESS WHEREOF, the Company has caused this Notice to be duly
executed and delivered as of____________ __, 1997.
PATINA OIL & GAS CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT D
PATINA OIL & GAS CORPORATION
CERTIFICATE OF DESIGNATION
OF
8.5% CONVERTIBLE PAY-IN-KIND PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation Law,
Patina Oil & Gas Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolutions were duly adopted by its
Board of Directors on July 31, 1997 to set forth the powers, designations,
preferences and relative, participating, optional or other rights of its 8.5%
Convertible Pay-In-Kind Preferred Stock;
RESOLVED, that, pursuant to the authority granted to the Board of
Directors in the Certificate of Incorporation, there is hereby created, and
the Corporation is hereby authorized to issue, a series of Preferred Stock
(as defined in the Certificate of Incorporation) having the following powers,
designations, preferences and rights:
I. Designation of Series and Number of Shares. The series of the
Preferred Stock shall be designated 8.5% Convertible Pay-In-Kind Preferred
Stock (the "Convertible PIK Preferred Stock") and shall consist of 2,600,000
shares, plus up to 500,000 additional shares of Convertible PIK Preferred
Stock to be issued as dividends on the Convertible PIK Preferred Stock
pursuant to Section III hereof. The initial liquidation preference of the
Convertible PIK Preferred Stock shall be $25 per share (the "Liquidation
Value").
II. Rank. All shares of Convertible PIK Preferred Stock shall
rank prior, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, to all of the Corporation's now or hereafter issued
Common Stock, par value $.01 per share ("Common Stock"), and to all of the
Corporation's hereafter issued capital stock which by its terms ranks junior
to the Convertible PIK Preferred Stock both as to the payment of dividends
and as to distributions of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, when and if issued (the
Common Stock and any such other capital stock being herein referred to as
"Junior Stock"). The Convertible PIK Preferred Stock shall, with respect to
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, rank on a parity with the
Corporation's outstanding 7.125% Convertible Preferred Stock.
III. Dividends. The holders of Convertible PIK Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds at the time legally available therefor, dividends at
an annual rate of $2.125 per share. Such dividends shall be cumulative and
shall accrue and be payable in equal quarterly payments of $0.53125 per share
on March 31, June 30, September 30 and December 31 of each year (each of such
dates being a "Dividend Payment Date") (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable on the
next day that is not a Saturday, Sunday or legal holiday), to holders of
record at the close of business on the date specified by the Board of
Directors (or, to the extent permitted by applicable law, a duly authorized
<PAGE>
committee thereof) at the time such dividend is declared, in preference to
dividends on the Junior Stock, commencing on the Dividend Payment Date next
succeeding the issuance date of the Convertible PIK Preferred Stock (the
"Issue Date"). Any such dividend record date shall be not less than ten days
and not more than sixty days prior to the relevant Dividend Payment Date.
Dividend payments with respect to shares of Convertible PIK Preferred Stock
in respect of each quarterly dividend period ending on or prior to the second
anniversary of the Issue Date (or portion of such quarterly dividend period
in the case of the dividend period in which the second anniversary of the
Issue Date occurs) relating to such shares shall be made in additional shares
of Convertible PIK Preferred Stock. On and after the second anniversary of
the Issue Date relating to shares of Convertible PIK Preferred Stock,
dividends on such Convertible PIK Preferred Stock shall be paid only in cash.
Dividend payments made in shares of Convertible PIK Preferred Stock shall be
made by issuing shares (or fractions thereof) with an aggregate Liquidation
Value equal to the amount of such dividends. All dividends paid with respect
to shares of Convertible PIK Preferred Stock pursuant to this Section III
shall be paid pro rata to the holders entitled thereto. All shares of
Convertible PIK Preferred Stock issued as a dividend will thereupon be duly
authorized, validly issued, fully paid and nonassessable.
Holders of Convertible PIK Preferred Stock will not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
full cumulative dividends provided for herein. Dividend payments which are
in arrears shall bear interest at an annual rate of 8.5%, compounded
quarterly from the date of the related Dividend Payment Date to the date such
dividend is paid. Dividends payable on the Convertible PIK Preferred Stock
for the first quarterly dividend period following the Issue Date (or any
other dividend payable for a period less than a full quarterly period) shall
be computed on the basis of a 360-day year of twelve 30-day months. In the
case of shares of Convertible PIK Preferred Stock issued on the Issue Date,
dividends shall accrue and be cumulative from such date. In the case of
shares of Convertible PIK Preferred Stock issued as a dividend on shares of
Convertible PIK Preferred Stock, dividends shall accrue and be cumulative
from the Dividend Payment Date in respect of which such shares were issued as
a dividend.
Each fractional share of Convertible PIK Preferred Stock
outstanding shall be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of Convertible PIK
Preferred Stock pursuant to this Section III, and all such dividends with
respect to such outstanding fractional shares shall be cumulative and shall
accrue (whether or not declared), and shall be payable in the same manner and
at such times as provided for in this Section III with respect to dividends
on each outstanding share of Convertible PIK Preferred Stock. Each
fractional share of Convertible PIK Preferred Stock outstanding shall also be
entitled to a ratably proportionate amount of any other distributions made
with respect to each outstanding share of Convertible PIK Preferred Stock,
and all such distributions shall be payable in the same manner and at the
same time as distributions on each outstanding share of Convertible PIK
Preferred Stock.
For purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are authorized to close in New York, New York and
the term "business day" shall mean any day other than a Saturday, Sunday or
legal holiday. No dividend record date shall be the same as a date set for
the redemption of any shares of Convertible PIK Preferred Stock under Section
<PAGE>
V. If a dividend record date fixed by the Board of Directors is prior to a
redemption date then or theretofore set under Section V, it shall be at least
six business days prior to such redemption date. Nothing contained herein
shall limit the Board of Directors' discretion to establish a dividend record
date that is subsequent to a redemption date then or theretofore established,
without regard to the effect of such record date on the dividend rights of
holders of Convertible PIK Preferred Stock who elect to convert under Section
VI prior to the redemption date. Holders of shares of Convertible PIK
Preferred Stock that are redeemed under Section V on a redemption date that
falls between the record date and the payment date for a dividend shall be
entitled to receive the dividend, except to the extent the price paid upon
redemption reflects such dividend as an accrued dividend as provided in
Section V. Subject to the next paragraph of this Section III, dividends on
account of arrears for any past dividend period may be declared and paid at
any time, without reference to any Dividend Payment Date.
No dividend or other distributions, other than dividends payable
solely in shares of Junior Stock, shall be declared, paid or set apart for
payment on shares of Junior Stock or any other capital stock of the
Corporation which by its terms ranks junior as to dividends to the
Convertible PIK Preferred Stock (the Junior Stock and any such other class or
series of the Corporation's capital stock being herein referred to as "Junior
Dividend Stock"), unless and until all accrued and unpaid dividends on the
Convertible PIK Preferred Stock for all Dividend Payment Dates occurring on
or before the payment date of such dividends or other distributions on Junior
Dividend Stock shall have been paid or declared and set apart for payment.
No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Junior Dividend Stock or any class or series
of the Corporation's capital stock which by its terms ranks junior to the
Convertible PIK Preferred Stock as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary (the Junior Stock and any class or series of the Corporation's
capital stock which by its terms rank junior to the Convertible PIK Preferred
Stock as to such distributions being herein referred to as "Junior
Liquidation Stock"), shall be made unless and until accrued and unpaid
dividends on the Convertible PIK Preferred Stock for all Dividend Payment
Dates occurring on or before such payment for such Junior Dividend Stock or
Junior Liquidation Stock shall have been paid or declared and set apart for
payment.
No full dividends shall be declared, paid or set apart for payment
on shares of any class or series of the Corporation's capital stock whether
existing or hereafter issued and which by its terms ranks, as to dividends,
on a parity with the Convertible PIK Preferred Stock, including the
Corporation's 7.125% Convertible Preferred Stock (any such class or series of
the Corporation's capital stock being herein referred to as "Parity Dividend
Stock") for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the
Convertible PIK Preferred Stock for all Dividend Payment Dates occurring on
or before the payment date of such dividends on Parity Dividend Stock. No
dividends shall be paid on Parity Dividend Stock except on dates on which
dividends are paid on the Convertible PIK Preferred Stock. All dividends
paid or declared and set apart for payment on the Convertible PIK Preferred
Stock and any Parity Dividend Stock shall be paid or declared and set apart
for payment pro rata so that the amount of dividend paid or declared and set
apart for payment per share on the Convertible PIK Preferred Stock and the
<PAGE>
Parity Dividend Stock on any date shall in all cases bear to each other the
same ratio that accrued and unpaid dividends to the date of payment on the
Convertible PIK Preferred Stock and the Parity Dividend Stock bear to each
other.
No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Parity Dividend Stock or any class or series
of the Corporation's capital stock which by its terms ranks on a parity with
the Convertible PIK Preferred Stock as to distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, including the Corporation's 7.125% Convertible Preferred
Stock (any such class or series of the Corporation's capital stock being
herein referred to as "Parity Liquidation Stock"), shall be made, and, other
than dividends to the extent permitted by the preceding paragraph, no
distributions shall be declared, paid or set apart for payment on shares of
Parity Dividend Stock or Parity Liquidation Stock, unless all accrued and
unpaid dividends on the Convertible PIK Preferred Stock for all Dividend
Payment Dates occurring on or before such payment for, or the payment date of
such distributions on, such Parity Dividend Stock or Parity Liquidation Stock
shall have been paid or declared and set apart for payment.
Any reference to "distribution" contained in this Section III shall
not be deemed, except as expressly stated, to include any distribution made
in connection with any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
IV. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of shares of Convertible PIK Preferred Stock shall
be entitled to receive out of the assets of the Corporation available for
distribution to stockholders an amount equal to the dividends accrued and
unpaid on such shares on the date of final distribution to such holders,
whether or not declared, without interest, plus a sum equal to $25.00 per
share, and no more, before any payment shall be made or any assets
distributed to the holders of shares of Junior Liquidation Stock. The entire
assets of the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the Convertible PIK Preferred Stock
and any Parity Liquidation Stock in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such
preferential amounts). After payment in full of the liquidation preferences
of the shares of the Convertible PIK Preferred Stock, the holders of such
shares shall not be entitled to any further participation in any distribution
of assets by the Corporation. The voluntary sale, lease, exchange or
transfer of all or substantially all of the Corporation's property or assets
to, or its consolidation or merger with, one or more corporations shall not
be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation.
V. Redemption at Option of the Corporation. Convertible PIK
Preferred Stock may not be redeemed by the Corporation prior to September 30,
2000. Subject to the foregoing, Convertible PIK Preferred Stock may be
redeemed by the Corporation, at its option on any date set by the Board of
Directors, in whole or in part at any time, subject to the limitations, if
any, imposed by applicable law, for an amount in cash equal to the following
redemption prices per share if redeemed during the 12-month period beginning
on September 30 of any year indicated below:
<PAGE>
Year Redemption Price
- ---- Per Share
----------------
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.50
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26.00
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.50
2003 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.00
plus, in each case, an amount in cash equal to all per share dividends on the
Convertible PIK Preferred Stock accrued and unpaid thereon, whether or not
declared, through the date prior to the date fixed for redemption, such sum
being hereinafter referred to as the "Redemption Price."
No redemption date shall be the same as a dividend record date
fixed under Section III. If a redemption date established by the Board of
Directors is after a dividend record date then or theretofore fixed under
Section III, it shall be at least six business days after such dividend
record date. Nothing contained herein shall limit the Board of Directors'
discretion to establish a redemption date that is prior to a dividend record
date then or theretofore fixed, without regard to the effect of such
redemption date on the dividend rights of holders of Convertible PIK
Preferred Stock who elect to convert under Section VI prior to the redemption
date.
In the case of the redemption of less than all of the then
outstanding Convertible PIK Preferred Stock, the Corporation shall designate
by lot, or in such other manner as the Board of Directors may determine to be
fair, the shares to be redeemed, or shall affect such redemption pro rata.
Notwithstanding the foregoing, the Corporation shall not redeem less than all
of the Convertible PIK Preferred Stock at any time outstanding until all
dividends accrued and in arrears upon all Convertible PIK Preferred Stock
then outstanding shall have been paid in full for all past dividend periods.
Not more than ninety nor less than thirty days prior to the date
fixed for redemption by the Board of Directors, notice thereof by first class
mail, postage prepaid, shall be given to the holders of record of the shares
of Convertible PIK Preferred Stock to be redeemed, addressed to such holders
at their last addresses as shown upon the stock transfer books of the
Corporation. Each such notice of redemption shall specify, the shares being
redeemed, the date fixed for redemption, the Redemption Price, the place or
places of payment, that payment will be made upon presentation and surrender
of the shares of Convertible PIK Preferred Stock, that on and after the date
fixed for redemption dividends will cease to accrue on such shares, the
conversion price pursuant to Section VI and that the right of holders to
convert shares of Convertible PIK Preferred Stock shall terminate at the
close of business on the fifth business day prior to the date fixed for
redemption (unless the Corporation defaults in the payment of the Redemption
Price).
If and only if there are more than ten holders of Convertible PIK
Preferred Stock, any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of
shares of Convertible PIK Preferred Stock receives such notice. If there are
less than ten holders of Convertible PIK Preferred Stock, notice shall be
effective if given in accordance with Section 9.02 of the Stock Purchase
Agreement pursuant to which the Convertible PIK Preferred Stock is issued.
Failure to give such notice by mail or any defect in such notice to the
<PAGE>
holders of any shares designated for redemption shall not affect the validity
of the proceedings for the redemption of any other shares of Convertible PIK
Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment of the
Redemption Price. If less than all the shares evidenced by any such
surrendered certificate are redeemed, a new certificate shall be issued
evidencing the unredeemed shares.
Notice having been given as aforesaid, if, on the date fixed for
redemption, funds necessary for the redemption shall be available therefor
and shall have been deposited with a bank or trust company with irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Convertible PIK Preferred Stock, then, notwithstanding that the certificates
evidencing any shares so called for redemption shall not have been
surrendered, dividends with respect to the shares so called shall cease to
accrue on and after the date fixed for redemption, such shares shall no
longer be deemed outstanding, the holders thereof shall cease to be
stockholders of the Corporation and all rights whatsoever with respect to the
shares so called for redemption (except the right of the holders to receive
the Redemption Price without interest upon surrender of their certificates
therefor) shall terminate. If funds legally available for such purpose are
not sufficient for redemption of the shares of Convertible PIK Preferred
Stock which were to be redeemed, then the certificates evidencing such shares
shall be deemed not to be surrendered, such shares shall remain outstanding
and the right of holders of shares of Convertible PIK Preferred Stock
thereafter shall continue to be only those of a holder of shares of the
Convertible PIK Preferred Stock.
The shares of Convertible PIK Preferred Stock shall not be subject
to the operation of any mandatory purchase, retirement or sinking fund.
VI. Conversion Provisions.
(a) Right of Conversion. Each full or fractional share of
Convertible PIK Preferred Stock shall be convertible at the option of the
holder thereof, at any time from the issue date until the close of business
on the fifth business day prior to any date fixed for redemption of such
share as herein provided, into fully paid and nonassessable shares of Common
Stock, at a rate per full share of Convertible PIK Preferred Stock equal to
the aggregate Liquidation Value of the Convertible PIK Preferred Stock to be
converted divided by a conversion price which shall initially be $_______
(the "Conversion Price") [amount to be the lesser of (i) 110% of the public
offering price for the secondary stock offering or (ii) $8.80 per share].
(b) Conversion Procedures. Any holder of shares of Convertible
PIK Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of
Convertible PIK Preferred Stock at the office of the transfer agent for the
Convertible PIK Preferred Stock which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or
in blank, accompanied by irrevocable written notice to the Corporation that
the holder elects to convert such shares of Convertible PIK Preferred Stock
and specifying the name or names (with address or addresses) in which a
<PAGE>
certificate or certificates evidencing shares of Common Stock are to be
issued.
Except as otherwise described in this paragraph, no payments or
adjustments in respect of dividends on shares of Convertible PIK Preferred
Stock surrendered for conversion, whether paid or unpaid and whether or not
in arrears, or on account of any dividend on the Common Stock issued upon
conversion shall be made by the Corporation upon the conversion of any shares
of Convertible PIK Preferred Stock. The holder of record of shares of
Convertible PIK Preferred Stock on a dividend record date who surrenders such
shares for conversion during the period between such dividend record date and
the corresponding dividend payment date will be entitled to receive the
dividend on such dividend payment date.
The Corporation shall, as soon as practicable after such surrender
of certificates evidencing shares of Convertible PIK Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Convertible PIK Preferred Stock were so
surrendered, or to the nominee of such person, certificates evidencing the
number of full shares of Common Stock to which such person shall be entitled
as aforesaid, together with a cash adjustment in respect of any fraction of a
share of Common Stock as hereinafter provided. Such conversion shall be
deemed to have been made as of the date of such surrender of the shares of
Convertible PIK Preferred Stock to be converted, and the person or persons
entitled to receive the Common Stock deliverable upon conversion of such
Convertible PIK Preferred Stock shall be treated for all purposes as the
record holder or holders of such Common Stock on such date.
(c) Adjustment of Conversion Price. The Conversion Price at which
a share of Convertible PIK Preferred Stock is convertible into Common Stock
shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in Common Stock or shall
pay or make a dividend or other distribution on any other class or
series of capital stock of the Corporation which dividend or
distribution includes or is convertible into Common Stock, the
Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting or included in such dividend or other distribution (or in
the case of a dividend consisting of securities convertible into Common
Stock, the number of shares of Common Stock into which such securities
are convertible), such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this subparagraph (i), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Corporation. The Corporation shall not pay
any dividend or make any distribution on shares of Common Stock held in
the treasury of the Corporation.
<PAGE>
(ii) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall
otherwise issue (a) Common Stock (excluding any restricted stock issued
to management of the Company and approved by the Board), (b) rights or
warrants (excluding incentive stock options approved by the Board)
entitling the holders thereof to subscribe for or purchase shares of
Common Stock or (c) any security convertible into Common Stock at a
price per share less than the current market price per share (determined
as provided in subparagraph (vi) of this Section VI(c)) of the Common
Stock on the date fixed for the determination of stockholders entitled
to receive such rights or warrants, the Conversion Price in effect at
the opening of business on the day following the date fixed for such
determination shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription, exercise, conversion or purchase
would purchase at such current market price and the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business
on the day following the date fixed for such determination. In case any
rights, warrants or convertible securities referred to in this
subparagraph (ii) in respect of which an adjustment shall have been made
shall expire unexercised within 45 days after the same shall have been
distributed or issued by the Corporation, the Conversion Price shall be
readjusted at the time of such expiration to the Conversion Price that
would have been in effect if no adjustment had been made on account of
the distribution or issuance of such expired rights or warrants.
(iii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and conversely, in case outstanding shares of
Common Stock shall each be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes effec-
tive shall be proportionately increased, such reduction or increase, as
the case may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision or
combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in
case the Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of any
class or series of capital stock, cash or assets (including securities,
but excluding any rights, warrants or convertible securities referred to
in subparagraph (ii) of this Section VI(c), any dividend or distribution
paid exclusively in cash and any dividend or distribution referred to in
subparagraph (i) of this Section VI(c)), the Conversion Price in effect
on the day following the date fixed for the payment of such distribution
(the date fixed for payment being referred to as the "Reference Date")
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the current market price per share
<PAGE>
(determined as provided in subparagraph (vi) of this Section VI(c)) of
the Common Stock on the Reference Date less the fair market value (as
determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors) on the Reference Date of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock, and the denominator shall be
such current market price per share of the Common Stock, such reduction
to become effective immediately prior to the opening of business on the
day following the Reference Date. If the Board of Directors determines
the fair market value of any distribution for purposes of this
subparagraph (iv) by reference to the actual or when issued trading
market for any securities comprising such distribution, it must in doing
so consider the prices in such market over the same period used in
computing the current market price per share of Common Stock pursuant to
subparagraph (vi) of this Section VI(c). For purposes of this
subparagraph (iv), any dividend or distribution that includes shares of
Common Stock or rights or warrants to subscribe for or purchase shares
of Common Stock shall be deemed to be (1) a dividend or distribution of
the evidences of indebtedness, cash, assets or shares of capital stock
other than such shares of Common Stock or rights or warrants (making any
conversion price reduction required by this subparagraph (iv))
immediately followed by (2) a dividend or distribution of such shares of
Common Stock or such rights or warrants (making any further Conversion
Price reduction required by subparagraph (i) or (ii) of this Section
VI(c)), except (A) the Reference Date of such dividend or distribution
as defined in this subparagraph (iv) shall be substituted as "the date
fixed for the determination of stockholders entitled to receive such
dividend or other distribution," "the date fixed for the determination
of stockholders entitled to receive such rights or warrants" and "the
date fixed for such determination" within the meaning of subparagraphs
(i) and (ii) of this Section VI(c) and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of subparagraph (i) of this Section
VI(c)).
(v) In case the Corporation shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding (A) cash
that is part of a distribution referred to in (iv) above and (B) in the
case of any quarterly cash dividend on the Common Stock, the portion
thereof that does not exceed the per share amount of the next preceding
quarterly cash dividend on the Common Stock (as adjusted to
appropriately reflect any of the events referred to in subparagraphs
(i), (ii), (iii), (iv) and (v) of this Section VI(c)), or all of such
quarterly cash dividend if the amount thereof per share of Common Stock
multiplied by four does not exceed 5% of the current market price per
share (determined as provided in paragraph (vi) of this Section VI(c))
of the Common Stock on the Trading Day (as defined in Section VI(h))
next preceding the date of declaration of such dividend), the Conversion
Price in effect immediately prior to the opening of business on the day
following the date fixed for the payment of such distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the current market price per share (determined as
provided in subparagraph (vi) of this Section VI(c)) of the Common Stock
on the date fixed for the payment of such distribution less the amount
of cash so distributed and not excluded as provided above applicable to
<PAGE>
one share of Common Stock, and the denominator shall be such current
market price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day
following the date fixed for the payment of such distribution.
(vi) For the purpose of any computation under subparagraph (ii),
(iv) or (v) of this Section VI(c), the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily
Closing Prices (as defined in Section VI(h)) for the five consecutive
Trading Days ending with and including the date in question; provided,
however, that (1) if the "ex" date (as hereinafter defined) for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price
pursuant to subparagraph (i), (ii), (iii), (iv) or (v) above ("Other
Event") occurs after the fifth Trading Day prior to the date in question
and prior to the "ex" date for the issuance or distribution requiring
such computation (the "Current Event"), the Closing Price for each
Trading Day prior to the "ex" date for such Other Event shall be
adjusted by multiplying such Closing Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such
Other Event, (2) if the "ex" date for any Other Event occurs after the
"ex" date for the Current Event and on or prior to the date in question,
the Closing Price for each Trading Day on and after the "ex" date for
any Other Event shall be adjusted by multiplying such Closing Price by
the reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such Other Event, (3) if the "ex"
date for any Other Event occurs on the "ex" date for the Current Event,
one of those events shall be deemed for purposes of clauses (1) and (2)
of this proviso to have an "ex" date occurring prior to the "ex" date
for the other event, and (4) if the "ex" date for the Current Event is
on or prior to the date in question, after taking into account any
adjustment required pursuant to clause (2) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be adjusted
by adding thereto the amount of any cash and the fair market value on
the date in question (as determined in good faith by the Board of
Directors in a manner consistent with any determination of such value
for purposes of paragraph (iv) or (v) of Section VI(c), whose
determination shall be conclusive and described in a resolution of the
Board of Directors) of the portion of the rights, warrants, evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock. For purposes of this
paragraph, the term "ex" date, (x) when used with respect to any
issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to receive
such issuance or distribution and (y) when used with respect to any
subdivision or combination of shares of Common Stock, means the first
date on which the Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or combination
becomes effective.
(vii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
1% in the Conversion Price; provided, however, that any adjustments
which by reason of this subparagraph (vii) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment or in any conversion pursuant to this Section VI.
<PAGE>
(viii) Whenever the Conversion Price is adjusted as herein
provided:
(1) the Corporation shall compute the adjusted Conversion
Price and shall prepare a certificate signed by the Treasurer of
the Corporation setting forth the adjusted Conversion Price and
showing in reasonable detail the facts upon which such adjustment
is based, and such certificate shall forthwith be filed with the
transfer agent for the Convertible PIK Preferred Stock; and
(2) as soon as practicable after the adjustment, the
Corporation shall mail to all record holders of Convertible PIK
Preferred Stock at their last address as they shall appear upon the
stock transfer books of the Corporation a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted
Conversion Price.
(ix) The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least
twenty days, the reduction is irrevocable during the period and the
Board of Directors of the Corporation shall have made a determination
that such reduction would be in the best interest of the Corporation,
which determination shall be conclusive. Whenever the Conversion Price
is reduced pursuant to the preceding sentence, the Corporation shall
mail to holders of record of the Convertible PIK Preferred Stock a
notice of the reduction at least fifteen days prior to the date the
reduced Conversion Price takes effect, and such notice shall state the
reduced Conversion Price and the period it will be in effect.
(d) No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Convertible PIK Preferred Stock. If more
than one certificate evidencing shares of Convertible PIK Preferred Stock
shall be surrendered for conversion at such time by the holder, the number of
full shares issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Convertible PIK Preferred Stock so
surrendered. Instead of any fractional share of Common Stock that would
otherwise be issuable to a holder upon conversion of any shares of
Convertible PIK Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fractional share in an amount equal to the fraction of the
Closing Price of the Common Stock on the day of conversion or, if the day of
conversion is not a Trading Day, on the next preceding Trading Day.
(e) Reclassification Consolidation, Merger or Sale of Assets. In
the event that the Corporation shall be a party to any transaction pursuant
to which the Common Stock is converted into the right to receive other
securities, cash or other property (including without limitation any
capitalization or reclassification of the Common Stock (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination of the Common Stock),
any consolidation of the Corporation with, or merger of the Corporation into,
any other person, any merger of another person into the Corporation (other
than a merger which does not result in a reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), any sale or
transfer of all or substantially all of the assets of the Corporation or any
share exchange), then lawful provisions shall be made as part of the terms of
such transaction whereby the holder of each share of Convertible PIK
Preferred Stock then outstanding shall have the right thereafter to convert
<PAGE>
such share only into the kind and amount of securities, cash and other
property receivable upon such transaction by a holder of the number of shares
of Common Stock into which such share of Convertible PIK Preferred Stock
might have been converted immediately prior to such transaction. The
Corporation or the person formed by such consolidation or resulting from such
merger or which acquires such shares or which acquires the Corporation's
shares, as the case may be, shall make provisions in its certificate or
articles of incorporation or other constituting document to establish such
right. Adjustments for events subsequent to the effective date of such a
consolidation, merger, sale or transfer of assets shall be as nearly
equivalent as may be practicable to the adjustments provided for herein. In
any such event, effective provisions shall be made in the certificate or
articles of incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease, transfer or otherwise so that the
provisions set forth herein for the protection of the rights of the holder of
Convertible PIK Preferred Stock shall thereafter continue to be applicable,
and any such resulting or surviving corporation shall expressly assume the
obligation to pay dividends and deliver, upon conversion, such shares of
common stock, other securities, or cash as set forth herein. The above
provisions shall similarly apply to successive transactions of the foregoing
type.
(f) Reservation of Shares, Etc. The Corporation shall at all
times reserve and keep available, free from preemptive rights out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of the Convertible PIK Preferred Stock, such number of shares of
its Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Convertible PIK Preferred Stock from time to time
outstanding. The Corporation shall from time to time, in accordance with the
laws of the State of Delaware, in good faith and as expeditiously as possible
endeavor to cause the authorized number of shares of Common Stock to be
increased if at any time the number of shares of authorized and unissued
Common Stock shall not be sufficient to permit the conversion of all the then
outstanding shares of Convertible PIK Preferred Stock.
If any shares of Common Stock required to be reserved for purposes
of conversion of the Convertible PIK Preferred Stock hereunder require
registration with or approval of any governmental authority under any Federal
or State law before such shares may be issued upon conversion, the
Corporation will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered or approved as the case may be. If
the Common Stock is listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and keep
listed on such exchange, upon official notice of issuance, all shares of
Common Stock issuable upon conversion of the Convertible PIK Preferred Stock,
for so long as the Common Stock continues to be so listed.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in
shares of Common Stock or (B) a dividend payable in cash out of its
retained earnings other than any special or nonrecurring or other
extraordinary dividend or (2) declare or authorize a redemption or
repurchase of in excess of 10% of the then outstanding shares of Common
Stock;
<PAGE>
(ii) the Corporation shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or series or of any other rights or
warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the Corporation
shall be required, or of the sale or merger of all or substantially all
of the assets of the Corporation or of any share exchange whereby the
Common Stock is converted into other securities, cash or other property;
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; or
(v) of any other event which would require an adjustment to the
Conversion Price under subparagraph VI(c);
then the Corporation shall cause to be filed with the transfer agent for the
Convertible PIK Preferred Stock, and shall cause to be mailed to the holders
of record of the Convertible PIK Preferred Stock, at their last addresses as
they shall appear upon the stock transfer books of the Corporation, at least
fifteen days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record (if any) is to be
taken for the purpose of such dividend, distribution, redemption, repurchase,
or grant of rights or warrants or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, redemption, repurchase, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation, winding up
or other event is expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation, winding up or other event
(but no failure to mail such notice or any defect therein or in the mailing
thereof shall affect the validity of the corporate action required to be
specified in such notice).
(h) Definitions. The following definitions shall apply to terms
used in this Section VI:
(i) "Closing Price" of any common stock on any day shall mean the
last reported sale price regular way on such day or, in case no such
sale takes place on such day, the average of the reported closing bid
and asked prices regular way of the common stock in each case on the
principal national securities exchange or quotation system on which the
common stock is listed or admitted to trading or quoted, or, if not
listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked
prices of the common stock in the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a
similarly generally accepted reporting service, or, if not so available
in such manner, as furnished by any New York Stock Exchange member firm
<PAGE>
selected from time to time by the Board of Directors of the Corporation
for that purpose.
(ii) "Trading Day" shall mean a day on which securities are traded
on the national securities exchange or quotation system or in the over-
the-counter market used to determine the Closing Price.
VII. Voting Rights. (a) General. The holders of shares of
Convertible PIK Preferred Stock shall not have any voting rights except as
set forth below or as otherwise from time to time required by law. In
connection with any right to vote, each holder of shares of Convertible PIK
Preferred Stock shall be entitled to a number of votes which is equal to the
whole number of shares of Common Stock that could be obtained upon conversion
of one share of Convertible PIK Preferred Stock at the then applicable
Conversion Price. Any shares of Convertible PIK Preferred Stock owned,
directly or indirectly, by any entity of which the Corporation owns, directly
or indirectly, a majority of the shares entitled to vote for directors, shall
not have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Designated Director Voting Rights. On the Issue Date, in
addition to any other rights to elect directors which the holders of
Convertible PIK Preferred Stock may have, the two holders with the greatest
number of shares held of record of Convertible PIK Preferred Stock shall have
the right to each elect a director of the Corporation to fill the vacancies
that occur at such date who shall continue to serve during the period in
which any shares of Convertible PIK Preferred Stock remain outstanding. If
there is only one holder of outstanding Convertible PIK Preferred Stock, such
holder shall elect both directors. The right of the holders of shares of
Convertible Preferred Stock to vote for and elect such two additional
directors shall terminate when all outstanding shares of Convertible PIK
Preferred Stock shall have been redeemed or otherwise retired. The term of
office of all directors so elected shall terminate as provided in the
Corporation's by-laws.
The foregoing right of the holders of shares of Convertible
Preferred Stock with respect to the election of two directors may be
exercised initially at any annual meeting of stockholders or at any special
meeting of stockholders held for such purpose, or by the written consent of
the holders of Convertible PIK Preferred Stock without a meeting pursuant to
Section 228 of the Delaware General Corporation Law and thereafter at such
annual meeting or by written consent. The president of the Corporation shall
within twenty days after the delivery to the Corporation at its principal
office of a written request for a special meeting signed by the holders of at
least 10% of all outstanding shares of Convertible PIK Preferred Stock, call
a special meeting of the holders of Convertible PIK Preferred Stock to be
held within sixty days after the delivery of such request for the purpose of
electing such additional directors.
The holders of shares of Convertible PIK Preferred Stock referred
to above voting as a class shall have the right to remove without cause at
any time and replace any directors such holders shall have elected pursuant
to this Section VII(b). In case of a vacancy occurring in the office of any
director so elected pursuant to this Section VII(b), the holder of
Convertible PIK Preferred Stock referred to above who elected the director
which created such vacancy may, at a special meeting of the holders or by
<PAGE>
written consent as provided above, elect a successor to hold office for the
unexpired term of such director.
(c) Default Voting Rights. Whenever dividends on the Convertible
PIK Preferred Stock or any other class or series of Preferred Stock shall be
in arrears in an aggregate amount equal to at least four quarterly dividends
(whether or not consecutive), (i) the number of members of the Board of
Directors of the Corporation shall be increased by two, effective as of the
time of election of such directors as hereinafter provided and (ii) in
addition to any other rights to elect directors which the holders of
Convertible PIK Preferred Stock may have, the holders of shares of
Convertible PIK Preferred Stock (voting separately as a class with all other
affected classes or series of Preferred Stock upon which like voting rights
have been conferred and are exercisable) shall have the exclusive right to
vote for and elect such two additional directors of the Corporation who shall
continue to serve during the period such dividends remain in arrears. The
right of the holders of shares of Convertible PIK Preferred Stock to vote for
such two additional directors shall terminate when all accrued and unpaid
dividends on the Convertible PIK Preferred Stock and all other affected
classes or series of Preferred Stock have been declared and paid or set apart
for payment. The term of office of all directors so elected shall terminate
immediately upon the termination of the right of the holders of shares of
Convertible PIK Preferred Stock and such Preferred Stock to vote for such two
additional directors, and the number of directors of the Board of Directors
of the Corporation shall immediately thereafter be reduced by two.
The foregoing right of the holders of shares of Convertible PIK
Preferred Stock with respect to the election of two directors may be
exercised at any annual meeting of stockholders or at any special meeting of
stockholders held for such purpose. If the right to elect directors shall
have accrued to the holders of shares of Convertible PIK Preferred Stock more
than ninety days preceding the date established for the next annual meeting
of stockholders, the president of the Corporation shall within ten days after
the delivery to the Corporation at its principal office of a written request
for a special meeting signed by the holders of at least 10% of all
outstanding shares of Convertible PIK Preferred Stock, call a special meeting
of the holders of Convertible PIK Preferred Stock to be held within forty-
five days after the delivery of such request for the purpose of electing such
additional directors.
The holders of shares of Convertible PIK Preferred Stock and any
Preferred Stock referred to above voting as a class shall have the right to
remove without cause at any time and replace any directors such holders shall
have elected pursuant to this Section VII(c).
(d) Class Voting. So long as any shares of the Corporation's
Convertible PIK Preferred Stock are outstanding the Corporation shall not,
without the affirmative vote or consent of the holders of at least 66-2/3% of
all outstanding shares of the Corporation's Convertible PIK Preferred Stock,
voting or consenting separately as a class without regard to series:
(i) create any class of stock convertible into Common Stock that
by its terms ranks prior to any outstanding Convertible PIK Preferred
Stock of the Corporation as to dividends or upon liquidation or increase
the authorized number of shares of any such class;
<PAGE>
(ii) alter or change any of the provisions of the Corporation's
Certificate of Incorporation so as adversely to affect the relative
rights and preferences of any outstanding Convertible PIK Preferred
Stock of the Corporation (including, without limitation an increase in
the size of the Board); provided, however that the creation, amendment
or reclassification of any class of stock, that by its terms ranks
junior to shares of Convertible PIK Preferred Stock of the Corporation
as to dividends or upon liquidation or an increase in the authorized
number of shares of any such class shall not give rise to any such
voting right; or
(iii) increase the authorized number of shares of the
Corporation's Preferred Stock.
VIII. Outstanding Shares; Status of Acquired Shares.
(a) Outstanding Shares. For purposes of this Certificate of
Designation, all shares of Convertible PIK Preferred Stock issued by the
Corporation shall be deemed outstanding except: (i) from the date fixed for
redemption pursuant to Section V, all shares of Convertible PIK Preferred
Stock that have been so called for redemption under Section V, to the extent
provided thereunder; (ii) from the date surrender of certificates evidencing
shares of Convertible PIK Preferred Stock, all shares of Convertible PIK
Preferred Stock converted into Common Stock; and (iii) from the date of
registration of transfer, all shares of Convertible PIK Preferred Stock
owned, directly or indirectly, by any entity of which the Corporation owns,
directly or indirectly, a majority of the shares entitled to vote for
directors.
(b) Reacquired Shares. Shares of Convertible PIK Preferred Stock
redeemed by the Corporation, received upon conversion pursuant to Section VI
or otherwise acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, and may thereafter be issued, but not as shares of Convertible PIK
Preferred Stock.
IX. Partial Payments. Upon an optional redemption by the
Corporation, if at any time the Corporation does not pay amounts sufficient
to redeem all Convertible PIK Preferred Stock, then such funds which are paid
shall be applied to redeem such shares of Convertible PIK Preferred Stock as
the Corporation may designate by lot or in such other manner as the Board of
Directors may determine to be fair, or such redemption shall be effected pro
rata.
X. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change
as shall be necessary to render the provision in question effective and valid
under applicable law.
<PAGE>
XI. Miscellaneous. (a) Transfer Taxes. The Corporation shall
pay any and all stock transfer and documentary stamp taxes that may be
payable in respect of any issuance of delivery of shares of Convertible PIK
Preferred Stock or shares of Common Stock or other securities issued on
account of Convertible PIK Preferred Stock pursuant hereto or certificates or
instruments evidencing such shares or securities. The Corporation shall not,
however, be required to pay any such tax which may be payable in respect of
any transfer involved in the issuance or delivery of shares of Convertible
PIK Preferred Stock or Common Stock or other securities in a name other than
that in which the shares of Convertible PIK Preferred Stock with respect to
which such shares or other securities are issued or delivered were
registered, or in respect of any payment to any person with respect to any
such shares or securities other than a payment to the registered holder
thereof, and shall not be required to make any such issuance, delivery or
payment unless and until the person otherwise entitled to such issuance,
delivery or payment has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has
been paid or is not payable.
(b) Failure to Designate Stockholder or Payee. In the event that
a holder of shares of Convertible PIK Preferred Stock shall not by written
notice designate the name in which shares of Common Stock to be issued upon
conversion of such shares should be registered or to whom payment upon
redemption of shares of Convertible PIK Preferred Stock should be made or the
address to which the certificates or instruments evidencing such shares or
such payment, should be sent, the Corporation shall be entitled to register
such shares and or such payment in the name of the holder of such Convertible
PIK Preferred Stock as shown on the
<PAGE>
records of the Corporation and to send the certificates or instruments
evidencing such shares or such payment, to the address of such holder shown
on the records of the Corporation.
IN WITNESS WHEREOF, Patina Oil & Gas Corporation has caused this
Certificate of Designation to be signed on its behalf by Thomas J. Edelman,
its President, and Keith M. Crouch, its Secretary, this 31st day of July,
1997.
PATINA OIL & GAS CORPORATION
By:
----------------------------
Thomas J. Edelman, President
ATTEST:
- ----------------------------
Keith M. Crouch, Secretary
<PAGE>
ANNEX C
Form of Management Stock Purchase Agreement
[To be filed with definitive Proxy Statement]
<PAGE>
ANNEX D
Form of Restricted Stock Award Agreement
[To be filed with definitive Proxy Statement]
<PAGE>
ANNEX E
Mr. Edelman's Option
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.
<PAGE>
(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.
(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.
<PAGE>
(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.
(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
<PAGE>
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
<PAGE>
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 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.
<PAGE>
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:
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
<PAGE>
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.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
SNYDER OIL CORPORATION
By_____________________________
Name:
Title:
OPTIONEE:
_______________________________
THOMAS J. EDELMAN
<PAGE>
Investors' Option
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 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 (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, 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 (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
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.
<PAGE>
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.
(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 (y) the termination
of the Stock Purchase Agreement as a result of the failure of the
conditions set forth in Section 5.04 thereof, preceded or followed
within 20 business days by the sale by SOCO of at least 12,000,000
shares of Common Stock whether in the Offering, pursuant to the Share
Repurchase Agreement or otherwise or (z) 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
<PAGE>
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, (iv) 11 business days after the
occurrence of a Qualifying Termination Event specified in Section 2(a)(iv)(y)
and (v) 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 (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; provided further that if
a Qualifying Termination Event specified in Section 2(a)(iv)(y) occurs, the
Closing shall be subject to, and shall not occur earlier than simultaneously
<PAGE>
with the sale by SOCO of the 12,000,000 shares of Common Stock referred to in
such section.
(f) If the Optionee's exercise of the Option relates to the occurrence
of a Qualifying Termination Event specified in Section 2(a)(iv)(z), 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 specified
in Section 2(a)(iv)(z), 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
<PAGE>
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.
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 Sections 2(a)(iv)(y) and 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
<PAGE>
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 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:
<PAGE>
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 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
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
SNYDER OIL CORPORATION
By____________________________
John C. Snyder
Chairman of the Board
OPTIONEE:
By____________________________
<PAGE>
ANNEX F
July 30, 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) stating 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 100,000 shares of Patina Common Stock as
consideration for their commitment to purchase the New Preferred Stock. 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. Assuming that relevant conditions and
circumstances do not change materially, this opinion will be confirmed in a
<PAGE>
final opinion to be delivered to the Independent Committee as of the date of
the consummation of the initial sale of the New Preferred Stock. This opinion
assumes, and the final opinion is conditioned upon, 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. We have been informed that, if Edwards does not, at the
time of the closing of the initial sale of the New Preferred Stock, confirm
its advice that taking into account the terms and conditions of the New
Preferred Stock, the consideration to be paid to the Company for the New
Preferred Stock is comparable to other privately placed convertible preferred
equity securities and, as a result is fair, from a financial point of view,
to the Non-Affiliated Stockholders, the Company shall have the right to
decline to sell any shares of New Preferred Stock in connection with the
consummation of the Transactions.
Edwards is a nationally recognized securities and investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated 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 draft
Share Repurchase Agreement, the draft S-3 Registration 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;
<PAGE>
(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;
(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.
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.
<PAGE>
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.
It is understood that this letter is for the information of the
Independent Committee of the Board of Directors only and may not be relied
upon or used for any purpose without our prior written consent, except that
this opinion may be summarized and, with our oral approval, included in its
entirety in a proxy statement to Patina's stockholders. This opinion may not
be otherwise summarized, excerpted from or otherwise publicly referred to
without our prior written consent (it being understood that we have consented
to the disclosure and inclusion of this opinion in the Registration
Statement).
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereon (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
<PAGE>
[FORM OF FRONT OF PROXY] [Common Stock]
PATINA OIL & GAS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE
HELD SEPTEMBER __, 1997
The undersigned hereby appoints __________, __________ and
__________, 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
[RECORD DATE], 1997, at the Special Meeting of Stockholders to be held on
September ___, 1997, at 9:00 a.m., Mountain time, at [LOCATION].
1. APPROVAL of the Transactions, which are comprised of (A) a Secondary
Offering of 7,500,000 Patina Shares (8,625,000 Patina Shares if the
underwriters' overallotment option is fully exercised), (B) the
Patina Share Repurchase by the Company of all remaining Patina
Shares that are not sold in the Secondary Offering, (C) 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, and (D) 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 by the Company to such
Management Investors of 500,000 shares of restricted Common Stock
FOR / / AGAINST / / ABSTAIN / /
2. 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.
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 PROPOSAL 1.
<PAGE>
[FORM OF BACK OF PROXY]
PATINA OIL & GAS CORPORATION
PROXY
The undersigned hereby acknowledges receipt of a Notice of Special
Meeting and Proxy Statement relating to the Special Meeting of Stockholders
to be held on September __, 1997.
MARK HERE FOR ADDRESS MARK HERE IF YOU PLAN
CHANGE AND NOTE BELOW TO ATTEND THE MEETING
/ / / /
_____________________________________________
(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.
