<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION NO. 333-32671
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PATINA OIL & GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 1311 75-2629477
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
KEITH M. CROUCH
1625 BROADWAY 1625 BROADWAY
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 389-3600 (303) 389-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CODE OF AGENT FOR SERVICE)
</TABLE>
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COPIES TO:
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JOHN E. RILEY PETER E. LORENZEN MARTIN J. COLLINS
SIMPSON THACHER & BARTLETT SNYDER OIL CORPORATION MAYER, BROWN & PLATT
425 LEXINGTON AVENUE 777 MAIN STREET 1675 BROADWAY
NEW YORK, NEW YORK 10017 FORT WORTH, TEXAS 76102 NEW YORK, NEW YORK 10019
(212) 455-2520 (817) 338-4043 (212) 506-2500
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1997
7,500,000 SHARES
PATINA OIL & GAS CORPORATION
COMMON STOCK
------------------
All of the shares of Common Stock, $.01 par value (the "Common Stock"), of
Patina Oil & Gas Corporation (the "Company" or "Patina") offered hereby are
being sold by Snyder Oil Corporation ("SOCO"). Accordingly, the Company will not
receive any proceeds from the sale of the shares offered hereby. See "Selling
Stockholder."
Concurrently with the sale of the shares of Common Stock offered hereby
(the "Offering"), the Company intends to (i) sell in private transactions up to
2,520,000 shares of its 8.5% Convertible Preferred Stock (the "New Preferred
Stock") to a limited number of investors for an aggregate purchase price of up
to $63.0 million, (ii) sell shares of Common Stock having an aggregate purchase
price of $3.0 million, at a price per share equal to the per share "Price to
Public" set forth below (the "Public Offering Price"), to certain members of
management of the Company and (iii) use the proceeds from such sales, together
with bank borrowings, if necessary, to purchase the balance of the Common Stock
owned by SOCO at a price equal to the per share "Proceeds to SOCO" set forth
below (the "Net Offering Price"). Such transactions are herein collectively
referred to as the "Concurrent Transactions" and, together with the Offering, as
the "Transactions. " The consummation of the Offering is contingent upon the
consummation of certain of the Concurrent Transactions and upon SOCO's receiving
a Net Offering Price of at least $7.0875 per share (which requires, assuming
underwriting discounts and commissions of $.4125 per share, a Public Offering
Price of at least $7.50 per share) in the Offering. See "Concurrent
Transactions."
The Common Stock is traded on the New York Stock Exchange under the symbol
"POG." The last reported sale price of the Common Stock on the New York Stock
Exchange on September 8, 1997 was $9.00 per share. See "Price Range of Common
Stock."
SEE "RISK FACTORS", BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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======================================================================================================
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) SOCO(2)
- ------------------------------------------------------------------------------------------------------
Per Share $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3) $ $ $
======================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated to be $ payable by the Company.
(3) SOCO has granted the Underwriters a 30-day option to purchase up to
1,125,000 additional shares of Common Stock solely to cover overallotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to SOCO will be
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC. MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549 and at its Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such materials also may be obtained by mail at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, the Commission maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. The Common Stock is listed on the New York Stock
Exchange, and similar information concerning the Company may also be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement"), of which this Prospectus constitutes a part, under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all of the information set forth in or incorporated by
reference in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares offered hereby, reference
is made to the Registration Statement, copies of which may be obtained from the
Commission as set forth above. Any statements contained in this Prospectus
concerning the provisions of any contract, agreement or other document filed
with the Registration Statement as exhibits are not necessarily complete
summaries of such documents, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act (Commission file number 1-14344) are incorporated
herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1997 and June 30, 1997; and
(c) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A dated April 25, 1996, as
updated by any amendment or report filed for the purpose of updating such
description.
In addition, the following document heretofore filed by Gerrity Oil & Gas
Corporation with the Commission pursuant to the Exchange Act (Commission file
number 0-18667) is incorporated herein by reference: Quarterly Report on form
10-Q for the quarterly period ended March 31, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents. Any
statement contained in a document all or a portion of which is incorporated
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will furnish without charge to each person, including
any beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of such person, a copy of any of the
foregoing documents incorporated by reference herein, except for the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
copies should be directed to Patina Oil & Gas Corporation, Attention: Investor
Relations, 1625 Broadway, Suite 2000, Denver, Colorado 80202 (telephone: (303)
389-3600).
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
by, the more detailed information appearing elsewhere in this Prospectus or
incorporated herein by reference. Unless the context suggests otherwise, (i)
Patina or the Company refers to Patina Oil & Gas Corporation and its
subsidiaries and (ii) Predecessors refers to Snyder Oil Corporation's Wattenberg
field operations and Gerrity Oil & Gas Corporation. The terms defined in the
Glossary have the meanings provided therein. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters'
overallotment option.
THE COMPANY
GENERAL
Patina Oil & Gas Corporation (the "Company" or "Patina") is an independent
energy company engaged in the acquisition, development, exploitation and
production of oil and natural gas in the Wattenberg field ("Wattenberg") of
Colorado's Denver-Julesburg Basin (the "D-J Basin"). The Company was formed in
early 1996 to hold the Wattenberg assets of Snyder Oil Corporation ("SOCO") and
to facilitate the acquisition of Gerrity Oil & Gas Corporation (the "Gerrity
Acquisition"). Thomas J. Edelman structured and negotiated the Gerrity
Acquisition and has served as the Company's chief executive from its inception.
Since the Gerrity Acquisition in May 1996, the Company has focused its efforts
on consolidating its properties, developing a focused and efficient
organization, reducing costs and improving operations. From May 1996 through
June 30, 1997, the Company used operating cash flow to reduce indebtedness by
over $40 million and repurchase $14.4 million of its equity securities, while
investing $15.5 million in the further development of its properties.
SOCO has been the Company's major stockholder since its formation and
currently owns 74% of Patina's Common Stock. For strategic reasons, SOCO has
decided to liquidate its stake in Patina and redeploy the proceeds in its core
business. Pursuant to the Transactions described in this Prospectus, SOCO's
ownership in the Company will be eliminated and the Company will be positioned
to pursue an independent growth strategy.
At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves.
Average oil and natural gas prices for the six months ended June 30, 1997 have
declined 19% and 36%, respectively, from 1996 year-end prices. Equivalent
reserves and pretax present value would have been approximately 397 Bcfe and
$343 million, respectively, at 1996 year-end, assuming constant wellhead prices
of $20.00 per barrel of oil and $2.00 per Mcf of gas. The Company operates
almost 90% of the roughly 3,550 producing wells in which it holds an interest,
representing 98% of its producing reserves. In the year ended December 31, 1996,
the Company generated revenues of $83.2 million, net income of $3.6 million and
net cash provided by operations of $53.0 million. During that period, production
averaged 93.1 MMcfe per day. During the six months ended June 30, 1997, the
Company generated revenues of $52.3 million, net income of $7.1 million and net
cash provided by operations of $33.5 million, with average production of 108.3
MMcfe per day. Based on pro forma production for 1996 and year-end 1996
reserves, the Company has a reserve life index of 10.3 years.
Since 1986, the Company and its Predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. Mr. Edelman and certain other members of Patina's management have
extensive experience in structuring and negotiating acquisitions as well as
managing large scale and cost efficient operations. During the past ten years,
the Company and its Predecessors have completed more than 65 acquisitions having
an aggregate purchase price of over $450 million and during the past five years,
have expended more than $400 million on development projects including the
drilling of over 1,500 wells and the recompletion of more than 400 wells.
Management believes that the Company's sizable asset base and cash flow, along
with its low production costs and efficient operating structure, provide it with
a competitive advantage in Wattenberg and in certain analogous basins. Given
management's expertise in acquisitions and the advantages set forth above, the
Company believes it will be in
3
<PAGE> 6
an excellent position after the Transactions described herein to pursue further
consolidation in Wattenberg and to acquire positions in other basins where it
has or can develop a competitive advantage.
To ensure that management has a significant stake in the Company's success,
all of the Company's executive officers and certain of its key employees have
collectively committed to purchase $3.0 million of the Company's Common Stock at
the Public Offering Price. In addition, these same individuals will be awarded
500,000 shares of restricted Common Stock that will vest over a five-year
period. Simultaneously, several sizable institutional investors possessing
substantial experience and an ongoing interest in investing in the energy
business, as well as several individuals, have committed to invest up to $63.0
million in the Company's New Preferred Stock. Immediately following the
Offering, the Company anticipates using the proceeds from management's stock
purchase, together with proceeds from the sale of the New Preferred Stock and
bank borrowings, if necessary, to repurchase the balance of Patina Common Stock
owned by SOCO after the Offering.
BUSINESS STRATEGY
The Company plans to increase its reserves, production and cash flow in a
cost-efficient manner, primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.
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 its
Predecessors, resulting in G&A expenses during 1996 and for the six months ended
June 30, 1997 of $0.18 and $0.13 per Mcfe, respectively. The Company's low
operating costs increase its operating margin, extend the economic life of its
wells and enhance its reserve value.
Operate Properties
The Company prefers to operate its properties in order to exercise greater
control over the timing and plans for future development, well workovers,
production enhancements and lease operating expenses, as well as the marketing
of oil and natural gas production. The Company currently operates approximately
3,175 (or 90%) of the 3,550 producing wells in which it owns an interest and
these operated properties account for approximately 98% of the pretax present
value of its year-end 1996 producing reserves.
Exploit Existing Reserves
The Company seeks to maximize the value of its properties by increasing
production and recoverable reserves through the active development, recompletion
and exploitation of its properties. At December 31, 1996, the Company had 728
proved undeveloped drilling locations and 605 recompletion opportunities. A
4
<PAGE> 7
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.
Develop Financial Flexibility
The Company is committed to developing its financial flexibility. Since the
Gerrity Acquisition, the Company has reduced its indebtedness by over $40
million and has repurchased $14.4 million of its equity securities. At June 30,
1997, assuming the consummation of the Transactions described herein, 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 Stock Investors have committed
to purchase up to $63.0 million of New Preferred Stock, and the Company expects
to use at least $40.0 million from the sale of shares of New Preferred Stock to
complete the repurchase of Patina Common Stock owned by the Selling Stockholder
after the Offering. In the event the Company issues New Preferred Stock at the
closing of the Offering, the balance of this commitment will remain available
through December 31, 1997 for acquisition financing or for general corporate
purposes.
5
<PAGE> 8
THE OFFERING
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Common Stock offered by SOCO.......................... 7,500,000 shares
Common Stock to be outstanding after the Offering
without giving effect to the Concurrent
Transactions........................................ 18,820,248 shares(a)
Common Stock to be outstanding after the
Transactions........................................ 13,273,189 shares(b)
Use of Proceeds....................................... The Company will not receive any of
the proceeds from the Offering. See
"Use of Proceeds" and "Concurrent
Transactions."
Conditions to the Offering............................ The consummation of the Offering is
conditioned upon the concurrent
consummation of certain of the
Concurrent Transactions and on a
minimum Net Offering Price of $7.0875
per share.
New York Stock Exchange symbol........................ POG
</TABLE>
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(a) Excludes: (i) 4,262,271 shares issuable upon the conversion of outstanding
shares of the Company's presently outstanding shares of 7.125% Preferred
Stock (the "Old Preferred Stock") (having a conversion price of $8.61 per
share); (ii) 2,919,451 shares issuable upon exercise of outstanding warrants
(having an exercise price of $12.50 per share); and (iii) 788,960 shares
issuable upon exercise of outstanding stock options (having a weighted
average exercise price of $8.30 per share). See "Description of Capital
Stock -- Preferred Stock" and " -- Warrants" and "Management -- Stock Option
Plan."
(b) Reflects the shares of Common Stock to be outstanding after the Offering,
adjusted for the Concurrent Transactions, including: (i) 6,500,000 shares
purchased by the Company in the Repurchase (as defined below); (ii) 352,941
shares purchased by the Management Investors (as defined below) (assuming a
Public Offering Price of $8.50 per share); (iii) 500,000 shares awarded to
the Management Investors; and (iv) 100,000 shares issued to the New
Preferred Stock Investors (as defined below). Excludes: (i) 4,545,455 shares
issuable upon conversion of the New Preferred Stock (assuming the issuance
of 1,600,000 shares of New Preferred Stock having a conversion price of
$8.80 per share) and (ii) 230,000 shares issuable to the New Preferred Stock
Investors under certain circumstances. See "Description of Capital
Stock -- Preferred Stock," "Management -- Management Equity Participation
Program" and "Concurrent Transactions -- Certain Other Events -- Grant of
Options by SOCO."
THE CONCURRENT TRANSACTIONS
SOCO currently owns 14,000,000 shares (or approximately 74%) of the
Company's Common Stock. Concurrently with the sale of shares of Common Stock
offered hereby, the Company will repurchase the remaining shares of Common Stock
held by SOCO after the Offering at a price per share equal to the Net Offering
Price (the "Repurchase"). The Transactions are intended to establish the Company
as an independent entity and to provide it with the financial and operational
flexibility necessary to execute its business strategy. The Concurrent
Transactions consist of: (a) the sale by the Company of up to $63.0 million (as
determined by the Company in its sole discretion, subject to a minimum of $40.0
million) of its New Preferred Stock, which will have an annual dividend of 8.5%
and a liquidation preference of $25.00 per share, to a limited number of
investors (none of whom is presently an affiliate of the Company), including
First Reserve Fund VII, Limited Partnership, Chase Venture Capital Associates,
L.P. and Highbridge International LDC (collectively, the "New Preferred Stock
Investors"); (b) the sale by the Company to Mr. Edelman and other members of
management (collectively, the "Management Investors") of $3.0 million of Common
Stock at a purchase price per share equal to the Public Offering Price; and (c)
the Repurchase, using the proceeds from the sales of the New Preferred Stock and
Common Stock described above, together with bank borrowings, if necessary. The
Repurchase will cost approximately $52.2 million, assuming a Public Offering
Price of $8.50 per share. Consummation of the Offering is contingent upon, among
other things, the consummation of the sale of shares of Common Stock to the
Management Investors, the Repurchase and upon SOCO's receiving a Net Offering
Price of at least $7.0875 per share (which requires, assuming
6
<PAGE> 9
underwriting discounts and commissions of $.4125 per share, a Public Offering
Price of at least $7.50 per share) in the Offering.
At the time of the sale of the shares of New Preferred Stock, the Company
will also issue 100,000 shares of Common Stock to the New Preferred Stock
Investors as a part of the purchase of the New Preferred Stock. Under certain
circumstances, the Company may also issue 230,000 shares of Common Stock to the
New Preferred Stock Investors. For a discussion of the circumstances under which
the 230,000 shares will be issued. See "Concurrent Transactions -- Issuance of
New Preferred Stock." The Company has also agreed to award the Management
Investors 500,000 shares of restricted Common Stock, the ownership of which will
vest in equal increments over a period of five years. For a description of the
financial accounting for the 100,000 shares of Common Stock to be issued to the
New Preferred Stock Investors and the 500,000 shares of Common Stock to be
issued to the Management Investors, see clause (c) under "Balance Sheet" in the
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
For more information regarding these transactions, see "Concurrent
Transactions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition and Capital Resources,"
"Description of Capital Stock -- Preferred Stock -- New Preferred Stock,"
"Management -- Management Equity Participation Program."
The following table sets forth the anticipated sources and uses of funds
applicable to the Company in connection with the consummation of the Concurrent
Transactions, assuming a Public Offering Price of $8.50 per share:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
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SOURCES OF FUNDS:
Sale of New Preferred Stock........................... $40.0(a)
Sale of Common Stock to the Management Investors...... 3.0(b)
Bank borrowings....................................... 11.0(c)
-----------
Total......................................... $54.0
========
USES OF FUNDS:
Repurchase the balance of Common Stock held by SOCO... $52.2
Expenses payable by the Company....................... 0.9
Loans to the Management Investors..................... 0.9(b)
-----------
Total......................................... $54.0
========
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(a) 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.
(b) The Management Investors will purchase $3.0 million of Common Stock at the
Public Offering Price, of which up to $850,000 will be funded with loans
from the Company. See "Management -- Management Equity Participation
Program."
(c) Assumes 7,500,000 shares of Common Stock are sold in the Offering and the
Underwriters' overallotment option is not exercised. If the Underwriters'
overallotment option is immediately exercised in full, the Company will not
need to make any long-term bank borrowings to finance the Share Repurchase.
RISK FACTORS
There are a number of risks associated with an investment in the Company's
Common Stock, including: (i) risks related to the Company (such as acquisition
risks, dependence on key personnel and the replacement of reserves and
production decline); (ii) risks related to the oil and gas industry generally
(such as the volatility of oil and natural gas prices, operating risks of oil
and natural gas operations and the uncertainty of reserve estimates); and (iii)
risks associated with the Transactions (such as the shares eligible for future
sale, the absence of dividends, the consummation of the Repurchase and the
preferences of the New Preferred Stock). See "Risks Factors."
7
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(In thousands except per share data)
The following tables present summary historical and pro forma financial and
operating data of the Company and have been derived from the Consolidated
Financial Statements and Unaudited Pro Forma Condensed Consolidated Financial
Statements included elsewhere within this Prospectus and should be read in
conjunction with those statements and the notes thereto. The amounts and results
of operations of the Company for periods prior to the Gerrity Acquisition
include the historical amounts and results of SOCO's Wattenberg operations.
Neither the historical data nor the pro forma data is necessarily indicative of
the results to be expected after the Transactions. This information should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA --------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- ------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................... $ 67,822 $ 50,102 $ 83,188 $ 100,138 $30,110 $ 52,340 $52,340
Expenses
Direct operating................ 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration..................... 784 416 224 658 149 62 62
General and administrative...... 7,484 5,974 6,151 8,049 3,113 2,611 3,050
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 98,056 32,365 45,256 46,080
-------- -------- -------- -------- ------- -------- -------
Income (loss) before taxes........ 4,539 (3,222) 3,168 2,082 (2,255) 7,084 6,260
Provision (benefit) for income
taxes........................... 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- ------- -------- -------
Net income (loss)................. $ 2,950 $ (2,094) $ 3,562 $ 2,082 $(1,861) $ 7,084 $ 6,260
======== ======== ======== ======== ======= ======== =======
Net income (loss) per common
share........................... $ 0.21 $ (0.15) $ 0.08 $ (0.30) $ (0.16) $ 0.30 $ 0.24
======== ======== ======== ======== ======= ======== =======
Weighted average shares
outstanding..................... 14,000 14,000 17,796 14,240 15,959 18,921 13,374
======== ======== ======== ======== ======= ======== =======
CASH FLOW DATA
Net cash provided by operations... $ 47,690 $ 18,407 $ 52,996 N/A $14,968 $ 33,481 N/A
Net cash used by investing........ (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing....................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A
OTHER FINANCIAL DATA
EBITDA(c)......................... $ 51,444 $ 34,778 $ 62,265 $ 74,342 $21,390 $ 40,266 $39,827
Capital expenditures(d)........... (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.......................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net...... 234,821 214,594 398,640 381,016 381,016
Total assets............................. 246,686 224,521 430,233 413,517 413,517
Long-term debt........................... 79,333 75,000 197,594 182,685 193,685
Stockholders' equity..................... 115,846 113,663 196,236 197,542 186,542
</TABLE>
- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.
8
<PAGE> 11
(b) 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.
(c) EBITDA represents net income (loss) plus income taxes, interest expense and
depletion, depreciation and amortization expense. EBITDA does not represent,
and should not be considered as, an alternative to net income or cash flows
from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes to the
Company's industry or to the economy generally. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate oil and gas companies. The Company also believes that EBITDA data
may help to understand the Company's performance because such data may
reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service, capital expenditure and working
capital requirements. EBITDA may not be comparable to other similarly titled
measures of other companies. The Company's Credit Agreement requires the
maintenance of certain EBITDA ratios. See "Description of Certain
Indebtedness -- Credit Agreement."
(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.
9
<PAGE> 12
SUMMARY OPERATING DATA
The following table sets forth certain summary operating data for the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------- JUNE 30,
PRO FORMA -------------------
1994 1995 1996 1996 1996 1997
------ ------ ------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE DAILY PRODUCTION
Oil (Bbl).................... 5,011 3,677 4,612 5,786 3,809 5,442
Natural gas (Mcf)............ 65,460 57,482 65,429 79,241 56,640 75,624
Total Mcfe................... 95,526 79,544 93,101 113,957 79,494 108,275
AVERAGE PRICES
Oil (Bbl).................... $14.84 $16.43 $20.47 $20.21 $19.55 $20.29
Natural gas (Mcf)............ 1.70 1.34 1.99 1.93 1.58 2.35
Mcfe......................... 1.94 1.73 2.41 2.37 2.06 2.66
PER MCFE DATA
Revenues..................... $ 1.94 $ 1.73 $ 2.41 $ 2.37 $ 2.06 $ 2.66
Lease operating expenses..... 0.10 0.19 0.26 0.26 0.23 0.30
Production taxes............. 0.13 0.12 0.17 0.17 0.14 0.18
General and administrative
expenses.................. 0.22 0.21 0.18 0.19 0.22 0.13
------ ------ ------ ------ ------ ------
Operating margin............. $1.49 $1.21 $1.80 $1.75 $1.47 $2.05
====== ====== ====== ====== ====== ======
RESERVE LIFE INDEX(years)(a)... 7.2 6.3 12.7 10.3 N/A N/A
</TABLE>
- ---------------
(a) The reserve life index is calculated as proved reserves divided by annual or
pro forma production for the relevant period.
SUMMARY RESERVE DATA
The following table summarizes the Company's net proved developed and
undeveloped reserves as of December 31, 1996, based upon a report prepared by
Netherland, Sewell & Associates, Inc. The quantities and values are based on
wellhead prices at December 31, 1996, which averaged $25.20 per barrel of oil
and $3.70 per Mcf of gas.
<TABLE>
<CAPTION>
PROVED RESERVES(a)
--------------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
<S> <C> <C> <C>
Oil (MBbl)................................................. 15,799 6,676 22,475
Natural gas (MMcf)......................................... 242,777 53,882 296,659
Total Proved Reserves (MMcfe).............................. 337,572 93,938 431,509
Future net cash flow before income taxes (in thousands).... $ 980,264 $ 188,603 $1,168,867
Pretax present value (in thousands)........................ $ 582,408 $ 66,389 $ 648,797
</TABLE>
- ---------------
(a) Oil and natural gas prices in effect at December 31, 1996 were significantly
higher than current prices. Equivalent reserves and pretax present value
would be approximately 397,000 MMcfe and $343 million, respectively,
assuming constant wellhead prices of $20.00 per barrel of oil and $2.00 per
Mcf of gas.
10
<PAGE> 13
RISK FACTORS
COMPANY RISKS
Acquisition Risks
The Company's growth has been attributable in significant part to
acquisitions. The Company expects to continue to evaluate and, where
appropriate, pursue acquisition opportunities on terms management considers
satisfactory. There can be no assurance that suitable acquisitions will be
identified in the future or that the Company will be able to finance such
acquisitions on favorable terms. In connection with consummating any significant
future acquisitions, the Company will require additional debt or equity
financing, which may not be available or, if available, may not be on terms that
are acceptable to the Company. In addition, the Company competes against other
companies for acquisitions, and there can be no assurance that the Company will
be successful in the acquisition of any material property interests.
Furthermore, there can be no assurance that any future acquisitions made by the
Company will be integrated successfully into the Company's operations or will
achieve desired rates of return.
Successful acquisitions require an assessment of recoverable reserves,
exploration potential, future oil and natural gas prices, operating costs, as
well as environmental and other risks beyond the Company's control. In
connection with such assessments, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices.
Nonetheless, the resulting assessments are necessarily inexact and their
accuracy inherently uncertain, and such a review may not reveal all existing or
potential problems, nor will it necessarily permit the Company to become
sufficiently familiar with the properties to fully assess their merits and
efficiencies. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken.
Significant acquisitions can change the nature of the operations and
business of the Company depending upon the character of the acquired properties,
which may be substantially different in operating and geologic characteristics
or geographic location from existing properties.
Dependence on Key Personnel
The continued growth of the Company depends, and will continue to depend in
the foreseeable future, on the services of its officers and key employees who
have extensive experience and expertise in evaluating and analyzing potential
acquisitions and managing the Company's oil and natural gas properties,
including Mr. Edelman, the Company's Chairman, President and Chief Executive
Officer. 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 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
11
<PAGE> 14
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. As a result of,
and after giving effect to, the Transactions (assuming that 7,500,000 shares of
Common Stock are sold in the Offering at a Public Offering Price of $8.50 per
share and that $40 million of New Preferred Stock is issued), (i) the Company
will have an aggregate of $11 million additional outstanding indebtedness and
(ii) following the expiration of the two-year pay-in-kind period for the New
Preferred Stock, cash dividends in the amount of $4.0 million per year in the
aggregate (which will have increased from an initial dividend rate of $3.4
million per year as a result of the pay-in-kind feature of the New Preferred
Stock) will accrue on the New Preferred Stock ($6.3 million per year if all
$63.0 million of New Preferred Stock is issued). The Company's level of
indebtedness will have several important effects on its future operations.
First, a significant portion of the Company's cash flow from operations must be
dedicated to the payment of interest on its indebtedness and will not be
available for other purposes. The Company expects that its 1997 interest expense
will approximate $16.2 million, which amount is expected to gradually decrease
for the next two years thereafter, subject to the Company's future acquisition
activity. Second, covenants contained in the Company's debt obligations (which
covenants are described herein under "Description of Certain Indebtedness") will
require the Company to meet certain financial tests and may limit its ability to
borrow additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its businesses,
including possible acquisition activities. The Company is not currently
restricted in its ability to borrow funds as a result of these restrictive
covenants, but the Company's ability to pay dividends is restricted by such
restrictive covenants (subject to certain exceptions). Third, the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired. The Company's ability to meet its debt service obligations and
to reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to oil and natural gas prices, the Company's
level of production, general economic conditions and financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control. There can be no assurance that the Company's future performance
will not be adversely affected by some or all of these factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
12
<PAGE> 15
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
Subject to the terms and conditions of the Preferred Stock Purchase
Agreement, the nine New Preferred Stock Investors have severally, but not
jointly, committed to purchase in the aggregate a minimum of $40.0 million and a
maximum of $63.0 million of New Preferred Stock, with First Reserve Fund VII,
Limited Partnership, Chase Venture Capital Associated, L.P. and Highbridge
International LDC having commitments of up to $32.5 million, $22.5 million and
$4.75 million, respectively. None of the other New Preferred Stock Investors'
commitments exceeds $2.5 million. Holders of the New Preferred Stock will have
(assuming that 2,520,000 shares of New Preferred Stock are issued and are
convertible at $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 shareholders for a vote. In addition, the two
holders of the New Preferred Stock holding the most shares of New Preferred
Stock will each be entitled to designate one member of the Board of Directors.
As a result, the holders of the New Preferred Stock will have significant
influence over the business, policies and affairs of the Company and to have a
significant effect on the outcome of any corporate transaction or other matters
submitted to the stockholders for approval such as: (i) any amendment to the
Company's Certificate of Incorporation (the "Certificate of Incorporation"),
including the authorization of additional shares of capital stock; (ii) any
merger, consolidation or sale of all or substantially all of the assets of the
Company; and (iii) any "going private" transaction, and prevent or cause a
change of control of the Company, all of which may adversely affect the Company
and the interests of its other stockholders.
Continued Reliance on SOCO
At the time of the sale of the shares of Common Stock offered hereby, the
Company will enter into an agreement (the "Transition Agreement") with SOCO
whereby SOCO will agree to provide the Company with certain computer and
administrative services for a period of up to one year. The breach or
termination of the Transition Agreement by SOCO could have an adverse effect on
the Company's business, operations or financial condition. There can be no
assurance that the Company would be able to arrange an alternative source of
such services provided under the Transition Agreement upon comparable terms.
Potential Conflicting Business Interests of Chief Executive Officer
Mr. Edelman, the Chief Executive Officer of the Company, has served since
1988 and expects to continue to serve as Chairman of Lomak Petroleum, Inc.
("Lomak"), a publicly traded oil and gas company whose principal areas of
operation are the Midcontinent, Appalachian and Gulf Coast regions of the United
States. The Company currently has no business relationships with Lomak, and
Lomak does not own any of the Company's securities. In addition, the Company has
not and currently does not compete, and, although no assurances can be given, in
the future does not expect to compete with Lomak, including any competition in
respect of acquisition opportunities. Although the Company does not believe that
any conflicts have arisen, or are likely to arise, as a result of Mr. Edelman's
position with Lomak, because of Mr. Edelman's position with Lomak, or other
positions or business interests that he may now or hereafter have or acquire,
conflicts of interests may arise between them. See "Management -- Edelman
Employment Agreement and Related
13
<PAGE> 16
Matters." In the past, with respect to new business proposals, including
acquisitions, the Company and Mr. Edelman have employed the following procedures
to resolve any potential conflicts: (i) if such proposals were directed to or
originated by Lomak or its employees, such proposals were deemed to be for
Lomak's benefit; and (ii) if such proposals were directed to or originated by
the Company or its employees, or if such proposals were not specifically
identified for either company or its employees, such proposals were deemed to be
for the Company's benefit. Mr. Edelman and the Company plan to continue the
foregoing procedures to resolve any future conflicts that may arise.
INDUSTRY RISKS
Volatility of Oil and Natural Gas Prices
Historically, the markets for oil and natural gas have been volatile,
particularly in the Rocky Mountain region, and are likely to continue to be
volatile in the future. During the past five years, average oil and natural gas
prices have ranged from $14.84 per barrel to $20.47 per barrel for oil, and from
$1.34 per Mcf to $2.08 per Mcf for natural gas. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Inflation and
Changes in Prices." Prices for oil and natural gas are subject to wide
fluctuation in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
that will be beyond the control of the Company. These factors include the level
of consumer product demand, weather conditions, proximity and capacity of
natural gas pipelines and other transportation facilities, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
political conditions in the Middle East, the foreign supply of oil and natural
gas, the price of foreign imports and overall economic conditions. It is
impossible to predict future oil and natural gas price movements with any
certainty. Declines in oil and natural gas prices may adversely affect the
Company's financial condition, liquidity and results of operations. Lower oil
and natural gas prices also may reduce the amount of oil and natural gas
reserves that can be produced economically.
Operating Risks of Oil and Natural Gas Operations
The oil and natural gas business involves certain operating hazards such as
well blowouts, cratering, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pollution, releases
of toxic gas and other environmental hazards and risks, any of which could
result in substantial losses to the Company. In addition, the Company may be
liable for environmental damages caused by previous owners of property held by
the Company. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for development, acquisitions or exploration, or
result in the loss of the Company's properties. In accordance with customary
industry practices, the Company will maintain insurance against some, but not
all, of such risks and losses. The occurrence of such an event not fully covered
by insurance could have a material adverse effect on the financial condition and
results of operations.
Uncertainty of Reserve Estimates
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represents
estimates only. Reserve engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and developed geological interpretation and
judgment. As a result, estimates of different engineers may vary.
In addition, estimates of reserves and future net revenues from such
reserves and the present value thereof are based on assumptions regarding
production levels, future oil and natural gas prices, operating costs and other
factors that may not prove to be correct over time. Any significant variance in
these assumptions could materially affect the estimated quantity and value of
reserves set forth in this Prospectus.
14
<PAGE> 17
Title to Properties
Title to the Company's oil and natural gas properties is subject to
royalty, overriding royalty, carried and other similar interests and contractual
arrangements customary in the oil and natural gas industry, to liens incident to
operating agreements and for current taxes not yet due and other comparatively
minor encumbrances.
As is customary in the oil and natural gas industry, only a perfunctory
investigation as to ownership is conducted at the time undeveloped properties
believed to be suitable for drilling are acquired. Prior to the commencement of
drilling on a tract, a detailed title examination is conducted and curative work
is performed with respect to known significant title defects.
Competition
The oil and natural gas industry is highly competitive in all its phases.
Competition is particularly intense with respect to the acquisition of producing
properties. There is also competition for the acquisition of oil and natural gas
leases, in the hiring of experienced personnel and from other industries in
supplying alternative sources of energy.
Competitors in acquisitions, exploration, development and production
include the major oil companies in addition to numerous independent oil
companies, individual proprietors, drilling and acquisition programs and others.
Many of these competitors possess financial and personnel resources
substantially in excess of those available to the Company. Such competitors may
be able to pay more for desirable leases and to evaluate, bid for and purchase a
greater number of properties than the financial or personnel resources of the
Company permit. The ability of the Company to increase reserves in the future
will be dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development.
Regulation
Oil and natural gas operations are subject to extensive governmental
regulation, which may change in response to economic or political conditions and
other factors. The Company believes that the trend of more expansive and
stricter environmental laws and regulations will continue. The implementation of
new, or the modification of existing, environmental laws or regulations could
reduce demand for oil and natural gas or natural gas liquids ("NGLs"), increase
the Company's costs or have a material adverse impact on the Company. See
"Business -- Regulation."
OFFERING RISKS
Shares Eligible for Future Sale; Registration Rights
Future sales, or the availability for sale, of a substantial number of
additional shares of Common Stock in the public market following the Offering
(as well as any sale of shares of New Preferred Stock) could adversely affect
the market price of the Common Stock. For a description of Common Stock
available for resale after the Offering, see "Shares Eligible for Future Sale."
After giving effect to the Transactions (assuming that the shares of Common
Stock offered hereby are sold at a Public Offering Price of $8.50 per share and
that $63.0 million of New Preferred Stock is issued with a conversion price of
$8.80 per share), there will be 8.1 million restricted shares of Common Stock
(including 7.2 million shares of Common Stock that may be issued upon conversion
of the New Preferred Stock). In addition, the New Preferred Stock Investors have
been granted certain demand registration rights, which may be exercised after
the second anniversary of the initial sale of the New Preferred Stock, for the
future registration of the New Preferred Stock, the Common Stock into which the
New Preferred Stock may be converted and the 100,000 shares of Common Stock to
be issued at the initial sale date to the New Preferred Stock Investors. The
Management Investors have also been granted certain limited registration rights.
See "Shares Eligible For Future Sale."
15
<PAGE> 18
No Dividends
The Company does not currently intend to pay cash dividends on its Common
Stock. The Company currently intends to retain its cash for the continued
expansion of its business, including development and acquisition activities and
to reduce debt levels. No cash dividends may be paid unless all accrued and
unpaid dividends on the Company's Preferred Stock have been paid. In addition,
the Company's Credit Agreement currently prohibits the payment of dividends on
the Common Stock.
Consummation of the Repurchase
The repurchase by the Company of the remaining shares of Common Stock which
would be held by SOCO after the sale of the Common Stock offered hereby is a
condition to the closing of the Offering. Under certain circumstances, the
Company may not be able to issue the New Preferred Stock and, pursuant to the
terms of its current Credit Agreement, the Company may not have sufficient
proceeds available to repurchase the balance of such shares, and, accordingly,
would require additional debt or equity financing. There can be no assurance
that the Company will be able to obtain such financing, or that such financing,
if available, would be on terms that are acceptable to the Company.
Preferences of New Preferred Stock
By its terms (and assuming that the Company issues 2,520,000 shares of New
Preferred Stock), the New Preferred Stock will have (i) a liquidation preference
of $25.00 per share (or $63.0 million in the aggregate) and (ii) a dividend
preference based on the 8.5% annual dividend rate in each case over the rights
of the holders of the Company's Common Stock. For a description of the material
terms of the New Preferred Stock, including dividend rights and redemption,
conversion and voting provisions, see "Description of Capital Stock -- New
Preferred Stock."
Benefits to Affiliates and Management of the Company
Certain directors and officers of the Company and SOCO and certain of their
respective affiliates, as well as certain nominees of the New Preferred Stock
Investors, have interests described herein that present them with potential
conflicts of interest in connection with the Transactions. In particular, the
Management Investors will be participating in the Transactions by means of the
issuances of Common Stock to them, Mr. Edelman has received from SOCO the
Edelman Option and Mr. Edelman has entered into a new three-year employment
agreement with the Company. In addition, two of the Company's current directors,
John C. Snyder and William J. Johnson, are directors of SOCO. The Company's
Board of Directors and the Independent Committee were aware of such potential
conflicts and considered them in connection with the approval of the
Transactions.
FORWARD LOOKING INFORMATION
Prospective purchasers of the Common Stock should consider carefully the
risk factors described above, in addition to the other information relating to
the Company and the Common Stock set forth in this Prospectus, before purchasing
any Common Stock. This Prospectus contains certain forward-looking statements,
including statements containing the words "believes," "anticipates," "expects,"
and words of similar import. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: adverse changes in national or local economic
conditions; increased competition; changes in availability, cost and terms of
financing; changes in operating expenses and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus, including without limitation, under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements.
16
<PAGE> 19
CONCURRENT TRANSACTIONS
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will: (a) sell an aggregate of between 1,600,000 and 2,520,000
shares of the New Preferred Stock for a purchase price of $25.00 per share to
the New Preferred Stock Investors; (b) sell $3,000,000 of Common Stock for a
purchase price per share equal to the Public Offering Price (352,941 shares of
Common Stock, assuming the Public Offering Price is $8.50 per share) to the
Management Investors; and (c) use the proceeds from the sale of the New
Preferred Stock and such shares of Common Stock, together with bank borrowings,
if necessary, to purchase the balance of the shares of Common Stock owned by
SOCO. Certain other events are also expected to occur at or about the time the
shares of Common Stock offered hereby are sold.
Issuance of New Preferred Stock
Pursuant to a Stock Purchase Agreement, dated as of July 31, 1997, the
Company has agreed to sell an aggregate of between 1,600,000 and 2,520,000
shares of the New Preferred Stock to the New Preferred Stock Investors (none of
whom is presently an affiliate of the Company) at a purchase price of $25.00 per
share, or an aggregate purchase price of between $40.0 million and $63.0
million, respectively. The exact number of shares of New Preferred Stock to be
sold to the New Preferred Stock Investors will be determined by the Company in
its discretion at or shortly before the time of sale. To the extent that the
Company elects to sell less than 2,520,000 (but more than 1,600,000) shares of
New Preferred Stock concurrently with the sale of the shares of Common Stock
offered hereby, it shall retain the right to sell, in a subsequent sale, up to
the balance of such shares to the New Preferred Stock Investors at any time
prior to December 31, 1997 for a purchase price of $25.00 per share (subject to
the satisfaction of certain conditions). See "Description of Capital
Stock -- Preferred Stock -- Future Issuances of Preferred Stock." It is
anticipated that shares of New Preferred Stock will be initially sold to the New
Preferred Stock Investors concurrently with the sale of the shares of Common
Stock being offered hereby; provided, however, that under certain circumstances
a portion of the proceeds from the sale of New Preferred Stock will be paid up
to seven business days following the sale of shares of Common Stock offered
hereby. For a description of the terms of the New Preferred Stock, see
"Description of Capital Stock -- Preferred Stock -- New Preferred Stock."
In the event that the Independent Committee's financial advisor, A.G.
Edwards & Sons, Inc. does not, at the time of the Offering, confirm its advice
regarding the fairness to the Company, 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 sale of the shares of Common Stock offered hereby. If the
Company exercises this right and the New Preferred Stock Investors are not, as a
result thereof, entitled to exercise the Investors' SOCO Options (as described
below under "Grant of Options by SOCO"), 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.The Company will account for the issuance of the
230,000 shares of Common Stock as a periodic transaction cost and will expense
the fair value of such shares if they are issued.
As a part of the issuance of the New Preferred Stock, the Company will
issue to the New Preferred Stock Investors, on a pro rata basis, at the time of
the initial sale of the shares of New Preferred Stock, an aggregate of 100,000
shares of Common Stock. If any shares of New Preferred Stock are issued, the New
Preferred Stock Investors will acquire the full amount of these shares of Common
Stock, regardless of how many shares of the New Preferred Stock are actually
issued.
Each of the New Preferred Stock Investors has agreed not to sell, transfer
or otherwise dispose of any shares of New Preferred Stock or Common Stock for a
period of one year following the sale of the shares of Common Stock offered
hereby. See "Shares Eligible for Future Sale." The New Preferred Stock Investors
have further agreed that: (i) for the period from the first anniversary until
the second anniversary of the sale of the shares of Common Stock offered hereby,
they will not sell, transfer or otherwise dispose of any shares of New Preferred
Stock or Common Stock, without the prior consent of the Company's Board of
Directors or pursuant to Rule 144 under the Securities Act; and (ii) thereafter,
the New Preferred Stock Investors will be
17
<PAGE> 20
free to sell such shares but any such sale, transfer or disposition must be in
compliance with the requirements of the Securities Act and any other applicable
laws. In addition to the foregoing restrictions, the New Preferred Stock
Investors and their affiliates and permitted transferees have also agreed: (i)
not to sell short any of the Company's securities for a period of two years
following the sale of the shares of Common Stock offered hereby; and (ii) to
certain standstill provisions with respect to the Company's voting securities,
including, among other provisions, a five-year restriction on the Preferred
Stock Investors' ability to transfer any shares of New Preferred Stock or Common
Stock to any person who, after giving effect to such transfers, would be the
beneficial owner of 7.5% or more of the aggregate voting power of all of the
Company's securities, except for transfers permitted under the Securities Act,
in connection with an underwritten offering or certain qualifying tender or
exchange offers and transfers to persons who agree to substantially similar
restrictions as those agreed to by the New Preferred Stock Investors.
The Company has agreed to register with the Commission, following the
second anniversary of the sale of the shares of Common Stock offered hereby, for
sale to the public the shares of New Preferred Stock, the shares of Common Stock
issuable upon conversion of shares of New Preferred Stock and the 100,000 shares
of Common Stock issued to the New Preferred Stock Investors in consideration for
their prior commitment to purchase shares of New Preferred Stock, as described
under "Description of Capital Stock -- Registration Rights."
Issuance of Common Stock to Management Investors
Pursuant to a Management Stock Purchase Agreement, dated as of September 4,
1997, the Company has agreed to sell shares of Common Stock having an aggregate
purchase price of $3.0 million, at a per share purchase price equal to the
Public Offering Price, to the Management Investors, including Mr. Edelman, the
Chief Executive Officer of the Company. Mr. Edelman has committed to purchase an
aggregate of $2.0 million of Common Stock (or, assuming a Public Offering Price
of $8.50 per share, 235,294 shares) and the other Management Investors have
committed to purchase an aggregate of $1.0 million of Common Stock (or, assuming
a Public Offering Price of $8.50 per share, 117,647 shares). The Company will
lend each Management Investor (other than Mr. Edelman) up to 85% of such
purchase price pursuant to five-year 8.5% loan arrangements. It is anticipated
that such shares of Common Stock will be sold to the Management Investors
concurrently with the shares of Common Stock being offered hereby and the
issuance of such shares of Common Stock is conditioned upon the concurrent sale
of the shares of Common Stock offered hereby and the issuance of such shares is
a condition to the sale of the shares of Common Stock offered hereby. In
addition, the Company will also award to the Management Investors, subject to
certain vesting requirements, an aggregate of 500,000 shares of restricted
Common Stock, of which Mr. Edelman will receive 350,000 shares. See
"Management -- Management Equity Participation Program."
Each of the Management Investors has agreed not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following the sale of the shares of Common Stock offered hereby. See "Shares
Eligible for Future Sale." Thereafter the Management Investors will be free to
sell the shares of Common Stock that they have purchased, subject to compliance
with the requirements of the Securities Act and any other applicable laws. The
restricted shares of Common Stock that have been awarded them may not be sold
until ownership in such shares has vested, as described in "Management --
Management Equity Participation Program." The Company has agreed to register
with the Commission for sale to the public the shares of Common Stock purchased
by, or awarded to, the Management Investors, as described under "Description of
Capital Stock -- Registration Rights."
Repurchase of Common Stock
Pursuant to a Share Repurchase Agreement, dated as of July 31, 1997, the
Company has agreed to purchase the balance of the shares of Common Stock owned
by SOCO (6,500,000 shares, assuming no exercise of the Underwriters'
overallotment option and the sale of 7,500,000 shares in the Offering; 5,375,000
shares, assuming exercise of such option in full) at a per share purchase price
equal to the Net Offering Price. The Company will repurchase such shares of
Common Stock concurrently with the sale of the New Preferred Stock and shares of
Common Stock offered hereby and the concurrent repurchase of such shares of
Common
18
<PAGE> 21
Stock is a condition to the sale of the shares of Common Stock offered hereby.
After the consummation of the Offering and the Share Repurchase, SOCO will no
longer own any shares of Common Stock.
Pursuant to the Share Repurchase Agreement, SOCO has agreed that, for a
period of 30 days following the date a preliminary prospectus relating to the
Offering is broadly distributed, it will not take any action with respect to the
acquisition or disposition of assets or securities of the Company by any third
party.
The Company will use the proceeds from the sale of the New Preferred Stock
and the shares of Common Stock sold to the Management Investors, together with
bank borrowings, if necessary, to pay for the shares of Common Stock being
repurchased from SOCO.
Approval of the Transactions
The Board of Directors of the Company has established a committee of
independent directors not affiliated with either the Company or SOCO (the
"Independent Committee") and such committee has recommended to the Board of
Directors that the Board approve, and the Board of Directors by unanimous vote
has approved, the Transactions, including the Offering, as being fair, from a
financial point of view, to the Company. In reaching its conclusion as to the
fairness of the Transactions, the Independent Committee considered the advice of
A.G. Edwards & Sons, Inc. concerning the fairness, from a financial point of
view, of: (i) the consideration to be paid to the Company for the New Preferred
Stock; and (ii) the Repurchase. A.G. Edwards & Sons, Inc.'s advice will be
confirmed in an opinion to be delivered to the Independent Committee on the date
of the Offering. A.G. Edwards' & Sons, Inc.'s fairness opinion does not, and
will not, address the fairness of all of the components of the Transactions; in
particular, the issuance of Common Stock to the Management Investors and the
Offering are not, and will not be, addressed in such opinion. A.G. Edwards &
Sons, Inc. is one of the Underwriters of the Offering and, in such capacity,
will receive compensation in connection with the sales of Common Stock
thereunder. See "Underwriting."
Certain Other Events
In addition to the Concurrent Transactions described above, at or about the
time of the Offering, certain other events are anticipated to occur:
Employment Arrangements with Mr. Edelman. The Company and Mr. Edelman, the
Chief Executive Officer of the Company, have entered into a three-year
employment agreement which will become effective concurrently with the Offering.
For a description of the terms of this agreement, see "Management -- Edelman
Employment Agreement and Related Matters."
Certain Changes in the Company's Board of Directors. It is anticipated
that, concurrently with the consummation of the Transactions, the members of the
Company's Board of Directors affiliated with SOCO, Mr. John C. Snyder and Mr.
William J. Johnson, will resign from the Board and will be replaced by persons
designated by First Reserve Fund VII, Limited Partnership and Chase Venture
Capital Associates, L.P., the two largest holders of shares of the New Preferred
Stock. First Reserve Fund VII, Limited Partnership has designated Mr. William E.
Macaulay and Chase Venture Capital Associates, L.P. has designated Mr. Arnold L.
Chavkin. See "Management -- Directors and Executive Officers."
Termination of Certain Arrangements with SOCO; Transition Agreement. At
the time the shares of Common Stock offered hereby are sold, the Company will
terminate certain arrangements it has with SOCO relating to the treatment of
certain business opportunities and the provision of certain corporate services
to the Company by SOCO. In lieu thereof, the Company and SOCO will enter into
the Transition Agreement. The Transition Agreement provides that, for a period
of up to one year, SOCO will provide the Company with certain computer and
administrative services.
Grant of Options by SOCO. SOCO has granted the New Preferred Stock
Investors, in connection with and in consideration of, their commitment to
purchase the New Preferred Stock, options to acquire an aggregate of 2,000,000
shares of the Company's Common Stock owned by SOCO at a price of $8.00 per share
(the "Investors' SOCO Options"). SOCO has also granted Mr. Edelman, the Chief
Executive Officer, in consideration for Mr. Edelman's efforts to arrange and
structure the Concurrent Transactions, options to
19
<PAGE> 22
acquire 2,000,000 shares of the Company's Common Stock owned by SOCO at a price
of $8.00 per share (the "Edelman SOCO Options" and, together with the
"Investors' SOCO Options, the "SOCO Options"). In general, the SOCO Options
represent a "break-up" fee to be paid by SOCO to each of the New Preferred Stock
Investors or their affiliates and Mr. Edelman under certain limited
circumstances described below.
The SOCO Options may generally be either physically settled or cash
settled, as the holder elects. To the extent that the value of a SOCO Option (as
described below) at the time that the SOCO Option is exercised or deemed
exercised (the "Option Exercise Value") is less than $1.00 (in the case of an
Investors' SOCO Option) or $0.50 (in the case of an Edelman SOCO Option), SOCO
will pay an amount equal to such difference to the holder of the SOCO Option; to
the extent that the Option Exercise Value equals or exceeds $1.25, the holder of
the SOCO Option will pay an amount equal to one-half of such excess to SOCO. As
used herein, the value of any SOCO Option means the amount, if any, by which the
value of the consideration to be received upon the exercise of the SOCO Option
(as determined pursuant the terms thereof) exceeds $8.00. The SOCO Options can
be exercised only upon the following events (each an "Option Trigger Event"):
(i) upon the cancellation of the Offering by SOCO or the termination of the
Repurchase by SOCO other than because (a) the Net Offering Price would be less
than $7.0875 per share; (b) the Offering is not consummated by October 29, 1997;
(c) less than 5,000,000 shares of Common Stock can be sold in the Offering; or
(d) the Company materially breaches the Share Repurchase Agreement; or (ii) in
the case of the Investors' SOCO 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 the shares of Common Stock offered hereby and (b)
SOCO elects to sell at least 12,000,000 shares of Common Stock in the 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.
Any physical exercise of the SOCO Options will be satisfied with shares of
Common Stock owned by SOCO and any cash settlement of the SOCO Options will be
paid by SOCO. However, the Company's obligations to repurchase shares of Common
Stock under the Share Repurchase Agreement will not be reduced as a result of
any exercise of the SOCO Options (except to the extent that an Option Trigger
Event results from SOCO's termination of the Share Repurchase Agreement, in
which case the Company will not have any obligation to purchase any shares of
its Common Stock from SOCO). The SOCO Options will terminate upon the earliest
to occur of: (i) the consummation of the Offering and the Share Repurchase; (ii)
the withdrawal of the shares of Common Stock from the Offering or the
termination of the Share Repurchase Agreement, except following an Option
Trigger Event; (iii) five days following the consummation of a transaction in
which a third party acquires a majority of the Company's Common Stock or assets;
(iv) 11 days following the occurrence of an Option Trigger Event described under
clause (ii) of the preceding paragraph; and (v) the expiration of 12 months (or,
under certain circumstances, six months) after the termination of the Share
Repurchase Agreement or withdrawal of the shares of Common Stock from the
Offering.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth as of June 30, 1997 (i) the capitalization
of the Company and (ii) the capitalization of the Company as adjusted to give
effect to the Transactions. This table should be read in conjunction with the
Consolidated Financial Statements and Notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(a)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash............................................................... $ 10,568 $ 10,568
======== ========
Long-term debt:
Senior debt........................................................ $ 85,000 $ 96,000
Subordinated debt.................................................. 97,685 97,685
-------- --------
Total long-term debt.......................................... 182,685 193,685
-------- --------
Stockholders' equity:
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized:
Old Preferred Stock; 1,467,926 shares issued and outstanding..... 15 15
New Preferred Stock; -0- shares issued and outstanding, 1,600,000
shares issued and outstanding as adjusted..................... -- 16
Common Stock, par value $.01 per share; 40,000,000 shares
authorized: 18,820,248 shares issued and outstanding; 13,273,189
shares issued and outstanding as adjusted(b)..................... 188 133
Additional paid-in capital......................................... 189,620 178,659
Retained earnings.................................................. 7,719 7,719
-------- --------
Total stockholders' equity.................................... 197,542 186,542
-------- --------
Total capitalization............................................... $380,227 $380,227
======== ========
</TABLE>
- ---------------
(a) Assumes 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, a Net Offering Price of $8.0325 per share, the issuance by
the Company of $40.0 million of New Preferred Stock, the repurchase by the
Company of 6,500,000 shares of Common Stock from SOCO at a price per share
equal to the Net Offering Price and the borrowing by the Company of $11.0
million under the Credit Agreement.
(b) Includes: (i) 352,941 shares of Common Stock to be purchased by the
Management Investors; (ii) 500,000 shares of restricted Common Stock awarded
to the Management Investors; and (iii) and 100,000 shares of Common Stock
issued to the New Preferred Stock Investors. Excludes: (i) 4,262,271 shares
and 4,545,455 shares (assuming the issuance of 1,600,000 shares of New
Preferred Stock) of Common Stock issuable upon the conversion of outstanding
shares of the Old Preferred Stock (at a conversion price of $8.61 per share)
and shares of New Preferred Stock (assuming a conversion price of $8.80 per
share), respectively; (ii) 2,919,451 shares of Common Stock issuable upon
exercise of outstanding warrants (having an exercise price of $12.50 per
share) (the "Warrants"); and (iii) 788,960 shares of Common Stock issuable
upon exercise of outstanding stock options (having a weighted average
exercise price of $8.30 per share). See "Description of Capital
Stock -- Preferred Stock" and "-- Warrants" and "Management -- Management
Equity Participation Program."
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being sold by SOCO.
The Company will not receive any of the proceeds from the sale of such shares.
The Company will pay certain expenses relating to the Offering, estimated to be
approximately $ .
21
<PAGE> 24
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "POG." The Common Stock began trading on the New York Stock Exchange
on May 3, 1996, following the consummation of the Gerrity Acquisition. The
following table sets forth, for the periods indicated, the range of high and low
per share closing prices for the Common Stock, as reported on the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1996
Second Quarter (from May 3, 1996)............................... $ 8.25 $6.13
Third Quarter................................................... 7.38 6.75
Fourth Quarter.................................................. 9.50 7.00
1997
First Quarter................................................... 10.50 8.63
Second Quarter.................................................. 9.50 8.00
Third Quarter (through September 5, 1997)....................... 9.06 8.00
</TABLE>
On September 8, 1997, the last reported sales price of the Common Stock on
the New York Stock Exchange was $9.00. As of that same date, there were
approximately 110 stockholders of record of Common Stock and approximately 18.8
million shares of Common Stock outstanding.
DIVIDEND POLICY
No dividends were declared or paid on the Common Stock during the periods
reported in the table above. The Company intends to retain future cash flow for
use in its business and has no current intention of paying cash dividends on its
Common Stock in the foreseeable future. Any payment of future dividends and the
amounts thereof will depend upon the Company's earnings, financial condition,
capital requirements and other factors deemed relevant by the Company's Board of
Directors. In addition, the Company's Credit Agreement currently prohibits the
payment of any dividends on the Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
and Capital Resources" and "Description of Certain Indebtedness -- Credit
Agreement."
22
<PAGE> 25
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following table presents selected historical and pro forma financial
data of the Company. The selected historical financial data as of or for each of
the years in the three-year period ended December 31, 1996 are derived from the
audited Consolidated Financial Statements of the Company. The pro forma
financial data of the Company have been derived from the Unaudited Pro Forma
Condensed Consolidated Financial Statements included elsewhere within this
Prospectus and should be read in conjunction with those statements and the notes
thereto. The amounts and results of operations of the Company for periods prior
to the Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. The selected
historical financial data for the six month periods ended June 30, 1996 and 1997
are derived from, and are qualified by reference to, unaudited interim financial
statements appearing elsewhere in this Prospectus. In the opinion of management,
such unaudited interim financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair and, except as noted
below, consistent presentation, in accordance with generally accepted accounting
principles, of such information. Future results may differ substantially from
historical results because of changes in oil and natural gas prices, normal
production declines and other factors. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, presented elsewhere in this Prospectus. This data reflects the
Gerrity Acquisition in May 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- SIX MONTHS ENDED JUNE 30,
PRO FORMA -----------------------------------
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996(a)(b) 1996 1997 1997(b)
-------- -------- -------- ----------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................. $ 67,822 $ 50,102 $ 83,188 $ 100,138 $ 30,110 $ 52,340 $ 52,340
Expenses
Direct operating................... 8,110 8,867 14,519 17,718 5,401 9,322 9,322
Exploration........................ 784 416 224 658 149 62 62
General and administrative......... 7,484 5,974 6,151 8,049 3,113 2,611 3,050
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 98,056 32,365 45,256 46,080
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes........... 4,539 (3,222) 3,168 2,082 (2,255) 7,084 6,260
Provision (benefit) for income
taxes.............................. 1,589 (1,128) (394) -- (394) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $ 2,950 $ (2,094) $ 3,562 2,082 $ (1,861) 7,084 6,260
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share... $ 0.21 $ (0.15) $ 0.08 $ (0.30) $ (0.16) $ 0.30 $ 0.24
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding........................ 14,000 14,000 17,796 14,240 15,959 $ 18,921 13,374
======== ======== ======== ======== ======== ======== ========
CASH FLOW DATA
Net cash provided by operations...... $ 47,690 $ 18,407 $ 52,996 N/A $ 14,968 $ 33,481 N/A
Net cash used by investing........... (96,378) (21,060) (9,796) N/A (2,415) (8,348) N/A
Net cash realized (used) by
financing.......................... 46,688 2,653 (38,047) N/A (340) (20,718) N/A
OTHER FINANCIAL DATA
EBITDA(c)............................ $ 51,444 $ 34,778 $ 62,265 $ 74,342 $ 21,390 $ 40,266 $ 39,827
Capital expenditures(d).............. (95,596) (21,842) (8,532) (12,821) (1,375) (8,348) (8,348)
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
AS OF DECEMBER 31, ------------------------
---------------------------------- AS
1994 1995 1996 ACTUAL ADJUSTED(b)
-------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital..................................... $(12,755) $ -- $ 1,015 $ 1,881 $ 1,881
Oil and natural gas properties, net................. 234,821 214,594 398,640 381,016 381,016
Total assets........................................ 246,686 224,521 430,233 413,517 413,517
Long-term debt...................................... 79,333 75,000 197,594 182,685 193,685
Stockholders' equity................................ 115,846 113,663 196,236 197,542 186,542
</TABLE>
- ---------------
(a) Pro forma to give effect to the Gerrity Acquisition as if it had occurred on
the first day of the period presented.
(b) As adjusted to give effect to the Transactions (assuming a Public Offering
Price of $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.
(c) EBITDA represents net income (loss) plus income taxes, interest expense and
depletion, depreciation and amortization expense. EBITDA does not represent,
and should not be considered as, an alternative to net income or cash flows
from operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes to the
Company's industry or to the economy generally. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate oil and gas companies. The Company also believes that EBITDA data
may help to understand the Company's performance because such data may
reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service, capital expenditure and working
capital requirements. EBITDA may not be comparable to other similarly titled
measures of other companies. The Company's Credit Agreement requires the
maintenance of certain EBITDA ratios. See "Description of Certain
Indebtedness -- Credit Agreement."
(d) Capital expenditures do not include $218.4 million of non-cash acquisitions
in 1996.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On May 2, 1996 Gerrity Oil & Gas Corporation ("Gerrity") was merged into a
wholly-owned subsidiary of the Company. The Gerrity Acquisition was accounted
for as a purchase of Gerrity. Accordingly, the results of operations since the
Gerrity Acquisition reflect the impact of the purchase.
Six months ended June 30, 1997 compared to six months ended June 30,
1996. Total revenues for the six month period ended June 30, 1997 increased to
$52.3 million from $30.1 million, representing an increase of 74% from the prior
year period. The revenue increase was due to the higher production associated
with the Gerrity Acquisition and improved oil and natural gas prices. Exclusive
of the Gerrity Acquisition, revenues would have increased by $1.8 million or 8%.
Net income for the six months ended June 30, 1997 was $7.1 million compared to a
net loss of ($1.9 million) for the same period in 1996. The increase in net
income is primarily attributed to the increased revenue, partially offset by
increased interest expense and higher depletion, depreciation and amortization
expense.
Oil and natural gas sales less direct operating expenses for the six months
ended June 30, 1997 were $42.8 million, a 75% increase from the prior year
period. Average daily production for the six months ended June 30, 1997 was
5,442 barrels and 75.6 MMcf (108.3 MMcfe), increases of 42% and 33%,
respectively. The production increases resulted solely from the Gerrity
Acquisition. Exclusive of the Gerrity Acquisition, average daily production
would have declined by 453 barrels and 8.0 MMcf due to the Company's limited
development schedule and expected initial declines on the large number of wells
drilled and completed in 1994 and early 1995. There was one well placed on
production in the first six months of 1996 compared to 19 wells in the first six
months of 1997. In the future, while production has increased from the first
quarter of 1997, a decrease is expected unless development activity is
substantially increased or acquisitions are consummated. The decision to
increase development activity is heavily dependent on the prices being received
for production.
Average oil prices increased from $19.55 per barrel for the six months
ended June 30, 1996 to $20.29 in 1997. Natural gas prices increased from $1.58
per Mcf for the six months ended June 30, 1996 to $2.35 in 1997. The increase in
natural gas prices was primarily the result of the 86% increase in the average
CIG index for the six month period. Direct operating expenses increased to $0.48
per Mcfe compared to $0.37 in the prior year period. The increase is primarily
attributed to focusing more attention on enhancing production through increased
well workovers, additional field staff overtime and the overall increase in
production taxes as a result of higher oil and gas prices.
General and administrative expenses, net of reimbursements, for the six
months ended June 30, 1997 totalled $2.6 million, a 16% decrease from the same
period in 1996. Prior to the Gerrity Acquisition, the Company did not have its
own employees. Employees and certain office space and furniture, fixtures and
equipment were provided by SOCO. SOCO allocated general and administrative
expenses based on estimates of expenditures incurred on behalf of the Company.
Interest and other expenses was $8.5 million compared to $5.0 million for
the six months ended June 30, 1996. Interest expense increased as a result of
higher average outstanding debt levels due to additional debt recorded as a
result of the Gerrity Acquisition as well as debt incurred to finance certain
costs related to the Gerrity Acquisition. The Company's average interest rate
was 9.5% compared to 7.5% in the prior year period. This increase is due
primarily to the Company's 11.75% Senior Subordinated Notes due July 15, 2004
(the "Notes") which the Company assumed as part of the Gerrity Acquisition.
Depletion, depreciation and amortization expense for the six months ended
June 30, 1997 totalled $24.8 million, an increase of $6.1 million or 32% from
the same period in 1996. The increase resulted from higher oil and natural gas
production as a result of the Gerrity Acquisition, partially offset by a
decreased depletion, depreciation and amortization rate of $1.27 per Mcfe
compared to $1.29 in 1996. The decreased rate was attributed to a decrease in
the depletion rate from $1.23 per Mcfe in 1996 to $1.20 in 1997, partially
offset by $1,167,000 of amortization, or $0.06 per Mcfe, related to a noncompete
agreement entered into as part of the
25
<PAGE> 28
Gerrity Acquisition during the six months ended June 30, 1997 as compared to
$640,000, or $0.04 per Mcfe in 1996.
Comparison of 1996 results to 1995. Total revenues for 1996 were $83.2
million, an increase of $33.1 million from 1995. The amount represents an
increase of 66% as compared to the prior year period. The revenue increase is
due to the effect of the Gerrity Acquisition, improved product prices in 1996
and includes other revenue of $1.0 million attributable to oil marketing income
associated with arrangements whereby the Company sold barrels at Cushing,
Oklahoma. Exclusive of the Gerrity Acquisition, revenues would have decreased by
$3.5 million or 7%. Net income for 1996 was $3.6 million compared to a net loss
of $2.1 million in 1995. The increase in net income is primarily attributed to a
significant increase in average oil and natural gas prices received, offset by
an increase in interest expense and depletion, depreciation and amortization.
Oil and natural gas sales less direct operating expenses for 1996 were
$67.7 million, a 64% increase from the prior year period. Average daily
production in 1996 was 4,612 barrels and 65.4 MMcf (or 93.1 MMcfe), increases of
26% and 14%, respectively. The production increases resulted solely from the
Gerrity Acquisition. Exclusive of the Gerrity Acquisition, average daily
production would have declined by 1,165 barrels and 18.3 MMcf due to the
Company's reduced capital expenditures and expected production declines on the
large number of wells drilled and completed in 1994 and early 1995. There were
88 wells placed on production in 1995 compared to 12 wells in 1996. In the
future, while production is not expected to continue to decline at the current
rate, a decrease is expected unless development drilling activity is
substantially increased or additional acquisitions are consummated. The decision
to increase development drilling is heavily dependent on the commodity prices
being received for production.
Average oil prices increased to $20.47 per barrel compared to $16.43
received in 1995. Average natural gas prices increased from $1.34 per Mcf in
1995 to $1.99 in 1996. The increase in natural gas prices was primarily the
result of prior year production being marketed under term arrangements which
were based on Rocky Mountain region pricing (which was depressed) whereas the
1996 production benefitted from several factors. A portion of these term
arrangements expired during 1996 which allowed the production to be sold at
local spot prices which had increased as a result of higher demand and declining
production in the D-J Basin. In addition, enhanced marketing efforts combined
with higher natural gas liquids("NGLs") prices contributed to the overall price
increase. Direct operating expenses increased to $0.43 per Mcfe compared to $.31
in 1995. The increase is primarily attributed to the Company's focus on
enhancing production through performing well workovers on existing properties
and the overall increase in production taxes as a result of the higher average
oil and natural gas prices.
General and administrative expenses, net of third party reimbursements, for
1996 were $6.2 million, a 3% increase over 1995. The increase is the result of
the Gerrity Acquisition partially offset by reductions in allocated costs from
SOCO during the first four months of 1996. Prior to the Gerrity Acquisition, the
Company did not have its own employees. Employees and certain office space and
furniture, fixtures and equipment were provided by SOCO. SOCO allocated general
and administrative expenses based on estimates of expenditures incurred on
behalf of the Company.
Interest and other expense was $14.3 million compared to $5.5 million in
1995. Interest expense increased as a result of higher average outstanding debt
levels as a result of the Gerrity Acquisition. The Company's average interest
rate climbed to 9.3% compared to 7.0% in 1995. This increase is due primarily to
the Notes which were assumed as part of the Gerrity Acquisition.
Depletion, depreciation and amortization expense for 1996 totaled $44.8
million, an increase of $12.2 million, or 38% over 1995. The increase resulted
from the higher production and an increased depletion, depreciation and
amortization rate of $1.32 per Mcfe compared to $1.12 in 1995. The primary cause
for the increased rate was a downward revision in reserve quantities due to
proved undeveloped reserves being classified as uneconomic at year-end 1995
prices and the inclusion of the amortization of a noncompete agreement entered
into in conjunction with the Gerrity Acquisition. The amortization of a
noncompete agreement of $2.6 million in 1996 resulted in an increase of $0.08 in
the depletion, depreciation and amortization rate per Mcfe.
26
<PAGE> 29
Comparison of 1995 results to 1994. Total revenues in 1995 were $50.1
million as compared to $67.8 million in 1994. The 26% decrease was due to both a
drop in production (17%) and in average prices received (11%). The net loss for
1995 was $2.1 million compared to net income of $3.0 million in 1994. The
decrease was primarily due to the drop in production and average prices
received, higher direct operating expenses and increased interest expense due to
increased average debt payable to parent offset somewhat by a lower depletion
rate.
Average daily production during 1995 was 3,677 barrels and 57.5 MMcf (79.5
MMcfe), a decrease of 27% for oil and 12% for gas, as compared to 1994. The
production declines resulted primarily from the Company's decision to reduce
drilling in 1995 due to the continued decline in gas prices subsequent to year
end 1994. During 1995, the Company placed an additional 88 wells on production
compared to 360 wells during 1994. The direct operating margin (revenues less
direct operating costs) for 1995 was $41.2 million, a 31% decrease from 1994.
Average oil prices increased 11% to $16.43 per barrel. However, that modest
increase was more than offset by the continued sharp decline in natural gas
prices. The average natural gas price for 1995 was only $1.34 per Mcf, a 21%
decrease from 1994. Direct operating expenses per Mcfe also increased to $0.31
from $0.23 in 1994 due to decreasing total production with a higher number of
wells and higher well servicing costs in 1995.
General and administrative expenses, net of reimbursements, were $6.0
million in 1995 as compared to $7.5 million in 1994. The Company did not have
its own employees. Employees and certain office space and furniture, fixtures
and equipment have been provided by SOCO. SOCO has allocated general and
administrative expenses based on estimates of actual expenditures incurred on
behalf of Patina. The general and administrative expenses in 1995 were $1.5
million lower than 1994, reflecting the lower overhead associated with the
reduced drilling activity.
Interest paid to parent and other expenses were $5.5 million in 1995 as
compared to $3.9 million in 1994. Interest expense represents interest on debt
payable to SOCO. Prior to the Gerrity Acquisition, SOCO financed all of the
Company's activities. A portion of such financing was considered to be an
investment by SOCO in the Company and, accordingly, no interest was charged by
SOCO to Patina for this capital. The remaining portion of such financing was
considered to be debt payable to SOCO with interest charged to the Company at a
rate which approximated the average interest rate being paid by SOCO under its
revolving credit facility. The increase in interest expense was primarily due to
an increase in interest rates from 5.5% to 7%.
Depletion, depreciation and amortization expense for 1995 decreased 24%
from 1994. The decrease was primarily attributable to the decreases in
production and a $2.1 million greater impairment in 1994.
DEVELOPMENT, ACQUISITION AND EXPLORATION
During the six months ended June 30, 1997, the Company incurred $8.1
million in capital expenditures. The Company anticipates incurring development
capital expenditures of approximately $7.0 million during the remaining six
months of 1997. The Company's capital budget has been set at a conservative
level for 1997. The Company has a significant inventory of projects that are
price sensitive and could increase capital spending significantly under certain
circumstances. During 1996, the Company incurred $226.9 million in capital
expenditures. Of this amount, $218.4 million related to the Gerrity Acquisition
by the issuance of stock and assumption of debt by the Company. Thus, for 1996,
capital expenditures, exclusive of acquisitions, totaled only $8.5 million.
FINANCIAL CONDITION AND CAPITAL RESOURCES
At June 30, 1997, the Company had total assets of $413.5 million. Total
capitalization was $380.2 million, of which 52% was represented by stockholders'
equity, 22% by senior debt and 26% by subordinated debt. During the six months
ended June 30, 1997, net cash provided by operations was $33.5 million, as
compared to $15.0 million for the same period in 1996. As of June 30, 1997, the
Company had no significant commitments for capital expenditures. The Company
anticipates that 1997 capital expenditures for development drilling and
recompletion activity will be approximately $15.0 million, which will allow for
a reduction of
27
<PAGE> 30
indebtedness and provide funds to pursue acquisitions. The level of these and
other future expenditures is largely discretionary, and the amount of funds
devoted to any particular activity may increase or decrease significantly,
depending on available opportunities and market conditions. See "Business." The
Company plans to finance its ongoing development, acquisition and exploration
expenditures using internal cash flow, proceeds from asset sales and borrowings
under its Credit Agreement. In addition, joint ventures or future public and
private offerings of debt or equity securities may be utilized.
Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
SOCO in the Company with the remaining portion being considered debt payable to
SOCO. In conjunction with the Gerrity Acquisition, the $75.0 million debt
payable to SOCO was paid in full. The Company does not have any outstanding debt
with SOCO and does not expect SOCO to provide any additional funding.
The Company entered into the Credit Agreement in April 1997. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the revolving credit facility is
adjusted semiannually and equaled $110.0 million at June 30, 1997, with $85.0
million outstanding under the facility.
Assuming a Public Offering Price of $8.50 per share, and giving effect to
the Transactions, as of June 30, 1997, the Company would have had approximately
$14.0 million of availability under the Credit Agreement. The Credit Agreement
will permit the Company to fund up to $14.9 million of additional borrowings for
the Repurchase of shares of Common Stock from SOCO.
As of September 5, 1997, the Company had approximately $166.7 million of
debt outstanding, consisting of $69.0 million of senior debt and $97.7 million
of Notes.
The Credit Agreement contains certain financial covenants, including but
not limited to, a maximum total debt to capitalization ratio, a maximum total
debt to EBITDA ratio, a minimum current ratio and various other negative
covenants that could limit the Company's ability to incur other debt, consummate
acquisitions, dispose of assets, pay dividends or repurchase securities.
Borrowings under the Credit Agreement mature in 2000, but may be prepaid at
anytime. The Company has periodically negotiated extensions of the Credit
Agreement; however, there is no assurance the Company will be able to do so in
the future.
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits. These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
natural gas revenues of $646,000 and $942,000 during the six months ended June
30, 1996 and 1997, respectively. These arrangements are expected to increase
revenues through 2002.
The Company's primary cash requirements following the Transactions will be
to finance additional acquisitions, capital expenditures in connection with the
development of proved reserves, refracing of existing wells, repayment of
indebtedness and general working capital needs. However, future cash flows are
subject to a number of variables, including the level of production and oil and
natural gas prices, and there can be no assurance that operations and other
capital resources will provide cash in sufficient amounts to maintain planned
levels of capital expenditures or that increased capital expenditures will not
be undertaken.
The Company believes that available borrowings under the Credit Agreement
and the Company's cash on hand will be sufficient to cover its working capital,
capital expenditures, planned development activities and debt service
requirements for the next 18 months. In connection with consummating any
significant future acquisitions, the Company will require additional debt or
equity financing, which may not be available or, if available, may not be on
terms that are acceptable to the Company.
28
<PAGE> 31
INFLATION AND CHANGES IN PRICES
While certain of its costs are affected by the general level of inflation,
factors unique to the oil and natural gas industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and natural gas prices. Although it is particularly difficult to estimate
future prices of oil and natural gas, price fluctuations have had, and will
continue to have, a material effect on the Company.
The following table indicates the average oil and natural gas prices
received over the last five years and highlights the price fluctuations by
quarter for 1996 and 1997. Average price computations exclude hedging gains or
losses and other nonrecurring items to provide comparability. Average prices per
equivalent Mcf indicate the composite impact of changes in oil and natural gas
prices. Oil production is converted to natural gas equivalents at the rate of
one barrel per six Mcf.
<TABLE>
<CAPTION>
NATURAL EQUIVALENT
OIL GAS Mcf
----------- --------- ----------
(PER Bbl) (PER Mcf) (McFe)
<S> <C> <C> <C>
ANNUAL
1992...................................... $ 19.06 $1.82 $ 2.19
1993...................................... 15.87 2.08 2.22
1994...................................... 14.84 1.70 1.94
1995...................................... 16.43 1.34 1.73
1996...................................... 20.47 1.99 2.41
QUARTERLY
1996
First................................... $ 18.31 $1.55 $ 1.96
Second.................................. 20.24 1.60 2.13
Third................................... 19.92 1.83 2.29
Fourth.................................. 22.35 2.78 3.07
1997
First................................... 21.79 2.63 2.93
Second.................................. 19.09 1.85 2.26
</TABLE>
29
<PAGE> 32
BUSINESS
GENERAL
The Company is an independent energy company engaged in the acquisition,
development, exploitation and production of oil and natural gas in the
Wattenberg field of Colorado's D-J Basin. The Company was formed in early 1996
to hold the Wattenberg assets of SOCO and to facilitate the Gerrity Acquisition.
Mr. Edelman structured and negotiated the Gerrity Acquisition and has served as
the Company's chief executive from its inception. Since the Gerrity Acquisition
in May 1996, the Company has focused its efforts on consolidating its
properties, developing a focused and efficient organization, reducing costs and
improving operations. From May 1996 through June 30, 1997, the Company used
operating cash flow to reduce indebtedness by over $40 million and repurchase
$14.4 million of its equity securities, while investing $15.5 million in the
further development of its properties.
SOCO has been the Company's major stockholder since its formation and
currently owns 74% of Patina's Common Stock. For strategic reasons, SOCO has
decided to liquidate its stake in Patina and redeploy the proceeds in its core
business. Pursuant to the Transactions described in this Prospectus, SOCO's
ownership in the Company will be eliminated and the Company will be positioned
to pursue an independent growth strategy.
At December 31, 1996, the Company had total assets of $430.2 million and
431.5 Bcfe of proved reserves. The reserves had an estimated pretax present
value of $649 million based on unescalated prices and costs in effect on that
date. Approximately 70% of the reserves by volume were natural gas and over 90%
of the pretax present value was attributable to proved developed reserves. The
Company operates almost 90% of the roughly 3,550 producing wells in which it
holds an interest, representing 98% of its producing reserves. In the year ended
December 31, 1996, the Company generated revenues of $83.2 million and operating
cash flow of $47.6 million. During that period, production averaged 93.1 MMcfe
per day. During the six months ended June 30, 1997, the Company generated
revenues of $52.3 million and operating cash flow of $31.9 million, with average
production of 108.3 MMcfe per day. Based on pro forma production for 1996 and
year-end 1996 reserves, the Company has a reserve life index of 10.3 years.
Since 1986, the Company and its Predecessors have grown through a series of
acquisitions in combination with the further exploitation and development of its
properties. Mr. Edelman and certain other members of Patina's management have
extensive experience in structuring and negotiating acquisitions as well as
managing large scale and cost efficient operations. During the past ten years,
the Company and its Predecessors have completed more than 65 acquisitions having
an aggregate purchase price of over $450 million and during the past five years,
have expended more than $400 million on development projects including the
drilling of over 1,500 wells and the recompletion of more than 400 wells.
Management believes that the Company's sizable asset base and cash flow, along
with its low production costs and efficient operating structure, provide it with
a competitive advantage in Wattenberg and in certain analogous basins. Given
management's expertise in acquisitions and the advantages set forth above, the
Company believes it will be in an excellent position after the Transactions
described herein to pursue further consolidation in Wattenberg and to acquire
positions in other basins where it has or can develop a competitive advantage.
The Company, a Delaware corporation, maintains its principal executive
offices at 1625 Broadway, Suite 2000, Denver, Colorado 80202, and its telephone
number is (303) 389-3600.
WATTENBERG
Patina is currently the largest oil and natural gas producer in Wattenberg.
The Company has interests in approximately 3,550 wells which generate over 30%
of the total annual production from the field. Wattenberg, discovered in 1970,
is located approximately 35 miles northeast of Denver and stretches over Adams,
Boulder and Weld Counties in Colorado. One of the most attractive features of
Wattenberg is that there are at least eight potentially productive formations
throughout the field ranging in depths from 2,000 to 8,000 feet. Three of the
formations, the Codell, the Niobrara and the J-sand, are "blanket" zones in the
area of the Company's holdings, while other formations, such as the Sussex and
the Shannon are more localized. The existence of
30
<PAGE> 33
several pay sands within the geological structure allows for multiple
completions within a single wellbore, keeping drilling and operating costs low.
In recent years, the Codell and Niobrara formations have been the primary
drilling objective in Wattenberg, although the Company has also successfully
recompleted shallower formations such as the Sussex.
BUSINESS STRATEGY
The Company plans to increase its reserves, production and cash flow in a
cost-efficient manner, primarily through: (i) selectively pursuing consolidation
and acquisition opportunities in existing and future core areas; (ii)
efficiently controlling operating and overhead expenses; (iii) operating its
properties in order to enhance production through well workovers, development
activity and operational improvements; (iv) utilizing improved exploitation and
development techniques to maximize the value of its properties; and (v)
developing a strong financial position that affords the Company the financial
flexibility to execute its business strategy.
Pursue Consolidation and Acquisition Opportunities
The Company intends to pursue further consolidation and exploitation
opportunities in Wattenberg where it is currently the largest producer,
accounting for over 30% of total annual production from the field. In addition,
management intends to simultaneously pursue low-risk acquisitions of producing
reserves in other Western U.S. basins where the Company can leverage its
operating efficiencies and pursue consolidation opportunities. Management
believes that the Company's economies of scale, focused operations and operating
expertise give it a competitive advantage in pursuing further consolidation and
acquisition opportunities.
Control Operating and Overhead Costs
As a result of its extensive operating experience and concentrated reserve
base, the Company believes that it is 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 G&A expenses have been reduced to
less than half those incurred by its Predecessors, resulting in G&A expenses
during 1996 and for the six months ended June 30, 1997 of $0.19 and $0.13 per
Mcfe, respectively. The Company's low operating costs increase its operating
margin, extend the economic life of its wells and enhance its reserve value.
Operate Properties
The Company prefers to operate its properties in order to exercise greater
control over the timing and plans for future development, well workovers,
production enhancements and lease operating expenses, as well as the marketing
of oil and natural gas production. The Company currently operates approximately
3,175 (or 90%) of the 3,550 producing wells in which it owns an interest and
these operated properties account for approximately 98% of the pretax present
value of its year-end 1996 producing reserves.
Exploit Existing Reserves
The Company seeks to maximize the value of its properties by increasing
production and recoverable reserves through the active development, recompletion
and exploitation of its properties. At December 31, 1996, the Company had 728
proved undeveloped drilling locations and 605 recompletion opportunities. A
recompletion can increase per well producing reserves by up to 100% at less than
half the cost of drilling a new well. During the past 12 months, the Company has
focused extensively on frac design and stimulation techniques. Early results
have shown an increase in productivity on newly drilled wells and recompletions.
The Company initiated a refrac program in 1996 and, to date, the Company has
successfully performed seven refracs and identified approximately 100 wells
suitable for refrac. The Company's year-end reserve report does not include any
reserves attributable to the refrac program. During 1996, the Company
successfully drilled 12 development wells and recompleted an additional 61 wells
at a total capital cost of $8.5 million. The Company's existing 1997 capital
expenditure budget provides $15 million for the drilling of 35 new development
wells, the recompletion of an additional 75 wells and the expansion of the
refrac program. Through June 30, 1997, the
31
<PAGE> 34
Company had drilled 10 development wells, recompleted 40 wells (including seven
refracs) and completed the drilling of nine wells in progress at year-end 1996
for a total capital cost of $8.0 million.
Develop Financial Flexibility
The Company is committed to maintaining its financial flexibility. Since
the Gerrity Acquisition, the Company has reduced its indebtedness by over $40
million and has repurchased $14.4 million of its equity securities. At June 30,
1997, assuming the consummation of the Transactions, the Company would have had
a debt-to-book capitalization ratio of approximately 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
Repurchase. In the event the Company issues New Preferred Stock at the closing
of the Offering, the balance of this commitment will remain available through
December 31, 1997 for acquisition financing or for general corporate purposes.
PRODUCTION, REVENUE AND PRICE HISTORY
The following table sets forth information regarding net production of oil
and natural gas, revenues and expenses attributable to such production and
certain price and cost information for each of the years in the three-year
period ended December 31, 1996 and the six month periods ended June 30, 1996 and
1997. This financial and operating information reflects the Gerrity Acquisition
in May 1996.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PRICES AND PER Mcf EQUIVALENT
INFORMATION)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Production
Oil (MBbl)........................... 1,829 1,342 1,688 693 985
Natural gas (MMcf)................... 23,893 20,981 23,947 10,308 13,688
Total MMcfe(a)....................... 34,872 29,034 34,074 14,466 19,598
Revenues
Oil.................................. $27,151 $22,049 $34,541 $13,556 $ 19,986
Natural gas(b)....................... 40,598 28,024 47,644 16,260 32,127
------- ------- ------- ------- --------
Subtotal.......................... 67,749 50,073 82,185 29,816 52,113
Other................................ 73 29 1,003 294 227
------- ------- ------- ------- --------
Total............................. 67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- --------
Operating expenses
Lease operating expenses............. 3,662 5,387 8,866 3,378 5,865
Production taxes..................... 4,448 3,480 5,653 2,023 3,457
------- ------- ------- ------- --------
Total............................. 8,110 8,867 14,519 5,401 9,322
------- ------- ------- ------- --------
Direct operating margin................ $59,712 $41,235 $68,669 $24,709 $ 43,018
======= ======= ======= ======= ========
Average sales price
Oil (Bbl)............................ $ 14.84 $ 16.43 $ 20.47 $ 19.55 $ 20.29
Natural gas (Mcf)(b)................. 1.70 1.34 1.99 1.58 2.35
Mcfe(a).............................. 1.94 1.73 2.41 2.06 2.66
Average production expense/Mcfe........ 0.23 0.31 0.43 0.37 0.48
Average operating margin/Mcfe.......... 1.71 1.42 1.99 1.69 2.18
</TABLE>
- ---------------
(a) Oil production is converted to natural gas equivalents at the rate of one
barrel per six Mcf.
(b) Sales of NGLs are included in natural gas revenues.
32
<PAGE> 35
OIL AND NATURAL GAS RESERVES
The following table sets forth estimated year-end net proved reserves for
each of the years in the three-year period ended December 31, 1996.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Oil (MBbl)
Developed....................................... 8,832 6,955 15,799
Undeveloped..................................... 3,386 466 6,676
------ ------- -------
Total................................... 12,218 7,421 22,475
====== ======= =======
Natural gas (MMcf)
Developed....................................... 147,869 133,088 242,777
Undeveloped..................................... 30,834 5,769 53,882
------ ------- -------
Total................................... 178,703 138,857 296,659
====== ======= =======
Total MMcfe....................................... 252,012 183,384 431,509
====== ======= =======
</TABLE>
The following table sets forth for the year ended December 31, 1996 pretax
future net revenues from the production of proved reserves and the pretax
present value of such revenues, net of estimated future capital costs, including
estimated costs of $14.0 million in 1997.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997................................................. $ 117,410 $ (2,154) $ 115,256
1998................................................. 101,637 (2,455) 99,182
1999................................................. 92,397 4,235 96,632
Remainder............................................ 668,820 188,977 857,797
-------- -------- ----------
Total...................................... $ 980,264 $ 188,603 $1,168,867
======== ======== ==========
Pretax present value(a).............................. $ 582,408 $ 66,389 $ 648,797
======== ======== ==========
</TABLE>
- ---------------
(a) The aftertax present value of the proved reserves totaled $499.9 million at
year-end 1996.
The quantities and values in the preceding tables are based on prices in
effect at December 31, 1996 which averaged $25.20 per barrel of oil and $3.70
per Mcf of gas. Price declines decrease reserve values by lowering the future
net revenues attributable to the reserves and reducing the quantities of
reserves that are recoverable on an economic basis. Price increases have the
opposite effect. A significant decline in the prices of oil or natural gas could
have a material adverse effect on the Company's financial condition and results
of operations.
The present values shown should not be construed as the current market
value of the reserves. The quantities and values shown in the preceding tables
are based on oil and natural gas prices in effect on December 31, 1996. Those
prices were significantly higher than the prices that prevailed throughout most
of 1996 and since year-end, prices have fallen from year-end levels. The value
of the Company's assets is in part dependent on the prices the Company receives
for oil and natural gas and a significant decline in the price of oil or natural
gas could have a material adverse effect on the Company's financial condition
and results of operations.
All of the proved reserves at year-end were estimated by Netherland, Sewell
& Associates, Inc. No estimates of the Company's reserves comparable to those
included herein have been included in reports to any federal agency other than
the Commission.
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<PAGE> 36
DRILLING ACTIVITY SUMMARY
The following table sets forth information with respect to wells drilled by
the Company during each of the past three years and during the six months ended
June 30, 1997. All the wells were development wells. The information should not
be considered indicative of future performance, nor should it be assumed that
there is necessarily any correlation between the number of productive wells
drilled, quantities of reserves found or economic value. Productive wells are
those that produce commercial quantities of hydrocarbons whether or not they
produce a reasonable rate of return.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
----- ---- ---- -----------------
<S> <C> <C> <C> <C>
Productive
Gross...................................... 350.0 25.0 12.0 19.0
Net........................................ 305.6 24.1 12.0 17.9
Dry
Gross...................................... 8.0 0.0 0.0 0.0
Net........................................ 7.9 0.0 0.0 0.0
</TABLE>
At June 30, 1997, no development wells were in progress.
PRODUCING WELL SUMMARY
The following table sets forth certain information at June 30, 1997
relating to the producing wells in which the Company owned a working interest.
The Company also held royalty interests in 195 producing wells at such date. The
Company's average working interest in all wells was 90%. Wells are classified as
oil or natural gas wells according to their predominant production stream.
<TABLE>
<CAPTION>
GROSS NET
WELLS WELLS
----- -----
<S> <C> <C>
Oil.......................................................... 2,735 2,513
Natural gas.................................................. 613 513
----- -----
Total.............................................. 3,348 3,026
===== =====
</TABLE>
ACREAGE
The following table sets forth certain information at June 30, 1997
relating to Wattenberg acreage held by the Company. Undeveloped acreage is
acreage held under lease, permit, contract or option that is not in a spacing
unit for a producing well, including leasehold interests identified for
development or exploratory drilling. Developed acreage is acreage assigned to
producing wells.
<TABLE>
<CAPTION>
GROSS NET
------- -------
<S> <C> <C>
Developed................................................ 176,118 136,814
Undeveloped.............................................. 142,430 126,358
------- -------
Total.......................................... 318,548 263,172
======= =======
</TABLE>
MARKETS AND CUSTOMERS
The Company's oil and natural gas production is principally sold to end
users, marketers, refiners and other purchasers having access to natural gas
pipeline facilities near its properties and the ability to truck oil to local
refineries or oil pipelines. The marketing of oil and natural gas can be
affected by a number of factors that are beyond the Company's control and whose
future effect cannot be accurately predicted. The Company does not believe,
however, that the loss of any of its customers would have a long-term material
adverse effect on its operations.
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<PAGE> 37
Natural Gas. Wattenberg natural gas is high in heating content (BTUs) and
must be processed in order to strip NGLs before residue gas is sold to
utilities, independent marketers and end users through both intrastate and
interstate pipelines. The Company utilizes two separate arrangements to gather,
process and market its natural gas production. Approximately 30% of the
Company's natural gas production is sold to Duke Energy Field Services ("Duke
Energy") at the wellhead under percentage of proceeds contracts. Pursuant to
this type of contract, the Company receives a fixed percentage of the proceeds
from the sale of its residue gas and NGLs by Duke Energy. Substantially all of
the Company's remaining natural gas production is dedicated for gathering to
either Duke Energy or KN Front Range Gathering Company ("KN") and is then
processed at plants owned by Duke Energy, or Amoco Production Company ("AMOCO")
or North American Resources Company. Under this arrangement, the Company retains
the right to market its share of residue gas at the tailgate of the plant and
sells it under seasonal spot market arrangements along the front range of
Colorado or transports the gas to midwest markets under transportation
agreements. NGLs are sold by the processor and the Company receives payment net
of applicable processing fees.
A portion of natural gas gathered by KN is processed by Amoco at the
Wattenberg Processing Plant under a favorable contract that not only provides
payment for a percentage of the NGLs stripped from the natural gas, but also
redelivers to the tailgate the same amount of MMBtu's as was delivered to the
plant under a "keepwhole" arrangement. This agreement remains in effect until
December 2012.
Oil. Oil production is principally sold to refiners, marketers and other
purchasers who truck oil to local refineries or pipelines. The price is
generally based on a local market posting for oil and is adjusted for
transportation costs and quality. Amoco has the right to purchase oil produced
from certain properties owned by the Company.
COMPETITION
The oil and natural gas industry is highly competitive. The Company
encounters competition from other oil and natural gas companies in all of its
operations, including the acquisition of exploratory prospects and proven
properties. Patina competes for the acquisition of oil and natural gas
properties, with numerous entities, including major oil companies, other
independent oil and gas concerns and individual producers and operators. Many
competitors have financial and other resources substantially greater than those
of the Company. Management believes that the Company has a competitive advantage
over most other energy companies active in Wattenberg because of its significant
operations and its technical and geological experience in the area.
REGULATION
Regulation of Drilling and Production. The Company's operations are
affected by political developments, and by federal, state and local laws and
regulations. Oil and gas industry legislation and administrative regulations are
periodically changed for a variety of political, economic and other reasons.
Numerous federal, state and local departments and agencies issue rules and
regulations binding on the oil and gas industry, some of which carry substantial
penalties for failure to comply. The regulatory burden on the oil and gas
industry increases the Company's cost of doing business, decreases flexibility
in the timing of operations and may adversely affect the economics of capital
projects.
In the past, the federal government has regulated the prices at which oil
and natural gas could be sold. Prices of oil and natural gas sold by the Company
are not currently regulated. In recent years, the Federal Energy Regulatory
Commission ("FERC") has taken significant steps to increase competition in the
sale, purchase, storage and transportation of natural gas. FERC's regulatory
programs allow more accurate and timely price signals from the consumer to the
producer and, on the whole, have helped natural gas become more responsive to
changing market conditions. To date, the Company believes it has not experienced
any material adverse effect as the result of these initiatives. Nonetheless,
increased competition in natural gas markets can and does add to price
volatility and inter-fuel competition, which increases the pressure on the
Company to manage its exposure to changing conditions and position itself to
take advantage of changing market forces.
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<PAGE> 38
State statutes govern exploration and production operations, conservation
of oil and natural gas resources, protection of the correlative rights of oil
and natural gas owners and environmental standards. State Commissions implement
their authority by establishing rules and regulations requiring permits for
drilling, reclamation of production sites, plugging bonds, reports and other
matters. Colorado, where the Company's properties are located, amended its
statute concerning oil and natural gas development in 1994 to provide the
state's Oil and Gas Conservation Commission (the "Colorado OGC Commission") with
enhanced authority to regulate oil and gas activities to protect public health,
safety and welfare, including the environment. Several rule makings pursuant to
these statutory changes have been undertaken by the Colorado OGC Commission
concerning groundwater protection, soil conservation and site reclamation,
setbacks in urban areas and other safety concerns, and financial assurance for
industry obligations in these areas. To date, these rule changes have not
adversely affected operations of the Company, as the Colorado OGC Commission is
required to enact cost-effective and technically feasible regulations, and the
Company has been an active participant in their development. However, there can
be no assurance that, in the aggregate, these and other regulatory developments
will not increase the cost of conducting operations in the future.
In Colorado, a number of city and county governments have enacted oil and
natural gas regulations. These ordinances increase the involvement of local
governments in the permitting of oil and natural gas operations, and require
additional restrictions or conditions on the conduct of operations so as to
reduce their impact on the surrounding community. Accordingly, these local
ordinances have the potential to delay, and increase the cost of, drilling and
recompletion operations.
Environmental Regulation. Operations of the Company are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. The Company
currently owns or leases numerous properties that have been used for many years
for natural gas and oil production. Although the Company believes that it and
previous owners have utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have been
disposed of or released on or under the properties owned or leased by the
Company. In connection with its most significant acquisitions, the Company has
performed environmental assessments and found no material environmental
noncompliance or clean-up liabilities requiring action in the near or
intermediate future. Such environmental assessments have not, however, been
performed on all of the Company's properties.
The Company operates its own exploration and production waste management
facilities, which enable it to treat, bioremediate and otherwise dispose of tank
sludges, contaminated soil and produced water generated from the Company's
operations. There can be no assurance, that these facilities, or other
commercial disposal facilities utilized by the Company from time-to-time, will
not give rise to environmental liability in the future. To date, expenditures
for the Company's environmental control facilities and for remediation of
production sites have not been significant to Patina. The Company believes,
however, that the trend toward stricter standards in environmental legislation
and regulations will continue and could have a significant adverse impact on the
Company's operating costs, as well as on the oil and natural gas industry in
general.
OFFICE AND OPERATIONS FACILITIES
The Company leases its headquarters office in Denver, Colorado. The lease
covers approximately 28,600 square feet and has a remaining term of four years,
expiring in November 2001. The monthly rent is approximately $37,800. The
Company also owns a 6,000 square foot production facility in Platteville,
Colorado and 6,000 square feet of office and shop space in Brighton, Colorado.
These facilities are used to support the Company's drilling and production
efforts in Wattenberg.
EMPLOYEES
On June 30, 1997, the Company employed 167 people, including 106 that work
in the Company's various field offices, none of whom are represented by a labor
union. The Company believes its relationship with its employees is satisfactory.
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<PAGE> 39
INSURANCE
The Company currently maintains a $5.0 million oil and natural gas lease
operator policy that insures the Company against certain risks associated with
drilling and completing its wells, as well as a $3.0 million policy for
producing wells. There can be no assurance that this insurance will be adequate
to cover any losses or exposure to liability. The Company also carries
comprehensive general liability and workers' compensation policies, and a $10.0
million umbrella policy. The Company does not maintain key man life insurance on
any employees.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business. While the ultimate results of
these proceedings cannot be predicted with certainty, the Company does not
believe that the outcome of these matters will have a material adverse effect on
the Company.
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<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------
<S> <C> <C>
Thomas J. Edelman........ 46 Chairman of the Board, President and Chief
Executive Officer
Brian J. Cree............ 34 Executive Vice President and Chief Operating
Officer, Director
Keith M. Crouch.......... 50 Senior Vice President and General Counsel
Ronald E. Dashner........ 44 Senior Vice President, Operations
David J. Kornder......... 36 Vice President and Chief Financial Officer
David R. Macosko......... 35 Vice President
Terry L. Ruby............ 38 Vice President
David W. Siple........... 37 Vice President
*Arnold L. Chavkin........ 46 Director
Robert J. Clark.......... 52 Director
Jay W. Decker............ 44 Director
*William J. Johnson....... 63 Director
Alexander P. Lynch....... 45 Director
*William E. Macaulay...... 51 Director
*John C. Snyder........... 55 Director
</TABLE>
- ---------------
* Mr. Johnson and Mr. Snyder will resign as Directors of the Company following
the completion of the Transactions and will be replaced by Mr. Chavkin and Mr.
Macaulay.
THOMAS J. EDELMAN has served as Chairman of the Board, President and Chief
Executive Officer of the Company since its formation. He co-founded SOCO and was
the President and a director of SOCO from 1981 through February 1997. Prior to
1981, he was a Vice President of The First Boston Corporation. From 1975 through
1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman
received his Bachelor of Arts Degree from Princeton University and his Masters
Degree in Finance from Harvard University's Graduate School of Business
Administration. Mr. Edelman serves as Chairman of Lomak Petroleum, Inc., and is
a Director of Petroleum Heat & Power Co., Star Gas Corporation, Weatherford
Enterra, Inc. and Paradise Music & Entertainment, Inc. Mr. Edelman is also a
Trustee of The Hotchkiss School.
BRIAN J. CREE has served as Executive Vice President, Chief Operating
Officer and Director of the Company since May 1996. Prior to the Gerrity
Acquisition, he served as Chief Operating Officer and Director of Gerrity since
1993. From 1992 to 1993, Mr. Cree served as Senior Vice President -- Operations
and Chief Accounting Officer of Gerrity. Prior to that, Mr. Cree served as Vice
President and Treasurer of Gerrity since its inception in 1990. Mr. Cree served
as Vice President and Treasurer of The Robert Gerrity Company from 1989 to 1990
and served in various accounting capacities with that company from 1987 to 1990.
Prior to that, Mr. Cree was employed as an accountant at the public accounting
firm of Deloitte, Haskins & Sells. Mr. Cree received his Bachelor of Arts Degree
in Accounting from the University of Northern Iowa.
KEITH M. CROUCH has served as Senior Vice President and General Counsel of
the Company since May 1996. Prior to the Gerrity Acquisition, he was a Vice
President of Gerrity commencing in 1993 and was appointed a Director in 1994.
From 1992 to 1993, Mr. Crouch served as Corporate Counsel to Gerrity. Prior to
joining Gerrity, Mr. Crouch was in private practice with the law firms of
Gorsuch, Kirgis, Campbell Walker 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.
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<PAGE> 41
RONALD E. DASHNER has served as Senior Vice President, Operations of the
Company since its formation. He joined SOCO in 1994 and served as Operations
Manager of SOCO's D-J Basin/Greater Green River Unit. In late 1995 he was
appointed Vice President -- Rocky Mountain Division. From 1991 to 1994, Mr.
Dashner was Onshore Gulf Coast Operations Manager for Enron Oil & Gas Company.
From 1980 through 1990, Mr. Dashner held various positions with TXO Production
Corp., including Drilling & Production Manager -- Rocky Mountain District and
Assistant District Manager -- East Texas District. From 1978 to 1980, he was
employed by Davis Oil Company in Engineering and Operations. From 1975 to 1978,
he was employed by Chevron in the Drilling, Production and Construction
Department. Mr. Dashner received his Bachelor of Science Degree in Civil
Engineering from Colorado State University.
DAVID J. KORNDER has served as Vice President and Chief Financial Officer
of the Company since May 1996. Prior to the Gerrity Acquisition, he served as a
Vice President -- Finance of Gerrity beginning in early 1993. From 1989 through
1992, Mr. Kornder was an Assistant Vice President for Gillett Group Management,
Inc. Prior to that, Mr. Kornder was an accountant with the independent
accounting firm of Deloitte & Touche for five years. Mr. Kornder received his
Bachelor of Arts Degree in Accounting from Montana State University.
DAVID R. MACOSKO has served as a Vice President of the Company since May
1996. Prior to the Gerrity Acquisition, he served as a Vice President of Gerrity
from 1994. From 1992 to 1994, Mr. Macosko served as Operations Coordinator and
Manager of Accounts Payable with Gerrity. Mr. Macosko has eleven years of
experience in the oil and gas industry. Mr. Macosko received a Bachelor of
Science Degree in Accounting from West Virginia University.
TERRY L. RUBY has served as a Vice President of the Company since May 1996.
Prior to the Gerrity Acquisition, Mr. Ruby was a senior landman of Gerrity
beginning in 1992 and was appointed a Vice President -- Land of Gerrity in 1995.
His current responsibilities include management and administration of land
assets, acquisitions and divestitures. Prior to his employment with Gerrity, Mr.
Ruby worked with Apache Corporation from 1990 to 1992, and with Baker
Exploration Company from 1982 to 1989. Mr. Ruby holds a Bachelor of Science
Degree in Minerals Land Management from the University of Colorado and an M.B.A.
from the University of Denver.
DAVID W. SIPLE has served as a Vice President of the Company since May
1996. He joined SOCO's land department in 1994 and was appointed a Land Manager
with SOCO in 1995. His current responsibilities include the accomplishment of
all land related aspects of the Company's drilling recompletion and refrac
programs. From 1990 through May 1994, Mr. Siple was the Land Manager of Gerrity.
From 1981 through 1989, Mr. Siple was employed by PanCanadian Petroleum Company
in the Land Department. Mr. Siple received his Bachelor of Science Degree in
Mineral Land Management from the University of Colorado.
ARNOLD L. CHAVKIN will be appointed a Director of the Company following the
completion of the Transactions. Mr. Chavkin is a General Partner at Chase
Capital Partners. Chase Capital Partners is a General Partner of Chase Venture
Capital Associates, L.P. Before assuming such position, Mr. Chavkin was a member
of Chemical Bank's merchant banking group and, prior to that, a generalist in
its corporate finance group specializing in mergers and acquisitions and private
placements for the energy industry. Prior to that, Mr. Chavkin worked in
corporate development for Freeport McMoRan, and held various positions with Gulf
and Western Industries. Mr. Chavkin is a Certified Public Accountant. He
received his Bachelor of Arts and M.B.A. degrees from Columbia University. Mr.
Chavkin is also a director of American Radio Systems, Inc., Bell Sports, Reading
& Bates Corporation and Wireless One, Inc.
ROBERT J. CLARK has served as a Director of the Company since May 1996. Mr.
Clark is the President of Bear Paw Energy Inc., a wholly owned subsidiary of
TransMontaigne Oil Company. Mr. Clark formed a predecessor company Bear Paw
Energy Inc. in 1995 and joined TransMontaigne in 1996 when TransMontaigne
acquired a majority interest in the predecessor company. From 1988 to 1995 he
was President of SOCO Gas Systems, Inc. and Vice President -- Gas Management for
SOCO. Mr. Clark was Vice President 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
39
<PAGE> 42
affiliates NICOR Exploration, Northern Illinois Gas and Reliance Pipeline
Company. Mr. Clark received his Bachelor of Science Degree from Bradley
University and an M.B.A. from Northern Illinois University.
JAY W. DECKER has served as a Director of the Company since May 1996. Mr.
Decker has been the Executive Vice President and a Director of Hugoton Energy
Corporation, a public independent oil company since 1995. From 1989 until its
merger into Hugoton Energy, Mr. Decker was the President and Chief Executive
Officer of Consolidated Oil & Gas, Inc., a private independent oil company based
in Denver, Colorado and President of a predecessor company. Prior to 1989, Mr.
Decker served as Vice President -- Operations for General Atlantic Energy
Company and in various capacities for Peppermill Oil Company, Wainoco Oil & Gas
and Shell Oil Company. Mr. Decker received his Bachelor of Science Degree in
Petroleum Engineering from the University of Wyoming. Mr. Decker also serves as
a Director of FX Energy.
WILLIAM J. JOHNSON will resign as a Director of the Company following the
completion of the Transactions. Mr. Johnson has served as a Director of the
Company since May 1996. Mr. Johnson, a Director of SOCO since 1994, is a private
consultant to the oil and gas industry and is President and a Director of JonLoc
Inc., an oil and gas company of which he and his family are the sole
shareholders. From 1991 to 1994, Mr. Johnson was President, Chief Operating
Officer and a Director of Apache Corporation. Previously, he was a Director,
President and Chief Executive Officer of Tex/Con Oil and Gas, where he served
from 1989 to 1991. Prior thereto, Mr. Johnson served in various capacities with
major oil companies, including Director and President USA of BP Exploration
Company, President of Standard Oil Production Company and Senior Vice President
of The Standard Oil Company. Mr. Johnson received a Bachelor of Science degree
in Petroleum Geology from Mississippi State University and completed the
Advanced Management Course at the University of Houston. Mr. Johnson serves as a
Director of Tesoro Petroleum, Camco International and J. Ray McDermott. Mr.
Johnson also serves on the advisory board of Texas Commerce Bank, Houston.
ALEXANDER P. LYNCH has served as a Director of the Company since May 1996.
Mr. Lynch is currently a Partner at the Beacon Group, a financial advisory and
merchant banking firm. Mr. Lynch had been Co-President and Co-Chief Executive
Officer of The Bridgeford Group, a financial advisory firm, since 1995. From
1991 to 1994, he served as Senior Managing Director of Bridgeford. From 1985
until 1991, Mr. Lynch was a Managing Director of Lehman Brothers, a division of
Shearson Lehman Brothers Inc. Mr. Lynch received his Bachelor of Arts Degree
from the University of Pennsylvania and an M.B.A. from the Wharton School of
Business at the University of Pennsylvania. Mr. Lynch also serves as a Director
of Lincoln Snacks Company and Illinois Central Corporation.
WILLIAM E. MACAULAY will be appointed a Director of the Company following
the completion of the Transactions. Mr. Macaulay has been the President and
Chief Executive Officer of First Reserve Corporation, a corporate manager of
private investments (including First Reserve Fund VII, Limited Partnership)
focusing on the energy and energy related sectors, since 1983. Prior to 1983, he
was a General Partner of Meridian Capital Company, a private investment firm
specializing in corporate buyouts and energy. From 1976 to 1981, Mr. Macaulay
was with Oppenheimer & Co., where he served in various capacities, including as
Executive Vice President of Oppenheimer Management Corp. and as Director of
Corporate Finance and a Member of the Management Committee and a General Partner
of Oppenheimer & Co. He holds a B.A. from the City College of New York and an
M.B.A. from the Wharton School of the University of Pennsylvania. Mr. Macaulay
serves as a director of Weatherford Enterra, Inc., Maverick Tube Corporation,
TransMontaigne Oil Company, Hugoton Energy Corporation, Cal Dive International,
Inc. and Domain Energy Corporation.
JOHN C. SNYDER will resign as a Director of the Company following the
completion of the Transactions. Mr. Snyder has served as a Director of the
Company since its formation. Mr. Snyder, the Chairman and Chief Executive
Officer of SOCO, founded one of SOCO's predecessors in 1978. From 1973 to 1977,
Mr. Snyder was an independent oil operator in Texas and Oklahoma. Previously, he
was a director and the Executive Vice President of May Petroleum Inc. where he
served from 1971 to 1973. Mr. Snyder was the first president of
Canadian-American Resources Fund, Inc., which he founded in 1969. From 1964 to
1966, Mr. Snyder was employed by Humble Oil and Refining Company (currently
Exxon Co., USA) as a petroleum engineer. Mr. Snyder received his Bachelor of
Science Degree in Petroleum Engineering from the University of Oklahoma
40
<PAGE> 43
and his Masters Degree in Business Administration from the Harvard University
Graduate School of Business Administration. Mr. Snyder is a director of the
Community Enrichment Center, Inc., Forth Worth, Texas.
CHANGE IN CONTROL PLAN
In June 1997, the Company adopted a Change in Control Plan (the "Change in
Control Plan") which will provide payments to all employees in the event there
is a "change in control" (as defined in the Change in Control Plan) of the
Company and the employee is terminated, or for certain executives,
constructively terminated. The Change in Control Plan provides that certain
executives and key managers are entitled to receive payments, including an
amount ranging from 34% to 150% of their base compensation in the year the
payment is to be made plus an amount equal to their most recent bonus. Further,
upon a change in control all non-vested securities of the Company held by
employees (as defined in the Change in Control Plan) including non-vested
options to purchase Common Stock held by employees and all non-vested rights
under the Company's 401(k) plan, bonus plan and deferred compensation plan vest
automatically.
EDELMAN EMPLOYMENT AGREEMENT AND RELATED MATTERS
Mr. Edelman, the Chief Executive Officer of the Company, has entered into
an employment agreement (the "Employment Agreement"), which will become
effective concurrently with the sale of the shares of Common Stock offered
hereby. Under the Employment Agreement, Mr. Edelman has agreed to be employed by
the Company for a period of three years, at a base salary of $350,000 per year,
subject to adjustment by mutual agreement. Pursuant to the Employment Agreement,
Mr. Edelman will commit a substantial portion of his working time to the Company
and the business of the Company will represent his primary responsibility. Under
the terms of the Employment Agreement, however, he may continue to engage in
outside business activities at substantially current levels. Mr. Edelman is
entitled to receive an annual bonus during the term of his employment, with the
target bonus set at 100% of his base salary, based on performance criteria
determined by the Company's Board of Directors in its sole discretion. The
Employment Agreement also provides that if Mr. Edelman's employment is
terminated by the Company without cause, or by Mr. Edelman for good reason (as
defined in the Employment Agreement), he will be entitled to payments equal to
two times the sum of: (i) his base salary for the then-current year; plus (ii)
the greater of (a) his target bonus for the then-current year and (b) the actual
bonus paid to him for the prior year; plus (iii) the maximum contributions the
Company would have made in the year of termination on Mr. Edelman's behalf to
the Company's 401(K) plan and the amount Mr. Edelman would have accrued in the
year of termination under the Company's Deferred Compensation Plan. In addition,
Mr. Edelman would receive a prorated portion of his target bonus for the
then-current year.
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will grant Mr. Edelman options to purchase 250,000 shares of Common
Stock, which options will vest immediately pursuant to the Company's stock
option plan described below under "Stock Option Plan."
Mr. Edelman has served since 1988 and expects to continue to serve as
Chairman of Lomak, a publicly traded oil and gas company whose principal areas
of operation are the Midcontinent, Appalachian and Gulf Coast regions of the
United States. The Company currently has no business relationships with Lomak
and Lomak does not own any of the Company's securities. Although the Company
does not believe that any conflicts have arisen, or are likely to arise, as a
result of Mr. Edelman's position with Lomak, because of Mr. Edelman's position
at Lomak, conflicts of interests may arise between the Company and Lomak. The
Company intends that the terms of any future transactions and agreements between
the Company and Lomak will be substantially as favorable to the Company as could
be obtained from third parties. In the past, with respect to new business
proposals, including acquisitions, the Company and Mr. Edelman have employed the
following procedures to resolve any potential conflicts: (i) if such proposals
were directed to or originated by Lomak or its employees, such proposals were
deemed to be for Lomak's benefit; and (ii) if such proposals were directed to or
originated by the Company or its employees, or if such proposals were not
specifically identified for either company or its employees, such proposals were
deemed to be for the Company's benefit. Mr. Edelman and the Company plan to
continue the foregoing procedures to resolve any future conflicts that may
arise.
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
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<PAGE> 44
corporation. Under the corporate opportunity doctrine developed by the Delaware
courts, an individual who fails to offer to the corporation of which he serves
as a director a business opportunity presented to such individual in his
capacity as a director of that corporation may be liable for a breach of
fiduciary duty. Neither the Company's Certificate of Incorporation or Bylaws,
nor the certificate of incorporation or bylaws of Lomak limit a director's
fiduciary duty with respect to potential conflicts of interests.
STOCK OPTION PLAN
The Company's stock option plan, which is administered by the Compensation
Committee, provides for the granting of options to purchase shares of Common
Stock to key employees of the Company and certain other persons who are not
employees of the Company, but who from time to time provide substantial advice
or other assistance or services to the Company. The plan permits options to
acquire up to 3,000,000 shares of Common Stock to be outstanding at any one
time. During 1996, options to purchase 512,000 shares of Common Stock were
granted to 50 employees at an average exercise price of $7.75 per share. During
1997, options to purchase 271,000 shares of Common Stock were granted to 56
employees at an average exercise price of $9.25 per common share. The exercise
price of all such options was equal to the fair market value of the Common Stock
on the date of grant. All options granted during 1996 and 1997 were for a term
of five years, with 30% of the options becoming exercisable after one year, an
additional 30% becoming exercisable after two years and the remaining options
becoming exercisable after the three years.
MANAGEMENT EQUITY PARTICIPATION PROGRAM
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company will sell shares of Common Stock having an aggregate value of
$3,000,000 (352,941 shares of Common Stock assuming a price per share equal to
the Public Offering Price) to the Management Investors (including Mr. Edelman)
at a purchase price per share equal to the Public Offering Price. In connection
with these sales, the Company will loan to each Management Investor (other than
Mr. Edelman) up to 85% of such purchase price pursuant to five-year 8.5% loans
which will be secured by all of the shares of Commom Stock purchased by, or
awarded to, such Management Investor.
Concurrently with the sale of the shares of Common Stock offered hereby,
the Company also intends to award an aggregate of 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, or sooner if there is a "change in control" (as
defined in the Company's Change in Control Plan).
Each of the Management Investors has agreed not to sell, transfer or
otherwise dispose of any shares of Common Stock for a period of 180 days
following the sale of the shares of Common Stock offered hereby. See "Shares
Eligible for Future Sale." Thereafter the Management Investors will be free to
sell the shares of Common Stock that they have purchased, subject to compliance
with the requirements of the Securities Act and any other applicable laws. The
shares of restricted Common Stock that have been awarded them may not be sold
until ownership of such shares has vested, as described above.
42
<PAGE> 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of
Common Stock of the Company by each person who, to the knowledge of the Company,
beneficially owns 5% or more of the Common Stock of the Company, each person who
will be a director of the Company after the Offering, the five most highly
compensated executive officers, including the Chief Executive Officer and by all
such executive officers and directors of the Company as a group. Except as noted
below, no director or executive officer of the Company beneficially owns any
equity securities of the Company other than Common Stock and Warrants. The
business address of each individual listed below, except as otherwise noted, is:
c/o Patina Oil & Gas Corporation, 1625 Broadway, Suite 2000, Denver, Colorado
80202.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER THE
COMMON STOCK PRIOR TO THE COMMON STOCK AFTER THE TRANSACTIONS --
TRANSACTIONS(a)(b)(c) TRANSACTIONS(d) AS ADJUSTED(e)
-------------------------- ----------------------- -----------------------
NUMBER NUMBER NUMBER
OF SHARES PERCENTAGE OF SHARES PERCENTAGE OF SHARES PERCENTAGE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Edelman............. 30,000 * 515,294 2.5% 985,294 4.5%
Brian J. Cree................. 39,278 * 53,985 0.3% 108,735 0.8%
Keith M. Crouch............... 9,652 * 21,417 0.1% 72,417 0.4%
Ronald E. Dashner............. 8,400 * 20,165 0.1% 68,765 0.3%
David J. Kornder.............. 7,227 * 18,992 0.1% 61,592 0.3%
Jay W. Decker................. 2,927 * 2,927 * 11,427 *
Robert J. Clark............... 2,927 * 2,927 * 11,427 *
Alexander P. Lynch............ 2,927 * 2,927 * 11,427 *
Arnold L. Chavkin(f).......... 0 * 2,592,532 12.7% 2,592,532 12.7%
William E. Macaulay(g)........ 0 * 3,744,769 18.3% 3,744,769 18.3%
All executive officers and
directors as a group........ 118,296 0.6% 7,017,362 33.3% 7,859,482 35.8%
Snyder Oil Corporation........ 14,000,000 74.4% 0 * 0 *
777 Main Street
Fort Worth, Texas 76102
Stark Investments............. 1,464,420 7.2% 1,464,420 6.7% 1,464,420 5.1%
150 West Market Street
Mequon, Wisconsin 53092
First Reserve Fund VII,
Limited Partnership......... 0 * 3,744,769 18.3% 3,744,769 18.3%
475 Steamboat Road
Greenwich, Connecticut 06830
Chase Venture Capital
Associates, L.P. ........... 0 * 2,592,532 12.7% 2,592,532 12.7%
380 Madison Avenue, 12th
Floor
New York, New York 10017
</TABLE>
- ---------------
* Less than 1%
(a) As of June 30, 1997.
(b) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table. Based solely upon information furnished
by such individuals or contained in filings made by such beneficial owners
with the Commission.
(c) Calculated pursuant to Rule 13d-3(d) under the Exchange Act, shares not
outstanding that are subject to options, warrants, rights, or conversion
privileges exercisable within sixty days are deemed outstanding for the
purpose of calculating the number and percentage owned by such person, but
not deemed outstanding for the purpose of calculating the percentage owned
by any other person.
(d) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes: (i) 100,000 shares of Common Stock issued to
the New Preferred Stock Investors; (ii) 352,941 shares of Common Stock
purchased by the Management Investors (assuming a Public Offering Price of
$8.50 per share); (iii) 7,159,091 shares
43
<PAGE> 46
of Common Stock issuable upon conversion of the New Preferred Stock
(assuming the issuance of 2,520,000 shares of New Preferred Stock having a
conversion price of $8.80 per share); (iv) 250,000 shares of Common Stock
issuable upon exercise of stock options issued to Mr. Edelman pursuant to
the Company's Stock Option Plan; and excludes: (i) the 500,000 shares of
restricted Common Stock awarded to the Management Investors (which shares
will vest over a five-year period at the rate of 20% per year); and (ii) the
230,000 shares of Common Stock to be issued to the New Preferred Stock
Investors under certain circumstances.
(e) For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes those included in note (d) above and also
includes: (i) the 500,000 shares of restricted Common Stock awarded to the
Management Investors (which Shares will vest over a five-year period at the
rate of 20% per year); and (ii) 788,960 shares issuable upon exercise of
outstanding stock options (having a weighted average exercise price of $8.30
per share).
(f) Mr. Chavkin may be deemed to share beneficial ownership of the 900,000
shares of New Preferred Stock and 2,592,532 shares of Common Stock owned by
Chase Venture Capital Associates, L.P. through his role with Chase Venture
Capital Associates, L.P. Mr. Chavkin disclaims beneficial ownership of such
shares of New Preferred Stock and Common Stock.
(g) Mr. Macaulay may be deemed to share beneficial ownership of the 1,300,000
shares of New Preferred Stock and 3,744,769 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.
(h) Between 7,500,000 and 8,625,000 of these shares (depending on whether, and
to what extent, the Underwriters exercise their overallotment option) will
be sold by SOCO in this Offering, and the remaining 5,375,000 to 6,500,000
shares will be repurchased by the Company as part of the Concurrent
Transactions.
44
<PAGE> 47
SELLING STOCKHOLDER
The following table sets forth certain information concerning the
beneficial ownership of Common Stock by SOCO.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE NUMBER OF
TRANSACTIONS NUMBER OF OFFERING(a) NUMBER OF SHARES BENEFICIALLY
SELLING ---------------------- SHARES BEING --------------------- SHARES BEING OWNED AFTER THE
STOCKHOLDER NUMBER(b) PERCENT OFFERED NUMBER PERCENT REPURCHASED(a) TRANSACTIONS(b)
- --------------- ---------- ------- ------------ --------- ------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Snyder Oil
Corporation... 14,000,000 74.1% 7,500,000 6,500,000 34.5% 6,500,000 0
</TABLE>
- ---------------
(a) Assumes that the Underwriters' overallotment option is not exercised and
that all shares offered hereby will be sold and no other shares of Common
Stock will be purchased or sold by SOCO. If the Underwriters' overallotment
option is exercised in full, SOCO will beneficially own 5,375,000 shares,
representing approximately 28.6% of the outstanding Common Stock, and,
accordingly, the number of shares repurchased by the Company as part of the
Concurrent Transactions will be 5,375,000.
(b) Of the 14,000,000 shares of Common Stock owned by SOCO, 2,000,000 shares are
Series A Common Stock. The Series A Common Stock has three votes per share
rather than one vote per share. The Series A Common Stock will automatically
convert into Common Stock upon sale.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Certificate of Incorporation of the Company, the authorized
capital stock consists of 40,000,000 shares of common stock, par value $.01 per
share (of which 38,000,000 shares are Common Stock and 2,000,000 shares have
been designated Series A Common Stock) and 5,000,000 shares of preferred stock,
par value $0.01 per share. As of June 30, 1997, there were 18,820,248 shares of
Common Stock outstanding, 2,000,000 of which were Series A Common Stock, and
1,467,926 shares of Old Preferred Stock outstanding. All of the Series A Common
Stock is owned by SOCO and, upon sale or transfer, will convert into Common
Stock. The following descriptions of the securities of the Company are
summaries, do not purport to be complete or to give effect to applicable
statutory or common law, and are qualified in their entirety by reference to the
Certificate of Incorporation, which is included as an exhibit to the Company's
Registration Statement on Form S-4 dated April 2, 1996.
COMMON STOCK
General. The Company is authorized to issue 40,000,000 shares of common
stock, par value $0.01, of which 38,000,000 shares are Common Stock and
2,000,000 shares have been designated as Series A Common Stock. The holders of
Common Stock are entitled to one vote for each share on all matters submitted to
a vote of stockholders. The holders of Common Stock do not have cumulative
voting rights in the election of directors of the Company. The holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of legally available funds. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets of the Company remaining after
provision for payment of liabilities and satisfaction of the liquidation
preference of any shares of preferred stock that may be outstanding. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The shares of Common Stock outstanding are validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to those of holders of the Old Preferred Stock and any other
series of preferred stock.
Series A Common Stock. Except as set forth below, each share of Series A
Common Stock is identical in all respects to the Common Stock. The holders of
shares of Series A Common Stock are entitled to vote upon all matters submitted
to a vote of the stockholders of the Company, but shall in all cases be entitled
to three votes per share of Series A Common Stock held. Upon sale by SOCO or
upon notice to the Company that the Company is no longer eligible for inclusion
in SOCO's consolidated financial statements, the Series A Common Stock shall
automatically convert into shares of Common Stock.
45
<PAGE> 48
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $.01 per share. The Company presently has one series of preferred stock
outstanding and will issue another series of preferred stock concurrently with
the Offering.
Old Preferred Stock
As of June 30, 1997, 1,467,926 shares of the Company's 7.125% Preferred
Stock (the "Old Preferred Stock") were outstanding. Shares of the Old Preferred
Stock are convertible into Common Stock at any time at $8.61 per share. Shares
of Old Preferred Stock are redeemable at 105.7% at the option of the Company at
any time after May 2, 1998 if the average closing price of the Company's Common
Stock is greater than $12.92 per share for 20 of the 30 days prior to and not
less than five days preceding the redemption date. Shares of Old Preferred Stock
are redeemable at any time after May 2, 1999 at 104.988% of their stated value,
declining to 100% in 2006. The stated value of the Old Preferred Stock is $25.00
per share; the liquidation preference is $25.00 per share, plus accrued and
unpaid dividends. Holders of shares of Old Preferred Stock are not generally
entitled to vote, except with respect to certain limited matters.
New Preferred Stock
Subject to the conditions described under "Concurrent Transactions," the
Company will issue, in connection with the sale of the shares of Common Stock
offered hereby, between 1,600,000 and 2,520,000 shares of New Preferred Stock to
the New Preferred Stock Investors. The New Preferred Stock will be convertible
into Common Stock, based on the $25.00 per share liquidation preference, at the
option of the holders thereof at any time at a conversion price equal to $ per
share (10% over the Public Offering Price, subject to a maximum of $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.
The New Preferred Stock will have a stated value of $25.00 per share and
will carry an 8.5% annual dividend payable quarterly. The dividend will be
payable in-kind (the "PIK Dividend") for two years from the issuance date (the
"PIK Period") and payable in cash thereafter. The PIK Dividend will be payable
based on the New Preferred Stock's stated value of $25.00 per share. During the
PIK Period, the New Preferred Stock Investors have agreed not to sell short any
of the Company's securities. This restriction shall also apply during the PIK
Period to future purchasers of the New Preferred Stock or of the underlying
Common Stock into which they are convertible. The Company has agreed that,
following the PIK Period, it will register the shares of New Preferred Stock
(and the shares of Common Stock underlying them) with the Commission, as
described below under "Registration Rights."
The Company will have the right to redeem the New Preferred Stock at any
time, in whole or in part, beginning three years after the issuance date at 106%
of its stated value, plus accrued and unpaid interest thereon to the redemption
date. Thereafter, the redemption price will decline by two percentage points per
annum until the redemption price reaches the stated value of the New Preferred
Stock. The New Preferred Stock will have a liquidation preference equal to
$25.00 per share plus accrued dividends.
Future Issuances of Preferred Stock
To the extent that the Company elects to sell more than 1,600,000 but less
than 2,520,000 shares of New Preferred Stock concurrently with the sale of the
shares of Common Stock offered hereby, it shall retain the right to sell, in a
subsequent sale, up to the balance of such shares of New Preferred Stock to the
New Preferred Stock Investors at any time prior to December 31, 1997 for a
purchase price of $25.00 per share. Any such sale shall be subject to certain
conditions, including: (i) the absence of any material adverse change in the
business of the Company since the date hereof; and (ii) the average price of the
Common Stock over
46
<PAGE> 49
the ten-day period prior to the date the Company notifies the New Preferred
Stock Investors that it is electing to sell such shares shall be at least 90% of
the Public Offering Price.
The Board of Directors also has authority, without stockholder approval, to
issue up to 886,392 additional shares of preferred stock (assuming 2,520,000
shares of New Preferred Stock are issued) in one or more series and to determine
the number of shares, designations, dividend rights, conversion rights, voting
power, redemption rights, liquidation preferences and other terms of any such
series. The issuance of preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting power of holders of Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control.
WARRANTS
In 1996, the Company issued 3,000,000 warrants (the "Warrants"), initially
representing the right to purchase an aggregate of 3,000,000 shares of Common
Stock. Each Warrant entitles the holder thereof initially to purchase one share
of Common Stock for an initial exercise price of $12.50 per share. The Company
repurchased 80,549 Warrants during 1996 and 2,919,451 Warrants are currently
outstanding. The Warrants are exercisable at any time prior to May 2, 2001, at
which time they expire.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock, Warrants and
Preferred Stock is ChaseMellon Shareholder Services, L.L.C., 2323 Bryan Street,
Suite 2300, Dallas, Texas, 75201.
REGISTRATION RIGHTS
The Company has granted the New Preferred Stock Investors customary
"demand" registration rights with respect to the shares of New Preferred Stock,
the shares of Common Stock issuable upon conversion of shares of the New
Preferred Stock and the shares of Common Stock issued to the New Preferred Stock
Investors in consideration for their prior commitment to purchase the New
Preferred Stock (collectively, the "Registrable Securities"). At any time after
the second anniversary of the date hereof the holder or holders of not less than
one-third of the Registrable Securities then outstanding may demand that the
Company to register Registrable Securities for sale pursuant to the Securities
Act; provided that the number of shares of Registrable Securities proposed to be
sold shall be at least 25% of the aggregate number of shares of Registrable
Securities then outstanding. The holders of Registrable Securities shall be
entitled to no more than three such demands in the aggregate. In addition, the
Company has agreed that, under certain circumstances, holders of Registrable
Securities may have the right to include their shares of Registrable Securities
in registrations by the Company of its securities being offered for sale for its
own account. All such registrations shall be effected at the Company's sole
expense.
In addition, the Company has granted the Management Investors certain
registration rights with respect to the shares of Common Stock that they are
acquiring. The Company has agreed with the Management Investors that if the
Company registers securities for sale pursuant to the Securities Act, it will,
subject to certain conditions, use its reasonable efforts to include in such
registration shares of Common Stock owned by Management Investors who wish to
have their shares so included.
47
<PAGE> 50
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the Credit Agreement and the Notes,
such descriptions do not purport to be complete and are qualified in their
entirety by reference to such documents, which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
CREDIT AGREEMENT
In April 1997, the Company entered into its Credit Agreement. The Credit
Agreement consists of a revolving credit facility in an aggregate amount up to
$140.0 million. The amount available under the Credit Agreement is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.
Assuming an offering price of $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. The Credit Agreement also
contains certain negative covenants that could limit the Company's ability to
incur other debt, dispose of assets, pay dividends or repurchase securities. The
negative covenants include, among other things, restrictions on indebtedness,
certain liens, guaranties, speculative derivative instruments and other similar
obligations, asset dispositions, dividends, loans and advances, creation of
subsidiaries, investments, leases, acquisitions, mergers, changes in fiscal
year, transactions with affiliates, changes in business conducted, sale and
leaseback and operating lease transactions, sale of receivables, prepayment of
other indebtedness, amendments to principal documents, negative pledge clauses,
issuance of securities and non-speculative commodity hedging. Borrowings under
the Credit Agreement mature in 2000 but may be prepaid at anytime.
SENIOR SUBORDINATED NOTES
In connection with the Gerrity Acquisition, the Company assumed $100
million principal amount of the Notes issued by Gerrity in 1994. The Notes have
been reflected in the financial statements since the Gerrity Acquisition at a
book value of 105.875% of their principal amount. Interest is payable each
January 15, and July 15. The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after July 15, 1999, initially at
105.875% of their principal amount, declining to 102.938% on or after July 15,
2000 and declining to 100% on or after July 15, 2001. Upon a change of control,
as defined in the Notes (which, as so defined, does not include the consummation
of the Transactions described herein), the Company is obligated to make an offer
to purchase all outstanding Notes at a price of 101% of the principal amount
thereof. In addition, the Company would be obligated, subject to certain
conditions, to make offers to purchase Notes with the net cash proceeds of
certain asset sales or other dispositions of assets at a price of 101% of the
principal amount thereof. Subsequent to the Gerrity Acquisition, the Company
repurchased and retired $7.7 million principal amount of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million as of June 30, 1997. The Notes are unsecured general obligations 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.
48
<PAGE> 51
The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly is not limited in its ability to incur additional
debt.
49
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following consummation of the Transactions, there will be
13,273,189 shares of Common Stock issued and outstanding (excluding shares of
Common Stock issuable upon the exercise of all currently outstanding options and
warrants and the conversion of all outstanding Preferred Stock). Of such shares,
all of the 8,625,000 shares of Common Stock potentially sold in the Offering
will be immediately eligible for resale in the public market, except for any of
such shares owned by an "affiliate" of the Company within the meaning of Rule
144 under the Securities Act ("Rule 144"), which shares may be subject to
certain of the resale limitations of Rule 144. Of the 4,648,189 remaining
outstanding shares, 600,000 are "restricted securities" within the meaning of
Rule 144 and may not be publicly resold, except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption from
registration, including that provided by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has held "restricted securities" for at least
one year (including a person who may be deemed an affiliate of the Company) is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then-outstanding shares of
Common Stock of the Company, and the average weekly trading volume of the
Company's Common Stock on all exchanges and on the NYSE during the four calendar
weeks preceding the sale. In addition to the previously described volume
limitations on the sale of restricted securities and securities held by
affiliates of the Company, sales under Rule 144 are also subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about the Company. A person who has not been an "affiliate"
of the Company at any time during the 90 days preceding a sale, and who has held
restricted shares for at least one year, would be entitled to sell such shares
immediately under Rule 144(k) without regard to the volume limitations, manner
of sale provisions or notice or other requirements of Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete description thereof.
The Company and each of the Management Investors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
prior written consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible, exercisable or
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock, subject to certain exceptions. Upon expiration of the 180-day
period, shares of Common Stock (assuming the exercise of all currently
outstanding options and warrants) will be eligible for immediate resale without
restriction under the Securities Act, subject to certain volume, timing and
other requirements of Rule 144. Each of the New Preferred Stock Investors has
agreed, in connection with the purchase of the New Preferred Stock, not to
offer, sell, contract to sell or otherwise dispose of any New Preferred Stock or
any Common Stock or securities convertible, exercisable or exchangeable for
Common Stock or grant any options or warrants to purchase Common Stock, for a
period of one year from the date of this Prospectus, and has agreed not to
transfer any such securities between the first and the second anniversary of the
closing of the Offering, except with the consent of the Company's Board of
Directors or pursuant to Rule 144; thereafter, the New Preferred Stock Investors
will be free to sell such shares, but any such sale, transfer or disposition
must be in compliance with the requirements of the Securities Act and any other
applicable laws. In addition, each of the New Preferred Stock Investors has
agreed: (i) not to sell short any of the Company's securities for a period of
two years; and (ii) to certain standstill provisions with respect to the
Company's voting securities, including, among other provisions, a five-year
restriction on the Preferred Stock Investors' ability to transfer any shares of
New Preferred Stock or Common Stock to any person who, after giving effect to
such transfers, would be the beneficial owner of 5% or more of the aggregate
voting power of all of the Company's securities, except for transfers in
connection with certain qualifying tender or exchange offers and transfers to
persons who agree to substantially similar restrictions as those agreed to by
the New Preferred Stock Investors. See "Concurrent Transactions -- Issuance of
New Preferred Stock" and "Description of Capital Stock -- Preferred Stock -- New
Preferred Stock."
The Company has agreed, under certain circumstances, to register for sale
pursuant to the Securities Act, the shares of New Preferred Stock, the shares of
Common Stock issuable upon conversion thereof and the shares of Common Stock
issued to the New Preferred Stock Investors in consideration for their prior
commitment to purchase shares of New Preferred Stock and the shares of Common
Stock purchased by, or awarded to, the Management Investors. See "Description of
Capital Stock -- Registration Rights."
50
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, SOCO has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters, for whom Smith Barney, Inc. is acting as representative (the
"Representative"), has severally agreed to purchase from SOCO, the respective
number of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc. .....................................................
Morgan Stanley & Co. Incorporated......................................
A.G. Edwards & Sons, Inc. .............................................
Jefferies & Company, Inc. .............................................
PaineWebber Incorporated...............................................
----------
Total........................................................ 7,500,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
overallotment option described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares offered
hereby directly to the public at the public offering price set forth on the
cover of this Prospectus and part of the shares offered hereby to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to other
Underwriters, or to certain other dealers.
SOCO has granted to the Underwriters an overallotment option to purchase up
to an additional 1,125,000 shares of Common Stock on the same terms per share.
If the Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
offered hereby. The Underwriters may exercise such option on or before the
thirtieth day from the date of the public offering of the shares offered hereby
and only to cover over allotments made of the shares in connection with the
Offering. Under the terms of the Share Repurchase Agreement, the Company is
obligated to purchase from SOCO all shares of Common Stock owned by SOCO that
are not sold in the Offering at the initial closing of the Offering.
Accordingly, if the Underwriters exercise their overallotment option and the
purchase of the additional shares occurs after the initial closing, then the
Underwriters will purchase the overallotment shares from the Company instead of
SOCO.
In connection with this Offering and in compliance with applicable law, the
Underwriters may over allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchase of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the offering. A syndicate
short position may be covered by exercise of the option described above in lieu
or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representative purchases Common Stock in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
51
<PAGE> 54
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
The Company and each of the Management Investors have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
prior written consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any Common Stock or securities convertible, exercisable or
exchangeable for Common Stock or grant any options or warrants to purchase
Common Stock, subject to certain exceptions. See "Shares Eligible for Future
Sale."
A.G. Edwards & Sons, Inc. ("Edwards"), one of the Underwriters, has been
engaged by the Independent Committee to render the opinion concerning the
fairness, from a financial point of view, of: (i) the consideration to be paid
to the Company for the New Preferred Stock and (ii) the Repurchase, as described
in "Concurrent Transactions -- Approval of Transactions." For such services,
Edwards will receive a fee of $250,000. Edwards was previously engaged by the
Company to deliver a fairness opinion to Gerrity in connection with the
formation of the Company and the execution by the Company of a certain
subordinated loan agreement. Edwards was also engaged to deliver a fairness
opinion to the holders of Gerrity Preferred Stock in connection with a
transaction pursuant to which holders of depository shares of Gerrity received
shares of the Company's convertible preferred stock. Edwards received customary
fees in connection with the delivery of each of the opinions described in the
preceding two sentences.
The Company and SOCO have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock will
be passed upon for the Company by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York. Certain legal
matters with respect to the Common Stock will be passed upon for the
Underwriters by Mayer, Brown & Platt, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 have been incorporated by reference and included herein in reliance upon
the report of Arthur Andersen LLP, independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Gerrity Oil & Gas Corporation for each of the
three years in the period ended December 31, 1995 have been incorporated by
reference and included herein in reliance upon the reports of Arthur Andersen
LLP and Coopers & Lybrand, L.L.P., independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firms as experts in accounting and auditing.
Certain information with respect to the oil and natural gas reserves of the
Company derived from reports of Netherland, Sewell & Associates, Inc., a firm of
independent petroleum consultants, has been included and incorporated herein in
reliance upon the authority of such firm as experts with respect to the matters
contained in its reports.
52
<PAGE> 55
GLOSSARY OF OIL AND GAS TERMS
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and in this Prospectus.
"Bbl" means barrel.
"Bcf" means billion cubic feet.
"Bcfe" means billion cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil so
that one barrel of oil is referred to as six Mcf of natural gas or "Mcfe."
"Boe" means barrel of oil equivalent, determined using the ratio of six Mcf
of natural gas (including natural gas liquids) to one Bbl of oil.
"Btu" means British Thermal Unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
"Capital expenditures" means costs associated with development and
successful exploratory drilling, leasehold acquisitions, producing property
acquisitions, and other miscellaneous capital expenditures.
"Completion" means the stimulation and installation of equipment for the
production of oil or natural gas.
"Developed acreage" means the number of acres that are allocated or
assignable to producing wells or wells capable of production.
"Development well" means a well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
"Frac" means the initial Completion of a well for production.
"Exploitation" means further development of a known oil or natural gas
area.
"Gross" oil and gas wells or "gross" acres are the total number of wells or
acres in which the Company has an interest, without regard to the size of that
working interest.
"Lease operating expense" means all direct costs associated with and
necessary to operate a producing property, excluding production taxes.
"MBbl" means a thousand barrels of oil.
"Mcf" means thousand cubic feet.
"Mcfe" means a thousand cubic feet of natural gas equivalent, which is
determined using the ratio of six Mcf of natural gas to one barrel of oil, so
that one barrel of oil is referred to as six Mcf of natural gas equivalent or
"Mcfe."
"MMBtu" means million Btus.
"MMcf" means million cubic feet.
"MMcfe" means million cubic feet of natural gas equivalent.
"Net" oil and gas wells or "net" acres are determined by multiplying gross
wells or acres by the Company's working interest in those wells or acres.
"Pretax present value" means when used with respect to required disclosure
respecting oil and gas reserves, a calculation of the estimated future gross
revenue to be generated from the production of proved reserves, net of estimated
production and future development costs, using prices and costs in effect as of
the date indicated, without giving effect to non-property related expenses such
as general and administrative expenses, debt service and future income tax
expense or to depreciation, depletion and amortization, discounted using an
annual discount rate of 10%. "Present value of estimated pre tax net revenues"
or "pretax present value at constant prices of estimated future net revenues"
means estimated future net revenues discounted by a factor of ten percent per
annum, before income taxes and with no price or cost escalation or
de-escalation, in accordance with guidelines promulgated by the Securities and
Exchange Commission.
"Productive well" means a well that is producing oil and/or natural gas or
that is capable of production.
"Proved reserves" refer to those quantities of oil and natural gas which,
upon analysis of geologic and engineering data, appear with reasonable certainty
to be recoverable in the future from known oil and natural
53
<PAGE> 56
gas reservoirs under existing economic and operating conditions. Proved reserves
are limited to those quantities of oil and natural gas which can be expected,
with little doubt, to be recoverable commercially at current prices and costs,
under existing regulatory practices and with existing conventional equipment and
operating method.
"Proved developed reserves" include proved developed producing reserves and
proved developed non-producing reserves.
"Proved developed producing reserves" include only those reserves expected
to be recovered from existing completion intervals in existing wells.
"Proved developed nonproducing reserves" include those reserves contained
in geological formations through which an existing well has been drilled but
from which the well has not yet produced. The reserves are said to be
nonproducing or "behind-the-pipe" because the oil and gas are sealed out of the
well bore by the casing leading to the existing completion interval.
Behind-the-pipe reserves are classified as proved developed only if the cost of
completing the well for production of such reserves is relatively small compared
to the cost of a new well.
"Proved undeveloped reserves" include those reserves expected to be
recovered from new wells on proved undrilled acreage or from existing wells
where a relatively major expenditure is required for recompletion.
"Recompletion" refers to the completion of an existing well for production
from a new formation that exists within the well. See "proved developed
nonproducing reserves."
"Refrac" is similar to a recompletion except that the stimulation occurs
within the existing producing formation in an attempt to increase production and
reserves.
"Reserve life index" means the calculation of total proved reserves divided
by oil and natural gas production for the relevant annual period.
"Reserves" means natural gas and oil, on a net revenue interest basis,
found to be commercially recoverable.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but does not require the owner
to pay any portion of the costs of drilling or operating the wells on the leased
acreage. Royalties may be either landowner's royalties, which are reserved by
the owner of the leased acreage at the time the lease is granted, or overriding
royalty interests, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"Spot price" means average of reported natural gas or oil prices for
location-specific contracts with durations of 31 days or less as quoted in
various publications such as Inside FERC.
"Undeveloped acreage" means lease acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and natural gas regardless of whether such acreage contains
proved reserves.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners royalties. See the definitions of "net revenue interest"
and "royalty" above. For example, the owner of a 100% working interest in a
lease burdened only by a typical 1/8 landowner's royalty would be required to
pay 100% of the costs of a well but would be entitled to retain 87.5% of the
production. The remaining 12.5% would accrue to the royalty owners.
"Workover" means to perform recompletion or mechanical work in an existing
well bore.
In this Prospectus, natural gas volumes are stated at the legal pressure
base of the state or area in which the reserves are located at 60 degrees
Fahrenheit.
54
<PAGE> 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PATINA OIL & GAS CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED CONSOLIDATED PRO FORMA INFORMATION
Introduction........................................................................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet, June 30, 1997............. F-3
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Six
Months Ended June 30, 1997....................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations For the Year
Ended December 31, 1996.......................................................... F-5
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ F-6
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................ F-8
Consolidated Balance Sheets......................................................... F-9
Consolidated Statements of Operations............................................... F-10
Consolidated Statements of Changes in Stockholders' Equity.......................... F-11
Consolidated Statements of Cash Flows............................................... F-12
Notes to Consolidated Financial Statements.......................................... F-13
</TABLE>
F-1
<PAGE> 58
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30,
1997 and the related Pro Forma Condensed Consolidated Statement of Operations
for the Six Months then Ended and the Year Ended December 31, 1996, give effect
to the Gerrity Acquisition and the Concurrent Transactions. The pro forma
consolidated financial statements are based upon the assumptions set forth in
the accompanying notes to such statements. The pro forma adjustments are based
upon available information and assumptions that management believes are
reasonable under the circumstances.
The pro forma consolidated financial statements as adjusted comprise
historical financial data that have been retroactively adjusted or combined to
reflect the effect of the Gerrity Acquisition and the Concurrent Transactions on
the historical financial statements included elsewhere in this Prospectus. The
Unaudited Pro Forma Condensed Consolidated Balance Sheet at June 30, 1997 was
prepared as if the Concurrent Transactions were consummated on June 30, 1997,
the related Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997 was prepared as if the Concurrent
Transactions were consummated on January 1, 1997 and the Unaudited Pro Forma
Condensed Consolidated Statement of Operations for the Year Ended, December 31,
1996 was prepared as if both the Gerrity Acquisition and the Concurrent
Transactions were consummated on January 1, 1996. The historical information
provided under the heading "Gerrity Acquisition" in the statement of operations
for the year ended December 31, 1996, includes results for Gerrity for the
period from January 1, 1996 until its purchase on May 2, 1996. The unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with the related historical financial statements and are not necessarily
indicative of the results that would have actually occurred had the Gerrity
Acquisition and the Concurrent Transactions been consummated on the dates or for
the period indicated or which may occur in the future.
F-2
<PAGE> 59
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current assets................................... $ 29,610 $ $ 29,610
Oil and gas properties and equipment, net........ 382,573 382,573
Other noncurrent assets, net..................... 1,334 1,334
-------- --------
$ 413,517 $413,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.............................. $ 27,729 $ $ 27,729
Long-term debt................................... 182,685 10,061(b) 193,685
939(d)
Other noncurrent liabilities..................... 5,561 5,561
Stockholders' equity
Preferred stock, $.01 par...................... 15 16(a) 31
Common stock, $.01 par......................... 188 (65)(b) 133
10(c)
Capital in excess of par value................. 189,620 (52,146)(b) 178,659
39,984(a)
2,990(c)
(850)(c)
(939)(d)
Retained earnings................................ 7,719 7,719
-------- --------
197,542 186,542
-------- --------
$ 413,517 $413,517
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 60
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED
PATINA HISTORICAL ADJUSTMENTS PRO FORMA
----------------- ----------- ----------
<S> <C> <C> <C>
REVENUES
Oil and natural gas sales...................... $52,113 $ $ 52,113
Other.......................................... 227 227
------- -------
52,340 52,340
------- -------
EXPENSES
Direct Operating............................... 9,322 9,322
Exploration.................................... 62 62
General and administrative..................... 2,611 184(f) 3,050
255(g)
Interest and other............................. 8,485 385(e) 8,870
Depletion, depreciation, and amortization...... 24,776 24,776
------- -------
45,256 46,080
------- -------
Income before taxes.............................. 7,084 6,260
Provision for (benefit from) income taxes........ -- --
------- -------
Net income....................................... 7,084 6,260
Dividends on preferred stock..................... 1,330 1,718(h) 3,048
------- -------
Net income applicable to common stock............ $ 5,754 $ 3,212
======= =======
Net income per share............................. $ 0.30 $ 0.24
======= =======
Weighted average shares outstanding.............. 18,921 (5,547)(b)(c) 13,374
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 61
PATINA OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
GERRITY UNAUDITED
PATINA GERRITY PRO FORMA UNAUDITED TRANSACTION PRO FORMA
(HISTORICAL) ACQUISITION ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........... $ 82,185 $16,540 $ $ 98,725 $ $ 98,725
Other....................... 1,003 410 1,413 1,413
------- ------- -------- --------
83,188 16,950 100,138 100,138
EXPENSES
Direct Operating............ 14,519 2,841 525(i) 17,718 17,718
(167)(j)
Exploration................. 224 434 658 658
General and
administrative........... 6,151 2,275 (476)(j) 7,425 369(f) 8,049
(525)(i) 255(g)
Interest and other.......... 14,304 4,533 361(k) 19,198 770(e) 19,968
Depletion, depreciation, and
amortization............. 44,822 8,968 (2,127)(l) 51,663 51,663
------- ------- -------- --------
80,020 19,051 96,662 98,056
------- ------- -------- --------
Income (loss) before taxes.... 3,168 (2,101) 3,476 2,082
Provision for (benefit from)
income taxes................ (394) (714) 1,108(m) -- --
------- ------- -------- --------
Net income (loss)............. 3,562 (1,387) 3,476 2,082
Dividends on preferred
stock....................... 2,129 1,518 (802)(n) 2,845 3,510(h) 6,355
------- ------- -------- --------
Net income (loss) applicable
to common stock............. $ 1,433 $(2,905) $ 631 $ (4,273)
======= ======= ======== ========
Net income (loss) per share... $ 0.08 $ 0.03 $ (0.30)
======= ======== ========
Weighted average shares
outstanding................. 17,796 19,787 14,240
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 62
PATINA OIL & GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements reflect
the adjustments described below.
BALANCE SHEET
(a) To reflect the issuance of 1,600,000 shares of New Preferred Stock at $25.00
per share to the New Preferred Stock Investors. The estimated net proceeds
of $40.0 million will be used to repurchase common shares from SOCO. Under
the Preferred Stock Purchase Agreement, the New Preferred Stock Investors
have agreed to purchase in the aggregate a minimum of $40.0 million and a
maximum of $63.0 million of New Preferred Stock.
(b) To reflect the Repurchase of 6,500,000 common shares from SOCO at $8.03 per
share for $52,211,250. The Repurchase will be financed with proceeds from
issuance of 1,600,000 shares of New Preferred Stock to the New Preferred
Stock Investors, the issuance of 352,941 shares of Common Stock to the
Management Investors and $10.1 million of borrowings under the Company's
bank credit facility.
(c) To reflect the sale of 352,941 common shares to the Management Investors at
$8.50 per share, the granting of 350,000 restricted common shares to Mr.
Edelman, the granting of 150,000 restricted common shares to the Management
Investors and the granting of 100,000 common shares to the New Preferred
Stock Investors. The 350,000 restricted common shares granted to Mr. Edelman
have been accounted for as transaction costs, and accordingly, netted
against the equity proceeds. The 150,000 restricted common shares granted to
the Management Investors have been accounted for as deferred compensation
within the equity section on the balance sheet at the estimated fair value
of $8.50 per share and also shown as a related reduction in equity and will
be expensed over the five year vesting period. The 100,000 common shares
issued to the New Preferred Stock Investors have been accounted for as
equity with the allocation of the net proceeds received from the sale of the
New Preferred Stock to be allocated to the New Preferred Stock and Common
Stock based upon the relative fair value of the securities at the date of
issuance. The Company will loan 85% or $850,000 of the purchase price to the
Management Investors, excluding Mr. Edelman.
(d) To record the estimated costs incurred in conjunction with the Transactions.
STATEMENT OF OPERATIONS
(e) 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.
(f) To reflect the terms of the employment agreement entered into with Mr.
Edelman concurrently with the Transactions.
(g) To reflect the compensation expense associated with the Management Investors
stock grant (30,000 common shares vested annually at an estimated fair value
of $8.50 per share).
(h) To reflect the non-cash dividends on 1,600,000 shares of New Preferred Stock
issued to the New Preferred Stock Investors. The Company has the ability to
issue up to 2,520,000 shares of New Preferred Stock. For each additional
100,000 shares of New Preferred Stock issued, the six month dividends and
annual dividends would increase by $107,000 and $219,000, respectively.
(i) To conform the financial statement presentation by Gerrity of various
overhead changes and recoveries to a basis consistent with that of the
Company.
F-6
<PAGE> 63
(j) To reflect the reduction in direct operating and general and administrative
expenses that result from the elimination of redundant personnel, lease
space and other corporate services.
(k) To adjust interest expense to reflect the refinancing or payment of: (i)
$1,200,000 (or 1.20%) of Gerrity's 11 3/4% Senior Subordinated Notes (the
"Notes"); (ii) Gerrity's bank borrowings under the terms of the Company's
bank credit facility; (iii) the payable to parent; and (iv) transaction
costs. The interest expense reflects the Eurodollar Margin set forth in the
current bank credit agreement, which margin was applied to the current
Eurodollar Rate resulting in an average borrowing rate of approximately
6.75%.
(l) To adjust depletion, depreciation and amortization of oil and gas properties
based on the purchase price allocated to Gerrity oil and gas properties and
the use of a combined depletion, depreciation and amortization rate.
(m) To record the estimated provision for income taxes to reflect the
anticipated effective income tax rate of the combined entity after the
Gerrity Acquisition.
(n) To reduce dividends paid on Gerrity Preferred Stock reflecting the exchange
of all Gerrity Preferred Stock into Old Preferred Stock.
F-7
<PAGE> 64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders,
Patina Oil & Gas Corporation:
We have audited the accompanying consolidated balance sheets of Patina Oil
& Gas Corporation (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Patina Oil & Gas Corporation
and subsidiaries as of December 31, 1995 and 1996, and results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
February 17, 1997
F-8
<PAGE> 65
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents.................................. $ 1,000 $ 6,153 $ 10,568
Accounts receivable................................... 6,611 19,977 15,840
Inventory and other................................... 2,000 1,457 3,202
--------- --------- ---------
9,611 27,587 29,610
--------- --------- ---------
Oil and gas properties, successful efforts method....... 333,513 559,072 564,902
Accumulated depletion, deprecation and amortization... (118,919) (160,432) (183,886)
--------- --------- ---------
214,594 398,640 381,016
--------- --------- ---------
Gas facilities and other................................ 4,775 6,421 5,140
Accumulated depreciation.............................. (4,459) (4,917) (3,583)
--------- --------- ---------
316 1,504 1,557
--------- --------- ---------
Other assets, net....................................... -- 2,502 1,334
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 3,852 $ 15,063 $ 18,854
Accrued liabilities................................... 415 11,509 8,875
Payable to parent..................................... 5,344 -- --
--------- --------- ---------
9,611 26,572 27,729
--------- --------- ---------
Senior debt............................................. -- 94,500 85,000
Subordinated debt....................................... -- 103,094 97,685
Debt to parent.......................................... 75,000 -- --
Other noncurrent liabilities............................ 26,247 9,831 5,561
Commitments and contingencies
Stockholders' equity....................................
Preferred stock, $.01 par, 5,000,000 shares
authorized, -0- and 1,593,608 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 1,467,926 issued and outstanding at June
30, 1997........................................... -- 16 15
Common stock, $.01 par, 40,000,000 shares authorized,
14,000,000 and 18,886,932 shares issued and
outstanding at December 31, 1995 and December 31,
1996 and 18,820,248 issued and outstanding at June
30, 1997........................................... 140 189 188
Capital in excess of par value........................ -- 194,066 189,620
Investment by parent.................................. 113,523 -- --
Retained earnings..................................... -- 1,965 7,719
--------- --------- ---------
113,663 196,236 197,542
--------- --------- ---------
$ 224,521 $ 430,233 $ 413,517
========= ========= =========
</TABLE>
F-9
<PAGE> 66
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas sales........................... $67,749 $50,073 $82,185 $29,816 $52,113
Other....................................... 73 29 1,003 294 227
------- ------- ------- ------- -------
67,822 50,102 83,188 30,110 52,340
------- ------- ------- ------- -------
EXPENSES
Direct operating............................ 8,110 8,867 14,519 5,401 9,322
Exploration................................. 784 416 224 149 62
General and administrative.................. 7,484 5,974 6,151 3,113 2,611
Interest and other.......................... 3,869 5,476 14,304 4,979 8,485
Depletion, depreciation and amortization.... 43,036 32,591 44,822 18,723 24,776
------- ------- ------- ------- -------
Income (loss) before taxes.................... 4,539 (3,222) 3,168 (2,255) 7,084
------- ------- ------- ------- -------
Provision (benefit) for income taxes
Current..................................... -- -- -- -- --
Deferred.................................... 1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
1,589 (1,128) (394) (394) --
------- ------- ------- ------- -------
Net income (loss)............................. $ 2,950 $(2,094) $ 3,562 $(1,861) $ 7,084
======= ======= ======= ======= =======
Net income (loss) per common share............ $ 0.21 $ (0.15) $ 0.08 $ (0.16) $ 0.30
======= ======= ======= ======= =======
Weighted average shares outstanding........... 14,000 14,000 17,796 15,959 18,921
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE> 67
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL IN RETAINED
---------------- ---------------- EXCESS OF INVESTMENT EARNINGS
SHARES AMOUNT SHARES AMOUNT PAR VALUE BY PARENT (DEFICIT)
------ ------ ------ ------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993...... -- $ -- 14,000 $140 $ -- $ 92,725 $ --
Credit in lieu of taxes....... -- -- -- -- -- (8,190) --
Change in investment by
parent..................... -- -- -- -- -- 28,221 --
Net income.................... -- -- -- -- -- 2,950 --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1994...... -- -- 14,000 140 -- 115,706 --
Credit in lieu of taxes....... -- -- -- -- -- 1,107 --
Change in investment by
parent..................... -- -- -- -- -- (1,196) --
Net loss...................... -- -- -- -- -- (2,094) --
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1995...... -- -- 14,000 140 -- 113,523 --
Credit in lieu of taxes....... -- -- -- -- -- 171 --
Change in investment by
parent..................... -- -- -- -- -- (7,514) --
Net loss through the Gerrity
Acquisition date........... -- -- -- -- -- (532) --
Gerrity Acquisition........... 1,205 12 6,000 60 194,291 (105,648) --
Issuance of common............ -- -- 4 -- 27 -- --
Repurchase of common and
warrants................... -- -- (1,117) (11) (9,722) -- --
Issuance of preferred......... 389 4 -- -- 9,470 -- --
Preferred dividends........... -- -- -- -- -- -- (2,129)
Net income subsequent to the
Gerrity Acquisition........ -- -- -- -- -- -- 4,094
----- ---- ------ ---- -------- --------- -------
Balance, December 31, 1996...... 1,594 16 18,887 189 194,066 -- 1,965
Issuance of common............ -- -- 4 -- 31 -- --
Repurchase of common and
preferred.................. (126) (1) (71) (1) (4,477) -- --
Preferred dividends........... -- -- -- -- -- -- (1,330)
Net income.................... -- -- -- -- -- -- 7,084
----- ---- ------ ---- -------- --------- -------
Balance, June 30, 1997
(Unaudited)................... 1,468 $ 15 18,820 $188 $ 189,620 $ -- $ 7,719
===== ==== ====== ==== ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE> 68
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....................... $ 2,950 $ (2,094) $ 3,562 $(1,861) $ 7,084
Adjustments to reconcile net income
(loss) to net cash provided by
operations
Exploration expense.................. 784 416 224 149 62
Depletion, depreciation and
amortization....................... 43,036 32,591 44,822 18,723 24,776
Deferred taxes....................... 1,589 (1,128) (394) (394) --
Amortization of deferred credits..... (2,539) (2,025) (605) (646) --
Changes in current and other assets
and liabilities
Decrease (increase) in
Accounts receivable............. 3,642 1,472 (1,057) 1,384 4,015
Inventory and other............. -- -- 338 102 52
Increase (decrease) in
Accounts payable................ (1,552) (10,902) (4,249) (5,052) 4,042
Accrued liabilities............. (220) 77 4,844 1,504 (2,313)
Other liabilities............... -- -- 5,511 1,059 (4,237)
-------- -------- ------- ------- -------
Net cash provided by operations...... 47,690 18,407 52,996 14,968 33,481
-------- -------- ------- ------- -------
Investing activities
Acquisition, development and
exploration.......................... (95,596) (21,842) (8,532) (1,375) (8,348)
Gerrity Acquisition expenditures, net of
cash acquired........................ -- -- (2,375) (1,040) --
Sale of oil and gas properties.......... (782) 782 1,111 -- --
-------- -------- ------- ------- -------
Net cash used by investing........... (96,378) (21,060) (9,796) (2,415) (8,348)
-------- -------- ------- ------- -------
Financing activities
Increase (decrease) in payable/debt
to parent............................ 18,476 1,011 (80,466) (78,615) --
Increase (decrease) in indebtedness..... -- -- 72,863 96,108 (14,909)
Deferred credits........................ 1,991 2,838 814 624 --
Increase (decrease) in investment by
parent............................... 28,221 (1,196) (7,514) (7,514) --
Cost of common stock issuance........... -- -- (11,882) (9,310) --
Repurchase of common stock and
warrants............................. -- -- (9,733) (923) (4,479)
Preferred dividends..................... -- -- (2,129) (710) (1,330)
-------- -------- ------- ------- -------
Net cash realized (used) by
financing.......................... 48,688 2,653 (38,047) (340) (20,718)
-------- -------- ------- ------- -------
Increase in cash.......................... -- -- 5,153 12,213 4,415
Cash and equivalents, beginning of
period.................................. 1,000 1,000 1,000 1,000 6,153
-------- -------- ------- ------- -------
Cash and equivalents, end of period....... $ 1,000 $ 1,000 $ 6,153 $13,213 $ 10,568
======== ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE> 69
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED)
(1) ORGANIZATION AND NATURE OF BUSINESS
The Company, a Delaware corporation, was incorporated in January 1996 to
hold the assets and operations of SOCO in the Wattenberg Field and to facilitate
the acquisition of Gerrity. Previously, SOCO's Wattenberg operations had been
conducted through SOCO or its wholly owned subsidiary, SOCO Wattenberg
Corporation ("SWAT"). On May 2, 1996, SOCO contributed the balance of its
Wattenberg assets to SWAT and transferred all of the shares of SWAT to the
Company. Immediately thereafter, Gerrity merged into another wholly owned
subsidiary of the Company. As a result of these transactions, SWAT and Gerrity
became subsidiaries of the Company. The Company's operations currently consist
of the acquisition, development, and production of oil and gas properties in the
Wattenberg field.
SOCO currently owns approximately 74% of the common stock of the Company.
In conjunction with the Gerrity Acquisition, the Company offered to exchange the
Company's preferred stock for Gerrity's preferred stock (the "Original Exchange
Offer"). A total of 1,204,847 shares were issued in exchange for approximately
75% of Gerrity's preferred stock. In October 1996, Gerrity's certificate of
incorporation was amended to provide that all shares of Gerrity's preferred
stock not exchanged in the Original Exchange Offer be exchanged for the
Company's preferred stock on the same terms as the Original Exchange Offer. Upon
consummation of this exchange, the Company had approximately 1.6 million
preferred shares outstanding.
The above transactions were accounted for as a purchase of Gerrity. The
amounts and results of operations of the Company for periods prior to the
Gerrity Acquisition reflected in these financial statements include the
historical amounts and results of SOCO's Wattenberg operations. Certain amounts
in the accompanying financial statements have been allocated in a reasonable and
consistent manner in order to depict the historical financial position, results
of operations and cash flows of the Company on a stand-alone basis prior to the
Gerrity Acquisition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Producing Activities
The Company utilizes the successful efforts method of accounting for its
oil and gas properties. Consequently, leasehold costs are capitalized when
incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of the remaining proved or proved developed reserves, as
applicable. Gas is converted to equivalent barrels at the rate of six Mcf to one
barrel. Amortization of capitalized costs has generally been provided over the
entire D-J Basin as the wells are located in the same reservoir. No accrual has
been provided for estimated future abandonment costs as management estimates
that salvage value will approximate such costs.
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets". SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis. During 1995, 1996,
and the six months ended June 30, 1997 the Company did not provide for any
impairments. Changes in the underlying assumptions or the amortization units
could, however, result in impairments in the future.
F-13
<PAGE> 70
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Assets
Other assets reflect the value assigned to a noncompete agreement entered
into as part of the Gerrity Acquisition. The value is being amortized over five
years at a rate intended to approximate the decline in value of the noncompete
agreement. Amortization expense for the year ended December 31, 1996 and the six
months ended June 30, 1997 was $2,632,000 and $1,167,000, respectively.
Scheduled amortization for the next five years is $333,000 for the remainder of
1997, $500,000 in 1998, and $250,000 in each of 1999 and 2000.
Section 29 Tax Credits
The Company from time to time enters into arrangements to monetize its
Section 29 tax credits.These arrangements result in revenue increases of
approximately $0.40 per Mcf on production volumes from qualified Section 29
properties. As a result of such arrangements, the Company recognized additional
gas revenues of $2.5 million, $2.0 million, $1.5 million and $942,000 during
1994, 1995, 1996 and the six months ended June 30, 1997, respectively. These
arrangements are expected to increase revenues through 2002.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1995, 1996 and June 30, 1997 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was $1.0
million, $6.2 and $10.6 million at December 31, 1995, 1996 and June 30, 1997,
respectively. The book value approximates fair value due to the short maturity
of these instruments. The book value and estimated fair value of the Company's
debt to parent and senior debt was $75.0 million, $94.5 million and $85.0
million at December 31, 1995, 1996 and June 30, 1997, respectively. The fair
value is presented at face value given its floating rate structure. The book
value of the Notes was $103.1 million and $97.7 million and the estimated fair
value was $105.6 million and $101.5 million at December 31, 1996 and June 30,
1997, respectively. The fair value is estimated based on their price on the New
York Stock Exchange.
From time to time, the Company enters into commodity contracts to hedge the
price risk of a portion of its production. Gains and losses on such contracts
are deferred and recognized in income as an adjustment to oil and gas sales
revenues in the period to which the contracts relate.
In the fourth quarter of 1996, the Company entered into various swap sales
contracts with a weighted average oil price (NYMEX based) of $22.19 for contract
volumes of 95,000 barrels of oil for January 1997 through February 1997. The
Company recognized $113,000 of losses related to these contracts based on
settlements during the first quarter of 1997. These losses were reflected as
deductions from oil revenues in the period settled.
In the fourth quarter of 1996 and early 1997, the Company entered into
various swap sales contracts with a weighted average natural gas price
(CIG-Inside FERC based) of $3.02 for contract volumes of 2,250,000 MMBtu's of
natural gas for January 1997 through March 1997. The Company recognized $1.6
million of gains related to these contracts based on settlements during the
first quarter of 1997. These gains were reflected as additions to gas revenues
in the period settled.
F-14
<PAGE> 71
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the second quarter of 1997, the Company entered various swap sales
contracts with terms as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
QUANTITY PRICE PER
PERIOD PRODUCT (MMBtu's) MMBtu's(a) INDEX
--------------------------------- ----------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
July - September................. Natural Gas 460,000 $ 1.75 CIG
July - September................. Natural Gas 920,000 $ 2.14 NGPL
July - September................. Natural Gas 920,000 $ 2.15 PEPL
----------------
2,300,000
=============
</TABLE>
- ---------------
(a) The average wellhead price related to the above swap contracts taking into
consideration the value of the related natural gas liquids, net of any
gathering, transportation and processing fees, is estimated at $2.05 per
Mcf.
Supplemental Cash Flow Information
The Gerrity Acquisition involved cash and non-cash consideration as
presented below (in thousands):
<TABLE>
<S> <C>
Cash payments made for merger..................................... $ 14,257
Senior debt assumed............................................... 19,000
Subordinated debt assumed......................................... 105,805
Minority interest in Gerrity preferred stock not exchanged at
merger date..................................................... 9,878
Preferred stock issued............................................ 30,122
Common stock and warrants issued.................................. 46,750
Other liabilities assumed......................................... 12,423
--------
Fair value of assets acquired..................................... $238,235
========
</TABLE>
The above cash payments made include approximately $4.9 million of costs
capitalized and allocated to oil and gas properties. The above cash payments are
reduced in the accompanying consolidated statements of cash flows by $2.1
million of cash acquired in the Gerrity Acquisition.
Risks and Uncertainties
Historically, the market for oil and gas has experienced significant price
fluctuations. Prices for natural gas in the Rocky Mountain region have
traditionally been particularly volatile and have been depressed since 1994. In
large part, the decreased prices are the result of mild weather, increased
production in the region and limited transportation capacity to other regions of
the country. In the fourth quarter of 1996, both oil and natural gas prices
increased considerably, however, there can be no assurance that these increases
will be sustained. Increases or decreases in prices received could have a
significant impact on the Company's future results of operations. Subsequent to
year-end, both oil and gas prices have declined to levels similar to the
Company's realized average prices in 1996.
Other
All liquid investments with an original maturity of three months or less
are considered to be cash equivalents. Certain amounts in prior period
consolidated financial statements have been reclassified to conform with current
classification.
All cash payments for income taxes were made by SOCO during 1994, 1995 and
through May 2, 1996 at which point the Company began paying its own taxes. The
Company was charged interest by SOCO on its debt to SOCO of $3.9 million, $5.4
million and $1.6 million during 1994, 1995 and through May 2, 1996, which was
reflected as an increase in debt to SOCO.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The preparation of financial
statements in conformity with generally accepted accounting principles requires
F-15
<PAGE> 72
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) OIL AND GAS PROPERTIES
The cost of oil and natural gas properties at December 31, 1994, 1995 and
1996 and June 30, 1997 includes no significant unevaluated leasehold. Acreage is
generally held for exploration, development or resale and its value, if any, is
excluded from amortization. The following table sets forth costs incurred
related to oil and natural gas properties.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Acquisition..................... $ 7,556 $ 650 $218,380 $ 101
Development..................... 88,213 12,141 8,301 7,972
Exploration and other........... 1,693 429 224 62
------- ------- -------- ------
$97,462 $13,220 $226,905 $ 8,135
======= ======= ======== ======
</TABLE>
In May 1996, the Gerrity Acquisition discussed in Note 1 was consummated.
The following table summarizes the unaudited pro forma effects on the Company's
financial statements assuming that the Gerrity Acquisition and the Original
Exchange Offer had been consummated on January 1, 1995 and 1996. Future results
may differ substantially from pro forma results due to changes in these
assumptions, changes in oil and natural gas prices, production declines and
other factors. Therefore, pro forma statements cannot be considered indicative
of future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS
--------------------- ENDED
1995 1996 JUNE 30, 1996
-------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenues......................... $103,962 $100,138 $47,060
Total expenses......................... $111,300 $ 96,662 $50,713
Depletion, depreciation and
amortization......................... $ 63,383 $ 51,662 $27,945
Net income (loss)...................... $ (7,338) $ 3,476 $(3,653)
Net income (loss) per common share..... $ (0.51) $ 0.03 $ (0.27)
Weighted average shares outstanding.... 20,000 19,796 18,921
</TABLE>
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Bank facilities.................................. $ -- $ 94,500 $85,000
Less current portion............................. -- -- --
------- -------- -------
Senior debt, net............................... $ -- $ 94,500 $85,000
======= ======== =======
Subordinated notes............................... $ -- $103,094 $97,685
======= ======== =======
Debt to parent................................... $75,000 $ -- $ --
======= ======== =======
</TABLE>
As of July 24, 1997, the Company had approximately $173.7 million of debt
outstanding, consisting of $76.0 million of senior debt and $97.7 million of
Notes.
F-16
<PAGE> 73
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, the Company entered into an amended bank credit agreement
(the "Facility"). The Facility is a revolving credit facility in an aggregate
amount up to $140.0 million. The amount available under the Facility is adjusted
semiannually and equaled $110.0 million at June 30, 1997, with $85.0 million
outstanding under the revolving credit facility.
The borrower may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) prime rate plus a margin
equal to 0.25% (the "Applicable Margin") or (b) the Federal Funds Effective Rate
plus .5% plus the Applicable Margin, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
0.625% to 1.125%, determined by a debt to EBITDA ratio. During the six months
ended June 30, 1997, the average interest rate under the facility approximated
6.8%.
The bank credit agreement contains certain financial covenants, including
but not limited to, a maximum total debt to capitalization ratio, a maximum
total debt to EBITDA ratio and a minimum current ratio. The bank credit
agreement also contains certain negative covenants, including but not limited to
restrictions on indebtedness; certain liens; guaranties, speculative derivatives
and other similar obligations; asset dispositions; dividends, loans and
advances; creation of subsidiaries; investments; leases; acquisitions; mergers;
changes in fiscal year; transactions with affiliates; changes in business
conducted; sale and leaseback and operating lease transactions; sale of
receivables; prepayment of other indebtedness; amendments to principal
documents; negative pledge causes; issuance of securities; and non-speculative
commodity hedging.
In conjunction with the Gerrity Acquisition, the Company assumed $100
million of 11.75% Senior Subordinated Notes due July 15, 2004 issued by Gerrity
in 1994. Under purchase accounting, the Notes have been reflected in the
accompanying financial statements at a book value of 105.875% of their principal
amount. Interest is payable each January 15, and July 15. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after July 15, 1999, initially at 105.875% of their principal amount, declining
to 102.938% on or after July 15, 2000 and declining to 100% on or after July 15,
2001. Upon a change of control, as defined in the Notes, the Company is
obligated to make an offer to purchase all outstanding Notes at a price of 101%
of the principal amount thereof. In addition, the Company would be obligated,
subject to certain conditions, to make offers to purchase Notes with the net
cash proceeds of certain asset sales or other dispositions of assets at a price
of 101% of the principal amount thereof. Subsequent to the Gerrity Acquisition,
the Company repurchased and retired $7.7 million of the Notes, resulting in
$92.3 million of principal amount of Notes outstanding, or a book value of $97.7
million in the accompanying financial statements. The Notes are unsecured
general obligations of the Company and are subordinated to all senior
indebtedness of the Company and to any existing and future indebtedness of the
Company's subsidiaries.
The Notes contain covenants that, among other things, limit the ability of
the Company to incur additional indebtedness, pay dividends, engage in
transactions with shareholders and affiliates, create liens, sell assets, engage
in mergers and consolidations and make investments in unrestricted subsidiaries.
Specifically, the Notes restrict the Company from incurring indebtedness
(exclusive of the Notes) in excess of approximately $51.0 million, if after
giving effect to the incurrence of such additional indebtedness and the receipt
and application of the proceeds therefrom, the Company's interest coverage ratio
is less than 2.5:1 or adjusted consolidated net tangible assets is less than
150% of the aggregate indebtedness of the Company. The Company currently meets
these ratios and accordingly, is not limited in its ability to incur additional
debt.
Prior to the Gerrity Acquisition, SOCO financed all of the Company's
activities. A portion of such financing was considered to be an investment by
parent in the Company with the remaining portion being considered debt to
parent. The portion considered to be debt to parent versus an investment by
parent was a discretionary percentage determined by SOCO after consideration of
the Company's internally generated cash flows and level of capital expenditures.
Subsequent to the Gerrity Acquisition, the $75.0 million debt to parent was paid
in full and the Company does not expect SOCO to provide any additional funding.
F-17
<PAGE> 74
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On the portion of such financing which was considered to be debt to parent,
SOCO charged interest at a rate which approximated the average interest rate
being paid by SOCO under its revolving credit facility (5.5%, 7.0% and 6.9% for
1994, 1995 and the four month period ended May 2, 1996, respectively).
Scheduled maturities of indebtedness for the next five years are zero for
1997, 1998, and 1999, and $85.0 million in 2000, and zero in 2001. The long-term
portions of the credit facilities are scheduled to expire in 2000; however, it
is management's intent to review both the short-term and long-term facilities
and extend the maturities on a regular basis.
There were no cash payments for interest expense in 1994, 1995 or in the
first four months of 1996. Cash payments for interest totaled $10.5 million in
the eight months ended December 31, 1996 and $8.7 million for the six months
ended June 30, 1997.
(5) STOCKHOLDERS' EQUITY
A total of 40,000,000 common shares, $0.01 par value, are authorized of
which 18,820,248 were issued and outstanding at June 30, 1997. The Company
issued 6,000,000 common shares and 3,000,000 warrants exercisable at $12.50 in
exchange for all of the outstanding stock of Gerrity upon consummation of the
Gerrity Acquisition. Of the 18,820,248 shares outstanding, 2,000,000 are
designated as Series A Common Stock. The Series A Common Stock is identical to
the common shares except that the Series A Common Stock is entitled to three
votes per share rather than one vote per share. The Series A Common Stock is
owned by SOCO and reverts to regular common shares upon certain conditions.
Subsequent to the merger date, the Company repurchased 1,187,200 shares of
common stock, 500,000 warrants issued to Gerrity's former chief executive
officer, and 80,549 warrants for total consideration of $10.5 million. No
dividends have been paid on common stock as of June 30, 1997.
A total of 5,000,000 preferred shares, $0.01 par value, are authorized of
which 1,467,926 were issued and outstanding at June 30, 1997. In May 1996, 1.2
million shares of 7.125% preferred stock were issued to certain Gerrity
preferred shareholders electing to exchange their preferred shares in the
Original Exchange Offer. Thus there were no proceeds received related to this
issuance. In October 1996, Gerrity's certificate of incorporation was amended to
provide that all shares of Gerrity's preferred stock not exchanged in the
Original Exchange Offer be exchanged for the Company's preferred shares on the
same terms as the Original Exchange Offer. This exchange resulted in the
issuance of an additional 389,000 preferred shares. The stock is convertible
into common stock at any time at $8.61 per share. The 7.125% preferred stock is
redeemable at the option of the Company at any time after May 2, 1998 if the
average closing price of the Company's common stock for 20 of the 30 days prior
to not less than five days preceding the redemption date is greater than $12.92
per share or at any time after May 2, 1999. The liquidation preference is $25.00
per share, plus accrued and unpaid dividends. The Company paid $2.1 and $1.3
million ($1.78 per 7.125% convertible share per annum) in preferred dividends
during the year ended December 31, 1996 and for the six months ended, June 30,
1997 and had accrued an additional $354,000 at December 31, 1996 and $327,000 at
June 30, 1997 for dividends.
Earnings per share are computed by dividing net income, less dividends on
preferred stock, by weighted average common shares outstanding. Net income
(loss) applicable to common for 1994, 1995, 1996 and the six months ended June
30, 1997, was $2,950,000, ($2,094,000), $1,433,000 and $5,754,000, respectively.
Differences between primary and fully diluted earnings per share were
insignificant for all periods presented.
In 1996, the shareholders adopted a stock option plan for employees
providing for the issuance of options at prices not less than fair market value.
Options to acquire up to three million shares of common stock may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A total of 512,000
options were issued in May 1996 with an exercise price of $7.75 per common share
and 271,000 options were issued in February 1997 with an exercise
F-18
<PAGE> 75
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $9.25 per common share. The options vest over a three-year period (30%,
60%, 100%) and expire five years from date of grant.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for nonemployee Directors of the Company. The Directors' Plan
provides for each nonemployee Director to receive common shares having a market
value equal to $2,250 quarterly in payment of one-half their retainer. A total
of 3,632 shares were issued in 1996 and 2,076 shares were issued during the
first six months of 1997. It also provides for 5,000 options to be granted
annually to each nonemployee Director. A total of 20,000 options were issued in
May 1996 with an exercise price of $7.75 per common share and 20,000 options
were issued in May 1997 with an exercise price of $8.625. The options vest over
a three-year period (30%, 60%, 100%) and expire five years from date of grant.
At December 31, 1996, the Company had a fixed stock option compensation
plan, which is described above. The Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for these fixed stock option plans. Had compensation cost for the Company's
fixed stock option compensation plans been determined consistent with Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation," the Company's net income (in thousands) and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Net income (loss)
As reported....................................................... $ 3,562
Pro forma......................................................... $ 3,281
Income (loss) per common share
As reported....................................................... $ 0.08
Pro forma......................................................... $ 0.06
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 0%; expected volatility
of 30%; risk-free interest rate of 6.4%; and expected life of 4.5 years.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and changes during the year is presented below (shares are in
thousands):
<TABLE>
<CAPTION>
1996
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ ----------------
<S> <C> <C>
Outstanding at beginning of year....................... -- $ --
Granted................................................ 532 7.75
Exercised.............................................. -- --
Forfeited.............................................. (29) 7.75
---
Outstanding at end of year............................. 503 7.75
Options exercisable at year end........................ -- --
---
Weighted-average fair value of options granted during
the year............................................. $ 2.81
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVG. NUMBER
OUTSTANDING AT REMAINING WEIGHTED- EXERCISABLE AT WEIGHTED-
DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICE 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- -------------- -------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
7.75...... 503,000 4.3 years $ 7.75 -- --
</TABLE>
F-19
<PAGE> 76
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) FEDERAL INCOME TAXES
Prior to the Gerrity Acquisition, the Company had been included in the tax
return of SOCO. Current and deferred income tax provisions allocated by SOCO
were determined as though the Company filed as an independent company, making
the same tax return elections used in SOCO's consolidated return. Subsequent to
the Gerrity Acquisition, the Company will not be included in the tax return of
SOCO.
A reconciliation of the statutory rate to the Company's effective rate as
they apply to the provision (benefit) for the years ended December 31, 1994,
1995, 1996 and the six months ended, June 30, 1997 follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1994 1995 1996 JUNE 30, 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Federal statutory rate................... 35% (35)% 35% 35%
Utilization of net deferred tax asset.... -- -- (35)% (35)%
Tax benefit recognized prior to Gerrity
Acquisition............................ -- -- (12)% --
--
--- --- ---
Effective income tax rate................ 35% (35)% (12)% --%
== === === ===
</TABLE>
For book purposes the components of the net deferred asset and liability at
December 31, 1995 and 1996, respectively, were:
<TABLE>
<CAPTION>
1995 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
NOL carryforwards..................................... $ 15,716 $24,586
Production payment receivables and other.............. 128 27,382
-------- -------
15,844 51,968
-------- -------
Deferred tax liabilities
Depreciable and depletable property................... 41,169 48,145
Investments and other................................. -- --
-------- -------
41,169 48,145
-------- -------
Deferred tax assets (liability)......................... (25,325) 3,823
-------- -------
Valuation allowance..................................... -- (3,823)
-------- -------
Net deferred tax asset (liability)...................... $(25,325) $ --
======== =======
</TABLE>
For tax purposes, the Company had regular net operating loss carryforwards
of $70.2 million and alternative minimum tax ("AMT") loss carryforwards of $35.1
million at December 31, 1996. Utilization of $31.9 million regular net operating
loss carryforwards and $31.6 million AMT loss carryforwards will be limited to
$5.2 million per year as a result of the merger of Gerrity and SWAT on May 2,
1996. These carryforwards expire from 2006 through 2011. At December 31, 1996,
the Company had alternative minimum tax credit carryforwards of $478,000 which
are available indefinitely. No cash payments were made by the Company for
federal taxes during 1995 and 1996. As discussed in Note 1, the accompanying
financial statements include certain Wattenberg operations previously owned
directly by SOCO. Accordingly, certain operating losses generated by these
properties were retained by SOCO. In addition, certain taxable income generated
by SOCO did not offset the Company's net operating loss carryforwards. Prior to
the Gerrity Acquisition, the effect of such items has been reflected as a charge
or credit in lieu of taxes in the Company's consolidated statement of changes in
stockholders' equity.
F-20
<PAGE> 77
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) MAJOR CUSTOMERS
During 1996 and the six months ended June 30, 1997, PanEnergy, Inc.
accounted for 38% and 42% of revenues, respectively. During 1994, 1995, 1996 and
the six months ended June 30, 1997, Amoco Production Company accounted for 25%,
22%, 19% and 15%, subsidiaries of SOCO accounted for 59%, 46%, 0% and 0%, and
Total Petroleum accounted for 15%, 20%, 10%, and 8% of revenues, respectively.
Management believes that the loss of any individual purchaser would not have a
long-term material adverse impact on the financial position or results of
operations of the Company.
(8) RELATED PARTY
Prior to the Gerrity Acquisition, the Company did not have its own
employees. Employees, certain office space and furniture, fixtures and equipment
were provided by SOCO. SOCO allocated general and administrative expenses to the
Company based on its estimate of expenditures incurred on behalf of the Company.
Subsequent to the Gerrity Acquisition, certain field, administrative and
executive employees of SOCO and Gerrity became employees of the Company. SOCO
will continue to provide certain services to the Company under the Transition
Agreement. During 1996 and the first six months of 1997, the Company paid
approximately $650,000 and $898,000, respectively to SOCO under a corporate
services agreement.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under non-cancellable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 1997 through 2001.
The Company is a party to various other lawsuits incidental to its
business, none of which are anticipated to have a material adverse impact on its
financial position or results of operations.
(10) UNAUDITED SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
Independent petroleum consultants directly evaluated 89%, 100% and 100% of
proved reserves at December 31, 1994, 1995 and 1996, respectively. All reserve
estimates are based on economic and operating conditions at that time. Future
net cash flows as of each year-end were computed by applying then current prices
to estimated future production less estimated future expenditures (based on
current costs) to be incurred in producing and developing the reserves. All
reserves are located onshore in the United States.
Future prices received for production and future production costs may vary,
perhaps significantly, from the prices and costs assumed for purposes of these
estimates. There can be no assurance that the proved reserves will be developed
within the periods indicated or that prices and costs will remain constant. With
respect to certain properties that historically have experienced seasonal
curtailment, the reserve estimates assume that the seasonal pattern of such
curtailment will continue in the future. There can be no assurance that actual
production will equal the estimated amounts used in the preparation of reserve
projections.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures. The data in the tables below represent estimates only.
Oil and natural gas reserve engineering must be recognized as a subjective
process of estimating underground accumulations of oil and gas that cannot be
measured in an exact way, and estimates of other engineers might differ
materially from those shown above. The accuracy of any reserve estimate is a
function of the quality of available data and engineering and geological
interpretation and judgement. Results in drilling, testing and production after
the date of the estimate may justify revisions. Accordingly, reserve estimates
are often materially different from the quantities of oil and natural gas that
are ultimately recovered.
F-21
<PAGE> 78
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUANTITIES OF PROVED RESERVES --
<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
Balance, December 31, 1993............................ 16,928 229,862
Revisions........................................... (4,450) (50,021)
Extensions, discoveries and additions............... 1,372 20,900
Production.......................................... (1,829) (23,893)
Purchases........................................... 197 1,855
Sales............................................... -- --
------ -------
Balance, December 31, 1994............................ 12,218 178,703
Revisions........................................... (3,609) (19,618)
Extensions, discoveries and additions............... 154 785
Production.......................................... (1,342) (20,981)
Purchases........................................... -- --
Sales............................................... -- (32)
------ -------
Balance, December 31, 1995............................ 7,421 138,857
Revisions........................................... 720 (1,314)
Extensions, discoveries and additions............... 194 1,342
Production.......................................... (1,688) (23,947)
Purchases........................................... 15,834 183,729
Sales............................................... (6) (2,008)
------ -------
Balance, December 31, 1996............................ 22,475 296,659
====== =======
</TABLE>
PROVED DEVELOPED RESERVES --
<TABLE>
<CAPTION>
OIL NATURAL GAS
------ -----------
(MBbl) (MMcf)
<S> <C> <C>
December 31, 1993..................................... 7,365 136,765
====== =======
December 31, 1994..................................... 8,832 147,869
====== =======
December 31, 1995..................................... 6,955 133,088
====== =======
December 31, 1996..................................... 15,799 242,777
====== =======
</TABLE>
F-22
<PAGE> 79
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE --
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows............................... $ 356,224 $1,668,475
Future costs:
Production...................................... (100,505) (338,752)
Development..................................... (13,428) (160,856)
---------- ----------
Future net cash flows............................. 242,291 1,168,867
Undiscounted income taxes......................... (29,873) (294,407)
---------- ----------
After tax net cash flows.......................... 212,418 874,460
10% discount factor............................... (84,902) (374,524)
---------- ----------
Standardized measure.............................. $ 127,516 $ 499,936
========== ==========
</TABLE>
CHANGES IN STANDARDIZED MEASURE --
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure, beginning of year... $191,011 $161,481 $ 127,516
Revisions:
Prices and costs........................ (56,928) 2,240 351,724
Quantities.............................. (29,498) (14,230) 501
Development costs....................... (8,044) (1,182) (11,024)
Accretion of discount................... 19,101 16,148 27,619
Income taxes............................ 23,121 10,963 (129,612)
Production rates and other.............. (8,422) (21,265) (3,706)
-------- -------- ---------
Net revisions........................... (60,670) (7,326) 235,502
Extensions, discoveries and additions..... 19,583 2,064 3,791
Production................................ (58,099) (40,877) (67,666)
Future development costs incurred......... 67,484 12,192 7,906
Purchases(a).............................. 2,172 -- 193,998
Sales (b)................................. -- (18) (1,111)
-------- -------- ---------
Standardized measure, end of year......... $161,481 $127,516 $ 499,936
======== ======== =========
</TABLE>
- ---------------
(a) "Purchases" includes the present value at the end of the period acquired
during the year plus the cash flow received on such properties during the
period, rather than their estimated present value at the time of the
acquisition.
(b) "Sales" represents the present value at the beginning of the period of
properties sold, less the cash flow received on such properties during the
period.
F-23
<PAGE> 80
======================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION SET HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 11
Concurrent Transactions............... 17
Capitalization........................ 21
Use of Proceeds....................... 21
Price Range of Common Stock........... 22
Dividend Policy....................... 22
Selected Historical and Pro Forma
Consolidated Financial Data......... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 30
Management............................ 38
Security Ownership of Certain
Beneficial Owners and Management.... 43
Selling Stockholder................... 45
Description of Capital Stock.......... 45
Description of Certain Indebtedness... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Glossary of Oil and Gas Terms......... 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
7,500,000 SHARES
PATINA OIL & GAS
CORPORATION
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
JEFFERIES & COMPANY, INC.
PAINEWEBBER INCORPORATED
======================================================
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES IN ISSUANCE AND DISTRIBUTION
Expenses of issuance and distribution, other than underwriting discounts
and commissions, have been estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 22,216
Transfer agent fees................................................ *
Legal fees and expenses............................................ *
Accounting fees.................................................... *
Engineering fees................................................... *
Printing expenses.................................................. *
Blue sky fees and expenses (including fees of counsel)............. *
Miscellaneous...................................................... *
Total.................................................... *
-------
$ *
=======
</TABLE>
SOCO will not pay any portion of such expenses.
- ---------------
* To be completed by amendment
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits -
<TABLE>
<S> <C>
1.1** Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger dated as of January 16, 1996 as
amended and restated as of March 20, 1996 -- incorporated by reference to Exhibit
2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of Patina Oil &
Gas Corporation (Registration No. 333-572)
4.1 Certificate of Incorporation -- incorporated herein by reference to the Exhibit
3.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-572)
4.1.1** Certificate of Designation for New Preferred Stock (included in Exhibit 10.11)
4.2 Bylaws -- incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-572)
4.3 Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and
into the Company, effective March 21, 1997 -- incorporated herein by reference to
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997
4.4** Indenture, dated as of June 30, 1994, between Gerrity Oil & Gas Corporation and
Chemical Bank (now known as The Chase Manhattan Bank)
4.4.1 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil & Gas
Corporation, the Company and The Chase Manhattan Bank (formerly known as Chemical
Bank) as Trustee -- incorporated herein by reference to Exhibit 10.1.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
(Commission file number 1-14344)
5.1* Opinion of Simpson Thacher & Bartlett as to the validity of the shares of Common
Stock of the Registrant being registered
10.1 Business Opportunity Agreement -- incorporated herein by reference to Exhibit 2.2
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
</TABLE>
II-1
<PAGE> 82
<TABLE>
<S> <C>
10.1.1** Form of Termination of Business Opportunity Agreement dated , 1997, between
the Company and Snyder Oil Corporation
10.2 Corporate Services Agreement -- incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4 of Patina Oil & Gas Corporation (Registration
No. 333-572)
10.2.1** Form of Termination of Corporate Services Agreement, dated , 1997, between
the Company and Snyder Oil Corporation
10.3** Form of Transition Agreement, dated , 1997, between the Company
and Snyder Oil Corporation
10.4 Credit Agreement dated as of May 2, 1996 among the Company, Gerrity Oil & Gas
Corporation and SOCO Wattenberg Corporation, as Borrowers, certain financial
institutions, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1 to the Company's Form 8-K dated May 2, 1996 (Commission
file number 1-14344)
10.4.1 First Amendment to Credit Agreement dated June 28, 1996 by and among the Company,
Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as Borrowers, and
Texas Commerce Bank National Association, as Administrative Agent, and certain
commercial lending institutions -- incorporated herein by reference to Exhibit
10.1.1 to the Company's Form 10-Q for the quarter ending June 30, 1996
(Commission file number 1-14344)
10.4.2 Second Amendment to Credit Agreement effective October 8, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative Agent,
and certain commercial lending institutions -- incorporated herein by reference
to Exhibit 10.74 of the Company's Form 10-Q for the quarter ending September 30,
1996 (Commission file number 1-14344)
10.4.3 Third Amendment to Credit Agreement effective November 1, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative Agent,
and certain commercial lending institutions -- incorporated herein by reference
to Exhibit 10.75 of the Company's Form 10-Q for the quarter ending September 30,
1996 (Commission file number 1-14344)
10.4.4 Amended and Restated Credit Agreement dated April 1, 1997 by and among the
Company, as Borrower, and Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending institutions -- incorporated
herein by reference to Exhibit 10.1.5 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 (Commission file number 1-14344)
10.4.5 First Amendment to the Amended and Restated Credit Agreement effective May 1,
1997 by and among the Company, as Borrower, and Texas Commerce Bank National
Association, as Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.5 Agreement dated July 16, 1996 by and between F. H. Smith, employee, and the
Company -- incorporated herein by reference to Exhibit 10.3 of the Company's Form
10-Q for the quarter ending June 30, 1996 (Commission file number 1-14344)
10.5.1 Deferred Compensation Plan for Selected Employees adopted by the Company
effective May 1, 1996 -- incorporated herein by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
10.5.2** Employment Agreement, dated July 31, 1997, between the Registrant and Thomas J.
Edelman
10.7 Sublease Agreement dated as of May 1, 1996 by and between Snyder Oil Corporation,
as Sublandlord, and the Company, as Subtenant -- incorporated herein by reference
to Exhibit 10.4 of the Company's Form 10-Q for the quarter ending June 30, 1996
(Commission file number 1-14344)
</TABLE>
II-2
<PAGE> 83
<TABLE>
<S> <C>
10.7.1 Sublease Agreement dated as of October 7, 1996 by and between Gerrity Oil & Gas
Corporation, as Sublandlord, and Shadownet Technologies, L.L.C. -- incorporated
herein by reference to Exhibit 10.76 of the Company's Form 10-Q for the quarter
ending September 30, 1996 (Commission file number 1-14344)
10.9 Registration Rights Agreement -- incorporated herein by reference to Exhibit 2.4
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.10 Cross Indemnification Agreement -- incorporated herein by reference to Exhibit
2.5 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.11** Stock Purchase Agreement, dated as of July 31, 1997 among the Company and the New
Preferred Stock Investors
10.12** Share Repurchase Agreement, dated as of July 31, 1997, by and between the Company
and Snyder Oil Corporation (included in Exhibit 10.11)
10.13** Management Stock Purchase Agreement, dated as of September 4, 1997, by and among
the Company and the Management Investors
10.13.1** Form of Pledge Agreement (included in exhibit 10.13)
10.13.2** Form of Promissory Note (included in exhibit 10.13)
10.14** Form of Restricted Stock Agreement, dated September 4, 1997, by and among the
Company and the Management Investors
11.1 Computation of Per Share Earnings -- incorporated herein by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends -- incorporated herein by
reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996
20** Fairness opinion of A.G. Edwards & Sons, Inc. dated July 30, 1997.
23.1** Consent of Arthur Andersen L.L.P.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
23.4** Consent of A.G. Edwards & Sons, Inc.
23.5*** Consent of Coopers & Lybrand L.L.P.
24.1* Power of Attorney of directors and officers
27 Financial Data Schedule -- incorporated herein by reference to Exhibit 27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
99.1 Reserve letter from Netherland, Sewell & Associates, Inc. Dated February 5, 1997
to the Patina Oil & Gas Corporation interest as of December 31,
1996 -- incorporated herein by reference to Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
99.2* Consent of Mr. Arnold L. Chavkin to being named in the Registration Statement as
a person about to become a director of the Registrant
99.3* Consent of Mr. William E. Macaulay to being named in the Registration Statement
as a person about to become a director of the Registrant
</TABLE>
- ---------------
* Previously filed
** Filed herewith
*** To be filed by amendment
II-3
<PAGE> 84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THE DAY OF
SEPTEMBER, 1997.
PATINA OIL & GAS CORPORATION
(Registrant)
By:
------------------------------------
Brian J. Cree
Executive Vice President and
Chief Operating Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- ------------------------------- -------------------
<C> <S> <C>
THOMAS J. EDELMAN* Chairman of the Board, September , 1997
- ---------------------------------------- President, Chief Executive
Thomas J. Edelman Officer and Director
Executive Vice President, Chief September , 1997
- ---------------------------------------- Operating Officer and
Brian J. Cree Director
DAVID J. KORNDER* Vice President and Chief September , 1997
- ---------------------------------------- Financial Officer
David J. Kornder
ROBERT J. CLARK* Director September , 1997
- ----------------------------------------
Robert J. Clark
JAY W. DECKER* Director September , 1997
- ----------------------------------------
Jay W. Decker
WILLIAM J. JOHNSON* Director September , 1997
- ----------------------------------------
William J. Johnson
ALEXANDER P. LYNCH* Director September , 1997
- ----------------------------------------
Alexander P. Lynch
JOHN C. SNYDER* Director September , 1997
- ----------------------------------------
John C. Snyder
*By:
- ----------------------------------------
Brian J. Cree
Attorney in Fact
</TABLE>
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger dated as of January 16, 1996
as amended and restated as of March 20, 1996 -- incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration Statement on Form S-4 of
Patina Oil & Gas Corporation (Registration No. 333-572)
4.1 Certificate of Incorporation -- incorporated herein by reference to the Exhibit
3.1 to the Company's Registration Statement on Form S-4 (Registration No.
333-572)
4.1.1** Certificate of Designation for New Preferred Stock (included in Exhibit 10.11)
4.2 Bylaws -- incorporated herein by reference to Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-572)
4.3 Certificate of Ownership and Merger of Gerrity Oil & Gas Corporation with and
into the Company, effective March 21, 1997 -- incorporated herein by reference
to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997
4.4** Indenture, dated as of June 30, 1994, between Gerrity Oil & Gas Corporation and
Chemical Bank (now known as The Chase Manhattan Bank)
4.4.1 Supplemental Indenture dated as of March 31, 1997 among Gerrity Oil & Gas
Corporation, the Company and The Chase Manhattan Bank (formerly known as
Chemical Bank) as Trustee -- incorporated herein by reference to Exhibit 10.1.7
to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 (Commission file number 1-14344)
5.1* Opinion of Simpson Thacher & Bartlett as to the validity of the shares of Common
Stock of the Registrant being registered
10.1 Business Opportunity Agreement -- incorporated herein by reference to Exhibit
2.2 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.1.1** Form of Termination of Business Opportunity Agreement dated , 1997, between
the Company and Snyder Oil Corporation
10.2 Corporate Services Agreement -- incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4 of Patina Oil & Gas Corporation (Registration
No. 333-572)
10.2.1** Form of Termination of Corporate Services Agreement, dated , 1997, between
the Company and Snyder Oil Corporation
10.3** Form of Transition Agreement, dated , 1997, between the Company
and Snyder Oil Corporation
10.4 Credit Agreement dated as of May 2, 1996 among the Company, Gerrity Oil & Gas
Corporation and SOCO Wattenberg Corporation, as Borrowers, certain financial
institutions, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1 to the Company's Form 8-K dated May 2, 1996
(Commission file number 1-14344)
10.4.1 First Amendment to Credit Agreement dated June 28, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.1.1 to the Company's Form 10-Q for the quarter ending
June 30, 1996 (Commission file number 1-14344)
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.4.2 Second Amendment to Credit Agreement effective October 8, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.74 of the Company's Form 10-Q for the quarter ending
September 30, 1996 (Commission file number 1-14344)
10.4.3 Third Amendment to Credit Agreement effective November 1, 1996 by and among the
Company, Gerrity Oil & Gas Corporation and SOCO Wattenberg Corporation, as
Borrowers, and Texas Commerce Bank National Association, as Administrative
Agent, and certain commercial lending institutions -- incorporated herein by
reference to Exhibit 10.75 of the Company's Form 10-Q for the quarter ending
September 30, 1996 (Commission file number 1-14344)
10.4.4 Amended and Restated Credit Agreement dated April 1, 1997 by and among the
Company, as Borrower, and Texas Commerce Bank National Association, as
Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.5 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.4.5 First Amendment to the Amended and Restated Credit Agreement effective May 1,
1997 by and among the Company, as Borrower, and Texas Commerce Bank National
Association, as Administrative Agent, and certain commercial lending
institutions -- incorporated herein by reference to Exhibit 10.1.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997
(Commission file number 1-14344)
10.5 Agreement dated July 16, 1996 by and between F. H. Smith, employee, and the
Company -- incorporated herein by reference to Exhibit 10.3 of the Company's
Form 10-Q for the quarter ending June 30, 1996 (Commission file number 1-14344)
10.5.1 Deferred Compensation Plan for Selected Employees adopted by the Company
effective May 1, 1996 -- incorporated herein by reference to Exhibit 10.3.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
10.5.2** Employment Agreement, dated July 31, 1997, between the Registrant and Thomas J.
Edelman
10.7 Sublease Agreement dated as of May 1, 1996 by and between Snyder Oil
Corporation, as Sublandlord, and the Company, as Subtenant -- incorporated
herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the quarter
ending June 30, 1996 (Commission file number 1-14344)
10.7.1 Sublease Agreement dated as of October 7, 1996 by and between Gerrity Oil & Gas
Corporation, as Sublandlord, and Shadownet Technologies, L.L.C. -- incorporated
herein by reference to Exhibit 10.76 of the Company's Form 10-Q for the quarter
ending September 30, 1996 (Commission file number 1-14344)
10.9 Registration Rights Agreement -- incorporated herein by reference to Exhibit 2.4
to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.10 Cross Indemnification Agreement -- incorporated herein by reference to Exhibit
2.5 to the Company's Form 8-K dated May 2, 1996 (Commission file number 1-14344)
10.11** Stock Purchase Agreement, dated as of July 31, 1997 among the Company and the
New Preferred Stock Investors
10.12** Share Repurchase Agreement, dated as of July 31, 1997, by and between the
Company and Snyder Oil Corporation (included in Exhibit 10.11)
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.13** Management Stock Purchase Agreement, dated as of September 4, 1997, by and among
the Company and the Management Investors
10.13.1** Form of Pledge Agreement (included in Exhibit 10.13)
10.13.2** Form of Promissory Note (included in Exhibit 10.13)
10.14** Form of Restricted Stock Agreement, dated September 4, 1997, by and among the
Company and the Management Investors
11.1 Computation of Per Share Earnings -- incorporated herein by reference to Exhibit
11.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends -- incorporated herein by
reference to Exhibit 12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996
20** Fairness opinion of A.G. Edwards & Sons, Inc, dated July 30, 1997.
23.1** Consent of Arthur Andersen L.L.P.
23.2* Consent of Netherland, Sewell & Associates, Inc.
23.3* Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
23.4** Consent of A.G. Edwards & Sons, Inc
23.5*** Consent of Coopers & Lybrand L.L.P.
24.1* Power of Attorney of directors and officers
27 Financial Data Schedule -- incorporated herein by reference to Exhibit 27 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
99.1 Reserve letter from Netherland, Sewell & Associates, Inc. Dated February 5, 1997
to the Patina Oil & Gas Corporation interest as of December 31,
1996 -- incorporated herein by reference to Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
99.2* Consent of Mr. Arnold L. Chavkin to being named in the Registration Statement as
a person about to become a director of the Registrant
99.3* Consent of Mr. William E. Macaulay to being named in the Registration Statement
as a person about to become a director of the Registrant
</TABLE>
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* Previously filed
** Filed herewith
*** To be filed by amendment
<PAGE> 1
Exhibit 1.1
7,500,000 Shares
PATINA OIL & GAS CORPORATION
Common Stock
UNDERWRITING AGREEMENT
September__, 1997
SMITH BARNEY INC.
[MORGAN STANLEY & CO.]
c/o Smith Barney Inc.
388 Greenwich Street
New York, N.Y. 10013
As Representatives of the Several Underwriters
Dear Sirs:
Snyder Oil Corporation, a Delaware corporation (the "Selling
Stockholder"), proposes to sell to the several Underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of 7,500,000 shares of common stock of
the Patina Oil & Gas Corporation, a Delaware corporation (the "Company"). The
Company's common stock, $0.01 par value, is hereinafter referred to as the
"Common Stock" and the 7,500,000 shares of Common Stock to be sold to the
Underwriters by the Selling Stockholder are hereinafter referred to as the "Firm
Shares". The Selling Stockholder also proposes to sell to the Underwriters, upon
the terms and conditions set forth in Section 2 hereof, up to an additional
1,125,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholder wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 (Registration No. 333-32671) under
the Act (the "Registration Statement"), including a prospectus subject to
completion relating to the Shares. The term "Registration Statement" as used in
this Underwriting Agreement (the "Agreement"), means the initial registration
statement (including all financial schedules and exhibits) and any registration
statement increasing the size of the
<PAGE> 2
offering filed pursuant to Rule 462(b) of the Act (including all financial
schedules and exhibits) (a "Rule 462(b) Registration Statement") as either may
be amended at the time they become effective, or, if the initial registration
statement and any Rule 462(b) Registration Statement became effective prior to
the execution of this Agreement, as either may be supplemented or amended prior
to the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If an abbreviated registration statement is prepared and filed with
the Commission in accordance with Rule 462(b) under the Act ("an Abbreviated
Registration Statement"), the term "Registration Statement" as used in this
Agreement includes the Abbreviated Registration Statement. The term "Prospectus"
as used in this Agreement means the prospectus in the form included in the
Registration Statement, or, if the prospectus included in the Registration
Statement omits information in reliance on Rule 430A under the Act and such
information is included in a prospectus filed with the Commission pursuant to
Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus. Any reference in this Agreement to the registration statement,
the Registration Statement, any Prepricing Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of the
registration statement, the Registration Statement, such Prepricing Prospectus
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") which, upon filing, are incorporated by
reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used
herein, the term "Incorporated Documents" means the documents which at the time
are incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectus, or any amendment or
supplement thereto.
2. Agreements to Sell and Purchase. Subject to such adjustments as you
may determine in order to avoid fractional shares, the Selling Stockholder
agrees, subject to all the terms and conditions set forth herein, to sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholder herein contained and
subject to all the terms and conditions set forth herein, each Underwriter,
severally and not jointly, agrees to purchase from the Selling Stockholder at a
price per share of $____________ (the "Purchase Price") that number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares to
be sold by the Selling Stockholder set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares
-2-
<PAGE> 3
increased as set forth in Section 12 hereof) bears to the aggregate number of
Firm Shares to be sold by the Selling Stockholder.
The Selling Stockholder also agrees, subject to all the terms and
conditions set forth herein, to sell to the Underwriters, and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholder herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the Selling
Stockholder, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 1,125,000 Additional Shares from the Selling
Stockholder. Additional Shares may be purchased only for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
Representatives shall give written notice to the Selling Stockholder of the
exercise of the over-allotment option on behalf of the Underwriters and the
notice shall specify the aggregate number of Additional Shares to be purchased
and the date for payment and delivery thereof. The date specified in the notice
shall be a business day (i) no earlier than the Closing Date (as hereinafter
defined), (ii) no later than ten business days after such notice has been given
and (iii) no earlier than two business days after such notice has been given.
Upon any exercise of the over-allotment option, each Underwriter, severally and
not jointly, agrees to purchase from the Selling Stockholder the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be purchased from the Selling Stockholder as the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I bears
to the total number of Firm Shares.
3. Terms of Public Offering. The Selling Stockholder has been advised
by you that the Underwriters propose to make a public offering of the Shares as
soon after the Registration Statement and this Agreement have become effective
as in your judgment is advisable and initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of Certificates for the Shares and payment for the Firm Shares for
the accounts of the several Underwriters against payment of the Purchase Price
therefor shall be made by wire transfer to the account designated by the Selling
Stockholder in writing at the office of Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, at 10:00 A.M., New York City time, on ________,1997 (the
"Closing Date"). The place of closing for the Firm Shares and the Closing Date
may be varied by agreement among you, the Company and the Selling Stockholder.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date, as shall be specified in a written
notice from you on behalf of the Underwriters to the Selling Stockholder of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional
- 3 -
<PAGE> 4
Shares. The place of closing for any Additional Shares and the Option Closing
Date for such Shares may be varied by agreement among you, the Company and the
Selling Stockholder.
It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the Purchase Price for, the Shares, if any, which it has agreed to
purchase. Smith Barney Inc. individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the Purchase
Price for the Shares, if any, to be purchased by any Underwriter whose check has
not been received by the Closing Date or the relevant Option Closing Date, as
the case may be, but such payment shall not relieve such Underwriter from its
obligations hereunder.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds, with any transfer taxes thereon
duly paid by the Selling Stockholder.
5. Agreements of the Company. The Company agrees with each of the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise the Representatives and, if
requested by Smith Barney Inc. will confirm such advice in writing promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or any order
directed at any document incorporated by reference in the Registration Statement
or the Prospectus or any amendment or supplement thereto or any order preventing
or suspending the use of any Prepricing Prospectus or the Prospectus or any
amendment or supplement thereto, (ii) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, (iii) the institution,
threatening or contemplation of any proceeding for any such purpose, or (iv) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the withdrawal thereof as
promptly as possible.
- 4 -
<PAGE> 5
(c) The Company will without charge, provide (i) to the
Representatives two signed copies of the registration statement as originally
filed with the Commission and of each amendment thereto, including financial
statements and all exhibits to the registration statement, (ii) to each other
Underwriter, such number of conformed copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits, as such
Underwriter may reasonably request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as the Representatives may reasonably
request, and (iv) to the Representatives two copies of the exhibits to the
Incorporated Documents.
(d) The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus or,
prior to the end of the period of time referred to in the first sentence in
subsection (f) below, file any document which, upon filing becomes an
Incorporated Document, of which you shall not previously have been advised and
furnished with a copy for a reasonable time prior to the proposed filing, or to
which, after you shall have received a copy of the document proposed to be
filed, you shall reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) in order to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if requested
by you, will
- 5 -
<PAGE> 6
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and counsel for the
Underwriters and will arrange for the qualification of the Shares for offering
and sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may designate and will continue such qualification in effect for
as long as may be necessary to complete the distribution of the Shares;
provided, however, that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company
will furnish to you (i) as soon as available, a copy of each report of the
Company mailed to stockholders or filed with the Commission or any governmental
authority succeeding to any of the Commission's functions, and (ii) from time to
time such other information concerning the Company as you may reasonably
request.
(j) Whether or not the transactions contemplated hereunder are
consummated or this Agreement is terminated (i) the Company will pay the costs
and charges of any transfer agent or registrar and the cost of preparing stock
certificates and (ii) the Company will pay all other expenses incident to the
performance of the obligations of the Company hereunder, the expenses of
printing all documents relating to the offering and the fees and expenses of
listing the Shares on the New York Stock Exchange ("NYSE") or any other
securities exchange; provided, however, that if this Agreement shall terminate
or shall be terminated after execution pursuant to any provisions hereof
(otherwise than pursuant to the second paragraph of Section 12 hereof or by
notice given by you terminating this Agreement pursuant to Section 12 or Section
13 hereof) or if this Agreement shall be terminated by the Underwriters because
of any failure or refusal on the part of the Company or the Selling Stockholder
to comply with the terms or fulfill any of the conditions of this Agreement, the
Company agrees to reimburse the Representatives for all out-of-pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred by you in
connection herewith.
(k) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A of the 1933 Act Regulations, then immediately following the execution
of the pricing agreement, the Company will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A and Rule 424(b) of
the 1933 Act Regulations, copies of an amended Prospectus, or, if required by
such Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so omitted.
-6-
<PAGE> 7
(l) Except as provided in this Agreement or as required to
effect the Concurrent Transactions (as defined in the Registration Statement),
the Company will not sell, contract to sell or otherwise dispose of any Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or grant any options or warrants to purchase Common Stock, for a
period of 180 days after the date of the Prospectus, without the prior written
consent of Smith Barney Inc.
(m) The Company has furnished to you lock-up letters, (each a
"Lock-up Letter") in form and substance satisfactory to you, signed by each of
its current officers, directors and stockholders identified on Schedule III
attached hereto.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, (i) any action designed to cause or result that has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares or (ii)(x) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Shares, or (y) pay or agree to pay
to any person any compensation for soliciting another to purchase any other
securities of the Company (except for the sale of Shares by the Selling
Stockholder under this Agreement).
(o) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(p) The Company shall use its best efforts to do and perform
all things required or necessary to be done and performed under this Agreement
by the Company prior to the Closing Date or Option Closing Date, as the case may
be, and to use its best efforts to satisfy all conditions to the delivery of the
Shares.
6. Agreements of the Selling Stockholder. The Selling Stockholder
agrees with each of the several Underwriters as follows:
(a) The Selling Stockholder will cooperate to the extent
necessary to cause the Registration Statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) The Selling Stockholder will pay all Federal and other
taxes, if any, on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters.
- 7 -
<PAGE> 8
(c) The Selling Stockholder will do or perform all things
required to be done or performed by the Selling Stockholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
(d) The Selling Stockholder has executed or will execute a
Lock-up Letter as provided in Section 5(m) above and will not prior to the
expiration of 180 days after the date of the Prospectus, other than as required
to effect the Concurrent Transactions, directly or indirectly offer, sell,
solicit an offer to buy, make any short sale, pledge, grant any option to
purchase, contract to sell, or otherwise dispose of or transfer any shares of
Common Stock of the Company (including, without limitation, shares of Common
Stock which may be deemed to be beneficially owned by such holders in accordance
with the rules and regulations of the Commission) or any securities convertible
into or exercisable or exchangeable for such Common Stock (including shares of
Common Stock which may be issued upon exercise of a stock option or warrant) or,
in any manner, transfer all or a portion of the economic consequences associated
with the ownership of the Common Stock of the Company (including, without
limitation, by way of equity swap, hedging, or any other form of derivative
transaction) without the prior written consent of the Representatives. In
addition, during the Lock-up Period, the Selling Stockholder agrees not to
exercise any registration rights held by the Selling Stockholder with respect to
the Company's capital stock.
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, the Selling Stockholder will not (i) take any
action designed to cause or result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares or (ii)(x) sell, bid for, purchase, attempt to induce any person to
purchase, or pay anyone any compensation for soliciting purchases of, the Shares
or (y) pay or agree to pay to any person any compensation for soliciting another
to purchase any other securities of the Company (except for the sale of the
Shares by such Selling Stockholder under this Agreement).
(f) The Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations or of any change in information relating to the Selling Stockholder
or the Company or any new information relating to the Company or relating to any
matter stated in the Prospectus or any amendment or supplement thereto as to
which comes to the attention of the Selling Stockholder and that suggests that
any statement made in the Registration Statement or the Prospectus (as then
amended or supplemented, if amended or supplemented) is or may be untrue in any
material respect or that the Registration Statement or Prospectus (as then
amended or supplemented, if amended or supplemented) omits or may omit to state
a material fact or a fact necessary to be stated therein in order to make the
statements therein not misleading in any material respect, or of the necessity
to amend or supplement the Prospectus (as then amended or supplemented, if
amended or supplemented) in order to comply with the Act or any other law.
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<PAGE> 9
7. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied with
the provisions of the Act.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus or instituted proceedings for that purpose, and each such Prepricing
Prospectus has conformed to the requirements of the Act and, as of its date, has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, not misleading, and at
the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Additional Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained and will contain all material information
required to be included therein by the Act and will conform to the requirements
of the Act, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any 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, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, not misleading; provided, however, that none of the
representations and warranties contained in this subparagraph (b) shall apply to
information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company by any Underwriter
through you specifically for use in the preparation thereof.
(c) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), complied with the requirements of the Exchange
Act and the rules and regulations thereunder, and any further Incorporated
Documents so filed will, when they are filed, comply with the requirements of
the Exchange Act and the rules and regulations thereunder; no such document when
it was filed (or, if an amendment with respect to any such document was filed,
when such amendment was filed), contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
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<PAGE> 10
business, (ii) there have been no transactions entered into by the Company,
other than those in the ordinary course of business, which are material with
respect to the Company, (iii) except as disclosed in the Prospectus, there have
been no transactions entered into by the Company with any of its directors,
officers or affiliates, and (iv) except as disclosed in the Prospectus, there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(e) There are no contracts or documents of the Company or any
of its subsidiaries (the "Subsidiaries") that are required to be filed as
exhibits to the Registration Statement by the Act that have not been so filed.
(f) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under "Description of Capital
Stock" (except for subsequent issuances, if any, pursuant to this Agreement or
pursuant to the Concurrent Transactions referred to in the Prospectus); all the
outstanding shares of Common Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and are free of any preemptive
or similar rights; the Shares will be duly listed on the NYSE; the Shares to be
sold by the Selling Stockholder have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights; and the capital stock of the Company conforms
to the description thereof in the Registration Statement and the Prospectus.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any Subsidiary has outstanding any options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and its
Subsidiaries taken as a whole (a "Material Adverse Effect").
(h) All of the Company's Subsidiaries are listed in an exhibit
to the Company's Annual Report on Form 10-K which is incorporated by reference
into the Registration Statement. Each Subsidiary is a corporation duly
organized, validly existing and in good standing in the jurisdiction of its
incorporation, with full corporate power and authority to
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<PAGE> 11
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure to so
register or qualify does not have a Material Adverse Effect; all the outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable, and are owned by the
Company directly, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance.
(i) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement or any
Incorporated Document that are not described or filed as required by the Act or
the Exchange Act.
(j) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate or articles of incorporation or by-laws, or other
organizational documents, or of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries, or (ii) in default in
the performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, and no condition or state of facts exists, which with
the passage of time or the giving of notice or both, would constitute such a
default.
(k) Neither the offer, issuance, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company or the Selling Stockholder of the
transactions contemplated hereby (i) requires any consent, approval,
authorization or other order of or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act and compliance with the securities or Blue
Sky laws of various jurisdictions or applicable NYSE regulations, all of which
have been or will be effected in accordance with this Agreement) or conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or (ii)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to which
the Company or any of the Subsidiaries is a party or by which any of them or any
of their respective properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of
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<PAGE> 12
any lien, charge or encumbrance upon any property or assets of the Company or
any of the Subsidiaries pursuant to the terms of any agreement or instrument to
which any of them is a party or by which any of them may be bound or to which
any of the property or assets of any of them is subject.
(l) The accountants, Arthur Andersen, LLP, who have certified
or shall certify the financial statements included or incorporated by reference
in the Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(m) The Company's financial statements, together with related
schedules and notes, included or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and changes in
financial position of the Company and the Subsidiaries on the basis stated in
the Registration Statement at the respective dates or for the respective periods
to which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
or incorporated by reference in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and records
of the Company and the Subsidiaries. The pro forma financial statements and "as
adjusted" financial data and the related notes thereto included in the
Registration Statement and Prospectus have been prepared in accordance with the
applicable requirements of the Act and on the bases described therein and, in
the opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
(n) The execution and delivery of, and the performance by the
Company of its obligations under, each of the Share Repurchase Agreement, the
Confidentiality and Standstill Agreement, the Stock Purchase Agreement, the New
Preferred Stock Investors Stock Option Agreement, the Stock Option Agreement
with Thomas J. Edelman, the Thomas J. Edelman Employment Agreement and the
Management Stock Purchase Agreement (collectively, the "Concurrent Transactions
Agreements") as to which the Company is a party have been duly and validly
authorized by the Company, and each of the Concurrent Transaction Agreements as
to which the Company is a party has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder or thereunder may be limited by federal
or state securities laws or the public policy underlying such laws.
(o) The Company has obtained and delivered to Smith Barney
Inc. Lock-up Letters, in the form attached hereto as Exhibit B, executed by each
of the directors, officers and stockholders of the Company, each of which are
named in Schedule III annexed hereto, to the effect that each person or entity
will not, for a period of 180 days from the date hereof, without
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<PAGE> 13
the Representatives' prior written consent, directly or indirectly, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock of the Company or any securities convertible into or exercisable for
Common Stock of the Company owned by such person or with respect to which such
person has the power of disposition. Immediately prior to the Closing Date, all
of the holders of outstanding Common Stock, or outstanding options or rights to
acquire Common Stock, will have entered into Lockup Letters.
(p) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the Subsidiaries
taken as a whole.
(q) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances except such as are described in the Registration Statement
and the Prospectus or in a document filed as an exhibit to the Registration
Statement and all the property described in the Prospectus as being held under
lease by each of the Company and the Subsidiaries is held by it under valid,
existing and enforceable leases. Except as set forth in the Registration
Statement and Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be conducted.
(r) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(s) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; the Company and each of
the Subsidiaries has fulfilled and performed all its material obligations with
respect to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
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<PAGE> 14
(t) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) To the Company's knowledge, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(v) The Company and each of the Subsidiaries have filed all
tax returns required to be filed, which returns are complete and correct, and
has paid all taxes shown thereon as due and neither the Company nor any
Subsidiary is in default in the payment of any taxes which were payable pursuant
to said returns or any assessments with respect thereto. (except for any taxes
which are being contested in good faith and for which adequate reserves have
been established); there is no tax deficiency that has been or, to the best of
the Company's knowledge, might be asserted against the Company or any of its
Subsidiaries that might have a Material Adverse Effect; and all tax liabilities
are adequately provided for on the books of the Company and its Subsidiaries.
(w) Other than the Selling Stockholder no holder of any
security of the Company has any right to require registration of shares of
Common Stock or any other security of the Company because of the filing of the
Registration Statement or consummation of the transactions contemplated by this
Agreement.
(x) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registration, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the Company is not
aware of any claim to the contrary or any challenge by any other person to the
rights of the Company and the Subsidiaries with respect to the foregoing.
(y) The Company has complied with all provisions of Florida
Statutes, Section517.075, relating to issuers doing business with Cuba.
(z) No labor dispute with the employees of the Company exists
or, to the knowledge of the Company, is imminent.
(aa) To the best of their knowledge, belief and information,
the Company and each of its Subsidiaries is not in violation of any applicable
Federal, state or local laws, statutes,
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<PAGE> 15
rules, regulations or ordinances relating to public health, safety or the
environment, including, without limitation, relating to releases, discharges,
emissions or to the disposal to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use, handling or disposal of
polychlorinated byphenyls (PCBs), asbestos or urea formaldehyde, to the
treatment, storage, disposal or management of hazardous substances (including,
without limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances, which violation would have
a Material Adverse Effect, or which would materially and adversely affect the
properties or assets thereof or which might materially and adversely affect the
consummation of this Agreement. In addition, and irrespective of such
compliance, the Company and each of its Subsidiaries is not subject to any
liabilities or environmental remediation or clean-up order, including any
liability or class of liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et
seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42
U.S.C. Section 6901 et seq.), which liability would have a Material Adverse
Effect, or which would materially and adversely affect the properties or assets
thereof or which would materially and adversely affect the consummation of this
Agreement.
(bb) The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are reasonably adequate and customary in the businesses
in which they are engaged; all policies of insurance insuring the Company or any
of its subsidiaries or their respective businesses, assets, employees, officers
and directors are in full force and effect and the Company and its subsidiaries
are in compliance with the terms of such policies in all material respects.
(cc) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(dd) [Conditions with respect to the Concurrent Transactions
to be described].
8. Representations and Warranties of the Selling Stockholder. The
Selling Stockholder represents and warrants to each Underwriter that:
(a) The Selling Stockholder now has, and on the Closing Date
and any Option Closing Date will have, valid and marketable title to the Shares
to be sold by the Selling Stockholder, free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation, any
restriction on transfer.
(b) The Selling Stockholder now has, and on the Closing Date
and any Option Closing Date will have, full legal right, power and
authorization, and any approval required by law, to sell, assign transfer and
deliver such Shares in the manner provided in this Agreement, and upon delivery
of and payment for such Shares hereunder, the several Underwriters will acquire
valid and marketable title to such Shares free and clear of any lien, claim,
security interest, or other encumbrance.
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<PAGE> 16
(c) This Agreement, the Lockup Letter and the Concurrent
Transaction Agreements, as to which the Selling Stockholder is a party have been
duly authorized, executed and delivered by or on behalf of the Selling
Stockholder and are the valid and binding agreements of such Selling Stockholder
enforceable against the Selling Stockholder in accordance with their terms.
(d) Neither the execution and delivery of this Agreement, the
Lockup Letter or the Concurrent Transaction Agreements as to which the Selling
Stockholder is a party nor the consummation of the transactions herein or
therein contemplated by or on behalf of the Selling Stockholder requires any
consent, approval, authorization or order of, or filing or registration with,
any court, regulatory body, administrative agency or other governmental body,
agency or official (except such as may be required under the Act and the
Exchange Act or such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Shares) or conflicts or will
conflict with or constitutes or will constitute a breach of, or default under,
or violates or will violate, any agreement, indenture or other instrument to
which the Selling Stockholder is a party or by which the Selling Stockholder is
or may be bound or to which any of the Selling Stockholder's property or assets
is subject, or any statute, law, rule, regulation, ruling, judgment, injunction,
order or decree applicable to the Selling Stockholder or to any property or
assets of the Selling Stockholder.
(e) The Registration Statement and the Prospectus, insofar as
they relate to the Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(f) The Selling Stockholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(g) The Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares, except for the lock-up arrangements
described in the Prospectus, and other than as permitted by the Act, the Selling
Stockholder has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Shares.
(h) Prior to the Closing Date, the Selling Stockholder has
entered into each of the Concurrent Transactions Agreements to which it is a
party and has taken all actions as are necessary and appropriate to cause the
Concurrent Transactions to occur and all conditions precedent to the
consummation of the Concurrent Transactions, other than the closing of the
Offering contemplated by this Agreement, have been satisfied.
(i) For a period of 180 days from the date hereof, such
Selling Stockholder will not, without the prior written consent of Smith Barney
Inc., directly or indirectly offer to
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<PAGE> 17
sell, sell, grant any option for the sale of, or otherwise dispose of, any
Common Stock of the Company or any securities convertible into or exercisable
for Common Stock of the Company owned by such Selling Shareholder or with
respect to which such Selling Shareholder has the power of disposition, other
than to the Underwriters pursuant to this Agreement.
9. Indemnification and Contribution
(a) The Company and the Selling Stockholder, jointly and
severally, agree to indemnify and hold harmless each of you and each other
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) 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 (i) any breach
by the Company or the Selling Stockholder of their respective representations,
warranties and covenants contained herein or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Registration Statement or the Prospectus or in any
amendment or supplement thereto, 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 (x) insofar
as such losses, claims, damages, liabilities or expenses arise out of or are
based upon any untrue statement or omission or alleged untrue statement or
omission which has been made therein or omitted therefrom in reliance upon and
in conformity with the information relating to such Underwriter furnished in
writing to the Company by or on behalf of any Underwriter through you expressly
for use in connection therewith and (y) insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon any statement identified
on Schedule IV attached hereto; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Company or the Selling Stockholder may
otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or the Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the
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<PAGE> 18
indemnifying parties have agreed in writing to pay such fees and expenses, (ii)
the indemnifying parties have failed to assume the defense and employ counsel,
or (iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying parties and such Underwriter or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be designated
in writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Stockholder, and any person who controls
the Company within the meaning of Section 15 of the Act or Section 20 (a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholder to each Underwriter, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the Company,
its directors, any such officer, any Selling Stockholder, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the indemnifying
parties by paragraph (b) above (except that if the Company shall have assumed
the defense thereof such Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such Underwriter's expense), and
the Company, its directors, any such officer, the Selling Stockholder, and any
such controlling person shall have the rights and duties given to the
Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be
in addition to any liability which any Underwriter may otherwise have.
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<PAGE> 19
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an 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 or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other hand from the offering of the Shares, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholder on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholder on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Stockholder bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus; provided, that in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company, the Selling
Stockholder or the Underwriters from the offering of the Shares shall include
the net proceeds (before deducting expenses) received by the Selling
Stockholder, and the underwriting discounts and commissions received by the
Underwriters, from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the Prospectus. The relative fault of the Company and the Selling
Stockholder on the one hand and the Underwriters on the other hand 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 the Company or the Selling
Stockholder on the one hand or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (d) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter 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(f) of the Act) shall be entitled to
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<PAGE> 20
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof), and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholder or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.
10. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the registration statement or such post-effective amendment shall have became
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the registration statement or the prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or its
Subsidiaries not contemplated by the Prospectus, which in your opinion, as the
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<PAGE> 21
Representatives of the several Underwriters, would materially adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Selling Stockholder
which makes any statement made in the Prospectus untrue or which, in the opinion
of the Company and its counsel or the Underwriters and their counsel, requires
the making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as the Representatives of the several Underwriters, materially
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Simpson, Thacher & Bartlett, LLP, counsel for the Company, dated the Closing
Date and addressed to you, as the Representatives of the several Underwriters,
to the effect that:
(i) The Company is a corporation duly incorporated
and validly existing in good standing under the laws of the State of Delaware
with full corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole;
(ii) Each of the Subsidiaries is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease, and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto); and all the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned by the Company directly, or indirectly through
one of the other Subsidiaries, free and clear of any perfected security
interest, or, to the best knowledge of such counsel after reasonable inquiry,
any other security interest, lien, adverse claim, equity or other encumbrance;
(iii) Each Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified or be in good standing would not have material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company and its Subsidiaries taken as a whole.
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
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<PAGE> 22
(v) All the shares of capital stock of the Company
have been duly authorized and validly issued, and are fully paid and
nonassessable;
(vi) The Shares to be issued and sold to the
Underwriters by the Selling Stockholder hereunder have been duly authorized and
validly issued, and are fully paid and nonassessable, and have not been issued
in violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right that entitles or will
entitle any person to acquire any Shares upon the issuance thereof by the
Company;
(vii) Except as disclosed in the Prospectus, the
Company owns of record, directly or indirectly, all the outstanding shares of
capital stock of each of the Subsidiaries free and clear of any lien, adverse
claim, security interest, equity, or other encumbrance;
(viii) All issued and outstanding shares of capital
stock of each Subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right and are
owned by the Company free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest;
(ix) The form of certificates for the Shares conforms
to the requirements of the Delaware General Corporation Law;
(x) The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the best
knowledge of such counsel after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(xi) Except as described in the Prospectus, there are
no outstanding options, warrants or other rights calling for the issuance of,
and such counsel does not know of any commitment, plan or arrangement to issue,
any shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company; and
(xii) The Company has full corporate power and
authority to enter into this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy and except as the enforceability of the Company's obligations
hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally or by general equitable principles;
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<PAGE> 23
(xiii) Neither the Company nor any of the
Subsidiaries is presently (a) in violation of its respective certificate or
articles of incorporation or bylaws, or (b) to such counsel's knowledge, in
material breach of, or in default under, any bond, debenture, note or other
evidence of indebtedness or any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which any of its
property is bound that is material to the financial condition, earnings,
operations, business or business prospects of the Company and its Subsidiaries
taken as a whole, or any applicable statute, rule or regulation known to such
counsel or, to such counsel's knowledge, any order, writ or decree of any court
or governmental agency or body having jurisdiction over the Company or any of
its Subsidiaries, or over any of their properties or operations; and
(xiv) The Company and each of the Subsidiaries has
full corporate power and authority, and all necessary governmental
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental regulatory officials and bodies (except
where the failure so to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits, individually or in the aggregate,
would not have a material adverse effect on the business, properties, operations
or financial condition of the Company and the Subsidiaries taken as a whole), to
own their respective properties and to conduct their respective businesses as
now being conducted, as described in the Prospectus;
(xv) The Company and the Subsidiaries own all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights described in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and Simpson, Thacher &
Bartlett, LLP is not aware of any claim to the contrary or any challenge by any
other person to the rights of the Company and the Subsidiaries with respect to
the foregoing;
(xvi) Neither the execution, delivery or performance
of this Agreement, compliance by the Company with the provisions hereof nor
consummation by the Company of the transactions contemplated hereby conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties is bound that is an exhibit to the Registration Statement or to any
Incorporated Document, or is known to such counsel after reasonable inquiry, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries, nor will
any such action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky laws),
judgment, injunction, order or decree known to such counsel after reasonable
inquiry, applicable to the Company, the Subsidiaries or any of their respective
properties;
(xvii) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other
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<PAGE> 24
governmental body, agency, or official is required on the part of the Company
(except as have been obtained under the Act and the Exchange Act or such as may
be required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) for the valid sale of the Shares to the Underwriters
as contemplated in this Agreement;
(xviii) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents (except for the financial statements and the notes
thereto and the schedules and other financial and statistical data included
therein, as to which counsel need not express any opinion) complies as to form
in all material respects with the Exchange Act and the rules and regulations of
the Commission thereunder;
(xix) To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any Incorporated Document that are not
described or filed as required, as the case may be;
(xx) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Subsidiaries is in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries;
(xxi) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of the Concurrent Transactions
Agreements, the certificate or articles of incorporation and bylaws of the
Company or other contracts, agreements or legal documents, or refer to
statements of law or legal conclusions, are accurate and present fairly the
information required to be shown;
(xxii) There are no agreements, contracts,
indentures, leases or other instruments, that are required to be described in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement or any
Incorporated Document that are not described or filed as required, as the case
may be;
(xxiii) Except as described in the Prospectus, there
is no holder of any security of the Company or any other person who has the
right, contractual or otherwise, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, the
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<PAGE> 25
Shares or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(xxiv) Although counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has participated in the preparation of
the Registration Statement and the Prospectus, including review and discussion
of the contents thereof (including review and discussion of the contents of all
Incorporated Documents), and nothing has come to the attention of such counsel
that has caused them to believe that the Registration Statement (including the
Incorporated Documents) at the time the Registration Statement became effective,
or the Prospectus, as of its date and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any amendment or
supplement to the Prospectus, as of its respective date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and the notes
thereto and the schedules and other financial and statistical data included in
the Registration Statement or the Prospectus or any Incorporated Document).
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by them or the Company as to laws of any jurisdiction other than the United
States or the State of New York; provided, that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance satisfactory to it and its
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date, an opinion of
Vinson & Elkins, counsel for the Selling Stockholder, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:
(i) This Agreement, the Lock-up Letter and the
Concurrent Transactions Agreements to which the Selling Stockholder is a party
have each been duly authorized, executed and delivered by the Selling
Stockholder and are valid and binding agreements of the Selling Stockholder
enforceable against the Selling Stockholder in accordance with their terms,
except insofar as the indemnification and contribution provisions hereunder may
be limited by applicable law and except as the enforcement hereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
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<PAGE> 26
(ii) To the knowledge of such counsel, the Selling
Stockholder has full legal right, power and authorization to enter into and
perform its obligations under this Agreement and the Lock-Up Letter and the
Concurrent Transactions Agreements to which the Selling Stockholder is a party,
and any approval required by law, to sell, assign, transfer and deliver good and
marketable title to the Shares which the Selling Stockholder has agreed to sell
pursuant to this Agreement;
(iii) The execution and delivery of this Agreement,
the Lock-up Letter and the Concurrent Transactions Documents to which the
Selling Stockholder is a party and the consummation of the transactions
contemplated hereby and thereby will not conflict with, violate, result in a
breach of or constitute a default under the terms or provisions of any
agreement, indenture, mortgage or other instrument known to such counsel to
which the Selling Stockholder is a party or by which any of them or any of their
assets or property is bound, or any court order or decree or any law, rule, or
regulation applicable to the Selling Stockholder or to any of the property or
assets of the Selling Stockholder;
(iv) Upon delivery of the Shares pursuant to this
Agreement and payment therefor as contemplated herein the Underwriters will
acquire good and marketable title to the Shares free and clear of any lien,
claim, security interest, or other encumbrance, restriction on transfer or other
defect in title; and
(v) Although counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has participated in the preparation of
the Registration Statement and the Prospectus, including review and discussion
of the contents thereof (including review and discussion of the contents of all
Incorporated Documents), and nothing has come to the attention of such counsel
that has caused them to believe that the Registration Statement (including the
Incorporated Documents) at the time the Registration Statement became effective,
or the Prospectus, as of its date and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any amendment or
supplement to the Prospectus, as of its respective date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and the notes
thereto and the schedules and other financial and statistical data included in
the Registration Statement or the Prospectus or any Incorporated Document).
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by them or the Company as to laws of any jurisdiction other than the United
States or the State of New York, provided that (1) each such local counsel is
acceptable to the Representatives, (2) such reliance is expressly authorized by
each opinion so relied upon and a copy of each such opinion is delivered to the
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<PAGE> 27
Representatives and is, in form and substance satisfactory to it and its
counsel, and (3) counsel shall state in their opinion that they believe that
they and the Underwriters are justified in relying thereon.
(e) You shall have received on the Closing Date an opinion of
Mayer, Brown & Platt, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (vi) , (x), (xii), (xviii) and (xxiv) of
the foregoing paragraph (c) and such other related matters as you may request.
(f) You shall have received letters addressed to you, as the
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Arthur Andersen, LLP substantially in form and substance
satisfactory to you, to the effect that:
(i) they are independent accountants with respect to
the Company and its consolidated subsidiaries within the meaning of the
Act, the Exchange Act and the respect rules and regulations thereunder;
(ii) in their opinion, the audited consolidated
financial statements and schedules audited by them and included in the
Registration Statement and the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Act, the Exchange Act and the related published rules and regulations;
(iii) on the basis of their limited review in
accordance with standards established by the American Institute of
Certified Public Accountants of any interim unaudited consolidated
condensed financial statements of the Company and its consolidated
subsidiaries incorporated in the Prospectus and the Registration
Statement, carrying out certain specified procedures (which do not
constitute an examination made in accordance with generally accepted
auditing standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph,
a reading of the minute books of the stockholders, the board of
directors and any committees thereof of the Company and each of its
consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have responsibility for
financial and accounting matters, nothing came to their attention that
cause them to believe that
(A) the unaudited consolidated condensed
financial statements of the Company and its consolidated
Subsidiaries incorporated in the Registration Statement and
the Prospectus do not comply in form in all material respects
with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations
thereunder or are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements included in the Registration Statement and the
Prospectus, and
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<PAGE> 28
(B) at a specific date not more than five
business days prior to the date of such letter, there were any
changes in the capital stock or increases in long-term debt of
the Company and its consolidated Subsidiaries or any decreases
in net current assets or stockholders' equity of the Company
and its consolidated Subsidiaries, in each case compared with
amounts shown on the June 30, 1997 unaudited consolidated
balance sheet included in the Registration Statement and the
Prospectus, or for the period from June 30, 1997 to such
specified date there were any decreases, as compared with the
comparable period of the immediately preceding fiscal year or
as compared with the comparable period of the immediately
preceding fiscal quarter in net sales, income before
extraordinary items and cumulative effect of a change in
accounting principle or total or per share amounts of net
income of the Company and its consolidated subsidiaries,
except in all instances for changes, decrease or increases set
forth in such letter; and
(iv) they have carried out certain specified
procedures, not constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the general
accounting records of the Company and its consolidated Subsidiaries and
appear in the Registration Statement and the Prospectus, in the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 or in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997, and have compared such amounts,
percentages and financial information with such records of the Company
and its consolidated Subsidiaries and with information derived from
such records and have found them to be in agreement, excluding any
questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof.
References to the Registration Statement and the Prospectus in this
paragraph (f) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or Supplement
thereto); (iii) there shall not have been, since
- 28 -
<PAGE> 29
the respective dates as of which information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), except as
may otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole; (iv) the
Company and the Subsidiaries shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); and (v) all the representations and warranties
of the Company contained in this Agreement shall be true and correct on and as
of the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(g) and in Section 10(h) hereof.
(h) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on as of the Closing Date as if made on and as of the Closing Date,
and you shall have received a certificate, dated the Closing Date and signed by
or on behalf of the Company to the effect set forth in this Section 10(h) and in
Section 10(i) hereof.
(i) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(j) All the representations and warranties of the Selling
Stockholder contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Stockholder to the effect set forth in
this Section 10(i) and in Section 10(j) hereof.
(k) The Selling Stockholder shall not have failed at or prior
to the Closing Date to have performed or complied with any of their agreements
herein contained and required to be performed or complied with by them hereunder
at or prior to the Closing Date.
(l) Prior to the Closing Date the shares of Common Stock which
the Selling Stockholder agrees to sell pursuant to this Agreement shall have
been listed, subject to notice of issuance, on the NYSE.
(m) The Selling Stockholder shall have furnished or caused to
be furnished to you such further certificates and documents as you shall have
requested.
(n) Each of the Concurrent Transactions shall have been
consummated as described in the Registration Statement and be otherwise on terms
acceptable to the Representatives in their discretion.
- 29 -
<PAGE> 30
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the
Company or the Selling Stockholder and delivered to you, as the Representatives
of the Underwriters, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company or the Selling Stockholder, as the
case may be, to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 10, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (m) shall be dated
the Option Closing Date in question and the opinions called for by paragraphs
(c), (d) and (e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by them of
their obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all
amendments or supplements to any of them, as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on NYSE; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of counsel for
the Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses incurred by or on behalf of Company representatives in connection
with presentations to prospective purchasers of the Shares; and (ix) the fees
and expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company and the Selling
Stockholder.
12. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence,
- 30 -
<PAGE> 31
when notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company,
by notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company and the Selling Stockholder.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more nondefaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company, purchases Shares which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Stockholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
the Company shall have failed, refused or been unable, at or prior to the
Closing Date, to perform any material agreement on their respective parts to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled in any material respect (iii) trading in securities
generally on the NYSE, the American Stock
- 31 -
<PAGE> 32
Exchange or the Nasdaq National Market shall have been suspended or materially
limited, (iv) a general moratorium on commercial banking activities in New York
or Colorado shall have been declared by either federal or state authorities, or
(v) there shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts for
the resale of the Shares by the Underwriters. Notice of such termination may be
given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
14. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first and third paragraphs under the
caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 1625 Broadway, Suite 2000, Denver, Colorado 80202, Attention: Keith
M. Crouch, Esq., General Counsel; or (ii) if to the Selling Stockholder at 777
Main Street, Fort Worth, Texas 76102, Attention: Peter E. Lorenzen, Esq.,
General Counsel, or (iii) if to you, as Representatives of the several
Underwriters, at Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
- 32 -
<PAGE> 33
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
PATINA OIL & GAS CORPORATION
------------------------------
Name:
Title:
SNYDER OIL CORPORATION
------------------------------
Name:
Title:
Confirmed as of the date first above
mentioned on behalf of themselves and the
other several Underwriters named in Schedule
I hereto.
SMITH BARNEY INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By:
------------------------------
Name:
Title: Managing Director
By [MORGAN STANLEY & CO.]
By:
------------------------------
Name:
Title:
- 33 -
<PAGE> 34
SCHEDULE I
PATINA OIL GAS CORPORATION
<TABLE>
<CAPTION>
Name of Number of
Underwriter Firm Shares Underwriter Firm Shares
- ----------- ----------- ----------- -----------
<S> <C> <C> <C>
-------------
Total..... -------------
</TABLE>
- 34 -
<PAGE> 35
SCHEDULE II
Concurrent Transactions Agreements:
- 35 -
<PAGE> 36
SCHEDULE III
Current Holders of Unregistered Stock:
[List to be provided by the Company].
- 36 -
<PAGE> 37
SCHEDULE IV
[Forward-looking statements by the Company; to be agreed between the
Underwriters and the Selling Stockholder]
- 37 -
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
GERRITY OIL & GAS CORPORATION,
as Issuer,
and
CHEMICAL BANK,
as Trustee
-------------------------------------------
Indenture
Dated as of June 30, 1994
-------------------------------------------
11-3/4% Senior Subordinated Notes due 2004
<PAGE> 2
INDENTURE, dated as of June 30, 1994, between Gerrity Oil & Gas
Corporation (the "Company") and Chemical Bank, as Trustee (the "Trustee").
W I T N E S S E T H:
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to U.S.$100 million aggregate
principal amount of the Company's 11 3/4% Senior Subordinated Notes due 2004
(the "Securities") issuable as provided in this Indenture. All things necessary
to make this Indenture a valid agreement of the Company, in accordance with its
terms, have been done, and the Company has done all things necessary to make the
Securities, when executed by the Company and authenticated and delivered by the
Trustee hereunder and duly issued by the Company, the valid obligations of the
Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its consolidated Restricted
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income of any Person (other than net
income attributable to a Restricted Subsidiary) in which any Person (other than
the Company or any of its Restricted Subsidiaries) has a joint interest (which
interest precludes the net income of such other Person from being consolidated
with the net income of the Company and its Restricted Subsidiaries in accordance
with GAAP), except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted Subsidiaries
by such other Person during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.04 of this Indenture (and in such
case, except to the extent includable pursuant to clause (i) above), the net
income (or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the assets of such Person
are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
such net income is not at the time permitted by the operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental
1
<PAGE> 3
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments may be made pursuant to clause (C)
of the first paragraph of Section 4.04 of this Indenture, any amount paid or
accrued as dividends on Preferred Stock of the Company (other than the Company's
$12.00 Convertible Preferred Stock) or Preferred Stock of any Restricted
Subsidiary owned by Persons other than the Company and any of its Restricted
Subsidiaries; (vi) any amount paid or accrued as dividends on the Company's
$12.00 Convertible Preferred Stock; and (vii) all extraordinary gains and
extraordinary losses; provided that, solely for the purposes of calculating the
Interest Coverage Ratio (and in such case, except to the extent it is already
included pursuant to clause (i) above), "Adjusted Consolidated Net Income" shall
include the amount of all cash dividends received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depletion, depreciation, amortization and other valuation reserves), except to
the extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Company and its Restricted
Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the assets
of any Person other than the Company or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary of the Company) of (i) all or substantially all of the
Capital Stock of any Restricted Subsidiary of the Company or (ii) all or
substantially all of the assets that constitute a division or line of business
of the Company or any of its Restricted Subsidiaries.
2
<PAGE> 4
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the assets of an operating unit or
business of the Company or any of its Restricted Subsidiaries or (iii) any other
assets of the Company or any of its Restricted Subsidiaries outside the ordinary
course of business of the Company or such Restricted Subsidiary and, in each
case, that is not governed by Article Five of this Indenture; provided that
sales or other dispositions of hydrocarbons or other mineral products,
inventory, receivables and other current assets shall not be included within the
meaning of "Asset Sale".
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Agent" means the agent for the financial institutions from time
to time party to the Bank Credit Agreement and any successor or successors of
such agent.
"Bank Credit Agreement" means the credit agreement dated April 2, 1993
among the Company and Banque Indosuez, for itself and as agent for a syndicate
of other financial institutions, together with all other agreements, instruments
and documents executed or delivered pursuant thereto or in connection therewith,
in each case as such credit agreement or other agreements, instruments or
documents may be amended, supplemented, extended, renewed, replaced, substituted
or otherwise modified from time to time, including, without limitation,
replacement or substitution in its entirety with one or more agreements, agents
or syndicates of financial institutions; provided, that with respect to any
agreement providing for the refinancing of Indebtedness under the Bank Credit
Agreement, such agreement shall be the Bank Credit Agreement under this
Indenture only if a notice to that effect is delivered by the Company to the
Trustee and there shall be at any time only one instrument that is (together
with the aforementioned related agreements, instruments and documents) the Bank
Credit Agreement under this Indenture.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial bank in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now
3
<PAGE> 5
outstanding or issued after the date of this Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligation" means the discounted present value of the rental obligations
under such lease.
"cash equivalents" means (i) any evidence of Indebtedness, maturing
not more than 90 days after the date of issuance, issued by the United States of
America or an instrumentality or agency thereof and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, or
(ii) commercial paper, maturing not more than 90 days from the date of issue,
which is issued by a corporation (other than an Affiliate of the Company)
organized under the laws of any state of the United States of America or of the
District of Columbia and rated A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investors Service, Inc.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the "Beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 40% of the total Voting Stock of the Company on a fully diluted basis; or
(ii) individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then still in office who either were members
of the Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of such board of directors then in office.
"Change of Control Offer" has the meaning provided in Section 4.18 of
this Indenture.
"Change of Control Payment" has the meaning provided in Section 4.18
of this Indenture.
"Change of Control Payment Date" has the meaning provided in Section
4.18 of this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock or substantially equivalent
securities, whether now outstanding or issued after the date of this Indenture,
including, without limitation, all series and classes of such common stock or
other securities.
4
<PAGE> 6
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to Article Five of this Indenture and thereafter
means the successor
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring gains or
losses or sales of assets), (iv) depletion expense, to the extent such amount
was deducted in calculating Adjusted Consolidated Net Income, (v) depreciation
and amortization expense, to the extent such amount was deducted in calculating
Adjusted Consolidated Net Income, and (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (net of any required reserve or accrual), less
all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of (i) interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries); (ii) any amount paid or accrued as dividends on
Preferred Stock of the Company or Preferred Stock of any Restricted Subsidiary
owned by Persons other than the Company and any of its Restricted Subsidiaries;
(iii) all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period; and (iv) one-third
of all but the principal component of all leases, excluding Capitalized Lease
Obligations, paid, accrued, or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period; excluding, however,
(i) any amount of such interest of any Restricted Subsidiary if the net income
of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Securities, all as determined on a consolidated basis in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
5
<PAGE> 7
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of the Capital Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 450 West 33rd Street, New York, New York 10001.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries against fluctuations in currency
values to or under which the Company or any of its Restricted Subsidiaries is a
party or a beneficiary on the date of this Indenture or becomes a party or a
beneficiary thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Indebtedness and all other
monetary obligations (including expenses, fees and other monetary obligations)
under the Bank Credit Agreement and (ii) any other Indebtedness constituting
Senior Indebtedness that, at any date of determination, has an aggregate
principal amount of at least $10 million and is specifically designated by the
Company in the instrument creating or evidencing such Senior Indebtedness as
"Designated Senior Indebtedness".
"Event of Default" has the meaning provided in Section 6.1 of this
Indenture.
"Excess Proceeds" has the meaning provided in Section 4.10 of this
Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP applied on a consistent basis, except that calculations made for purposes
of determining compliance with the terms of the covenants and with other
provisions of this Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of the
Securities, (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles
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Board Opinion Nos. 16 and 17 and (iii) any non-recurring charges associated
with the adoption, after the date of this Indenture, of Financial Accounting
Standard Nos. 106 and 109.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Arrangement" means any agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in the price of oil or gas to or under which the Company or any of its
Restricted Subsidiaries is a party or a beneficiary on the date of this
Indenture or becomes a patty or a beneficiary hereafter.
"Holder" or "Securityholder" means the registered holder of any
Security.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person other than a
Person that becomes an Unrestricted Subsidiary upon such acquisition; provided
that neither the accrual of interest nor the accretion of original issue
discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements, Interest Rate Agreements
and Hedging Arrangements.
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The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness shall not
include any liability for federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may
be amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Consolidated EBITDA for the four fiscal quarters for
which financial information in respect thereof is available immediately prior to
such Transaction Date (the "Reference Period") to (ii) the aggregate
Consolidated Interest Expense during such Reference Period. In making the
foregoing calculation, (A) pro forma effect shall be given to (1) any
Indebtedness Incurred subsequent to the end of the Reference Period and prior to
the Transaction Date (other than Indebtedness Incurred under a revolving credit
or similar arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such Reference Period), (2) any Indebtedness Incurred during such period to
the extent such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of such Reference Period and
after giving pro forma effect to the application of the proceeds thereof as if
such application had occurred on such first day; (B) Consolidated Interest
Expense attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months) had been
the applicable rate for the entire period; (C) there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such Reference Period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to
clause (B)) during such Reference Period under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any successor
revolving credit or similar arrangement) in effect on the Transaction Date; (D)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period or thereafter and prior to
the Transaction Date as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; (E) with respect to any such
Reference Period commencing prior to the date of this Indenture, the issuance of
the Securities shall be deemed to have taken place on the first day of such
period; and (F) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary of the Company or has been
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<PAGE> 10
merged with or into the Company or any Restricted Subsidiary of the Company
during such Reference Period or subsequent to such period and prior to the
Transaction Date and that would have constituted Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary of the Company as if such asset dispositions or asset acquisitions
were Asset Dispositions or Asset Acquisitions that occurred on the first day of
such Reference Period; provided that to the extent that clause (D) or (F) of
this sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available.
"Interest Payment Date" means each semiannual interest payment date on
January 15 and July 15 of each year, commencing January 15, 1995.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in interest rates to or under which the
Company or any of its Restricted Subsidiaries is a party or a beneficiary on the
date of this Indenture or becomes a party or a beneficiary hereafter.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person. For purposes of
the definition of "Unrestricted Subsidiary" in this Section 1.01 and Section
4.04 of this Indenture, (i) "Investment" shall include the fair market value of
the assets (net of liabilities) of any Restricted Subsidiary of the Company at
the time that such Restricted Subsidiary of the Company is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such
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<PAGE> 11
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
of the Company as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance or sale
of Capital Stock, the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
(to the extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to the
extent such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary of the Company) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Securities by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Securities validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Security not tendered will continue
to accrue interest pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the purchase price, any Security accepted for payment pursuant
to the Offer to Purchase shall cease to accrue interest on and after the Payment
Date; (v) that Holders electing to have a Security purchased pursuant to the
Offer to Purchase will be required to surrender the Security, together with the
form entitled Option of the Holder to Elect Purchase" on the reverse side of the
Security completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Securities
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Securities purchased; and (vii) that Holders whose
Securities are being purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered;
provided that each Security purchased and each new Security issued shall be in a
principal amount of $1,000 or integral multiples thereof. On the Payment Date,
the Company shall (a) accept for payment on a
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<PAGE> 12
pro rata basis Securities or portions thereof tendered pursuant to an Offer to
Purchase; (b) deposit with the Paying Agent money sufficient to pay the purchase
price of all Securities or portions thereof so accepted; and (c) deliver, or
cause to be delivered, to the Trustee all Securities or portions thereof so
accepted together with an Officers' Certificate specifying the Securities or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Securities so accepted payment in an amount
equal to the purchase price, and the Trustee shall promptly authenticate and
mail to such Holders a new Security equal in principal amount to any unpurchased
portion of the Security surrendered; provided that each Security purchased and
each new Security issued shall be in a principal amount of $1,000 or integral
multiples thereof. The Company will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Trustee shall act as
the Paying Agent for an Offer to Purchase. The Company will comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable, in the event
that the Company is required to repurchase Securities pursuant to an Offer to
Purchase.
"Officer" means, with respect to the Company, the Chairman of the
Board, the President, any Executive Vice President, any Vice President, the
Chief Financial Officer, the Treasurer or any Assistant Treasurer, or the
Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by two Officers.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4)) shall include the statements provided for in TIA Section
314(e).
"Operating Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) that is not a Capitalized Lease.
"Opinion of Counsel" means a written opinion signed by legal counsel
who is acceptable to the Trustee. Such counsel may be an employee of or counsel
to the Company or the Trustee. Each such Opinion of Counsel shall include the
statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.03 of this
Indenture, except that, for the purposes of Article Eight, the Paying Agent
shall not be the Company or a Subsidiary of the Company or an Affiliate of any
of them. The term "Paying Agent" includes any additional Paying Agent.
"Payment Blockage Period" has the meaning provided in Section 10.02
of this Indenture.
"Payment Date" shall have the meaning provided in the definition of
Offer to Purchase in this Section 1.01.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to the Company or a Restricted
Subsidiary; (ii) a Temporary Cash Investment; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) loans or
advances to employees made in the ordinary course of business in
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<PAGE> 13
accordance with past practice of the Company or its Restricted Subsidiaries and
that do not in the aggregate exceed $500,000 at any time outstanding; (v) stock,
obligations or securities received in satisfaction of judgments or settlement of
bona fide disputes; (vi) entry into operating agreements, joint ventures,
processing agreements, farm-out arrangements, unitization agreements,
partnership agreements, area of mutual interest agreements, pooling arrangements
or other similar customary agreements, or transactions, properties, interests or
arrangements, and investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into in the ordinary course of
the Company's oil and gas business excluding, however, Investments in
corporations; and (vii) the acquisition in the ordinary course of the Company's
oil and gas business of partnership interests, working interests, royalty
interests or mineral leases relating to oil and gas properties.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
acquired after the date of this Indenture; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred, in accordance
with Section 4.03 of this Indenture, (1) to finance the cost (including the cost
of improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within six months
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such item of
property or assets and any improvements on such item; (vii) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company and its Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property
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<PAGE> 14
of, or on shares of stock or Indebtedness of, any corporation existing at the
time such corporation becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed to
protect the Company or any of its Restricted Subsidiaries from fluctuations in
the price of commodities; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the date of this Indenture; (xviii) Liens on or
sales of receivables; (xix) Liens reserved in oil and gas leases for bonus or
rental payments and for compliance with the terms of such leases; (xx) Liens
arising under partnership agreements, oil and gas leases, farm-out agreements,
division orders, contracts for the sale, purchase, exchange, transportation or
processing of oil, gas or other hydrocarbons, unitization and pooling
declaration and agreements, development agreements, operating agreements, area
of mutual interest agreements, and other agreements which are customary in the
Company's oil and gas business; and (xxi) Liens on, or related to, properties to
secure all or part of the costs incurred in the ordinary course of business of
exploration, drilling development or operation thereof.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the date of the Indenture, including,
without limitation, all series and classes of such preferred or preference
stock.
"principal" of a debt security, including the Securities, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed
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prior to the Stated Maturity of the Securities, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Securities or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Securities; provided that
any Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Securities shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in Section 4.10 and Section
4.18 of this Indenture and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provisions
prior to the Company's repurchase of such Securities as are required to be
repurchased pursuant to Section 4.10 and Section 4.18 of this Indenture.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which such Security is to be redeemed pursuant to
this Indenture.
"Reference Period" shall have the meaning provided in the definition
of Interest Coverage Ratio in this Section 1.01.
"Registrar" has the meaning provided in Section 2.03 of this
Indenture.
"Regular Record Date" means, for the interest payable on any Interest
Payment Date, the January 1 or July 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Restricted Payments" has the meaning specified in Section 4.04 of
this Indenture.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
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"Securities" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.03 of
this Indenture.
"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on the date of this Indenture or thereafter Incurred: (i)
all Indebtedness and all other monetary obligations (including expenses, fees
and other monetary obligations) of the Company under the Bank Credit Agreement,
any Interest Rate Agreement, Currency Agreement or Hedging Arrangement and the
Company's Guarantee of any Indebtedness or monetary obligation of any of its
Restricted Subsidiaries under any Interest Rate Agreement, Currency Agreement or
Hedging Arrangement and (ii) all other Indebtedness of the Company (other than
the Securities), including principal and interest on such Indebtedness, unless
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the Securities; provided that the term
"Senior Indebtedness" shall not include (a) any Indebtedness of the Company
that, when Incurred and without respect to any election under Section 1111(b) of
the United States Bankruptcy Code, was without recourse to the Company, (b) any
Indebtedness of the Company to any of its Subsidiaries or to a joint venture in
which the Company has an interest, (c) any Indebtedness of the Company not
permitted by Section 4.03 of this Indenture, (d) any repurchase, redemption or
other obligation in respect of Redeemable Stock, (e) any Indebtedness of the
Company to any employee, officer or director of the Company or any of its
Subsidiaries, (f) any liability for federal, state, local or other taxes owed or
owing by the Company or (g) any Trade Payables of the Company. Senior
Indebtedness will also include interest accruing subsequent to events of
bankruptcy of the Company and its Subsidiaries at the rate provided for in the
document governing such Senior Indebtedness, whether or not such interest is an
allowed claim enforceable against the debtor in a bankruptcy case under federal
bankruptcy law or similar laws relating to insolvency.
"Senior Subordinated Obligations" means any principal of, premium, if
any, or interest on the Securities payable pursuant to the terms of the
Securities or upon acceleration, including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the
Securities or amounts corresponding to such principal, premium, if any, or
interest on the Securities.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Company that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Company, accounted for more than 10% of
the consolidated revenues of the Company and its Restricted Subsidiaries or (ii)
as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" means (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
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<PAGE> 17
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Corporation, and (v) securities with maturities
of six months or less from the date of acquisition issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Corporation or Moody's Investors
Service, Inc.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended (15 U.S. Code Sections 77AAA-77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06 of this Indenture.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
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<PAGE> 18
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted under Section 4.03 of this Indenture. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the
Company; provided that immediately after giving effect to such designation (x)
the Company could Incur $1.00 of additional Indebtedness under the first
paragraph of Section 4.03(a) of this Indenture and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Securities, and shall also include a depository
receipt issued by a bank or trust company as custodian with respect to any such
U.S. Government Obligation or a specific payment of interest on or principal of
any such U.S. Government Obligation held by such custodian for the account of
the holder of a depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by such
depository receipt.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such Subsidiary
(other than any director's qualifying shares or Investments by foreign
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<PAGE> 19
nationals mandated by applicable law) is owned by such Person or one or more
Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Holder or a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any
other obliger on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.1 of this Indenture; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE II
The Securities
SECTION 2.01. Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form annexed
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<PAGE> 20
hereto as Exhibit A. The Securities may have notations, legends or endorsements
required by law, stock exchange agreements to which the Company is subject or
usage. The Company shall approve the form of the Securities and any notation,
legend or endorsement on the Securities. Each Security shall be dated the date
of its authentication.
The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. The Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby to the extent such terms and provisions apply to the Company
and the Trustee, respectively.
The definitive Securities shall be typed, printed, lithographed, or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the Officers executing such
Securities, as evidenced by their execution of such Securities.
SECTION 2.02. Execution, Authentication and Denominations. Two
Officers shall execute the Securities for the Company by facsimile or manual
signature in the name and on behalf of the Company. The seal of the Company
shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee or authenticating agent authenticates the
Security, the Security shall be valid nevertheless.
A Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee or an authenticating agent shall authenticate for original
issue Securities in the aggregate principal amount of up to $100 million, upon a
written order of the Company signed by at least one Officer; provided that the
Trustee shall be entitled to receive an Officers' Certificate and an Opinion of
Counsel of the Company that it may reasonably request in connection with such
authentication of Securities. Such order shall specify the amount of Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and to whom to deliver such Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed the amount set forth
above except as provided in Sections 2.06, 2.07 and 2.08 of this Indenture.
The Trustee may appoint an authenticating agent to authenticate
Securities. An authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the Company or an Affiliate
of the Company.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount and any integral
multiple thereof.
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SECTION 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar"), an office or agency where Securities
may be presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served, which shall be in the Borough of Manhattan, the City of
New York. The Company shall cause the Registrar to keep a register of the
Securities and of their transfer and exchange (the "Security Register"). The
Company may have one or more co-Registrars and one or more additional Paying
Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, excluding for purposes of this Section 2.03
any authenticating agent serving solely as an agent of the Trustee. The
agreement shall implement the provisions of this Indenture that relate to such
Agent, including without limitation, with respect to the Paying Agent, Section
7.11 hereof. The Company shall give prompt written notice to the Trustee of the
name and address of any such Agent and any change in the address of such Agent.
If the Company fails to maintain a Registrar, Paying Agent and/or agent for
service of notices and demands, the Trustee shall act as such Registrar, Paying
Agent and/or agent for service of notices and demands. The Company may remove
any Agent upon written notice to such Agent and the Trustee; provided that no
such removal shall become effective until (i) the acceptance of an appointment
by a successor Agent to such Agent as evidenced by an appropriate agency
agreement entered into by the Company and such successor Agent and delivered to
the Trustee or (ii) notification to the Trustee that the Trustee shall serve as
such Agent until the appointment of a successor Agent in accordance with clause
(i) of this proviso. The Company, any Subsidiary of the Company, or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar,
and/or agent for service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notice and demands. If, at any time, the Trustee is not
the Registrar, the Registrar shall make available to the Trustee at least 15
days prior to each Interest Payment Date and at such other times as the Trustee
may reasonably request the names and addresses of the Holders as they appear in
the Security Register. The Company will provide the Trustee with the names and
addresses of the Holders pursuant to Section 312(a) of the TIA, provided no such
list need be finished if the Trustee is the Register.
SECTION 2.04. Paying Agent to Hold Money in Trust. Not later than each
due date of the principal, premium, if any, and interest on any Securities, the
Company shall deposit with the Paying Agent money in immediately available funds
sufficient to pay such principal, premium, if any, and interest so becoming due.
The Company shall require each Paying Agent other than the Trustee to agree in
writing that such Paying Agent shall hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Securities (whether such
money has been paid to it by the Company or any other obliger on the
Securities), and such Paying Agent shall promptly notify the Trustee of any
default by the Company (or any other obliger on the Securities) in making any
such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any payment default, upon
written request to a Paying
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Agent, require such Paying Agent to pay all money held by it to the Trustee and
to account for any funds disbursed. Upon doing so, the Paying Agent shall have
no further liability for the money so paid over to the Trustee. If the Company
or any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, it will, on or before each due date of any principal of, premium, if any,
or interest on the Securities, segregate and hold in a separate trust fund for
the benefit of the Holders a sum sufficient to pay such principal, premium, if
any, or interest so becoming due until such sums shall be paid to such Holders
or otherwise disposed of as provided in this Indenture, and will promptly notify
the Trustee of its action or failure to act.
SECTION 2.05. Transfer and Exchange. The Securities are issuable only
in registered form. A Holder may transfer a Security by written application to
the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee, and any agent of the Company shall
treat the person in whose name the Security is registered as the owner thereof
for all purposes whether or not the Security shall be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary. When Securities are presented to the Registrar or a co-Registrar with
a request to register the transfer or to exchange them for an equal principal
amount of Securities of other authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities at the
Registrar's request. No service charge shall be made for any registration of
transfer or exchange of the Securities, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or other similar
governmental charge payable upon exchanges pursuant to Section 2.08, 3.08 or
9.04 of this Indenture).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing or (ii) to register the transfer of or
exchange any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
SECTION 2.06. Replacement Securities. If a mutilated Security is
surrendered to the Trustee or if the Holder claims that the Security has been
lost, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding; provided that the
requirements of the second paragraph of Section 2.07 of this Indenture are met.
If required by the Trustee or the Company, an indemnity bond must be furnished
that is sufficient in the judgment of both the Trustee and the Company to
protect the Company, the Trustee or any Agent from any loss that any of them may
suffer if a Security is replaced. The Company may charge such Holder for its
expenses and the expenses of the Trustee in replacing a Security. In case any
such mutilated, lost, destroyed or wrongfully taken
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<PAGE> 23
Security has become or is about to become due and payable, the Company in its
discretion may pay such Security instead of issuing a new Security in
replacement thereof.
Every replacement Security is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.07. Outstanding Securities. Securities outstanding at any
time are all Securities that have been authenticated by the Trustee except for
those cancelled by it, those delivered to it for cancellation and those
described in this Section 2.07 as not outstanding.
If a Security is replaced pursuant to Section 2.06 of this Indenture, it
ceases to be outstanding unless and until the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company, its Subsidiaries or an
Affiliate of the Company) holds on a maturity date money sufficient to pay
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them shall cease to accrue.
A Security does not cease to be outstanding because the Company or one of
its Affiliates holds such Security, provided, however, that in determining
whether the Holders of the requisite principal amount of the outstanding
Securities have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Securities owned by the Company or any other
obliger upon the Securities or any Affiliate of the Company or of such other
obliger shall be disregarded and deemed not to be outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee has actual knowledge to be so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obliger upon the Securities or any
Affiliate of the Company or of such other obliger.
SECTION 2.08. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have insertions, substitutions, omissions and
other variations determined to be appropriate by the Officers executing the
temporary Securities, as evidenced by their execution of such temporary
Securities. If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall be entitled to the same benefits under
this Indenture as definitive Securities.
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<PAGE> 24
SECTION 2.09. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee shall cancel all Securities surrendered or
delivered for transfer, exchange, payment or cancellation and shall destroy them
in accordance with its normal procedure.
SECTION 2.10. CUSIP Numbers. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP
numbers in notices as a convenience to Holders; provided that any such notice
shall state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice and that
reliance may be placed only on the other identification numbers printed on the
Securities; and provided further that failure to use CUSIP numbers in any notice
shall not affect the validity or sufficiency of such notice.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment
of interest on the Securities, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay, the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.11 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
ARTICLE III
Redemption
SECTION 3.01. Right of Redemption. The Securities may be redeemed at
the election of the Company, in whole or in part, at any time or from time to
time, on or after July 15, 1999 and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice mailed by first class mail to each Holder's last
address as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date for an Interest Payment Date that is
on or prior to the Redemption Date to receive interest due on such Interest
Payment Date), if redeemed during the 12-month period commencing July 15, of the
years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
1999 105.875%
2000 102.938
2001 and thereafter 100.000
</TABLE>
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.01 of this Indenture, it shall notify the
Trustee in writing of the Redemption Date and the principal amount of Securities
to be redeemed.
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The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Securities to Be Redeemed. If less than all
of the Securities are to be redeemed at any time, the Trustee shall select the
Securities to be redeemed in compliance with the requirements of the principal
national securities exchange, if any, on which the Securities are listed or, if
the Securities are not listed on a national securities exchange, on a pro rata
basis, by lot or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate; provided that no Security of $1,000 in
principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption. Securities in denominations of $1,000
in principal amount may only be redeemed in whole. The Trustee may select for
redemption portions (equal to $1,000 in principal amount or any integral
multiple thereof) of Securities that have denominations larger than $1,000 in
principal amount. Provisions of this Indenture that apply to Securities called
for redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company and the Registrar promptly in writing of the
Securities or portions of Securities to be called for redemption.
SECTION 3.04. Notice of Redemption. At least 30 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
by first class mail to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Securities called for redemption must be surrendered to
the Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
is to receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Securities to the Paying Agent;
(vi) if any Security is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Security to be redeemed and that, on or promptly
after the Redemption Date, upon surrender of such Security, a new Security
or Securities in principal amount equal to the unredeemed portion thereof
will be reissued; and
(vii) that, if any Security contains a CUSIP number as provided in
Section 2.10 of this Indenture, no representation is being made as to
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<PAGE> 26
the correctness of the CUSIP number either as printed on the Securities
or as contained in the notice of redemption.
At the Company's request signed by an Officer (which request may be
revoked by the Company at any time prior to the time at which the Trustee shall
have given such notice to the Holders), made in writing to the Trustee at least
60 days (or such shorter period as shall be satisfactory to the Trustee) before
a Redemption Date, the Trustee shall give the notice of redemption in the name
and at the expense of the Company. If, however, the Company gives such notice to
the Holders, the Company shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the Redemption Date and at the Redemption Price. Upon surrender of any
Securities to the Paying Agent, such Securities shall be paid at the Redemption
Price, plus accrued interest to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of the Securities held by Holders to whom such notice was
properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.04 of this Indenture) money sufficient to pay the
Redemption Price of and accrued interest on all Securities to be redeemed on
that date other than Securities or portions thereof called for redemption on
that date that have been delivered by the Company to the Trustee for
cancellation.
SECTION 3.07. Payment of Securities Called for Redemption. If notice
of redemption has been given in the manner provided above, the Securities or
portion of Securities specified in such notice to be redeemed shall become due
and payable on the Redemption Date at the Redemption Price stated therein,
together with accrued interest to such Redemption Date, and on and after such
date (unless the Company shall default in the payment of such Securities at the
Redemption Price and accrued interest to the Redemption Date, in which case the
principal, until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Securities), such Securities shall cease to accrue interest.
Upon surrender of any Security for redemption in accordance with a notice of
redemption, such Security shall be paid and redeemed by the Company at the
Redemption Price, together with accrued interest to the Redemption Date;
provided that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders registered as such at the
close of business on the relevant Regular Record Date.
SECTION 3.08. Securities Redeemed in Part. Upon surrender of any
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate and deliver to the Holder a new Security equal in principal
amount to the unredeemed portion of such surrendered Security.
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ARTICLE IV
Covenants
SECTION 4.01. Payment of Securities. The Company shall pay the
principal of, premium, if any, and interest on the Securities on the dates and
in the manner provided in the Securities and this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the date due
if the Trustee or Paying Agent (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds on that date money designated
for and sufficient to pay the installment. If the Company, any Subsidiary of the
Company, or any Affiliate of any of them, acts as Paying Agent, an installment
of principal, premium, if any, or interest shall be considered paid on the due
date if the entity acting as Paying Agent complies with the last sentence of
Section 2.04 of this Indenture. As provided in Section 6.09, upon any bankruptcy
or reorganization procedure relative to the Company, the Trustee shall serve as
the Paying Agent and conversion agent, if any, for the Securities.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum borne by the Securities.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Securities may be surrendered for registration of transfer or exchange or
for presentation for payment and where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee as set
forth in Section 11.2 of this Indenture.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee, located in the Borough of Manhattan, The City of New York as such
office of the Company in accordance with Section 2.03 of this Indenture.
SECTION 4.03. Limitation on Indebtedness. (A) The Company will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Securities); provided that the Company may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, both of the following
tests shall have been satisfied: (i) the Interest Coverage Ratio would be
greater than 2.5:1; and (ii) Adjusted Consolidated Net Tangible Assets would
have been equal to or greater than 150% of the aggregate Indebtedness of the
Company and its Restricted Subsidiaries.
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Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness of the Company under the Bank Credit Agreement
outstanding at any time in an aggregate principal amount not to exceed the
amount outstanding under the Bank Credit Agreement on the date of this
Indenture after application of the proceeds from the sale of the
Securities, less any amount of Indebtedness permanently repaid as provided
under Section 4.10 of this Indenture;
(ii) Indebtedness to the Company or any of its Wholly Owned Restricted
Subsidiaries; provided that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary or any subsequent
transfer of such Indebtedness (other than to the Company or another Wholly
Owned Restricted Subsidiary) shall be deemed, in each case, to constitute
the Incurrence of such Indebtedness;
(iii) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided
that Indebtedness the proceeds of which are used to refinance or refund the
Securities or Indebtedness that is pari passu with, or subordinated in
right of payment to, the Securities shall only be permitted under this
clause (iii) if (A) in case the Securities are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Securities, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
pari passu with, or subordinate in right of payment to, the remaining
Securities, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Securities, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made subordinate in right of
payment to the Securities at least to the extent that the Indebtedness to
be refinanced is subordinated to the Securities and (C) such new
Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company be refinanced by means of any
indebtedness of any Restricted Subsidiary of the Company pursuant to this
clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business; (B) under Currency Agreements,
Interest Rate Agreements and Hedging Arrangements; provided that such
agreements do not increase the Indebtedness of the obliger outstanding at
any time other than as a result of fluctuations in foreign currency
exchange rates, interest rates or oil and gas prices or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of
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credit, surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; and
(v) Indebtedness of the Company outstanding at any time in an
aggregate principal amount not to exceed $25 million.
(b) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this Section 4.03, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. So long as any of the
Securities are outstanding, the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its Capital Stock held by Persons other
than the Company or any of its Wholly Owned Restricted Subsidiaries (other than
dividends or distributions payable solely in shares of its or such Restricted
Subsidiary's Capital Stock (other than Redeemable Stock) of the same class held
by such holders or in options, warrants or other rights to acquire such shares
of Capital Stock), (ii) purchase, redeem, retire or otherwise acquire for value
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly Owned
Restricted Subsidiaries, (iii) make any voluntary or optional principal payment,
or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Securities, or (iv) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of Section 4.03 of this Indenture or (C) the aggregate
amount expended for all Restricted Payments (the amount so expended, if other
than in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) after the
date of the Indenture shall exceed the sum of (1) 50% of the aggregate amount of
the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of such amount) (determined by excluding income
resulting from transfers of assets received by the Company or a Restricted
Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the first day of the
month immediately following the date of this Indenture and ending on the last
day of the last fiscal quarter preceding the Transaction Date, plus
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(2) the aggregate Net Cash Proceeds received by the Company after the date of
this Indenture from the issuance and sale permitted by the Indenture of its
Capital Stock (other than Redeemable Stock) to a Person who is not a Subsidiary
of the Company, or from the issuance to a Person who is not a Subsidiary of the
Company of any options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Securities), plus
(3) upon the conversion into Capital Stock (other than Redeemable Stock) of
Redeemable Stock or Indebtedness, the aggregate Net Cash Proceeds received by
the Company after the date of this Indenture from the issuance and sale
permitted by the Indenture of such Indebtedness or Redeemable Stock less the
aggregate amount of interest and dividends paid on such Indebtedness and
Redeemable Stock, plus (4) an amount equal to the net reduction in Investments
in Unrestricted Subsidiaries resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company and any Restricted
Subsidiary in such Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the payment of annual dividends of $12.00 per share on the
Company's $12.00 Convertible Preferred Stock; (iii) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Securities, including premium, if any,
and accrued unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of part (a) of
Section 4.03 of this Indenture; (iv) the repurchase, redemption, conversion or
other acquisition of Capital Stock of the Company with the proceeds of a
substantially concurrent offering of, or in exchange for, shares of Capital
Stock (other than Redeemable Stock) of the Company; (v) the redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness that is subordinated in right of payment to the Securities,
including premium, if any, and accrued and unpaid interest, with the proceeds of
a substantially concurrent offering of, or in exchange for, shares of Capital
Stock of the Company (other than Redeemable Stock); (vi) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of Article Five of this
Indenture; and (vii) Restricted Payments that do not in the aggregate exceed $1
million; provided that, except in the case of clauses (i), (iii) and (iv), no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the Restricted Payment or related actions or payments.
Each Restricted Payment permitted pursuant to the preceding paragraph
and the Net Cash Proceeds from any issuance of Capital Stock referred to in
clauses (iii) and (iv) shall be included in calculating whether the conditions
of clause (C) of the first paragraph of this Section 4.4 have been met with
respect to any subsequent Restricted Payments. In the event the proceeds of an
issuance of Capital Stock of the Company are used for the redemption, repurchase
or other acquisition of the Securities, or Indebtedness that is pan passu with
the Securities, then the Net Cash
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Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this Section 4.4 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. So long as any of the Securities are
outstanding, the Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
loans or advances to the Company or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the date of this Indenture in the Bank Credit
Agreement, the Indenture or any other agreements in effect on the date of this
Indenture, and any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law; (iii) existing with respect
to any Person or the property or assets of such Person acquired by the Company
or any Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (iv) in the case of clause (iv) of the first paragraph of
this Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by this Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; or (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary. Nothing contained in this
Section 4.05 shall prevent the Company or any Restricted Subsidiary from (1)
creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in Section 4.08 of this Indenture or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i)
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to the Company or a Wholly Owned Restricted Subsidiary, (ii) issuances or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law, or (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary.
SECTION 4.07. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation. the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction or
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested (with respect to
such transaction) members of the Board of Directors or (B) for which the Company
or a Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company or such Restricted Subsidiary from a financial point of
view; (ii) any transaction between the Company and any of its Wholly Owned
Restricted Subsidiaries or between Wholly Owned Restricted Subsidiaries; (iii)
the payment of reasonable and customary regular fees to directors of the Company
who are not employees of the Company; or (iv) any payments or other transactions
pursuant to any tax-sharing agreement between the Company and any other Person
with which the Company files a consolidated tax return or with which the Company
is part of a consolidated group for tax purposes. Notwithstanding the foregoing,
any transaction covered by the first paragraph of this Section 4.07 and not
covered by clauses (ii) through (iv) of this paragraph, the aggregate amount of
which exceeds $1 million in value, must be approved or determined to be fair in
the manner provided for in clause (i)(A) or (B) above.
SECTION 4.08. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Securities and all other amounts due under
this Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Securities, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens existing on the
date of this Indenture; (ii) Liens granted after the date of this Indenture on
any assets or Capital Stock of the Company or its Restricted Subsidiaries
created h favor of the Holders; (iii) Liens with respect to the assets of a
Restricted Subsidiary granted by such Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the Company
or such other Restricted Subsidiary; (iv) Liens securing Indebtedness which is
Incurred to refinance secured Indebtedness which is permitted to be Incurred
under clause (iii) of the second paragraph of
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Section 4.03 of this Indenture; provided that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary other
than the property or assets securing the Indebtedness being refinanced; (v)
Liens securing Senior Indebtedness under the Bank Credit Agreement and other
Senior Indebtedness of the Company; or (vi) Permitted Liens.
SECTION 4.09. Limitation on Senior Subordinated Indebtedness. The
Company will not Incur any Indebtedness that is expressly made subordinate in
right of payment to any Senior Indebtedness of the Company unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is outstanding, is expressly made pari passu
with, or subordinate in right of payment to, the Securities pursuant to
provisions substantially similar to those contained in Article Ten of this
Indenture; provided, that the foregoing limitation shall not apply to
distinctions between categories of Senior indebtedness of the Company that exist
by reason of any Liens or Guarantees (of Senior Indebtedness but not
Indebtedness that is pari passu with, or subordinate in right of payment to, the
Securities) arising or created in respect of some but not all of such Senior
Indebtedness.
SECTION 4.10. Limitation on Asset Sales. In the event and to the
extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on or after the
date of this Indenture in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date closest to
the commencement of such 12-month period for which a consolidated balance sheet
of the Company and its Subsidiaries has been prepared), then the Company shall
or shall cause the relevant Restricted Subsidiary to (i) within 12 months after
the date Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Company and its
Subsidiaries has been prepared) (A) apply an amount equal to such excess Net
Cash Proceeds to permanently repay Senior Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary, in each case owing to a Person other
than the Company or any of its Restricted Subsidiaries, or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within six months after the date of
such agreement), in property or assets of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 4.10. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase under this
Section 4.10 totals at least $5 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount
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of Securities equal to the Excess Proceeds on such date, at a purchase price
equal to 101% of the principal amount of the Securities, plus, in each case,
accrued interest (if any) to the date of purchase. To the extent that the
aggregate amount of Securities tendered pursuant to such an Offer to Purchase is
less than the Excess Proceeds, the balance may be used for general corporate
purposes.
SECTION 4.11. Corporate Existence. Subject to Articles Four and Five
of this Indenture, the Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary; provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.12. Payment of Taxes and Other Claims. The Company will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or imposed upon (a)
the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a Lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established.
SECTION 4.13. Notice of Defaults and Other Events. In the event that
any Indebtedness of the Company or any Significant Subsidiary of the Company
having an outstanding principal amount of $100,000 or more has been or could be
declared due and payable before its maturity because of the occurrence of any
event of default (i.e., following any required notice or passage of time or
both) under such Indebtedness (including, without limitation, any Default or
Event of Default under this Indenture), the Company, promptly after it becomes
aware thereof, will give written notice thereof to the Trustee.
SECTION 4.14. Maintenance of Properties and Insurance. The Company
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.14 shall prevent the Company or any such Restricted Subsidiary
from discontinuing the use, operation or maintenance of any of such properties
or disposing of any of them, if such
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discontinuance or disposal is, in the judgment of the Company, desirable in the
conduct of the business of the Company or such Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or such Restricted Subsidiary, as the case may be,
is then conducting business.
SECTION 4.15. Compliance Certificates. (A) The Company shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days of the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer that a review has
been conducted of the activities of the Company and its Restricted Subsidiaries
and the Company's and its Restricted Subsidiaries' performance under this
Indenture and that the Company has complied with all conditions and covenants
under this Indenture. For purposes of this Section 4.15, such compliance shall
be determined without regard to any period of grace or requirement of notice
provided under this Indenture. If they do know of such a Default or Event of
Default, the certificate shall describe the nature of any such Default or Event
of Default and its status. The first certificate to be delivered pursuant to
this Section 4.15(a) shall be for the first fiscal quarter beginning after the
execution of this Indenture. On the date of this Indenture, the Company's fiscal
year end is December 31.
(B) The Company shall deliver to the Trustee, within 90 days after the
end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the
Securities as they relate to accounting matters, (ii) that they have read the
most recent Officers' Certificate delivered to the Trustee pursuant to paragraph
(a) of this Section 4.15 and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe that
the Company was not in compliance with any of the terms, covenants, provisions
or conditions of Article Four and Section 5.01 of this Indenture as they pertain
to accounting matters and, if any Default or Event of Default has come to their
attention, specifying the nature and period of existence thereof; provided that
such independent certified public accountants shall not be liable in respect of
such statement by reason of any failure to obtain knowledge of any such Default
or Event of Default that would not be disclosed in the course of an audit
examination conducted in accordance with generally accepted auditing standards
in effect at the date of such examination.
(C) Within 90 days of the end of each of the Company's fiscal years,
the Company shall deliver to the Trustee a list of all Significant
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Subsidiaries. The Trustee shall have no duty with respect to any such list
except to keep it on file and available for inspection by the Holders.
SECTION 4.16. Commission Reports and Reports to Holders. Whether or
not the Company is required to file reports with the Commission, the Company
shall file with the Commission all such reports and other information as would
be required to be filed with the Commission by the Exchange Act. The Company
shall supply the Trustee and each Holder of Securities, or shall supply to the
Trustee for forwarding to each Holder of Securities, without cost to such
Holder, copies of such reports or other information within 15 days of the date
the Company is or would have been required to file such reports or other
information with the Commission.
SECTION 4.17. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 4.18. Repurchase of Securities upon Change of Control. (A) In
the event of a Change of Control, each Holder shall have the right to require
the repurchase of its Securities by the Company in cash pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the principal amount thereof, plus accrued interest (if any) to the date
of purchase (the "Change of Control Payments"). Prior to the mailing of the
notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, the Company covenants to (i)
repay in full all Indebtedness of the Company that would prohibit the repurchase
of the Securities pursuant to such Offer to Purchase or (ii) obtain any
requisite consents under instruments governing any such indebtedness of the
Company to permit the repurchase of the Securities as provided for in the
succeeding paragraph. The Company shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase Securities pursuant
to this Section 4.18.
(B) Within 30 days of the Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating:
(i) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this Section 4.18 and that all Securities
validly tendered will be accepted for payment;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Change Control Payment Date");
(iii) that any Security not tendered will continue to accrue
interest pursuant to its terms;
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(iv) that, unless the Company defaults in the payment of the Change of
Control Payment, any Security accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest on and after the Change of
Control Payment Date;
(v) that Holders electing to have any Security or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Security, together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side of such Security completed,
to the Paying Agent at the address specified in the notice prior to the
close of business on the Business Day immediately preceding the Change of
Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Securities delivered for purchase and a statement that
such Holder is withdrawing his election to have such Securities purchased;
and
(vii) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Security
purchased and each new Security issued shall be in a principal amount of
$1,000 or integral multiples thereof.
(C) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation, all Securities or portions thereof so accepted together with
an Officers' Certificate specifying the Securities or portions thereof
accepted for payment by the Company.
The Paying Agent shall promptly mail, to the Holders of Securities so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Security equal in
principal amount to any unpurchased portion of the Securities surrendered;
provided that each Security purchased and each new Security issued shall be in a
principal amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date. For purposes of this Section 4.18, the Trustee shall act as Paying Agent.
(D) The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control
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occurs and the Company is required to repurchase Securities under this
Section 4.18.
ARTICLE V
Successor Corporation
SECTION 5.01. When Company May Merge, Etc. The Company shall not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of an or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth; provided that,
in connection with any such merger or consolidation, no consideration (other
than Common Stock in the surviving Person or the Company) shall be issued or
distributed to the shareholders of the Company) or permit any Person to merge
with or into the Company unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of
the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of the Company on all of the Securities
and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma
basis, the Company or any Person becoming the successor obligor of the
Securities, as the case may be, shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma
basis, the Company or any Person becoming successor obligor of the
Securities, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.03 of this Indenture; and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv)); provided that the Trustee shall have no duty to
monitor compliance therewith or liability for failure to do so and an
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and
that all conditions precedent provided for herein relating to such
transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
provided further that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
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SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein.
ARTICLE VI
Default and Remedies
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Securities if:
(A) the Company defaults in the payment of the principal of (or
premium, if any, on) any Security when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
(B) the Company defaults in the payment of interest on any Security
when the same becomes due and payable, and such default continues for a period
of 30 days;
(C) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in this Indenture or under the Securities
and such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Securities;
(D) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding principal
amount of $5 million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be created, (I)
an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default;
(E) any final judgment or order (not covered by insurance) for the
payment of money in excess of $2 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $2 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
(F) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary
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in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days;
(G) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (f) or (g) of Section 6.01 of this
Indenture that occurs with respect to the Company) occurs and is continuing
under this Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Securities then outstanding, by written notice to the
Company (and to the Trustee if such notice is given by the Holders), may, and
the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Securities to be immediately due
and payable. Upon a declaration of acceleration, such principal of, premium, if
any, and accrued interest shall be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in clause
(d) of Section 6.01 of this Indenture has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to clause (d) of
Section 6.01 of this Indenture shall be remedied or cured by the Company or the
relevant Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (0 or (g) of Section 6.01 of
this Indenture occurs with respect to the Company, the principal of, premium, if
any, and accrued interest on the Securities then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the
outstanding Securities by written notice to the Company and to the Trustee may
waive all past Defaults and rescind and annul a declaration of acceleration and
its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and interest on the Securities
that have become due solely by such declaration of acceleration, have been cured
or waived and (ii) the rescission would not conflict with any Judgment or decree
of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
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The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02 of this Indenture, the Holders of at least a majority in principal
amount of the outstanding Securities, by notice to the Trustee, may waive an
existing Default or Event of Default and its consequences, except a Default in
the payment of principal of, premium, if any, or interest on any Security as
specified in clause (a) or (b) of Section 6.01 or in respect of a covenant or
provision of this Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
Event of Default or impair any right consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a majority
in aggregate principal amount of the outstanding Securities may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders not joining in the giving of such direction and may take any other
action it deems proper that is not inconsistent with any such direction received
from Holders of Securities pursuant to this Section 6.05.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given to the Trustee written notice of
a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Securities shall have made a written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any costs, liabilities or expenses to
be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(v) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding Securities have not given the Trustee a
direction that is inconsistent with such written request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Securities have concurred in any request or direction
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of the Trustee to pursue any remedy available to the Trustee or the Holders with
respect to this Indenture or the Securities or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Security to
receive payment of the principal of, premium, if any, or interest on, such
Security or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a) or (b) of
Section 6.01 of this Indenture occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
or any other obligor of the Securities for the whole amount of principal,
premium, if any and accrued interest remaining unpaid, together with interest on
overdue principal, premium, if any, and, to the extent that payment of such
interest is lawful, interest on overdue installments of interest, in each case
at the rate specified in the Securities, and such further amount as shall be
sufficient to cover the costs and expenses of collection, including all amounts
due the Trustee under Section 7.06.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.06 of this Indenture) and the Holders allowed in any judicial
proceedings relative to the Company (or any other obliger of the Securities),
its creditors or its property and shall be entitled and empowered to collect and
receive any monies, securities or other property payable or deliverable on any
such claims and to distribute the same, and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.06 of this Indenture. To the extent that such payment of reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel out of the estate in any such judicial proceeding shall be denied for
any reason, payment of the same shall be secured by a lien on, and shall be paid
our of, any and all dividends, distributions, monies, securities and other
property that the Holders may be entitled to receive in such judicial
proceedings, whether in liquidation or under any plan of reorganization,
arrangement or otherwise. Nothing herein contained shall be deemed to empower
the Trustee to authorize or consent to, or accept or adopt on behalf of any
Holder, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
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SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:
First: to the Trustee for amounts due under Section 7.06 of this
Indenture:
Second: Subject to Article Ten, to Holders for amounts then due and
unpaid for principal of, premium, if any, and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any,
and interest, respectively; and
Third: to the Company or any other obligors of the Securities, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07 of this Indenture, or a suit by Holders of more than 10% in principal
amount of the outstanding Securities.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, the Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Securities in Section 2.06 of this Indenture, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission
of the Trustee or of any Holder to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or constitute a
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waiver of any such Event of Default or an acquiescence therein. Every right and
remedy given by this Article Six or by law to the Trustee or to the Holders may
be exercised from time to tune, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
ARTICLE VII
Trustee
SECTION 7.01. Rights of Trustee. Subject to TIA Sections 315(a)
through (d):
(i) the Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document;
(ii) before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 11.04 of this Indenture. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shell
not be responsible for the misconduct or negligence of any agent
appointed with due care;
(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction;
(v) the Trustee or Paying Agent shall not be liable for interest on any
money recovered by it except as the Trustee or Paying Agent may agree in
writing with the Company. Money held in trust by the Trustee or Paying
Agent need not be segregated from other funds except to the extent required
by law; and
(vi) the Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within its rights
or powers; provided that the Trustee's conduct does not constitute
negligence or bad faith.
SECTION 7.02. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.03. Trustee's Disclaimer. Neither the Trustee nor any of its
agents (i) makes any representation as to the validity or adequacy of this
Indenture or the Securities, (ii) shall be accountable for the Company's use or
application of the proceeds from the Securities and (iii) shall be responsible
for any statement in the Securities other than its certificate of
authentication.
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SECTION 7.04. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall mall to each Holder in the manner and to
the extent provided in TIA Section 313(c) notice of the Default or Event of
Default within 45 days after it occurs, unless such Default or Event of Default
has been cured; provided, however, that, except in the case of a default in the
payment of the principal of, premium, if any, or interest on any Security, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
The Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Section
4.01, 6.01(a) or 6.10(b) of this Indenture or (ii) any Default or Event of
Default of which the Trustee shall have received written notification or
obtained actual knowledge, and such notification shall not be deemed to include
receipt of information obtained in any report or other documents furnished under
Section 4.16 of this Indenture, which reports and documents the Trustee shall
have no duty to examine.
SECTION 7.05. Reports by Trustee to Holders. Within 60 days after each
May 15, beginning with May 15, 1995, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
SECTION 7.06. Compensation and Indemnity. The Company shall pay to the
Trustee such reasonable compensation as shall be agreed upon for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances incurred or made
by the Trustee. Such expenses shall include the reasonable compensation and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred by it without negligence or
bad faith on its part arising out of or in connection with the acceptance or
administration of this Indenture and its duties under this Indenture and the
Securities, including the costs and expenses of defending itself against any
claim or liability and of complying with any process served upon it or any of
its officers in connection with the exercise or performance of any of its powers
or duties under this Indenture and the Securities. The Trustee shall notify the
Company promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate in
the defense. The Company need not pay for any settlements made without its
consent; provided that such consent shall not be unreasonably withheld. The
Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section 7.06, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Securities.
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If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (f) or (g) of Section 6.10
of this Indenture, the expenses and the compensation for the services will be
intended to constitute expenses of administration under Title 11 of the United
States Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
SECTION 7.07. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.07.
The Trustee may resign by so notifying the Company in writing. The
Holders of a majority in principal amount of the outstanding Securities may
remove the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company may remove the
Trustee if:
(i) the Trustee fails to comply with Section 7.09 of this Indenture;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the Trustee or
its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.07 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.06 of this Indenture, (i) the retiring Trustee shall transfer all property
held by it as Trustee to the successor Trustee, (ii) the resignation or removal
of the retiring Trustee shall become effective and (iii) the successor Trustee
shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If the Trustee fails to comply with Section 7.09 of this Indenture,
any Holder who satisfies the requirements of TIA Section 310(b) may petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.07, the Company's obligations under Section 7.06 of this Indenture shall
continue for the benefit of the retiring Trustee.
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SECTION 7.08. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.09. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25,000,000 as set forth in its most
recent published annual report of condition.
SECTION 7.10. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree in writing
with the Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 7.11. Withholding Taxes. The Trustee, as Paying Agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Securities any and all withholding
taxes applicable thereto as required by law. The Trustee, as Paying Agent for
the Company, agrees to act as such withholding agent and, in connection
therewith, whenever any present or future taxes or similar charges are required
to be withheld with respect to any amounts payable in respect of the Securities,
to withhold such amounts and timely pay the same to the appropriate authority in
the name of and on behalf of the holders of the Securities, that it will file
any necessary withholding tax returns or statements when due, and that, as
promptly as possible after the payment thereof, it will deliver to each holder
of a Security appropriate documentation showing the payment thereof, together
with such additional documentary evidence as such holders may reasonably request
from time to time.
ARTICLE VIII
Discharge of Indenture
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Securities and this Indenture if:
(i) all Securities previously authenticated and delivered (other than
destroyed, lost or stolen Securities that have been replaced or Securities
that are paid pursuant to Section 4.01 of this Indenture or Securities for
whose payment money or securities have theretofore been held in trust and
thereafter repaid to the Company, as provided in Section 8.05 of this
Indenture) have been delivered to the Trustee for cancellation and the
Company has paid all sums payable by it hereunder; or
(ii) (A) the Securities mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year period,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the
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benefit of the Holders for that purpose, money or U.S. Government
Obligations sufficient (in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee), without consideration of any reinvestment of any
interest thereon, to pay principal, premium, if any, and interest on the
Securities to maturity or redemption, as the case may be, and to pay all
other sums payable by it hereunder, (C) no Default or Event of Default with
respect to the Securities shall have occurred and be continuing on the date
of such deposit, (D) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and (E)
the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.06 of this Indenture shall survive. With respect to the
foregoing clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.11, 4.01, 4.02, 7.06, 7.07, 8.04, 8.05, 8.06 and Article Ten (with
respect to payments in respect of Senior Subordinated Obligations other than
with the assets held in trust with the Trustee as described in the foregoing
clause (ii)) shall survive until the Securities are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.06, 8.05 and 8.06 of
this Indenture shall survive. After any such irrevocable deposit, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Securities on the 91st day after the date of the deposit referred
to in clause (A) of this Section 8.02, and the provisions of this Indenture will
no longer be in effect with respect to the Securities (except for, among other
matters, certain obligations to register the transfer or exchange of the
Securities, to replace stolen, lost or mutilated Securities, to maintain paying
agencies and to hold monies for payment in trust), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the same,
except as to (i) rights of registration of transfer and exchange, (ii)
substitution of apparently mutilated, defaced, destroyed, lost or stolen
Securities, (iii) rights of Holders to receive payments of principal thereof,
premium, if any, thereon and interest thereon, (iv) the Company's obligations
under Section 4.02 of this Indenture, (v) the rights, obligations and immunities
of the Trustee hereunder and (vi) the rights of the Holders as beneficiaries of
this Indenture with respect to the property so deposited with the Trustee
payable to all or any of them; provided that the following conditions shall have
been satisfied:
(A) with reference to this Section 8.02, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.09 of this
Indenture) and conveyed all right, title and interest to the Trustee for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust funds
in trust, specifically pledged to the Trustee for
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the benefit of the Holders as security for payment of the principal of,
premium, if any, and interest, if any, on the Securities, and dedicated
solely to, the benefit of the Holders, in and to (1) money in an amount,
(2) U.S. Government Obligations that, through the payment of interest,
premium, if any, and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any
payment referred to in this clause (A), money in an amount or (3) a
combination thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge,
without consideration of the reinvestment of such interest and after
payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and accrued interest on the outstanding Securities at the
Stated Maturity of such principal or interest; provided that the Trustee
shall have been irrevocably instructed to apply such money or the proceeds
of such U.S. Government Obligations to the payment of such principal,
premium, if any, and interest with respect to the Securities;
(B) the Company shall have delivered to the Trustee (1) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of the Company's
exercise of its option under this Section 8.02 and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon
(and accompanied by a copy of) a ruling of the Internal Revenue Service to
the same effect unless there has been a change in applicable federal income
tax law after the date of this Indenture such that a ruling is no longer
required or (y) a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect as the aforementioned Opinion of Counsel
and (2) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 91 days following the deposit (except, with respect to
any trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one year
following the deposit), the trust fund will not be subject to the effect of
Section 547 of the United States Bankruptcy Code;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending
on the 91st day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company or any of its
Subsidiaries is a parer or by which the Company or any of its Subsidiaries
is bound;
(D) the Company is not prohibited from making payments in respect of
the Securities by the provisions of Article Ten of this Indenture;
(E) if at such time the Securities are listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Securities will not be delisted as a result
of such deposit, defeasance and discharge; and
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(F) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 91-day period
referred to in clause (B)(2) of this Section 8.02, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 91-day period with respect to this Section 8.02, the Company's obligations
in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01, 4.02, 7.06, 7.07, 8.05 and
8.6 of this Indenture shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.06, 8.05
and 8.06 of this Indenture shall survive. If and when a ruling from the Internal
Revenue Service or an Opinion of Counsel referred to in clause (B)(1) of this
Section 8.02 is able to be provided specifically without regard to, and not in
reliance upon, the continuance of the Company's obligations under Section 4.01
of this Indenture, then the Company's obligations under such Section 4.01 of
this Indenture shall cease upon delivery to the Trustee of such ruling or
Opinion of Counsel and compliance with the other conditions precedent provided
for herein relating to the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit (and the lapse of 91 days if
applicable), the Trustee upon request shall acknowledge in writing the discharge
of the Company's obligations under the Securities and this Indenture except for
those surviving obligations in the immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) of Section 5.01 and Sections 4.03 through 4.16 and 4.18 of this Indenture,
clause (c) of Section 6.01 of this Indenture with respect to clauses (iii) and
(iv) of Section 5.01 and Sections 4.03 through 4.17 and 4.19 of this Indenture,
and clauses (d) and (e) of Section 6.01 of this Indenture shall be deemed not to
be Events of Default, and the provisions described under Article Ten of this
Indenture shall not apply to the money and/or U.S. Government Obligations held
by the trust referred to in clause (i) below, in each case with respect to the
outstanding Securities if:
(i) with reference to this Section 8.03, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.09 of this
Indenture) and conveyed all right, title and interest to the Trustee for
the benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust funds
in trust, specifically pledged to the Trustee for the benefit of the
Holders as security for payment of the principal of, premium, if any, and
interest, if any, on the Securities, and dedicated solely to, the benefit
of the Holders, in and to (A) money in an amount, (B) U.S. Government
Obligations that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide, not later than one
day before the due date of any payment referred to in this clause (i),
money in an amount or (C) a combination thereof in an amount sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, without consideration of the reinvestment of
such interest and after
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payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and accrued interest on the outstanding Securities on the
Stated Maturity of such payments; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of such principal, premium, if any,
and interest with respect to the Securities;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and is
permitted by Article Ten;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel to the
effect that (A) the creation of the defeasance trust does not violate the
Investment Company Act of 1940, (B) the Holders have a valid first-priority
security interest in the trust funds, (C) the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such deposit and defeasance had
not occurred and (D) after the passage of 91 following the deposit (except,
with respect to any trust funds for the account of any Holder who may be
deemed to be an Insider for purposes of the United States Bankruptcy Code,
after one year following the deposit), the trust funds will not be subject
to the effect of Section 547 of the United States Bankruptcy Code in a case
commenced by or against the Company under such statute;
(v) in the event that the Securities are then listed on a national
securities exchange, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that such deposit, defeasance and
discharge will not cause the Securities to be delisted; and
(vi) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the defeasance contemplated by this Section
8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.05 and
8.06 of this Indenture, the Trustee or Paying Agent shall hold in trust money or
U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or
8.03 of this Indenture, as the case may be, and shall apply the deposited money
and the money from U.S. Government Obligations in accordance with the Securities
and this Indenture to the payment of principal of, premium, if any, and interest
on the Securities; but such money need not be segregated from other funds except
to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.06, 8.01,
8.02 and 8.03 of this Indenture, the Trustee and the Paying Agent shall promptly
pay to the Company upon request set forth in an Officers' Certificate any excess
money held by them at any time and thereupon shall be relieved from all
liability with respect to such money. The Trustee and the Paying Agent shall pay
to the Company upon request any money held by them for
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the payment of principal, premium, if any or interest that remains unclaimed for
two years; provided that the Trustee or such Paying Agent before being required
to make any payment may cause to be published at the expense of the Company once
in a newspaper of general circulation in the City of New York or mail to each
Holder entitled to such money at such Holder's address (as set forth in the
Security Register) notice that such money remains unclaimed and that after a
date specified therein (which shall be at least 30 days from the date of such
publication or mailing) any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03 of this Indenture, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02
or 8.03 of this Indenture, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money or U.S. Government Obligations
in accordance with Section 8.01, 8.02 or 8.03 of this Indenture, as the case may
be; provided that, if the Company has made any payment of principal of, premium,
if any, or interest on any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Company, when authorized
by a resolution of its Board of Directors, and the Trustee may amend or
supplement this Indenture or the Securities without notice to or the consent of
any Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article Five of this Indenture;
Holder.
(c) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the Try;
(d) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee;
(e) to provide for uncertificated Securities in addition to or in place
of certificated Securities; or
(f) to make any change that does not adversely affect the rights of any
Holder.
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SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 of this Indenture and without prior notice to the Holders, the Company,
when authorized by its Board of Directors (as evidenced by a Board Resolution),
and the Trustee may amend this Indenture and the Securities with the written
consent of the Holders of not less than a majority in principal amount of the
Securities then outstanding, and the Holders of a majority in principal amount
of the Securities then outstanding by written notice to the Trustee may waive
future compliance by the Company with any provision of this Indenture or the
Securities.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04 of this Indenture, may not:
(i) change the Stated Maturity of the principal of, or any installment of
interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or adversely affect any right of repayment at the option of any
Holder of any Security, or change any place of payment where, or the
currency in which, any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date);
(ii) reduce the percentage or aggregate principal amount of outstanding
Securities the consent of whose Holders is required for any such
supplemental indenture, for any waiver of compliance with certain
provisions of this Indenture or certain Defaults and their consequences
provided for in this Indenture;
(iii) modify any of the provisions of Article Ten of this Indenture in
a manner adverse to the Holders;
(iv) waive a Default in the payment of principal of, premium, if any,
or interest on, any Security; or
(v) modify any of the provisions of this Section 9.02, except to increase
any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an
amendment or waiver becomes effective, a consent to it by a Holder is a
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continuing consent by the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the Security of the
consenting Holder, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to its
Security or portion of its Security. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver shall
become effective on receipt by the Trustee of written consents from the Holders
of the requisite percentage in principal amount of the outstanding Securities or
such later date as specified therein.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such Consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of Section 9.02 of this Indenture. In case of an amendment or waiver
of the type described in clauses (i) through (v) of Section 9.02 of this
Indenture, the amendment or waiver shall bind each Holder who has consented to
it and every subsequent Holder of a Security that evidences the same
indebtedness as the Security of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Securities. If an amendment,
supplement or waiver changes the terms of a Security, the Trustee may require
the Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security about the changed terms and return it to the Holder and
the Trustee may place an appropriate notation on any Security thereafter
authenticated. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the rights
of the Trustee. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
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ARTICLE X
Subordination of Securities
SECTION 10.01. Securities Subordinated to Senior Indebtedness. The
Company and the Trustee each covenants and agrees and each Holder, by its
acceptance of a Security, likewise covenants and agrees that all Securities
shall be issued subject to the provisions of this Article Ten; and each Person
holding any Security, whether upon original issue or upon transfer, assignment
or exchange thereof, accepts and agrees that Senior Subordinated Obligations
shall, to the extent and in the manner set forth in this Article Ten, be
subordinated in right of payment to the prior payment in full, in cash or cash
equivalents, of all amounts payable under Senior Indebtedness, including,
without limitation, the Company's obligations under the Bank Credit Agreement
(including any interest accruing subsequent to an event specified in Sections
6.01(f) and 6.01(g) of this Indenture, whether or not such interest is an
allowed claim enforceable against the debtor under the United States Bankruptcy
Code).
SECTION 10.02. No Payment on Securities in Certain Circumstances. (a)
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms of the Securities or
upon acceleration or otherwise, shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
on any Senior Indebtedness, and such default shall not have been cured or waived
or the benefits of this sentence waived by or on behalf of the holders of such
Senior Indebtedness.
(b) During the continuance of any other event of default with respect
to (i) the Bank Credit Agreement pursuant to which the maturity thereof may be
accelerated and (a) upon receipt by the Trustee of written notice from the Bank
Agent or (b) if such event of default under the Bank Credit Agreement results
from the acceleration of the Securities, from and after the date of such
acceleration, no payment of Senior Subordinated Obligations may be made by or on
behalf of the Company upon or in respect of the Securities for a period (a
"Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 179 days thereafter
(unless such Payment Blockage Period shall be terminated by written notice to
the Trustee from the Bank Agent or by repayment in full in cash or cash
equivalents of such Senior Indebtedness or such event of default has been cured
or waived) or (ii) any other Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated, upon receipt by the Trustee of written
notice from the trustee or other representative for the holders of such other
Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such other Designated Senior Indebtedness then outstanding),
no payment of Senior Subordinated Obligations may be made by or on behalf of the
Company upon or in respect of the Securities for a Payment Blockage Period
commencing on the date of receipt of such notice and ending 119 days thereafter
(unless, in each case, such Payment Blockage Period shall be terminated by
written notice to the Trustee from such trustee of, or other representatives
for, such holders or by repayment in full in cash or cash equivalents of such
Designated Senior Indebtedness or such event of default has been cured or
waived). Not more than one Payment Blockage Period pursuant to this Section
10.02(b) may be commenced with respect to the Securities during any period of
360 consecutive days; provided that, subject to the limitations set forth in the
next sentence, the commencement of a
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Payment Blockage Period by the representatives for, or the holders of,
Designated Senior Indebtedness, other than under the Bank Credit Agreement or
under clause (i)(b) of this Section 10.02(b), shall not bar the commencement of
another Payment Blockage Period by the Bank Agent within such period of 360
consecutive days. Notwithstanding anything in this Indenture to the contrary,
there must be 180 consecutive days in any 360-day period in which no Payment
Blockage Period is in effect. For all purposes of this Section 10.02(b), no
event of default (other than an event of default pursuant to the financial
maintenance covenants under the Bank Credit Agreement) that existed or was
continuing (it being acknowledged that any subsequent action that would give
rise to an event of default pursuant to any provision under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose) on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or shall be made, the basis for the
commencement of a second Payment Blockage Period by the representative for, or
the holders of, such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohibited
by Section 10.02(a) or 10.02(b) of this Indenture, the Trustee shall promptly
notify the holders of Senior Indebtedness of such prohibited payment and such
payment shall be held in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Indebtedness or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their respective
interests may appear, but only to the extent that, upon notice from the Trustee
to the holders of Senior Indebtedness that such prohibited payment has been
made, the holders of the Senior Indebtedness (or their representative or
representatives or a trustee), within 30 days of receipt of such notice from the
Trustee, notify the Trustee of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness and any excess above
such amounts due and owing on Senior Indebtedness shall be paid to the Company.
SECTION 10.03. Payment Over of Proceeds Upon Dissolution, Etc. (a)
Upon any payment or distribution of assets or securities of the Company of any
kind or character, whether in cash, property or securities, upon any dissolution
or winding up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Indebtedness
(including any interest accruing subsequent to an event specified in Sections
6.01(f) and 6.01(g) of this Indenture, whether or not such interest is an
allowed claim enforceable against the debtor under the United States Bankruptcy
Code) shall first be paid in full, in cash or cash equivalents, before the
Holders or the Trustee on behalf of the Holders shall be entitled to receive any
payment by the Company on account of Senior Subordinated Obligations, or any
payment to acquire any of the Securities for cash, property or securities, or
any distribution with respect to the Securities of any cash, property or
securities. Before any payment may be made by, or on behalf of, the Company of
any Senior Subordinated Obligations upon any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of assets or
securities of the
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Company of any kind or character, whether in cash, property or securities, to
which the Holders or the Trustee on behalf of the Holders would be entitled, but
for the provisions of this Article Ten, shall be made by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution, or by the Holders or the Trustee if
received by them or it, directly to the holders of Senior Indebtedness (pro rata
to such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representatives, or to any trustee or trustees
under any other indenture pursuant to which any such Senior Indebtedness may
have been issued, as their respective interests appear, to the extent necessary
to pay all such Senior Indebtedness in full, in cash or cash equivalents after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. To the extent the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder at a time when
such payment or distribution is prohibited by Section 10.03(a) of this Indenture
and before all obligations in respect of Senior Indebtedness are paid in full,
in cash or cash equivalents, such payment or distribution shall be received and
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness (pro rota to such holders on the basis of the
respective amount of Senior Indebtedness held by such holders) or their
representatives, or to the trustee or trustees under any other indenture
pursuant to which any such Senior Indebtedness may have been issued, as their
respective interests appear, for application to the payment of Senior
Indebtedness remaining unpaid until all such Senior Indebtedness has been paid
in full, in cash or cash equivalents, after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(d) For purposes of this Section 10.03, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Securities to be treated in any case or proceeding or
similar event described in this Section 10.03 as part of the same class of
claims as the Senior Indebtedness or any class of claims part passe with, or
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senior to, the Senior Indebtedness for any payment or distribution, securities
of the Company or any other corporation provided for by a plan of reorganization
or readjustment that are subordinated, at least to the extent that the
Securities are subordinated, to the payment of all Senior Indebtedness then
outstanding; provided that (1) if a new corporation results from such
reorganization or readjustment, such corporation assumes the Senior Indebtedness
and (2) the rights of the holders of the Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company with or into,
another corporation or the liquidation or dissolution of the Company following
the sale, conveyance, transfer, lease or other disposition of all or
substantially all of its property and assets to another corporation upon the
terms and conditions provided in Article Five of this Indenture shall not be
deemed a dissolution, winding up, liquidation or reorganization for the purposes
of this Section 10.03 if such other corporation shall, as a part of such
consolidation, merger, sale, conveyance, transfer, lease or other disposition,
comply with the conditions stated in Article Five of this Indenture.
SECTION 10.04. Subrogation. (a) Upon the payment in full of all Senior
Indebtedness in cash or cash equivalents, the Holders shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of, premium, if any, and interest on the
Securities shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders or the Trustee on their behalf would
be entitled except for the provisions of this Article Ten, and no payment
pursuant to the provisions of this Article Ten to the holders of Senior
Indebtedness by Holders or the Trustee on their behalf shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness. It is understood that the provisions of this Article Ten are
intended solely for the purpose of deferring the relative rights of the Holders,
on the one hand, and the holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Ten shall
have been applied pursuant to the provisions of this Article Ten, to the payment
of all amounts payable under Senior Indebtedness, then, and in such case, the
Holders shall be entitled to receive from the holders of such Senior
Indebtedness any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount required to make payment in full, in cash
or cash equivalents, of such Senior Indebtedness of such holders.
SECTION 10.05. Obligations of Company Unconditional. (a) Nothing
contained in this Article Ten or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as among the Company and the Holders,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders the principal of, premium, if any, and interest on the Securities as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Holders or the Trustee on their
behalf from exercising all remedies otherwise permitted by
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applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Ten of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article Ten will restrict the right of the Trustee or the
Holders to take any action to declare the Securities to be due and payable prior
to their Stated Maturity pursuant to Section 6.01 of this Indenture or to pursue
any rights or remedies hereunder; provided, however, that all Senior
Indebtedness then due and payable or thereafter declared to be due and payable
shall first be paid in full, in cash or cash equivalents, before the Holders or
the Trustee on their behalf are entitled to receive any direct or indirect
payment from the Company of Senior Subordinated Obligations.
SECTION 10.06. Notice to Trustee. (a) The Company shall give prompt
written notice to the Trustee of any fact known to the Company that would
prohibit the making of any payment to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article Ten. The Trustee shall not
be charged with knowledge of the existence of any default or event of default
with respect to any Senior Indebtedness or of any other facts that would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company, or by a holder of Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided that, if the Trustee shall not have
received the notice provided for in this Section 10.06 at least two Business
Days prior to the date upon which, by the terms of this Indenture, any monies
shall become payable for any purpose (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Security), then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to receive any monies from the Company and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary that may be received by it on or after such prior date
except for an acceleration of the Securities prior to such application. Nothing
contained in this Section 10.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by this Article Ten. The
foregoing shall not apply if the Paying Agent is the Company. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Ten and, if such evidence is not furnished to the
Trustee, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
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SECTION 10.07. Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets or securities
referred to in this Article Ten, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
payment or distribution, delivered to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Ten.
SECTION 10.08. Trustee's Relation to Senior Indebtedness. (a) The
Trustee and any Paying Agent shall be enticed to all the rights set forth in
this Article Ten with respect to any Senior Indebtedness that may at any time be
held by it in its individual or any other capacity to the same extent as any
other holder of Senior Indebtedness and nothing in this Indenture shall deprive
the Trustee or any Paying Agent of any of its rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten (including those duties
specified in Sections 10.02(c) and 10.03(c)), and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and shall not be liable
to any such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article Ten or otherwise.
SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness. No right of any present or
future holders of any Senior Indebtedness to enforce subordination as provided
in this Article Ten will at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms of this Indenture, regardless of any knowledge thereof that any
such holder may have or otherwise be charged with. The provisions of this
Article Ten are intended to be for the benefit of, and shall be enforceable
directly by, the holders of Senior Indebtedness.
SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination
of Securities. Each Holder by his acceptance of any Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Ten, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the property and assets
of the Company, the filing of a claim for the unpaid balance of its Securities
in the form required in those
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proceedings. If the Trustee does not file a proper claim or proof of
indebtedness in the form required in such proceeding at least 30 days before the
expiration of the time to file such claim or claims, each holder of Senior
Indebtedness is hereby authorized to file an appropriate claim for and on behalf
of the Holders.
SECTION 10.11. Not to Prevent Events of Default. The failure to make a
payment on account of principal of, premium, if any, or interest on the
Securities by reason of any provision of this Article Ten will not be construed
as preventing the occurrence of an Event of Default.
SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in
this Article Ten will apply to amounts due to the Trustee pursuant to Section
7.06 or other sections of this Indenture.
SECTION 10.13. No Waiver of Subordination Provisions. Without in any
way limiting the generality of Section 10.09 of this Indenture, the holders of
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Trustee or the Holders, without responsibility to the
Holders and without impairing or releasing the subordination provided in this
Article Ten or the obligations hereunder of the Holders to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any investment evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 10.14. Payments May Be Paid Prior to Dissolution. Nothing
contained in this Article Ten or elsewhere in this Indenture shall prevent (i)
the Company, except under the conditions described in Section 10.02 or 10.03 of
this Indenture, from making payments of principal of, premium, if any, and
interest on the Securities, or from depositing with the Trustee any money for
such payments, or (ii) the application by the Trustee of any money deposited
with it for the purpose of making such payments of principal of, premium, if
any, and interest on the Securities to the holders entitled thereto unless, at
least two Business Days prior to the date upon which such payment becomes due
and payable, the Trustee shall have received the written notice provided for in
Section 10.02(b) of this Indenture (or there shall have been an acceleration of
the Securities prior to such application) or in Section 10.06 of this Indenture.
The Company shall give prompt written notice to the Trustee of any dissolution,
winding up, liquidation or reorganization of the Company.
SECTION 10.15. Consent of Holders of Senior Indebtedness Under the
Bank Credit Agreement. The provisions of this Article Ten (including the
definitions contained in this Article Ten and references to this Article Ten
contained in this Indenture) shall not be amended in a manner that would
adversely affect the rights of the holders of Senior Indebtedness under the Bank
Credit Agreement, and no such amendment shall become effective unless the
holders of Senior Indebtedness under the Bank Credit Agreement shall have
consented (in accordance with the provisions of the Bank Credit Agreement) to
such amendment. The Trustee shall be entitled to receive and rely on an
Officers' Certificate stating that such consent has been given.
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ARTICLE XI
Miscellaneous
SECTION 11.01. Trust Indenture Act of 1939. This Indenture is
subject to the provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
SECTION 11.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to the Company:
Gerrity Oil & Gas Corporation
4100 East Mississippi Avenue, Suite 1200
Denver, Colorado 80222
Attention: The Secretary
if to the Trustee:
Chemical Bank
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed
to him at his address as it appears on the Security Register by first class mail
and shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders.
Except for a notice to the Trustee, which is deemed given only when received,
and except as otherwise provided in this Indenture, if a notice or communication
is mailed in the manner provided in this Section 11.02, it is duly given,
whether or not the addressee receives it.
SECTION 11.03. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
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SECTION 11.04. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in the Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinions to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with, and such
other opinions as the Trustee may reasonably request; provided,
however, that, with respect to matters of fact, an Opinion of Counsel
may rely on an Officers' Certificate or certificates of public
officials.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.06. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Change of Control Payment Date, Stated
Maturity or date of maturity of any Security shall not be a Business Day at any
place of payment, then payment of principal of, premium, if any, or interest on
such Security, as the case may be, need not be made on such date, but may be
made on the next succeeding Business Day at such place of payment with the same
force and effect as if made on the Interest Payment Date, Redemption Date,
Change of Control Payment Date, Excess Proceeds Payment Date, or at the Stated
Maturity or date of maturity of such Security; provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Change of Control Payment Date, Excess Proceeds Payment Date, Stated
Maturity or date of maturity, as the case may be.
SECTION 11.07. Governing Law. The laws of the State of New York
shall govern this Indenture and the Securities. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Securities.
SECTION 11.08. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. No recourse for
the payment of the principal of, premium, if any, or interest on any of the
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Securities, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
contained in this Indenture, or in any of the Securities, or because of the
creation of any Indebtedness represented thereby, shall be had against any
incorporator or against any past, present or future shareholder, officer,
director, employee or controlling person, as such, of the Company or of any
successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Securities.
SECTION 11.10. Successors. All agreements of the Company
in this Indenture and the Securities shall bind its successors. All
agreements of the Trustee in this Indenture shall bind its successor.
SECTION 11.11. Duplicate Originals. The parties may sign
any number of copies of this Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
SECTION 11.12. Separability. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.13. Table of Contents, Headings. Etc. The Table
of Contents, Cross-Reference Table, and headings of the Articles and Sections
of this Indenture have been inserted for convenience of reference only, are
not to be considered a part hereof and shall in no way modify or restrict any
of the terms and provisions hereof.
---------------
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written above.
GERRITY OIL &: GAS CORPORATION, as
Issuer
By: /s/ Stephen Nicholson
-------------------------
Name: Stephen Nicholson
Title: Vice President, Chief
Financial Officer
CHEMICAL BANK, as Trustee
By: /s/ John Generale
-------------------------
Name: John Generale
Title: Vice President
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EXHIBIT A
(FACE OF NOTE)
GERRITY OIL & GAS CORPORATION
11 3/4% Senior Subordinated Note due 2004
No. R-1 $100,000,000
GERRITY OIL & GAS CORPORATION, a Delaware corporation (the
"Company", which term includes any successor corporation), under the Indenture
hereinafter referred to, for value received, promises to pay to _________, or
its registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS
($100,000,000), on July 15, 2004.
Interest Payment Date: January 15 and July 15, commencing
January 15, 1995.
Regular Record Dates: January 1 and July 1.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: June 30, 1994 GERRITY OIL & GAS CORPORATION
By
Title:
Title:
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A-67
(Form of Trustee's Certificate of Authentication)
This is one of the 11 3/4% Senior Subordinated Notes due 2004 described in the
within-mentioned Indenture.
CHEMICAL BANK, as Trustee
By:
Authorized Officer
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A-68
(REVERSE SIDE OF NOTES)
GERRITY OIL & GAS CORPORATION
11 3/4% Senior Subordinated Note due 2004
XII Principal and Interest.
The Company will pay the principal of this Note on July 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record
of the Notes at the close of business on the January 1 or July 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
January 15, 1995. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from June 30,
1994; provided that, if there is no existing default in the payment of interest
and if this Note is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30 day months.
The Company shall pay interest on overdue principal and
interest on overdue installments of interest, to the extent lawful, at the rate
of 11 3/4% per annum.
XIII Method of Payment.
The Company will pay interest (except defaulted interest) on
the principal amount of the Notes as provided above on each January 15 and July
15 to the persons who are Holders (as reflected in the Security Register at the
close of business on the January 1 and July 1 immediately preceding the Interest
Payment Date), in each case, even if the Note is cancelled on registration of
transfer or registration of exchange after such record date; provided that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Note to a Paying Agent on or after July 15, 2004. The
Company will pay principal, premium, if any, and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal, premium, if any, and
interest by its check payable in such money. It may mail an interest check to a
Holder's registered address (as reflected in the Security Register). If a
payment date is a date other than a Business Day at a place of payment, payment
may be made at that place on the next succeeding day that is a Business Day and
no interest shall accrue for the intervening period.
XIV Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
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notice to the Holders. The Company, any Subsidiary of the Company, or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
XV Indenture: Limitations.
The Company issued the Notes under an Indenture dated as of
June 30, 1994 (the "Indenture"), between the Company and Chemical Bank, as
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are unsecured senior subordinated obligations of the
Company. The demure limits the original aggregate principal amount of the Notes
to $100 million.
XVI Optional Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after July 15, 1999 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date for an Interest Payment Date that is on or prior to the
Redemption Date to receive interest due on such Interest Payment Date), if
redeemed during the 12-month period commencing July 15, of the years set forth
below:
Redemption
Year Price
1999 . . . . . . . . . . . . . . . . . . . . . . 105.875%
2000 . . . . . . . . . . . . . . . . . . . . . . 102.938%
2001 and thereafter . . . . . . . . . . . . . . . 100.000%
XVII Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall
have the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase (the Change of Control Payments).
A notice of such Change of Control will be mailed within 30
days after any Change of Control occurs to each Holder at his last address as it
appears in the Security Register. Notes in original denominations larger than
$1,000 may be sold to the Company in part so long as $1,000 denominations or
integral multiples thereof remain outstanding. On and after
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the Change of Control Payment Date, interest ceases to accrue on Notes or
portions of Notes surrendered for purchase by the Company, unless the Company
defaults in the payment of the Change of Control Payment.
XVIII Denominations: Transfer: Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount and multiples in $1,000 in excess
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Notes selected for redemption. Also, it
need not register the transfer or exchange of any Notes for a period of 15 days
before a selection of Notes to be redeemed is made.
XIX Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
XX Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
XXI Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued interest on the Notes (a) to redemption or
maturity, the Company will be discharged from the Indenture and the Notes,
except in certain circumstances for certain sections thereof, and (b) to the
Stated Maturity and certain other conditions are satisfied, the Company will be
discharged from certain covenants set forth in the Indenture.
XXII Amendment: Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may
be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
default or compliance with any provision may be waived with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding. Without notice to or the consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Notes to, among other things, cure
any ambiguity, defect or inconsistency and make any change that does not
adversely affect the rights of any Holder.
XXIII Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur
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<PAGE> 71
additional Indebtedness, pay dividends and make other restricted payments,
engage in transactions with shareholders and Affiliates, create Liens, sell
assets, engage in mergers and consolidations and make Investments in
Unrestricted Subsidiaries. Within 45 days after the end of each fiscal quarter,
(90 days after the end of the last fiscal quarter of each year), the Company
must report to the Trustee on compliance with such limitations.
XXIV Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
XXV Defaults and Remedies.
An Event of Default is: a default in payment of principal on
the Notes; default in the payment of interest on the Notes for 30 days; failure
by the Company for 30 days after notice to it to comply with any of its other
agreements in the Indenture; certain events of bankruptcy or insolvency of the
Company and/or one or more of its Significant Subsidiaries; certain final
judgments which remain undischarged; and certain events of default on other
Indebtedness of the Company and/or one or more of its Significant Subsidiaries.
If art Event of Default, as defined in the Indenture, occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the Notes may, and the Trustee at the request of such Holders shall,
declare all the Notes to be due and payable. If a bankruptcy or insolvency
default with respect to the Company occurs and is continuing, the Notes
automatically become due and payable. Holders may not enforce the Indenture or
the Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
XXVI Subordination.
The payment of the Notes will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all Senior Indebtedness.
XXVII Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
XXVIII No Recourse Against Others.
No incorporator or any past, present or future shareholder,
officer, director, employee or controlling person, as such, of the Company or
of any successor Person shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder
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<PAGE> 72
by accepting a Note waives and releases all such liability; The waiver and
release are part of the consideration for the issuance of the Notes.
XXIX Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
XXX Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/MIA (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Gerrity Oil &
Gas Corporation, 4100 East Mississippi Avenue, Suite 1200, Denver, Colorado
80222, Attention: Investor Relations.
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I or we assign and transfer this Note to:
Please insert social
security or other
identifying number of
assignee
Print or type name, address and zip code or assignee
and irrevocably appoint
, as agent,
to transfer this Note on the books of the Company.
The agent may substitute another to act for him.
Dated
Signed
(Sign exactly as name appears on the other side of this Note)
72
<PAGE> 74
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to Section 4.10 or 4.18 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the
Company pursuant to Section 4.10 or 4.18 of the Indenture, state the amount (in
original principal amount):
$_____________________________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this
Note)
Signature Guarantee:
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<PAGE> 75
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Incorporation by Reference . . . . . . . 1
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act . . . 18
SECTION 1.03. Rules of Construction . . . . . . . . . . . . . . . . . 18
ARTICLE II
The Securities . . . . . . . . . . . . . 18
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.02. Execution, Authentication and Denominations . . . . . . 19
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . 20
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . 20
SECTION 2.05. Transfer and Exchange . . . . . . . . . . . . . . . . . 21
SECTION 2.06. Replacement Securities . . . . . . . . . . . . . . . . . 21
SECTION 2.07. Outstanding Securities . . . . . . . . . . . . . . . . . 22
SECTION 2.08. Temporary Securities . . . . . . . . . . . . . . . . . . 22
SECTION 2.09. Cancellation . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.10. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . . . 23
ARTICLE III
Redemption . . . . . . . . . . . . . . 23
SECTION 3.01. Right of Redemption . . . . . . . . . . . . . . . . . . 23
SECTION 3.02. Notices to Trustee . . . . . . . . . . . . . . . . . . . 23
SECTION 3.03. Selection of Securities to Be Redeemed . . . . . . . . . 24
SECTION 3.04. Notice of Redemption . . . . . . . . . . . . . . . . . . 24
SECTION 3.05. Effect of Notice of Redemption . . . . . . . . . . . . . 25
SECTION 3.06. Deposit of Redemption Price . . . . . . . . . . . . . . 25
SECTION 3.07. Payment of Securities Called for Redemption . . . . . . 25
SECTION 3.08. Securities Redeemed in Part . . . . . . . . . . . . . . 25
ARTICLE IV
Covenants . . . . . . . . . . . . . . 26
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . 26
SECTION 4.02. Maintenance of Office or Agency . . . . . . . . . . . . 26
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . . . 26
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . . . 28
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries . . . . . . . . . . 30
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries . . . . . . . . . . . . . . . 30
SECTION 4.07. Limitation on Transactions with Shareholders
and Affiliates . . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.08. Limitation on Liens . . . . . . . . . . . . . . . . . . 31
SECTION 4.09. Limitation on Senior Subordinated Indebtedness . . . . . 32
SECTION 4.10. Limitation on Asset Sales . . . . . . . . . . . . . . . 32
SECTION 4.11. Corporate Existence . . . . . . . . . . . . . . . . . . 33
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SECTION 4.12. Payment of Taxes and Other Claims . . . . . . . . . . . 33
SECTION 4.13. Notice of Defaults and Other Events . . . . . . . . . . 33
SECTION 4.14. Maintenance of Properties and Insurance . . . . . . . . 33
SECTION 4.15. Compliance Certificates . . . . . . . . . . . . . . . . 34
SECTION 4.16. Commission Reports and Reports to Holders . . . . . . . 35
SECTION 4.17. Waiver of Stay, Extension or Usury Laws . . . . . . . . 35
SECTION 4.18. Repurchase of Securities upon Change of Control . . . . 35
ARTICLE V
Successor Corporation . . . . . . . . . . . 37
SECTION 5.01. When Company May Merge, Etc. . . . . . . . . . . . . . . 37
SECTION 5.02. Successor Substituted . . . . . . . . . . . . . . . . . 38
ARTICLE VI
Default and Remedies . . . . . . . . . . . 38
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . 38
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . 40
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . . . 40
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . 40
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . 41
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . 41
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . 41
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . 42
SECTION 6.12. Restoration of Rights and Remedies . . . . . . . . . . . 42
SECTION 6.13. Rights and Remedies Cumulative . . . . . . . . . . . . . 42
SECTION 6.14. Delay or Omission Not Waiver . . . . . . . . . . . . . . 42
ARTICLE VII
Trustee . . . . . . . . . . . . . . . 43
SECTION 7.01. Rights of Trustee . . . . . . . . . . . . . . . . . . . 43
SECTION 7.02. Individual Rights of Trustee . . . . . . . . . . . . . . 43
SECTION 7.03. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 43
SECTION 7.04. Notice of Default . . . . . . . . . . . . . . . . . . . 44
SECTION 7.05. Reports by Trustee to Holders . . . . . . . . . . . . . 44
SECTION 7.06. Compensation and Indemnity . . . . . . . . . . . . . . . 44
SECTION 7.07. Replacement of Trustee . . . . . . . . . . . . . . . . . 45
SECTION 7.08. Successor Trustee by Merger, Etc. . . . . . . . . . . . 46
SECTION 7.09. Eligibility . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.10. Money Held in Trust . . . . . . . . . . . . . . . . . . 46
SECTION 7.11. Withholding Taxes . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII
Discharge of Indenture . . . . . . . . . . . 46
SECTION 8.01. Termination of Company's Obligations . . . . . . . . . . 46
SECTION 8.02. Defeasance and Discharge of Indenture . . . . . . . . . 47
SECTION 8.03. Defeasance of Certain Obligations . . . . . . . . . . . 49
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SECTION 8.04. Application of Trust Money . . . . . . . . . . . . . . . 50
SECTION 8.05. Repayment to Company . . . . . . . . . . . . . . . . . . 50
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
Amendments, Supplements and Waivers . . . . . . . . 51
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . 51
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . 52
SECTION 9.03. Revocation and Effect of Consent . . . . . . . . . . . . 52
SECTION 9.04. Notation on or Exchange of Securities . . . . . . . . . 53
SECTION 9.05. Trustee to Sign Amendments, Etc. . . . . . . . . . . . . 53
SECTION 9.06. Conformity with Trust Indenture Act . . . . . . . . . . 53
ARTICLE X
Subordination of Securities . . . . . . . . . . 54
SECTION 10.01. Securities Subordinated to Senior Indebtedness . . . . . 54
SECTION 10.02. No Payment on Securities in Certain Circumstances . . . 54
SECTION 10.03. Payment Over of Proceeds Upon Dissolution, Etc. . . . . 55
SECTION 10.04. Subrogation . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 10.05. Obligations of Company Unconditional . . . . . . . . . . 57
SECTION 10.06. Notice to Trustee . . . . . . . . . . . . . . . . . . . 58
SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating
Agent . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.08. Trustee's Relation to Senior Indebtedness . . . . . . . 59
SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness . . . . 59
SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of
Securities . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 10.11. Not to Prevent Events of Default . . . . . . . . . . . . 60
SECTION 10.12. Trustee's Compensation Not Prejudiced . . . . . . . . . 60
SECTION 10.13. No Waiver of Subordination Provisions . . . . . . . . . 60
SECTION 10.14. Payments May Be Paid Prior to Dissolution . . . . . . . . 60
SECTION 10.15. Consent of Holders of Senior Indebtedness Under the Bank
Credit Agreement . . . . . . . . . . . . . . . . . . . 60
ARTICLE XI
Miscellaneous . . . . . . . . . . . . . 61
SECTION 11.01. Trust Indenture Act of 1939 . . . . . . . . . . . . . . 61
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 11.03. Certificate and Opinion as to Conditions Precedent . . . 61
SECTION 11.04. Statements Required in Certificate or Opinion . . . . . 62
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar . . . . . . 62
SECTION 11.06. Payment Date Other Than a Business Day . . . . . . . . . 62
SECTION 11.07. Governing Law . . . . . . . . . . . . . . . . . . . . . 62
SECTION 11.08. No Adverse Interpretation of Other Agreements . . . . . 62
SECTION 11.09. No Recourse Against Others . . . . . . . . . . . . . . . 62
SECTION 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 11.11. Duplicate Originals . . . . . . . . . . . . . . . . . . 63
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SECTION 11.12. Separability . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 11.13. Table of Contents, Headings. Etc . . . . . . . . . . . . 63
EXHIBIT A Form of Note . . . . . . . . . . . . . . . . . . . . . . . . A-1
- ----------------------------------
Note: The Table of contents shall not for any purposes be deemed to be a
part of the Indenture.
77
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Exhibit 10.1.1
Patina Oil & Gas Corporation
1625 Broadway
Denver, Colorado 80202
August __, 1997
Re: Termination of Business Opportunity Agreement
Snyder Oil Corporation
777 Main Street, Suite 2500
Fort Worth, Texas 76012
Attention: General Counsel
Dear Sir:
This letter is being written in connection with the Business
Opportunity Agreement, dated as of May 2, 1996 (the "Agreement"), between Patina
Oil & Gas Corporation, a Delaware corporation ("Patina"), and Snyder Oil
Corporation, a Delaware corporation ("Snyder"), pursuant to which Snyder and
Patina have delineated certain rights as between themselves with respect to
certain business opportunities.
Patina proposes that the Agreement be terminated concurrently with
Snyder's sale of Patina common stock pursuant the Registration Statement on Form
S-3 (file no. 333-____) filed by Patina with the Securities and Exchange
Commission.
If the foregoing is acceptable to Snyder, please sign the enclosed
copy of this letter in the place provided below for that purpose and return it
to Patina, whereupon this letter shall constitute a binding agreement between
Patina and Snyder.
Very truly yours,
Patina Oil & Gas Corporation
By:___________________________
Name:
Title:
Agreed to this __ day of
August, 1997
Snyder Oil Corporation
By:_________________________
Name:
Title:
1
<PAGE> 1
Exhibit 10.2.1
Patina Oil & Gas Corporation
1625 Broadway
Denver, Colorado 80202
August __, 1997
Re: Termination of Corporate Services Agreement
Snyder Oil Corporation
777 Main Street, Suite 2500
Fort Worth, Texas 76012
Attention: General Counsel
Dear Sir:
This letter is being written in connection with the Corporate
Services Agreement, dated as of January 16, 1996 (the "Agreement"), between
Patina Oil & Gas Corporation, a Delaware corporation ("Patina"), and Snyder Oil
Corporation, a Delaware corporation ("Snyder"), pursuant to which Snyder has
provided Patina with certain services and support and which Snyder and Patina
have been continuing on a month-to-month basis since the Agreement's stated
expiration on ______ __, 1997.
Patina proposes that the Agreement be terminated concurrently with
Snyder's sale of Patina common stock pursuant the Registration Statement on Form
S-3 (file no. 333-____) filed by Patina with the Securities and Exchange
Commission.
If the foregoing is acceptable to Snyder, please sign the enclosed
copy of this letter in the place provided below for that purpose and return it
to Patina, whereupon this letter shall constitute a binding agreement between
Patina and Snyder.
Very truly yours,
Patina Oil & Gas Corporation
By:__________________________
Name:
Title:
Agreed to this __ day of
August, 1997
Snyder Oil Corporation
By:_________________________
Name:
Title:
1
<PAGE> 1
EXHIBIT 10.3
TRANSITION AGREEMENT
TRANSITION AGREEMENT, dated as of _____ __, 1997, between Patina Oil &
Gas Corporation, a Delaware corporation ("Patina"), and Snyder Oil Corporation,
a Delaware corporation ("Soco").
W I T N E S S E T H:
WHEREAS Soco has been providing certain administrative, corporate
insurance, payroll processing, employee benefit administration, tax and computer
services to Patina since Patina's formation;
WHEREAS Patina now wishes to provide such services for itself;
WHEREAS Patina wishes to engage Soco to assist Patina in effecting the
process whereby Soco winds down the provision by it of such services to Patina
(the "Transition") in the manner provided herein.
NOW, THEREFORE, in consideration of the mutual covenants herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. SERVICES TO BE PROVIDED AND ACTIONS TO BE TAKEN
(a) Payroll Processing Services. Soco agrees to provide Patina with
the Payroll Processing services, and to take the other actions, described in
Schedule A to this Transition Agreement. Soco agrees to provide such services,
and to take such actions, in accordance with Schedule A.
(b) Employee Benefit Plans and Other Services. Soco agrees to provide
Patina with the employee benefit plan services, and to take the other actions,
described in Schedule B to this Transition Agreement. Soco agrees to provide
such services, and to take such actions, accordance with Schedule B.
(c) Tax Services. Soco agrees to provide Patina with the tax services,
and to take the other actions, described in Schedule C to this Transition
Agreement. Soco agrees to provide such services, and to take such actions, in
accordance with Schedule C.
(d) Computer Services. Soco agrees to provide Patina with the computer
services, and to take the other actions, described in Schedule D to this
Transition Agreement. Soco agrees to provide such services, and to take such
actions, in accordance with Schedule D.
(e) Corporate Insurance. SOCO, at its expense, will use its best
efforts to assist Patina in the acquisition of insurance coverages and rates
therefore (substantially similar to rates now being paid by Patina) that are
acceptable to Patina. Patina, may, at its expense, obtain insurance coverages
from insurance providers other than existing SOCO providers if it elects.
1
<PAGE> 2
2. AVAILABILITY OF SOCO EMPLOYEES
Patina and Soco agree to work together in order to effect the
Transition in the manner described herein. To this end, Patina and Soco agree
that Soco will make its employees available at reasonable times to respond to
reasonable inquiries from Patina regarding matters related to the Transition.
Further, SOCO will provide Patina with reasonable access to third parties who
provide any services to SOCO in the performance of this Agreement.
3. PAYMENT
In consideration for the services described in Schedules A, B, C, and
D to this Transition Agreement being provided by Soco in accordance with the
terms of this Transition Agreement, Patina agrees to pay Soco as specified in
each respective Schedule.
4. TERM
This Transition Agreement shall commence on the date hereof and shall
terminate on the date on which the services or actions specified on Schedules A,
B, C, and D shall have been completed.
5. REPRESENTATIONS AND WARRANTIES
(a) Patina represents and warrants as follows:
(i) Patina is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware and has full
power and authority to enter into this Transition Agreement and to
perform its obligations hereunder.
(ii) Patina will not, by entering into this Transition Agreement,
breach or cause to be breached any undertaking, contract, statute,
rule or regulation to which it is a party or by which it is bound.
(iii) This Transition Agreement has been duly and validly
authorized, executed and delivered by Patina and is a valid and
binding agreement of Patina, enforceable against it in accordance with
its terms.
(b) Soco represents and warrants as follows:
(i) Soco is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and has full
power and authority to enter into this Transition Agreement and to
perform its obligations hereunder.
(ii) Soco will not, by entering into the Transition Agreement,
breach or cause to be breached any undertaking, contract, statute,
rule or regulation to which it is a party or by which it is bound.
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(iii) This Transition Agreement has been duly and validly
authorized, executed and delivered by Soco and is a valid and binding
agreement of Soco, enforceable against it in accordance with its
terms.
6. CONFIDENTIALITY
Except as may otherwise be required by law, governmental regulation or
court order or by any governmental agency or commission or any self-regulatory
organization of which Soco is a member, it is understood and agreed that any
confidential information relating to any Patina or any of its subsidiaries which
is retained by Soco or its affiliates shall not be disclosed, furnished or
otherwise made available, either directly or indirectly, to any person by Soco
without the prior written consent of Patina. The confidentiality of such
information shall be maintained and protected by Soco with at least the same
degree of care as it employs to protect its own confidential information. For
purposes of this Section 6, the term "confidential information", insofar as it
relates to Patina or any of its subsidiaries, shall mean any information
relating to Patina or any of its subsidiaries which is retained by Soco or its
affiliates; provided, however, such term shall not include information which (x)
is generally available to the public (other than as a result of an unauthorized
disclosure or other default by Soco or its affiliates) or (y) becomes available
to Soco or its affiliates after the date of this Transition Agreement from a
source other than Patina or its affiliates which is not prohibited from
disclosing such information by any legal, contractual or fiduciary obligation to
Patina or its affiliates of which Soco or its affiliates are aware after
reasonable investigation.
7. MISCELLANEOUS
(a) Waiver. The failure of either party to insist at any time upon
strict compliance with this Transition Agreement or any of its terms shall not
constitute or be a waiver by that party of any of its rights.
(b) Complete Transition Agreement. This Transition Agreement
constitutes the entire agreement between the parties pertaining to the
subject matter hereof.
(c) Survival. Section 6 shall survive the termination of this
Transition Agreement.
(d) Assignment. This Transition Agreement may not be assigned by
either party without the express written consent of the other party.
(e) Amendment. This Transition Agreement may not be amended
except by the written consent of the parties.
(f) Counterparts. This Transition Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
(g) Headings. The section headings used in this Transition Agreement
are intended primarily for reference and shall not by themselves determine the
construction or interpretation of this Transition Agreement or any portion
hereof.
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(h) Notices. All notices, demands or requests required to be made or
delivered under this Transition Agreement shall be in writing and delivered
personally or by telefax to the address below or to such other address as may be
designated by the party entitled to receive the same by notice similarly given:
If to Soco:
Snyder Oil Corporation
777 Main Street
Fort Worth, Texas 10017
Attention: Rodney L. Waller
If to Patina:
Patina Oil & Gas Corporation
1625 Broadway
Denver, Colorado 80202
Attention: David T. Kornder
(i) Governing Law. This Transition Agreement shall be governed by
and construed in accordance with the laws of the State of Colorado.
(j) Status. It is understood that Soco is an independent contractor
and not an agent or employee of Patina, and nothing contained herein shall be
construed as creating a general partnership or other similar arrangement, nor
shall Soco represent or imply to any person or entity that it is anything other
than an independent contractor with respect to Patina.
IN WITNESS WHEREOF, this Transition Agreement has been executed for
and on behalf of the undersigned as of the day and year first above written.
PATINA OIL & GAS CORPORATION
By:__________________________________
Name: Brian J. Cree
Title: Executive Vice President and
Chief Operating Officer
SNYDER OIL CORPORATION
By:__________________________________
Name: Rodney L. Waller
Title: Vice President
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SCHEDULE A
PAYROLL PROCESSING SERVICES
SERVICES TO BE PROVIDED: SOCO will continue to provide Patina with
Payroll Processing Services for the remainder
of 1997, which includes, but is not limited to
the preparation of 1997 Form W-2s and all
required 1997 year-end payroll filings provided
that Patina acquires the right or license in its
name to use the Ceridian Payroll Processing
system.
DURATION: The term of the Schedule A Services will be
through December 1997 for actual Payroll
Processing and January 1998 for the preparation
of Form W-2s and the filing of year 1997 payroll
reports. If such reports are filed after January
1998, Patina will not be charged.
PAYMENT: Patina will pay SOCO the amount of $3,333.33 per
month, in arrears, for Payroll Processing
Services, through December 1997 and Patina will
pay SOCO an additional $1,000 in arrears for
Payroll Processing Services for January 1998.
A-1
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SCHEDULE B
EMPLOYEE BENEFIT PLANS AND OTHER SERVICES
1) Employee Benefit Plans
a. SOCO currently provides Patina with the following Employee
Benefit Plans:
- 401(k) and Profit Sharing
- Deferred Compensation
- Health and Prescription
- Group and Executive Disability
- Accidental Death and Disability
- Stop Loss Reinsurance
b. With respect to the Benefit Plans described in Sub-paragraph a.
(except the 401(k), Profit Sharing and Deferred Compensation
Plans), SOCO will use its best efforts to transfer to Patina its
existing Benefits Plans which will remain in effect through
December 31, 1997 at the costs now being paid by Patina. Such
transfer will be prior to the closing of the Secondary Offering
as described in the S-3 Registration Statement filed with the
Securities Exchange Commission on August 1, 1997, as the same
may be amended (the "Closing"). Should Patina so elect, it may,
at its expense, obtain such Benefit Plans (except the 401(k),
Profit Sharing and Deferred Compensation Plans) from providers
other than existing SOCO providers. The cost of such third party
Plans will be borne by Patina.
c. With respect to the 401(k) and Profit Sharing Plan, Patina will
continue to participate in the existing Plan until January 1,
1998, or, at Patina's election, the date SOCO or Patina
discontinue the existing Plan. If SOCO terminates the existing
Plan prior to January 1, 1998, Patina may elect to establish its
own Plan or continue participation in SOCO's new Plan. If SOCO
continues with the existing Plan to January 1, 1998, Patina may,
but is not required to, elect to continue in the SOCO Plan. If
Patina elects to establish its own Plan prior to January 1,
1998, it will give SOCO not less than 30 days written notice.
d. The cost of administering the Plans described in Paragraph 1. of
this Schedule B are included in the amount set forth in
Paragraph 3.a. of Schedule B and no additional charges will be
assessed or billed to Patina for the Plans or the administration
thereof.
2) Other Services
a. SOCO currently is providing Patina with services relating to
Human Resources (HR) matters, information gathering for
compensation considerations (Compensation), stock option
administration, the preparation of corporate minutes (Corporate
Minutes) and other services as needed and requested by Patina
(collectively "Other Services").
b. Patina may elect to have SOCO provide some or all of the Other
Services until January 1, 1998. To the extent and only to the
extent Patina so requests, SOCO shall provide the other
services.
3) Fees
a. If Patina elects to have SOCO administer the Benefits Plans
described in Paragraph 1 of this Schedule B through December 31,
1997, Patina will pay SOCO $2,000 per month.
b. Commencing August 1, 1997, if Patina utilizes the services of
SOCO for one or more of the Services described in Paragraph 2 of
this Schedule B, it will pay SOCO $1,000 for each Service per
month so utilized provided that the charge of any month will not
exceed $5,000.
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SCHEDULE C
TAX SERVICES
SERVICES TO BE PROVIDED: SOCO will continue all income and other Tax
Services through the preparation and filing of
all 1996 returns and estimated tax payment
calculations for 1997 and the deferred tax
computation for Patina's 1997 year-end financial
statements and the preparation of Patina's 1996
10-K.
DURATION: Tax Services will be provided through December
31, 1997 and as long thereafter as necessary to
complete the Services described in Paragraph 1
above, not to extend beyond February 28, 1998.
PAYMENT: Patina will pay SOCO the sum of $11,666 per
month in arrears for such Services through
December 31, 1997.
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SCHEDULE D
Computer Services
SERVICES TO BE PROVIDED AND DURATION: SOCO will continue to provide all
Computer Services currently being
provided to Patina for a period through
September 30, 1998 provided that Patina
obtain for its own account all licenses,
effective on the Closing, necessary to
use such services and provide further
that Patina may, upon not less than 30
days written notice to SOCO, discontinue
one or more of the Computer Services
being provided. Such Services include,
but are not limited to LAN/WAN systems,
Accounting and Lease Records systems.
For the services provided pursuant to
Schedule D, Patina will pay SOCO a
monthly Base Fee of $23,750 through June
30, 1998. The Base Fee will increase by
10% per month thereafter through
September 30, 1998. If Patina, during
the term of this Schedule D, requires
Computer Services as a result of an
acquisition or otherwise that causes a
systems upgrade or revision, Patina will
pay the cost of the same. Patina's
obligation to pay fees pursuant to this
Paragraph 2 will terminate when Patina
has completed its conversion from SOCO's
computer system.
PAYMENT: Nothing in this Schedule D or this
Agreement will require SOCO to violate
any license agreement in effect on the
Closing date and Patina will indemnify
SOCO for any such violation should the
same occur.
D-1
<PAGE> 1
Exhibit 10.5.2
EMPLOYMENT AGREEMENT
AGREEMENT, made as of July 31, 1997, by and between PATINA OIL &
GAS CORPORATION, a Delaware corporation (the "Company") and THOMAS J. EDELMAN
("Executive").
RECITALS
Executive currently serves as Chairman of the Board, Chairman,
President and CEO (collectively "Executive Positions") of the Company. In
order to induce Executive to continue to serve in the Executive Positions for
the Term provided in this Agreement, the Company desires to provide Executive
with compensation and other benefits on the terms and conditions set forth in
this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as
follows:
1. Employment.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the Term (as hereinafter defined)
in the Executive Positions. Executive shall only report to the Board of
Directors of the Company (the "Board") and shall have the customary powers,
responsibilities and authorities of chief executive officers of corporations
of the size, type and nature of the Company, as it exists from time to time,
as are assigned by the Board. Such powers, responsibility and authority
shall in no event, without the prior written consent of Executive, be altered
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or diminished in any significant respect from those held by Executive
immediately prior to the Effective Date.
1.2 Subject to the terms and conditions of this Agreement,
Executive hereby agrees to continue his employment under the terms hereof in
the Executive Positions, commencing on the date of the closing (the
"Effective Date") of the transactions contemplated in the Company's
Registration Statement on Form S-3, dated July, 1997, and agrees to devote
the necessary working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith. It is recognized and understood by
the Company that while Executive will commit a substantial portion of his
working time to carrying out the duties of the Executive Positions and that
the business of the Company will represent Executive's primary
responsibility, Executive will continue, however, to engage in outside
business activities such as those in which he is currently engaged, with his
commitment to such outside activities to remain at substantially current
levels. Without limiting the foregoing, Executive may change individual
outside business activities without Company approval so long as his aggregate
commitment to outside business activities does not materially increase or
materially conflict with his positions or duties hereunder.
1.3 Nothing in this Agreement, subject to his obligations under
Section 1.2, shall preclude Executive from engaging in charitable and
community affairs, from managing any passive investment made by him in
publicly traded equity securities or other property (provided that no such
investment may exceed 5% of the equity of any publicly-held entity, without
the prior approval of the Board) or from serving, subject to the prior
approval of the Board, as a member of boards of directors, senior executive,
or as a trustee of any other corporation, association or entity. For
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purposes of the preceding sentence, any approval of the Board required
therein shall not be unreasonably withheld. In addition, nothing herein
shall preclude the Executive from continuing to hold any position he holds or
fulfill any responsibility he is performing on the date hereof, all subject
to the provisions of Section 1.2 hereof.
2. Term of Employment. The Term shall commence on the Effective
Date and, subject to the terms hereof, shall terminate on the earlier of (i)
the third anniversary of the Effective Date (the "Termination Date") or (ii)
termination of Executive's employment pursuant to this Agreement; provided,
however, that any termination of Executive's employment by the Company under
Section 6.1 (other than for Cause or on account of death or Permanent
Disability) may only be made on 90 days prior written notice (or upon payment
in lieu of such notice) or, if by Executive (other than for death, Permanent
Disability or Good Reason), may only be made upon 90 days prior written
notice to the Company and any termination of employment by Executive for Good
Reason may only be made upon 30 days prior written notice to the Company (any
reference to the "Term" of this Agreement will include the initial term).
3. Compensation.
3.1 Salary. The Company shall pay Executive a base salary ("Base
Salary") at the rate of $350,000 per annum for the period commencing on the
earlier of the date of this Agreement or August 1, 1997 and ending on the
Termination Date. Base Salary shall be payable in accordance with the
ordinary payroll practices of the Company, adjusted as provided for herein.
The Base Salary shall be reviewed with respect to annual increases as of
March 1 of each year, commencing on March 1, 1998, taking into account the
rate of increase of base salaries of individuals holding comparable positions
with comparable companies, the aggregate annual cash compensation of such
individuals and the Company's operations for the prior full calendar year;
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provided, however, that any increase in the Base Salary shall be in the sole
discretion of the Board. The Base Salary provided herein is based on the
understanding of the Company and the Executive that the Executive Positions
will be extremely time intensive for the first year of the Term, and less so
thereafter (because the Company hopes to hire a President to lessen
Executive's duties). In the event that these understandings prove to be
incorrect, the parties hereto agree that the Base Salary shall be adjusted
(either higher or lower, as the case may be) to such amount as shall be
mutually agreed upon.
3.2 Annual Bonus. In addition to his Base Salary, Executive shall
be paid an annual bonus (the "Bonus") during the term of his employment
hereunder with a target amount equal to 100 percent of Base Salary (the
"Target Bonus") based on performance criteria determined by the Company's
Board of Directors in its sole discretion, but only after consultation with
Executive. The Bonus shall be paid in cash, except that up to 50 percent may
be payable in Company stock, which is fully vested and is placed in
Executive's tax deferred compensation account for payment in a subsequent
fiscal year. Any proposal to pay more than 50 percent of the bonus in
Company stock shall require the consent of Executive.
3.3 Compensation Plans and Programs. Executive shall continue to
be eligible to participate in all compensation plans or programs maintained
by the Company, as in effect from time to time, in which other senior
executives of the Company can then participate. Executive shall be granted a
5 year fully vested stock option on the Effective Date to purchase 250,000
Company shares at the offering price, as provided in the agreement evidencing
such grant (the "Stock Option Agreement"). However, in providing future
grants of stock options, the Company shall disregard such stock option grant.
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4. Employee Benefits.
4.1 Employee Benefit Programs, Plans and Practices. The Company
shall provide Executive during the Term with coverage under all employee
pension and welfare benefit programs, plans and practices (commensurate with
his positions in the Company and to the extent permitted under any employee
benefit plan) in accordance with the terms thereof, which the Company makes
available to any of its senior executives, initially equal to those in effect
immediately prior to this Agreement, with such increases, improvements or
other changes thereto as from time to time may be adopted.
4.2 Vacation and Fringe Benefits. Executive shall be entitled to
no less than one calendar month paid vacation in each calendar year, which
shall be taken at such times as is reasonably determined by Executive to be
consistent with Executive's responsibilities hereunder. In addition,
Executive shall be entitled to the perquisites and other fringe benefits made
available to senior executives of the Company, commensurate with his position
with the Company.
4.3 New York Office. The Company shall provide Executive with
offices, facilities, parking and employee services at an office in midtown
Manhattan in New York City, reasonably selected by Executive and appropriate
to his Executive Positions. Executive shall not be required to relocate his
office from the midtown Manhattan location selected by him; provided,
however, that the cost to the Company of obtaining and maintaining such
office is reasonable. In addition, Executive shall seek, and the Company
shall be paid, any amounts obtained from other entities for whom Executive
performs services representing reimbursement for the portion of the expenses
of maintaining the office allocable to such other entities. Executive shall
also be entitled to continue to employ or hire on behalf of the Company
appropriate employees in positions similar to those currently provided to
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Executive, including an administrative assistant and a financial analyst.
Such individuals shall be compensated at current levels paid with increases
commensurate with the respective levels of seniority and ability of the
individuals providing such services as well as then prevailing compensation
levels.
4.4 Modifications of Certain Benefits. Executive shall have the
right to change insurance benefits provided to him (including, without
limitation, the right to choose split dollar universal life insurance in
place of term life insurance) so long as the overall cost to the Company is
not increased.
5. Expenses. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement,
including, without limitation, expenses for travel and similar items related
to such duties and responsibilities. The Company will reimburse Executive
for all such expenses upon presentation by Executive from time to time of
appropriately itemized and approved (consistent with the Company's policy)
accounts of such expenditures.
6. Termination of Employment.
6.1 Termination Not for Cause or for Good Reason. (a) The
Company may terminate Executive's employment at any time for any reason, upon
90 days prior written notice (or payment in lieu thereof) if such termination
is other than for Cause, death or Permanent Disability. If Executive's
employment is terminated: (i) by the Company other than for Cause (as defined
in Section 6.3 hereof) or as a result of Executive's death or Permanent
Disability (as defined in Section 6.2 hereof), (ii) by the Executive for Good
Reason (as defined in Section 6.1 (c) hereof), or (iii) by the Executive
within 12 months following a Change in Control (as defined in Section 6.1 (d)
hereof), prior to the Termination Date, Executive shall receive, promptly
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following the termination of his employment, by check payable to the order of
Executive or by wire transfer to an account specified by Executive, all
accrued amounts owed to him through the date of termination including those
arising under Sections 3.1, 3.2, 3.3, 4.1, 4.2 and 5. The amount due
hereunder with respect to Section 3.2 shall be equal to the Target Bonus in
respect of the fiscal year in which his termination occurs, prorated by a
fraction, the numerator of which is the number of days of the fiscal year
until the termination and the denominator of which is 365 (the "Pro-Rated
Target Bonus"). In calculating the amount due under Section 4.2, Executive
shall be entitled to receive a cash lump sum payment in respect of accrued
but unused vacation days (the "Vacation Payment") and to compensation earned
but not yet paid (including any deferred Bonus payments) (the "Compensation
Payment"), and to continued coverage for 24 months under any employee
medical, disability and life insurance plans in accordance with the
respective terms thereof or, at the Executive's option, a cash payment equal
to the Company's cost for such coverage. In addition, Executive shall be
entitled to receive an additional amount (the "Termination Amount"), which
shall be payable in equal monthly installments over the 24 months following
Executive's termination. The Termination Amount shall consist of two times
the sum of (i) the Base Salary, (ii) the greater of (a) the Target Bonus or
(b) the Bonus payable with respect to the prior year, (iii) the contribution
the Company would have made to the Executive's 401(k) account, and (iv) the
Matching Deferral (as defined in the Company's Deferred Compensation Plan for
Select Employees (the "Deferral Plan")), assuming the Executive deferred the
maximum amount pursuant to the Deferral Plan.
(b) The Vacation Payment and the Compensation Payment shall be
paid by the Company to Executive promptly after the termination of
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Executive's employment by check payable to the order of Executive or by wire
transfer to an account specified by Executive.
(c) For purposes of this Agreement, "Good Reason" shall mean any
of the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including any reduction by the Company of Executive's duties or
responsibilities (except in connection with the termination of Executive's
employment for Cause, as a result of Permanent Disability, as a result of
Executive's death or by Executive other than for Good Reason);
(ii) Any reduction by the Company in Executive's Base Salary or bonus
opportunities or any reduction of Executive's benefits or perquisites (in
an aggregate value greater than $10,000); or
(iii) The relocation of Executive by the Company to any place outside of
Manhattan in the City of New York, except for required travel on the
Company's business to an extent substantially consistent with past
practice.
(d) For purposes of this Agreement, "Change in Control" shall mean
any of the following:
(1) the holders of the voting securities of the Company shall have
approved a merger or consolidation of the Company with any other entity,
unless the proposed merger or consolidation would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 60% of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation;
(2) a plan of complete liquidation of the Company shall have been
adopted or the holders of voting securities of the Company shall have
approved an agreement for the sale or disposition by the Company (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(3) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 ("1934 Act")) shall become the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly
or indirectly, of 25% or more of the combined voting power of the Company's
then outstanding common shares;
(4) during any period of twenty-four (24) months, members who at the
beginning of such period constituted the Board shall have ceased for any
reason to constitute a majority thereof, unless the election, or nomination
for election by the Company's stockholders, of each director shall have
been approved by the vote of at least two-thirds of the
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directors then still in office and who were directors at the beginning of
such period (so long as such director was not nominated by a person who has
expressed an intent to effect a Change in Control or engage in a proxy or
other control contest); or
(5) the occurrence of any other change in control of a nature that
would be required to be reported in accordance with Form 8-K pursuant to
Sections 13 or 15(d) of the 1934 Act or in the Company's proxy statement in
accordance with Schedule 14A of Regulation 14A promulgated under the 1934
Act, or in any successor forms or regulations to the same effect.
Notwithstanding the foregoing, in no event shall a Change in Control be
deemed to occur upon the occurrence of any of the following: i) the
transactions contemplated in the Company's Registration Statement on Form S-
3, dated July, 1997, (ii) any acquisition of the Company's shares by the
Company, or (iii) any acquisition of the Company's shares by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company.
(e) In addition, upon a Change in Control: i) all non-vested
securities of the Company held by Executive, including, without limitation,
all non-vested options to purchase Company stock, shall automatically vest
and become immediately exercisable and shall remain exercisable for the
balance of the term of the grant, without regard to whether or not
Executive's employment has been terminated); and (ii) all non-vested rights
under, or in connection with, all of the Company's benefit plans, including,
without limitation, the Company's 401(k) plan, bonus plan (including cash
and/or stock) and deferred compensation plan shall automatically vest;
provided, however, that in the event the Company is unable to vest the
Executive's rights in any qualified pension plans without affecting the
qualified status of such plans, then the Company shall, upon any termination
of Executive's employment following the Change in Control, pay Executive a
cash lump sum (within 30 days of his termination) equal to the present value
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of the additional benefits the Executive would have accrued if he had been
fully vested in such qualified pension plan.
6.2 Permanent Disability; Death. If the Executive becomes totally
and permanently disabled (as defined in the Company's Long-Term Disability
Benefit Plan applicable to senior executive officers as in effect on the date
hereof) ("Permanent Disability"), the Company or Executive may terminate
Executive's employment on written notice thereof, or if Executive's
employment is terminated on account of death, the Executive (or his estate or
designated beneficiaries) shall receive or commence receiving, as soon as
practicable:
(i) amounts payable pursuant to the terms of a disability insurance
policy or life insurance policy or similar arrangements which the Company
maintains during the term hereof;
(ii) the Pro-Rated Target Bonus;
(iii) the Vacation Payment and the Compensation Payment; and
(iv) such payments under applicable plans or programs, including but
not limited to those referred to in Section 3.3 hereof, to which he is
entitled pursuant to the terms of such plans or programs.
6.3 Voluntary Termination by Executive; Discharge for Cause. (a)
The Company shall have the right to terminate the employment of Executive for
Cause. In the event that Executive's employment is terminated by the Company
for Cause, as hereinafter defined, or by Executive (other than: i) for Good
Reason, ii) as a result of the Executive's Permanent Disability or death, or
iii) within 12 months following a Change in Control) prior to the Termination
Date, Executive shall be entitled to receive only the Compensation Payment
and the Vacation Payment. After the termination of Executive's employment
under this Section 6.3, the obligations of the Company under this Agreement
to make any further payments, or provide any benefits specified herein, to
Executive shall thereupon cease and terminate.
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(b) As used herein, the term "Cause" shall be limited to (i)
willful malfeasance or willful misconduct by Executive in connection with his
employment, (ii) continuing refusal by Executive to substantially perform his
duties hereunder as required under Section 1.2, within ten days after notice
of any such refusal to perform such duties was given to Executive, (iii) any
material breach of the provisions of Section 14 of this Agreement by
Executive or (iv) the final conviction of, or final entry of a plea of nolo
contendere by, Executive for any felony. Termination of Executive pursuant
to this Section 6.3 shall be made by delivery to Executive of a copy of a
resolution duly adopted by the affirmative vote of not less than a majority
of the Directors at a meeting of the Board of Directors of the Company called
and held for the purpose (after 30 days prior written notice to Executive and
reasonable opportunity for Executive to be heard before the Board prior to
such vote), finding that in the reasonable judgment of such Board, Executive
was guilty of conduct set forth in any of clauses (i) through (iv) above and
specifying the particulars thereof.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, if
it is determined (as hereafter provided) that any payment or distribution by
the Company to or for the benefit of the Executive, whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option, stock
appreciation right or similar right, or the lapse or termination of any
restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being "contingent on a
change in ownership or control" of the Company, within the meaning of Section
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280G of the Code (or any successor provision thereto) or to any similar tax
imposed by state or local law, or any interest or penalties with respect to
such excise tax (such tax or taxes, together with any such interest and
penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive will be entitled to receive an additional payment or payments
(a "Gross-Up Payment") in an amount such that, after payment by the Executive
of all taxes (including any interest or penalties imposed with respect to
such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 7(f) hereof, all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, will be made by the nationally recognized firm of certified public
accountants used by the Company prior to the Change in Control (the
"Accounting Firm"). The Executive will direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company
and the Executive within 15 calendar days after the Termination Date, if
applicable, and any other such time or times as may be requested by the
Company or the Executive. If the Accounting Firm determines that any Excise
Tax is payable by the Executive, the Company will pay the required Gross-Up
Payment to the Executive within five business days after receipt of such
determination and calculations. If the Accounting Firm determines that no
Excise Tax is payable by the Executive, it will, at the same time as it makes
such determination, furnish the Executive with an opinion that he has
substantial authority not to report any Excise Tax on his federal, state,
local income or other tax return. Any determination by the Accounting Firm
12
<PAGE> 13
as to the amount of the Gross-Up Payment will be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section
4999 of the Code (or any successor provision thereto) and the possibility of
similar uncertainty regarding applicable state or local tax law at the time
of any determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the Company should have
been made (an "Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts or fails to pursue
its remedies pursuant to Section 7(f) hereof and the Executive thereafter is
required to make a payment of any Excise Tax, the Executive will direct the
Accounting Firm to determine the amount of the Underpayment that has occurred
and to submit its determination and detailed supporting calculations to both
the Company and the Executive as promptly as possible. Any such Underpayment
will be promptly paid by the Company to, or for the benefit of, the Executive
within five business days after receipt of such determination and
calculations.
(c) The Company and the Executive will each provide the Accounting
Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 7(b) hereof.
(d) The federal, state and local income or other tax returns filed
by the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive will make proper payment of the amount of
any Excise Tax, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal income tax
13
<PAGE> 14
return as filed with the Internal Revenue Service and corresponding state and
local tax returns, if relevant, as filed with the applicable taxing
authority, and such other documents reasonably requested by the Company,
evidencing such payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax return, if relevant,
the Accounting Firm determines that the amount of the Gross-Up Payment should
be reduced, the Executive will within five business days pay to the Company
the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by
Sections 7(b) and (d) hereof will be borne by the Company. If such fees and
expenses are initially advanced by the Executive, the Company will reimburse
the Executive the full amount of such fees and expenses within five business
days after receipt from the Executive of a statement therefor and reasonable
evidence of his payment thereof.
(f) The Executive will notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification will be
given as promptly as practicable but no later than 10 business days after the
Executive actually receives notice of such claim and the Executive will
further apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known by the
Executive). The Executive will not pay such claim prior to the earlier of
(a) the expiration of the 30-calendar-day period following the date on which
he gives such notice to the Company and (b) the date that any payment of
amount with respect to such claim is due. If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive will:
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<PAGE> 15
(1) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(2) take such action in connection with contesting such claim as the
Company will reasonably request in writing from time to time, including
without limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(3) cooperate with the Company in good faith in order effectively
to contest such claim; and
(4) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation
and payment of costs and expenses. Without limiting the foregoing provisions
of this Section 7(f), the Company will control all proceedings taken in
connection with the contest of any claim contemplated by this Section 7(f)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company will
determine; provided, however, that if the Company directs the Executive to
pay the tax claimed and sue for a refund, the Company will advance the amount
of such payment to the Executive on an interest-free basis and will indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax
15
<PAGE> 16
or income tax, including interest or penalties with respect thereto, imposed
with respect to such advance; and provided, further, that any extension of
the statute of limitations relating to payment of taxes for the taxable year
of the Executive with respect to which the contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company's
control of any such contested claim will be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive will be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 7(f) hereof, the Executive receives any
refund with respect to such claim, the Executive will (subject to the
Company's complying with the requirements of Section 7(f) hereof) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after any taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(f) hereof, a determination is made that the Executive will not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such determination,
then such advance will be forgiven and will not be required to be repaid and
the amount of such advance will offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid pursuant to this Section 7.
8. Stock Arrangements. Simultaneous with the execution of this
Agreement, Executive and the Company shall enter into the Management Stock
Purchase Agreement, Restricted Stock Agreement and other documents
(collectively, with the Stock Option Agreement, the "Equity Documents")
16
<PAGE> 17
necessary in connection with the __________ shares being sold or granted to
Executive in accordance with the terms thereof, all as attached hereto.
9. Mitigation of Damages. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise after the termination of
his employment hereunder.
10. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, Colorado 80202
with a copy to:
Alvin H. Brown, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
To Executive:
Mr. Thomas J. Edelman
667 Madison Avenue - 22nd Floor
New York, New York 10021
with a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Center
New York, NY 10112
Any such notice or communication shall be delivered by hand or by courier or
sent certified or registered mail, return receipt requested, postage prepaid,
addressed as above (or to such other address as such party may designate in a
notice duly delivered as described above), and the third business day after
the actual date of mailing shall constitute the time at which notice was
given.
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11. Separability; Legal and Accounting Expense Allowance. If any
provision of this Agreement shall be declared to be invalid or unenforceable,
in whole or in part, such invalidity or unenforceability shall not affect the
remaining provisions hereof which shall remain in full force and effect. The
Company shall pay on behalf of the Executive, for each calendar year
commencing with 1997, up to $10,000 for legal and accounting fees incurred by
Executive. In addition, after a Change in Control, the Company shall pay all
reasonable legal fees and related expenses (including the costs of experts,
evidence and counsel) incurred by Executive as they become due as a result of
a good faith dispute in which Executive seeks to obtain or enforce any right
or benefit provided by this Agreement or by any other plan or arrangement
maintained by the Company under which Executive is or may be entitled to
receive benefits.
12. Assignment. This contract shall be binding upon and inure to
the benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by the Company, except that the Company may assign
this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of the Company,
if such successor expressly agrees to assume the obligations of the Company
hereunder.
13. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
14. Nondisclosure of Confidential Information; Non-Competition.
(a) Executive shall not, without the prior written consent of the Company,
use, divulge, disclose or make accessible to any other person, firm,
18
<PAGE> 19
partnership, corporation or other entity any Confidential Information
pertaining to the business of the Company or any of its subsidiaries, except
(i) while employed by the Company, in the business of and for the benefit of
the Company, or (ii) when required to do so by a court of competent
jurisdiction, by any governmental agency having supervisory authority over
the business of the Company, or by any administrative body or legislative
body (including a committee thereof) with jurisdiction to order Executive to
divulge, disclose or make accessible such information. For purposes of this
Section 14(a), "Confidential Information" shall mean non-public information
concerning the financial data, strategic business plans, product development
(or other proprietary product data), customer lists, marketing plans and
other non-public, proprietary and confidential information of the Company or
its subsidiaries (the "Restricted Group") or the Restricted Group's
customers, that, in any case, is not otherwise available to the public (other
than by Executive's breach of the terms hereof).
(b) During the Term hereof, Executive agrees, subject to the
limitation provided herein, that, without the prior written consent of the
Company, which consent shall not be unreasonably withheld: (A) he will not,
directly or indirectly, either as principal, manager, agent, consultant,
officer, stockholder, partner, investor, lender or employee or in any other
capacity, carry on, be engaged in or have any financial interest in, any
business which is in direct competition with the principal business
activities of the Restricted Group and (B) he shall not, on his own behalf or
on behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who has been employed by the Restricted Group
at any time during the 12 months immediately preceding such solicitation.
Notwithstanding the foregoing, nothing in this Section shall prevent
Executive from continuing to act, directly or indirectly, for any entity, in
19
<PAGE> 20
any capacity in which he was engaged at any time during the 12 months prior
to the date hereof.
(c) For purposes of this Section 14, a business shall be deemed to
be in competition with the Restricted Group if it is principally involved in
the purchase, sale or other dealing in any property or the rendering of any
service purchased, sold, dealt in or rendered by the Restricted Group as a
material part of the business of the Restricted Group within the same
geographic area in which the effect such purchases, sales or dealings or
renders such services. Nothing in this Section 14 shall be construed so as
to preclude Executive from investing in any publicly or privately held
company, provided Executive's beneficial ownership of any class of such
company's securities does not exceed 1% of the outstanding securities of such
class. If Executive wishes to engage in an opportunity Executive shall
comply with the procedures established by the Company for considering such
opportunity. If the Company does not wish to engage in such opportunity, the
Board shall not unreasonably withhold its consent for Executive to engage in
such opportunity, consistent with the Executive's obligations under this
Agreement.
(d) Executive and the Company agree that this covenant not to
compete is a reasonable covenant under the circumstances, and further agree
that if in the opinion of any court of competent jurisdiction such restraint
is not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant
as to the court shall appear not reasonable and to enforce the remainder of
the covenant as so amended. Executive agrees that any breach of the
covenants contained in this Section 14 would irreparably injure the Company.
Accordingly, Executive agrees that the Company may, in addition to pursuing
any other remedies it may have in law or in equity, cease making any payments
20
<PAGE> 21
otherwise required by this Agreement and obtain an injunction against
Executive from any court having jurisdiction over the matter restraining any
further violation of this Agreement by Executive.
15. Beneficiaries; References. Executive shall be entitled to
select (and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit payable
hereunder following Executive's death, and may change such election, in
either case by giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of his incompetence, reference
in this Agreement to Executive shall be deemed, where appropriate, to refer
to his beneficiary, estate or other legal representative. Any reference to
the masculine gender in this Agreement shall include, where appropriate, the
feminine.
16. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
The provisions of this Section 16 are in addition to the survivorship
provisions of any other section of this Agreement.
17. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
18. Effect on Prior Agreements. This Agreement contains the
entire understanding between the parties hereto and supersedes in all
respects any prior or other agreement or understanding with respect to
Executive's employment between the Company or any affiliate of the Company
and Executive other than the Equity Documents referred to in Section 8 hereof
and the terms of the employee benefit plans and programs in which he is
participating. In addition, the parties hereto agree that, in the event of a
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<PAGE> 22
Change in Control, the Executive shall receive the benefits provided in this
Agreement in lieu of the cash severance payment provided under the Change in
Control Plan.
19. Withholding. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
PATINA OIL & GAS CORPORATION
By /s/ Brian Cree
----------------------------
Name: Brian Cree
Title: Executive Vice President
and Chief Operations
Officer
/s/ Thomas J. Edelman
----------------------------
Thomas J. Edelman
22
<PAGE> 1
Exhibit 10.11
STOCK PURCHASE AGREEMENT
Among
PATINA OIL & GAS CORPORATION
and
THE INVESTORS NAMED HEREIN
Dated as of July 31, 1997
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<PAGE> 2
TABLE OF CONTENTS
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<TABLE>
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<S> <C> <C>
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 . . . . . 6
Section 2.01. Sale and Purchase of the Preferred Stock
and Common Stock. . . . . . . . . . . . . . . 6
Section 2.02. Closing . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III.
Representations and Warranties . . . . . . . . . 8
Section 3.01. Representations and Warranties of the
Company . . . . . . . . . . . . . . . . . . . 8
Section 3.02. Representations and Warranties of Investors . . 16
ARTICLE IV.
Additional Agreements of the Parties . . . . . . . . 17
Section 4.01. Taking of Necessary Action . . . . . . . . . . 17
Section 4.02. Conduct of Business . . . . . . . . . . . . . . 18
Section 4.03. Notification of Certain Matters . . . . . . . . 19
Section 4.04. Access to Information . . . . . . . . . . . . . 19
Section 4.05. Restrictions on Sale or Transfer; Legend . . . 19
Section 4.06. Designated Directors . . . . . . . . . . . . . 20
Section 4.07. New York Stock Exchange Listing . . . . . . . . 20
Section 4.08. Use of Proceeds . . . . . . . . . . . . . . . . 21
Section 4.09. Approval by Company's Stockholders . . . . . . 21
Section 4.10. No Additional Shares . . . . . . . . . . . . . 21
ARTICLE V.
Conditions Precedent . . . . . . . . . . . . 21
Section 5.01. Conditions to Each Party's Obligations to
Effect each Closing . . . . . . . . . . . . . 21
Section 5.02. Conditions to the Investors' Obligations . . . 22
Section 5.03. Conditions to the Company's Obligations to
any Closing . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
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Section 5.04. Conditions to the Company's Obligations to
the Initial Closing . . . . . . . . . . . . . 24
ARTICLE VI.
Registration Rights . . . . . . . . . . . . . 24
Section 6.01. Definition of Registrable Shares . . . . . . . 24
Section 6.02. Demand Registration . . . . . . . . . . . . . . 25
Section 6.03. Piggyback Registration . . . . . . . . . . . . 26
Section 6.04. Registration Procedures . . . . . . . . . . . . 27
Section 6.05. Conditions and Limitations . . . . . . . . . . 31
Section 6.06. Information from and Certain Covenant of
Holders of Registrable Shares. . . . . . . . 32
Section 6.07. Registration Expenses. . . . . . . . . . . . . 32
Section 6.08. Indemnification; Contributions. . . . . . . . . 32
ARTICLE VII.
Standstill and Confidentiality Provisions . . . . . . . 35
Section 7.01. Certain Definitions . . . . . . . . . . . . . . 35
Section 7.02. Confidentiality Covenants . . . . . . . . . . . 37
Section 7.03. Acquisition of Company Voting Securities . . . 38
Section 7.04. Distribution of the Company Voting
Securities . . . . . . . . . . . . . . . . . 39
Section 7.05. Proxy Solicitations, etc. . . . . . . . . . . . 40
Section 7.06. No Voting Trusts, Pooling Agreements, or
Formation of "Groups" . . . . . . . . . . . . 40
Section 7.07. Limitation on Various Other Actions . . . . . . 40
Section 7.08. Acquisition Proposals . . . . . . . . . . . . . 41
Section 7.09. Term of Standstill and Confidentiality
Provisions . . . . . . . . . . . . . . . . . 42
ARTICLE VIII.
Term . . . . . . . . . . . . . . . . 42
Section 8.01. Termination . . . . . . . . . . . . . . . . . . 42
Section 8.02. Effect of Termination . . . . . . . . . . . . . 43
Section 8.03. Termination Fee . . . . . . . . . . . . . . . . 43
ARTICLE IX.
Miscellaneous . . . . . . . . . . . . . . 43
Section 9.01. Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . 43
Section 9.02. Notices . . . . . . . . . . . . . . . . . . . . 43
Section 9.03. Entire Agreement; Amendment . . . . . . . . . . 44
Section 9.04. Counterparts . . . . . . . . . . . . . . . . . 45
SECTION 9.05. GOVERNING LAW . . . . . . . . . . . . . . . . . 45
Section 9.06. Public Announcements . . . . . . . . . . . . . 45
Section 9.07. Expenses . . . . . . . . . . . . . . . . . . . 45
Section 9.08. Indemnification . . . . . . . . . . . . . . . . 45
Section 9.09. Successors and Assigns . . . . . . . . . . . . 47
Section 9.10. No Third Party Rights. . . . . . . . . . . . . 48
Section 9.11. Specific Performance . . . . . . . . . . . . . 48
</TABLE>
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<TABLE>
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Section 9.12. Captions . . . . . . . . . . . . . . . . . . . 48
Section 9.13. Severability . . . . . . . . . . . . . . . . . 48
Section 9.14. Mutual Waiver of Jury Trial . . . . . . . . . . 48
Section 9.15. Jurisdiction . . . . . . . . . . . . . . . . . 49
Section 9.16. References to Other Agreements . . . . . . . . 49
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
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
</TABLE>
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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
1
<PAGE> 6
conditions of this Agreement to determine, in its sole discretion, the aggregate
number of shares of 8.5% Convertible Preferred Stock to be ultimately issued and
sold hereunder to fund a portion of such purchase price;
WHEREAS, in connection with the consummation of the Secondary Stock
Offering, the SOCO Stock Redemption and issuance and sale of the 8.5%
Convertible Preferred Stock hereunder, the Company contemplates issuing
additional shares of Common Stock and granting shares of restricted Common Stock
to certain senior executives of the Company as follows (collectively, such
transactions are referred to herein as 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.
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<PAGE> 7
"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.
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"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.
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"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
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<PAGE> 10
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";
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<PAGE> 11
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
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<PAGE> 12
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
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<PAGE> 13
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.
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(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
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<PAGE> 15
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
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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
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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
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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
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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
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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
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<PAGE> 21
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
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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
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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.
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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.
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(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 , 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 5.2 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
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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
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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
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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
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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
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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
26
<PAGE> 31
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
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<PAGE> 32
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
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<PAGE> 33
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
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<PAGE> 34
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
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<PAGE> 35
or on such selling Holder's behalf expressly for use therein, (ii) that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this Section 6.08(b) shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a copy of the final
prospectus was not sent or given to the person asserting any such losses,
claims, damages, liabilities or expenses at or prior to the written confirmation
of the sale of the Registrable Shares concerned to such person, and (iii) that
no selling Holder shall be liable for any indemnification under this Section
6.08 in an aggregate amount that exceeds the total net proceeds (before
deducting expenses other than underwriting discounts or commissions) received by
such selling Holder from the offering. Each selling Holder also agrees to
include in any underwriting agreement with underwriters of the Registrable
Shares provisions indemnifying and providing for contribution to such
underwriters, their officers and directors and each person who controls such
underwriters on substantially the same basis as the provisions of this Section
6.08 indemnifying and providing for contribution to the Company.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any indemnified party hereunder in respect of which indemnity
may be sought from an indemnifying party, the indemnifying party shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to such indemnified party, and shall assume the payment of all expenses. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory to such indemnified party,
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both such indemnified party and such indemnifying
party and such indemnified party shall have been advised by counsel in writing
that there may be one or more legal defenses available to such indemnified party
that are different from or additional to those available to the indemnifying
party, in which case, if such indemnified party notifies the indemnifying party
in writing that it elects to employ separate counsel reasonably acceptable to
the indemnifying party at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
of proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified party, which firm shall be designated in writing by such indemnified
party. The indemnifying party shall not be liable for any settlement of any such
action or proceeding effected without its written consent, but if settled with
its written consent, or if there is a final judgment for the plaintiff in any
such action or proceeding, the indemnifying party agrees to indemnify and hold
harmless such indemnified party from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment.
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<PAGE> 36
(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.
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(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
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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.
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(iv) Each Investor hereby acknowledges that it is aware, and that it
will advise such Representatives who are informed as to the matters which are
the subject of this Section 7.02, that the United States securities laws
prohibit any person who has received from an issuer material, non-public
information concerning the matters which are the subject of this Section 7.02
from purchasing or selling securities of such issuer or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
(b) Treatment of Materials. In the event that no Closing occurs
hereunder prior to the termination of this Agreement, each Investor shall, upon
request, promptly redeliver to the Company all written Evaluation Material and
any other written material containing or reflecting any information in the
Evaluation Material (whether prepared by or on behalf of the Company, its
advisors or otherwise) and will not retain any copies, extracts or other
reproductions in whole or in part of such written material, and, upon request by
the Company, all documents, memoranda, notes and other writings whatsoever
prepared by such Investor or its Representatives based on the information in the
Evaluation Material shall be destroyed.
Section 7.03. Acquisition of Company Voting Securities. If an Investor
has acquired Company Voting Securities pursuant to this Agreement or the SOCO
Option Agreement, including any conversion of the 8.5% Convertible Preferred
Stock into Common Stock (an "Authorized Purchase") during the Limitation Period
without the Prior Approval of the Approval Body, neither such Investor nor any
of its affiliates shall thereafter, directly or indirectly, acquire, offer to
acquire, agree to acquire, become the beneficial owner of or obtain any rights
in respect of any additional Company Voting Securities, by purchase or
otherwise, or take any action in furtherance thereof, if the effect of such
acquisition, agreement or other action would be (either immediately or upon
consummation of any such acquisition, agreement or other action, or expiration
of any period of time provided in any such acquisition, agreement or other
action) to increase the aggregate beneficial ownership of Company Voting
Securities by such Investor and its affiliates to such number of Company Voting
Securities that represents or possesses greater than 20.0% of the Combined
Voting Power of Company Voting Securities. Notwithstanding the foregoing maximum
percentage limitations, (i) an Investor shall not be obligated to dispose of any
Company Voting Securities beneficially owned in violation of such maximum
percentage limitations if, and solely to the extent that, its beneficial
ownership is or will be increased solely as a result of a repurchase of any
Company Voting Securities by the Company or any of its subsidiaries if such
repurchase shall have received the Prior Approval of the Board of Directors, and
(ii) the foregoing shall not prohibit any purchase of Company Voting Securities
directly from the Company (including pursuant to the exercise of rights,
oversubscription rights or standby purchase obligations in connection with
rights offerings by the Company). For purposes of calculating the maximum
percentage limitations, all Company Voting Securities that are the subject of a
right, option, agreement, arrangement or understanding pursuant to which an
Investor or any of its affiliates has the right to obtain beneficial ownership
of such securities in the future shall also be deemed to be beneficially owned
by such Investor or its affiliate.
Section 7.04. Distribution of the Company Voting Securities. (a)
Each Investor hereby agrees that (subject to the last sentence of this
Section 7.04(a)), (i) prior to the first anniversary of the Initial Closing
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Date, neither such Investor nor any of its affiliates shall, directly or
indirectly, Transfer any Company Voting Security to any person, (ii) during the
period commencing on the first anniversary of the Initial Closing Date until the
second anniversary thereof, neither such Investor nor any of its affiliates
shall, directly or indirectly, Transfer any Company Voting Security to any
person, except as permitted under applicable securities laws and (except for
Transfers pursuant to Rule 144 under the Securities Act) with the Prior Approval
of the Approval Body (which approval will not be unreasonably withheld) (and any
permitted transferee of such Transfer (except Transfers pursuant to Rule 144
under the Securities Act) shall agree to be bound by the provisions in this
subsection, and (iii) on and after the second anniversary of the Initial Closing
Date, such Investor shall be entitled to Transfer any Company Voting Security to
any person, subject solely to any applicable securities law restrictions. In
addition to the foregoing Transfer provisions, during the Limitation Period,
neither an Investor nor any of its affiliates shall, directly or indirectly,
Transfer any Company Voting Security in a transaction that would result in a
Transfer to any person or group that, to the knowledge of such Investor, upon
consummation of such Transfer, would, directly or indirectly, have beneficial
ownership of or the right to acquire beneficial ownership of such number of
Company Voting Securities as represent greater than 7.5% of the Combined Voting
Power, except in response to a Qualifying Offer (as defined in Section
7.04(b)(i)) or to a Qualified Buyer (as defined in Section 7.04(b)(ii)) or
pursuant to an underwritten public offering or pursuant to Rule 144 under the
Securities Act.
(b) Notwithstanding Section 7.04(a), (i) on and after the eleventh
business day after commencement of a tender or exchange offer made by a person
who is not an affiliate of an Investor for outstanding Company Voting
Securities, such Investor may tender or exchange any Company Voting Securities
beneficially owned by it pursuant to such offer if such offer shall have
received the Prior Approval of the Independent Committee (or the Independent
Committee shall not have made a recommendation to reject such offer) (a
"Qualifying Offer"), and/or (ii) such Investor may sell Company Voting
Securities to a buyer (a "Qualified Buyer") who would thereafter own Company
Voting Securities representing greater than 20.0% of the Combined Voting Power
if such buyer shall have executed a confidentiality and standstill agreement
having substantially the same terms as are contained in this Article VII.
Section 7.05. Proxy Solicitations, etc. During the Limitation Period,
neither an Investor nor any of its affiliates shall solicit proxies, assist any
other person in any way, directly or indirectly, in the solicitation of proxies,
become a "participant" in a "solicitation," or assist any "participant" in a
"solicitation" (as such terms are defined in Rule 14a-1 of Regulation 14A under
the Exchange Act) in opposition to the recommendation of the Independent
Committee, or submit any proposal for the vote of shareholders of the Company,
or recommend or request or induce or attempt to induce any other person to take
any such actions, or seek to advise, encourage or influence any other person
with respect to the voting of Company Voting Securities, in each case without
the Prior Approval of the Independent Committee. Nothing in this Section 7.05
shall restrict any Investor or its affiliates from otherwise voting its shares
of Company Voting Securities.
Section 7.06. No Voting Trusts, Pooling Agreements, or Formation
of "Groups". During the Limitation Period, neither an Investor nor any of
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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
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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
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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).
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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
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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
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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
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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
43
<PAGE> 48
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.
44
<PAGE> 49
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.
45
<PAGE> 50
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
With copy to:
Harvey Eisenberg, Esq.
O'Sullivan, Graev & Karabell c/o Chase Capital Partners
30 Rockefeller Plaza, 380 Madison Avenue, 12th Floor
41st Floor New York, New York 10017
New York, New York 10112 Phone: (212) 622-3100
Phone: (212) 408-2416 Fax: (212) 622-3101
Fax: (212) 408-0646
46
<PAGE> 51
HIGHBRIDGE INTERNATIONAL LDC
By: HIGHBRIDGE CAPITAL MANAGEMENT, INC.
By: /s/ Glenn R. Dubin
-----------------------------------
Name: Glenn R. Dubin
Title: Co-Chairman
With copy to:
Ron Resnick, Esq.
c/o Highbridge Capital c/o Highbridge Capital Management, Inc.
Management, Inc. 767 Fifth Avenue, 23rd Floor
767 Fifth Avenue, 23rd Floor New York, New York 10153
New York, New York 10153 Phone: (212) 751-4510
Phone: (212) 751-4510 Fax: (212) 486-9379
Fax: (212) 759-6010
BEDFORD FALLS INVESTORS, LP
By: Metropolitan Capital Advisors, LP
its General Partner
By: Metropolitan Capital Advisors, Inc.
By: /s/ Jeffrey Schwarz
-----------------------------------
Jeffrey Schwarz
Chief Executive Officer
660 Madison Avenue, 20th Floor
New York, NY 10021
Phone: (212) 486-8100
Fax: (212) 486-8819
/s/ Anthony V. Dub
-----------------------------------------
Anthony V. Dub
c/o Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010
Phone: (212) 325-4800
Fax: (212) 325-8266
/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
47
<PAGE> 52
/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
48
<PAGE> 53
SCHEDULE I
----------
SCHEDULE OF INVESTORS' COMMITMENTS
<TABLE>
<CAPTION>
Number of
Shares of 8.5% Number of
Convertible Shares of
Aggregate Preferred Common Stock to
Commitment Stock to be be Acquired at
Name of Investor Amount Purchased Initial Closing
- ----------------------- ------------ -------------- ---------------
<S> <C> <C> <C>
First Reserve Fund
VII, Limited Partnership . $32,500,000 1,300,000 51,587
Chase Venture Capital
Associates, L.P. ......... 22,500,000 900,000 35,714
Highbridge International
LDC ...................... 4,750,000 190,000 7,540
Bedford Falls Investors,
LP ....................... 2,500,000 100,000 3,968
Anthony V. Dub ............ 400,000 16,000 635
Allen Finkelson ........... 100,000 4,000 159
William P. Nicoletti ...... 100,000 4,000 159
Irik P. Sevin ............. 100,000 4,000 159
Peter Seaman .............. 50,000 2,000 79
=========== ========= =======
Totals .................... $63,000,000 2,520,000 100,000
</TABLE>
49
<PAGE> 54
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.
50
<PAGE> 55
<TABLE>
<CAPTION>
Organization and Good Standing of
Section 3.01(b) Company's Subsidiaries
- --------------- ---------------------------------
Subsidiary Jurisdiction
- ---------- ------------
<S> <C>
SOCO Wattenberg Corporation DE
Patina Well Services, Inc. CO
</TABLE>
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.
51
<PAGE> 56
Section 3.01(d) Capitalization
- --------------- --------------
<TABLE>
<CAPTION>
Number of Number of
Authorized Shares Authorized Shares
Issued and Reserved for
Outstanding Future Issuance
Number of (including Under Existing
Class of Stock Authorized Shares Treasury Shares) Agreements
- ------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
1. Common 38,000,000 18,820,248 17,992,552*
2. Common Series A 2,000,000 2,000,000 0
3. Preferred 5,000,000 1,467,926 3,406,392**
4. Warrants 3,000,000 2,919,451*** 0
</TABLE>
- ---------------------------
* Net of 1,187,200 shares of Common Stock repurchased and retired by
the Company. Includes shares of Common Stock for issuance as
follows:
<TABLE>
<CAPTION>
<S> <C>
Stock Options 788,960
Warrants 2,919,451
Preferred Stock 4,262,271
</TABLE>
** Net of 125,682 shares of Preferred Stock repurchased and retired by
the Company.
*** Net of 80,549 Warrants repurchased and retired by the Company.
52
<PAGE> 57
<TABLE>
<CAPTION>
Section 3.01(f) No Conflicts
- --------------- ------------
<S> <C>
</TABLE>
The Amended and Restated Credit Agreement.
53
<PAGE> 58
<TABLE>
<CAPTION>
Section 3.01(g) No Consents
- --------------- -----------
<S> <C>
</TABLE>
The Company must file a Registration Statement on Form S-3 with the
SEC in connection with the Secondary Stock Offering.
54
<PAGE> 59
<TABLE>
<CAPTION>
Section 3.01(j) Legal Proceeding
- --------------- ----------------
<S> <C>
None.
</TABLE>
55
<PAGE> 60
<TABLE>
<CAPTION>
Section 3.01(m) Absence of Certain Changes
- --------------- --------------------------
<S> <C>
None.
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
Section 3.01(n) Material Contracts
- --------------- ------------------
<S> <C>
None.
</TABLE>
57
<PAGE> 62
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.
58
<PAGE> 63
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Section 3.01(r) Environmental Matters
- --------------- ---------------------
<S> <C>
None.
</TABLE>
59
<PAGE> 64
EXHIBIT 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
60
<PAGE> 65
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
61
<PAGE> 66
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;
62
<PAGE> 67
(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
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<PAGE> 68
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
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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.
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(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
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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.
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IN WITNESS WHEREOF, SOCO and Patina have caused this Agreement to be signed
by their respective officers thereunto duly authorized.
SNYDER OIL CORPORATION
By: /s/ Peter E. Lorenzen
-------------------------------
Name: Peter E. Lorenzen
------------------------
Title: Vice President
------------------------
PATINA OIL & GAS CORPORATION
By: /s/ Thomas J. Edelman
-------------------------------
Name: Thomas J. Edelman
-------------------------
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EXHIBIT B
---------
[FORM OF SOCO OPTION AGREEMENT]
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EXHIBIT C
---------
NOTICE OF ISSUANCE
Patina Oil & Gas Corporation (the "Company") hereby provides notice to
certain 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 Investors on ________ __, 199_
(the "Sale Date") in accordance with the terms of Section 2.01 of the Stock
Purchase Agreement dated as of [________] __, 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 _________ __, 199_ [2 days prior to the date of 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
____________.
The Company represents and warrants to the Investors as follows (and it
is understood that the Purchaser's obligation to purchase the Preferred Stock on
the Sale Date is subject to such representations and warranties being true and
correct in all material respects as of the Sale Date):
(a) Neither the Company nor any of its subsidiaries is in
default (i) of any payment of principal of or interest on any
indebtedness in excess of $1 million ("Indebtedness") beyond the period
of grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness was created, or (ii) in the
observance or performance of any other agreement or condition relating
to any such Indebtedness beyond the cure or grace period applicable
thereto (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness was created, the effect of
which default or other event or condition (and such passage of the cure
or grace period, if applicable) would be to cause, or to permit the
holder or holders of such Indebtedness to cause, with the giving of
notice if required, such indebtedness to become due prior to its stated
maturity; and
(b) (i) Neither the Company nor any of its subsidiaries (A) has
commenced any case, proceeding or other action (x) under the law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, which seeks to have an order for
relief entered with respect to it or adjudicate it a bankrupt or
insolvent, or which seeks reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (y) which seeks appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its
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assets, or (B) has made a general assignment for the benefit of its
creditors; (ii) no case, proceeding or other action of a nature
referred to in clause (i) has been commenced against the Company or any
of its subsidiaries which has resulted or could result in the entry of
an order for relief or any such adjudication or appointment; (iii) no
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets has been commenced against the Company
or any of its subsidiaries; (iv) neither the Company nor any of its
subsidiaries has been unable to pay its debts as they become due; and
(v) to the best knowledge of the Company, no such case, proceeding,
action, assignment or other event is threatened.
IN WITNESS WHEREOF, the Company has caused this Notice to be duly
executed and delivered as of____________ __, 199_.
PATINA OIL & GAS CORPORATION
By: _____________________________
Name:
Title:
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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
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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
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Section V. If a dividend record date fixed by the Board of Directors is prior to
a redemption date then or theretofore set under Section V, it shall be at least
six business days prior to such redemption date. Nothing contained herein shall
limit the Board of Directors' discretion to establish a dividend record date
that is subsequent to a redemption date then or theretofore established, without
regard to the effect of such record date on the dividend 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
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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:
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<TABLE>
<CAPTION>
Redemption Price
Year Per Share
---- ----------------
<S> <C> <C>
2000 . . . . . . . . . . . . . . . . . . $ 26.50
2001 . . . . . . . . . . . . . . . . . . $ 26.00
2002 . . . . . . . . . . . . . . . . . . $ 25.50
2003 and thereafter. . . . . . . . . . . $ 25.00
</TABLE>
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
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issued. Failure to give such notice by mail or any defect in such notice to the
holders of any shares designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Convertible PIK
Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Redemption
Price. If less than all the shares evidenced by any such surrendered certificate
are redeemed, a new certificate shall be issued evidencing the unredeemed
shares.
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
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and specifying the name or names (with address or addresses) in which a
certificate or certificates evidencing shares of Common Stock are to be issued.
Except as otherwise described in this paragraph, no payments or
adjustments in respect of dividends on shares of Convertible PIK Preferred Stock
surrendered for conversion, whether paid or unpaid and whether or not in
arrears, or on account of any dividend on the Common Stock issued upon
conversion shall be made by the Corporation upon the conversion of any shares of
Convertible PIK Preferred Stock. The holder of record of shares of Convertible
PIK Preferred Stock on a dividend record date who surrenders such 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.
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(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 effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv), in
case the Corporation shall, by dividend or otherwise, distribute to all
holders of its Common Stock evidences of its indebtedness, shares of
any class or series of capital stock, cash or assets (including
securities, but excluding any rights, warrants or convertible
securities referred to in subparagraph (ii) of this Section VI(c), any
dividend or distribution paid exclusively in cash and any dividend or
distribution referred to in subparagraph (i) of this Section VI(c)),
the Conversion Price in effect on the day following the date fixed for
the payment of such distribution (the
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date fixed for payment being referred to as the "Reference Date") shall
be reduced by multiplying such Conversion Price by a fraction of which
the numerator shall be the current market price per share (determined
as provided in subparagraph (vi) of this Section VI(c)) of the Common
Stock on the Reference Date less the fair market value (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) on
the Reference Date of the portion of the evidences of indebtedness,
shares of capital stock, cash and assets so distributed applicable to
one share of Common Stock, and the denominator shall be such current
market price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day
following the Reference Date. If the Board of Directors determines the
fair market value of any distribution for purposes of this subparagraph
(iv) by reference to the actual or when issued trading market for any
securities comprising such distribution, it must in doing so consider
the prices in such market over the same period used in computing the
current market price per share of Common Stock pursuant to subparagraph
(vi) of this Section VI(c). For purposes of this subparagraph (iv), any
dividend 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
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multiplying such Conversion Price by a fraction of which the numerator
shall be the current market price per share (determined as provided in
subparagraph (vi) of this Section VI(c)) of the Common Stock on the
date fixed for the payment of such distribution less the amount of cash
so distributed and not excluded as provided above applicable to one
share of Common Stock, and the denominator shall be such current market
price per share of the Common Stock, such reduction to become effective
immediately prior to the opening of business on the day following the
date fixed for the payment of such distribution.
(vi) For the purpose of any computation under subparagraph
(ii), (iv) or (v) of this Section VI(c), the current market price per
share of Common Stock on any date shall be deemed to be the average of
the daily Closing Prices (as defined in Section VI(h)) for the five
consecutive Trading Days ending with and including the date in
question; provided, however, that (1) if the "ex" date (as hereinafter
defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to subparagraph (i), (ii), (iii), (iv) or (v)
above ("Other Event") occurs after the fifth Trading Day prior to the
date in question and prior to the "ex" date for the issuance or
distribution requiring such computation (the "Current Event"), the
Closing Price for each Trading Day prior to the "ex" date for such
Other Event shall be adjusted by multiplying such Closing Price by the
same fraction by which the Conversion Price is so required to be
adjusted as a result of such Other 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.
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(vii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Conversion Price; provided, however, that any
adjustments which by reason of this subparagraph (vii) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment or in any conversion pursuant to this Section VI.
(viii) Whenever the Conversion Price is adjusted as herein
provided:
(1) the Corporation shall compute the adjusted
Conversion Price and shall prepare a certificate signed by the
Treasurer of the Corporation setting forth the adjusted
Conversion Price and showing in reasonable detail the facts
upon which such adjustment is based, and such certificate shall
forthwith be filed with the transfer agent for the Convertible
PIK Preferred Stock; and
(2) as soon as practicable after the adjustment, the
Corporation shall mail to all record holders of Convertible PIK
Preferred Stock at their last address as they shall appear upon
the stock transfer books of the Corporation a notice stating
that the Conversion Price has been adjusted and setting forth
the adjusted Conversion Price.
(ix) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time if the period is
at least twenty days, the reduction is irrevocable during the period
and the Board of Directors of the Corporation shall have made a
determination that such reduction would be in the best interest of the
Corporation, which determination shall be 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
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receive other securities, cash or other property (including without limitation
any capitalization or reclassification of the Common Stock (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination of the Common Stock), any
consolidation of the Corporation with, or merger of the Corporation into, any
other person, any merger of another person into the Corporation (other than a
merger which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock), any sale or transfer of all
or substantially all of the assets of the Corporation or any share exchange),
then lawful provisions shall be made as part of the terms of such transaction
whereby the holder of each share of Convertible PIK Preferred Stock then
outstanding shall have the right thereafter to convert such share only into the
kind and amount of securities, cash and other property receivable upon such
transaction by a holder of the number of shares of Common Stock into which such
share of Convertible PIK Preferred Stock might have been converted immediately
prior to such transaction. The Corporation or the person formed by such
consolidation or resulting from such merger or which acquires such shares or
which acquires the Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other constituting
document to establish such right. Adjustments for events subsequent to the
effective date of such a consolidation, merger, sale or transfer of assets shall
be as nearly equivalent as may be practicable to the adjustments provided for
herein. In any such event, effective provisions shall be made in the certificate
or articles of incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease, transfer or otherwise so that the
provisions set forth herein for the protection of the rights of the holder of
Convertible PIK Preferred Stock shall thereafter continue to be applicable, and
any such resulting or surviving corporation shall expressly assume the
obligation to pay dividends and deliver, upon conversion, such shares of common
stock, other securities, or cash as set forth herein. The above provisions shall
similarly apply to successive transactions of the foregoing type.
(f) Reservation of Shares, Etc. The Corporation shall at all times
reserve and keep available, free from preemptive rights out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Convertible PIK Preferred Stock, such number of shares of its Common 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
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Common Stock issuable upon conversion of the Convertible PIK Preferred Stock,
for so long as the Common Stock continues to be so listed.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any
other distribution) on its Common Stock, other than (A) a dividend
payable in shares of Common Stock or (B) a dividend payable in cash out
of its retained earnings other than any special or nonrecurring or
other extraordinary dividend or (2) declare or authorize a redemption
or repurchase of in excess of 10% of the then outstanding shares of
Common Stock;
(ii) the Corporation shall authorize the granting to all
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or series or of any other
rights or warrants;
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value
to par value), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation shall be required, or of the sale or merger of all or
substantially all of the assets of the Corporation or of any share
exchange whereby the Common Stock is converted into other securities,
cash or other property;
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation; or
(v) of any other event which would require an adjustment to the
Conversion Price under subparagraph VI(c);
then the Corporation shall cause to be filed with the transfer agent for the
Convertible PIK Preferred Stock, and shall cause to be mailed to the holders of
record of the Convertible PIK Preferred Stock, at their last addresses as they
shall appear upon the stock transfer books of the Corporation, at least fifteen
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) 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:
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(i) "Closing Price" of any common stock on any day shall mean
the last reported sale price regular way on such day or, in case no
such sale takes place on such day, the average of the reported closing
bid and asked prices regular way of the common stock in each case on
the principal national securities exchange or quotation system on which
the common stock is listed or admitted to trading or quoted, or, if not
listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked
prices of the common stock in the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or
a similarly generally accepted reporting service, or, if not so
available in such manner, as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors of the
Corporation for that purpose.
(ii) "Trading Day" shall mean a day on which securities are
traded on the national securities exchange or quotation system or in
the over-the-counter market used to determine the Closing Price.
VII. Voting Rights. (a) General. The holders of shares of Convertible
PIK Preferred Stock shall not have any voting rights except as set forth below
or as otherwise from time to time required by law. In connection with any right
to vote, each holder of shares of Convertible PIK Preferred Stock shall be
entitled to a number of votes which is equal to the whole number of shares of
Common Stock that could be obtained upon conversion of one share of Convertible
PIK Preferred Stock at the then applicable Conversion Price. Any shares of
Convertible PIK Preferred Stock owned, directly or indirectly, by any entity of
which the Corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors, shall not have voting rights hereunder and shall
not be counted in determining the presence of a quorum.
(b) Designated Director Voting Rights. On the Issue Date, in addition
to any other rights to elect directors which the holders of Convertible PIK
Preferred Stock may have, the two holders with the greatest number of shares
held of record of Convertible PIK Preferred Stock shall have the right to each
elect a director of the Corporation to fill the vacancies that occur at such
date who shall continue to serve during the period in which any shares of
Convertible PIK Preferred Stock remain outstanding. If 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
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least 10% of all outstanding shares of Convertible PIK Preferred Stock, call a
special meeting of the holders of Convertible PIK Preferred Stock to be held
within sixty days after the delivery of such request for the purpose of electing
such additional directors.
The holders of shares of Convertible PIK Preferred Stock referred to
above voting as a class shall have the right to remove without cause at any time
and replace any directors such holders shall have elected pursuant to this
Section VII(b). In case of a vacancy occurring in the office of any director so
elected pursuant to this Section VII(b), the holder of Convertible PIK Preferred
Stock referred to above who elected the director which created such vacancy may,
at a special meeting of the holders or by written consent as provided above,
elect a successor to hold office for the unexpired term of such director.
(c) Default Voting Rights. Whenever dividends on the Convertible PIK
Preferred Stock or any other class or series of Preferred Stock shall be in
arrears in an aggregate amount equal to at least four quarterly dividends
(whether or not consecutive), (i) the number of members of the Board of
Directors of the Corporation shall be increased by two, effective as of the time
of election of such directors as hereinafter provided and (ii) in addition to
any other rights to elect directors which the holders of Convertible PIK
Preferred Stock may have, the holders of shares of Convertible PIK Preferred
Stock (voting separately as a class with all other affected classes or series of
Preferred Stock upon which like voting rights have been conferred and are
exercisable) shall have the exclusive right to vote for and elect such two
additional directors of the Corporation who shall continue to serve during the
period such dividends remain in arrears. The right of the holders of shares of
Convertible PIK Preferred Stock to vote for such two additional directors shall
terminate when all accrued and unpaid dividends on the Convertible PIK Preferred
Stock and all other affected classes or series of Preferred Stock have been
declared and paid or set apart for payment. The term of office of all directors
so elected shall terminate immediately upon the termination of the right of the
holders of shares of Convertible PIK Preferred Stock and such Preferred Stock to
vote for such two additional directors, and the number of directors of the Board
of Directors of the Corporation shall immediately thereafter be reduced by two.
The foregoing right of the holders of shares of Convertible PIK
Preferred Stock with respect to the election of two directors may be exercised
at any annual meeting of stockholders or at any special meeting of stockholders
held for such purpose. If the right to elect directors shall have accrued to the
holders of shares of Convertible PIK Preferred Stock more than ninety days
preceding the date 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).
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(d) Class Voting. So long as any shares of the Corporation's
Convertible PIK Preferred Stock are outstanding the Corporation shall not,
without the affirmative vote or consent of the holders of at least 66-2/3% of
all outstanding shares of the Corporation's Convertible PIK Preferred Stock,
voting or consenting separately as a class without regard to series:
(i) create any class of stock convertible into Common Stock
that by its terms ranks prior to any outstanding Convertible PIK
Preferred Stock of the Corporation as to dividends or upon liquidation
or increase the authorized number of shares of any such class;
(ii) alter or change any of the provisions of the Corporation's
Certificate of Incorporation so as adversely to affect the relative
rights and preferences of any outstanding Convertible PIK Preferred
Stock of the Corporation (including, without limitation an increase in
the size of the Board); provided, however that the creation, amendment
or reclassification of any class of stock, that by its terms ranks
junior to shares of Convertible PIK Preferred Stock of the Corporation
as to dividends or upon liquidation or an increase in the authorized
number of shares of any such class shall not give rise to any such
voting right; or
(iii) increase the authorized number of shares of the
Corporation's Preferred Stock.
VIII. Outstanding Shares; Status of Acquired Shares.
(a) Outstanding Shares. For purposes of this Certificate of
Designation, all shares of Convertible PIK Preferred Stock issued by the
Corporation shall be deemed outstanding except: (i) from the date fixed for
redemption pursuant to Section V, all shares of Convertible PIK Preferred Stock
that have been so called for redemption under Section V, to the extent provided
thereunder; (ii) from the date surrender of certificates evidencing shares of
Convertible PIK Preferred Stock, all shares of Convertible PIK Preferred Stock
converted into Common Stock; and (iii) from the date of registration of
transfer, all shares of Convertible PIK Preferred Stock owned, directly or
indirectly, by any entity of which the Corporation owns, directly or indirectly,
a majority of the shares entitled to vote for directors.
(b) Reacquired Shares. Shares of Convertible PIK Preferred Stock
redeemed by the Corporation, received upon conversion pursuant to Section VI or
otherwise acquired by the Corporation shall be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, and may thereafter be issued, but not as shares of Convertible PIK
Preferred Stock.
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.
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X. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
XI. Miscellaneous. (a) Transfer Taxes. The Corporation shall pay any
and all stock transfer and documentary stamp taxes that may be payable in
respect of any issuance of delivery of shares of Convertible PIK Preferred Stock
or shares of Common Stock or other securities issued on account of Convertible
PIK Preferred Stock pursuant hereto or certificates or instruments evidencing
such shares or securities. The Corporation shall not, however, be required to
pay any such tax which may be payable in respect of any transfer involved in the
issuance or delivery of shares of Convertible PIK Preferred Stock or Common
Stock or other securities in a name other than that in which the shares of
Convertible PIK Preferred Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(b) Failure to Designate Stockholder or Payee. In the event that a
holder of shares of Convertible PIK Preferred Stock shall not by written notice
designate the name in which shares of Common Stock to be issued upon conversion
of such shares should be registered or to whom payment upon redemption of shares
of Convertible PIK Preferred Stock should be made or the address to which the
certificates or instruments evidencing such shares or such payment, should be
sent, the Corporation shall be entitled to register such shares and or such
payment in the name of the holder of such Convertible PIK Preferred Stock as
shown on the
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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
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Exhibit 10.13
MANAGEMENT STOCK PURCHASE AGREEMENT
AMONG
PATINA OIL & GAS CORPORATION
AND
THE MANAGEMENT INVESTORS NAMED HEREIN
DATED AS OF SEPTEMBER 4, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . .
ARTICLE II.
SALE AND PURCHASE OF COMMON STOCK
SECTION 2.01. SALE AND PURCHASE OF COMMON STOCK. . . . . . . . . .
SECTION 2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.03. APPOINTMENT OF THE REPRESENTATIVE . . . . . . . . . .
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . .
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF MANAGEMENT
INVESTORS . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IV.
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 4.01. TAKING OF NECESSARY ACTION . . . . . . . . . . . . .
SECTION 4.02. RESTRICTIONS ON SALE OR TRANSFER; LEGEND . . . . . .
SECTION 4.03. NEW YORK STOCK EXCHANGE LISTING . . . . . . . . . . .
SECTION 4.04. APPROVAL BY COMPANY'S STOCKHOLDERS . . . . . . . . .
SECTION 4.05. COMPANY'S LOANS TO MANAGEMENT INVESTORS . . . . . . .
SECTION 4.06. PIGGYBACK REGISTRATION RIGHTS . . . . . . . . . . . .
SECTION 4.07. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . .
ARTICLE V.
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
CLOSING . . . . . . . . . . . . . . . . . . . . . . .
SECTION 5.02. CONDITIONS TO THE MANAGEMENT INVESTORS' OBLIGATIONS .
SECTION 5.03. CONDITIONS TO THE COMPANY'S OBLIGATIONS . . . . . . .
ARTICLE VI.
TERM
SECTION 6.01. TERMINATION . . . . . . . . . . . . . . . . . . . . .
SECTION 6.02. EFFECT OF TERMINATION . . . . . . . . . . . . . . . .
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ARTICLE VII.
MISCELLANEOUS
SECTION 7.01. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . .
SECTION 7.02. NOTICES . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.03. ENTIRE AGREEMENT; AMENDMENT . . . . . . . . . . . . .
SECTION 7.04. COUNTERPARTS . . . . . . . . . . . . . . . . . . . .
SECTION 7.05. GOVERNING LAW . . . . . . . . . . . . . . . . . . . .
SECTION 7.06. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . .
SECTION 7.07. EXPENSES . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.08. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . .
SECTION 7.09. NO THIRD PARTY RIGHTS . . . . . . . . . . . . . . . .
SECTION 7.10. CAPTIONS . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . .
SECTION 7.12. MUTUAL WAIVER OF JURY TRIAL . . . . . . . . . . . . .
EXHIBITS
A - FORM OF PROMISSORY NOTE
B - FORM OF PLEDGE AGREEMENT
SCHEDULES
I - SCHEDULE OF MANAGEMENT INVESTORS' COMMITMENTS
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<PAGE> 4
MANAGEMENT STOCK PURCHASE AGREEMENT, dated as of September 4, 1997
(this "Agreement"), among Patina Oil & Gas Corporation, a Delaware corporation
(the "Company"), and each of the management investors who execute signature
pages hereto (each a "Management Investor" and collectively, the "Management
Investors").
W I T N E S S E T H :
WHEREAS, the Company desires to create an enhanced equity arrangement
to induce the Management Investors to invest in, and the Management Investors
desire to make investments in, the Company and enhance their interest in the
Company's future success;
WHEREAS, each of the Management Investors has severally agreed to
purchase, and the Company has agreed to sell, subject to the terms and
conditions of this Agreement, the aggregate dollar amount of shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), set forth
opposite such Management Investor's name on Schedule I hereto;
WHEREAS, as a condition to and in connection with the obligations of
the Management Investors hereunder and in addition to the issuance and sale of
the Common Stock hereunder, the Company will grant shares of restricted Common
Stock to the Management Investors in accordance with and pursuant to the
Company's Restricted Stock Agreement, dated as of the date hereof (the
"Restricted Stock Agreement");
WHEREAS, the Company has filed a Registration Statement on Form S-3 in
connection with the registration and sale on behalf of Snyder Oil Corporation,
the majority stockholder of the Company ("SOCO") of up to 8,625,000 shares of
the Company's Common Stock owned by SOCO (such registration and sale, the
"Secondary Stock Offering"), and the consummation of the sale of Common Stock by
SOCO pursuant to the Secondary Stock Offering shall be a condition precedent to
the issuance and sale by the Company of shares of Common Stock hereunder;
WHEREAS, the Company and SOCO have entered into a Share Repurchase
Agreement (the "Share Repurchase Agreement"), pursuant to which the Company has
agreed to repurchase from SOCO all of the remaining shares of Common Stock owned
by SOCO which have not been sold by SOCO in the Secondary Stock Offering at a
purchase price per share equal to the net offering price (after deduction of the
underwriters' commissions and discounts) of the shares of Common Stock sold in
the Secondary Stock Offering (such redemption, the "SOCO Stock Redemption");
WHEREAS, the Company and certain new investors have entered into a
Stock Purchase Agreement (the "Preferred Stock Purchase Agreement"), pursuant to
which the Company has agreed to issue and sell to such investors up to 2,520,000
shares of the Company's 8.5% Convertible Preferred Stock, par value $.01 per
share ("8.5% Convertible Preferred Stock"), on the terms and conditions set
forth in such Preferred Stock Purchase Agreement;
WHEREAS, the Company contemplates that the proceeds from the issuance
of Common Stock hereunder, together with the proceeds from the issuance of the
Company's 8.5% Convertible Preferred Stock and new borrowings
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under the Company's existing senior credit facility, will be used to pay the
purchase price for the shares redeemed in the SOCO Stock Redemption;
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained and intending to be
legally bound hereby, the parties hereby agree as follows:
ARTICLE I.
Definitions
Section 1.01. Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall have the meaning set forth in the recitals hereto.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.02(a).
"Common Stock" shall have the meaning set forth in the recitals
hereto.
"Company" shall have the meaning set forth in the recitals hereto.
"Company Stockholders' Approval" shall have the meaning set forth in
Section 4.04.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Management Investor" or "Management Investors" shall have the meaning
set forth in the recitals hereto.
"NYSE" shall have the meaning set forth in Section 4.04.
"Person" or "person" shall mean an individual, corporation,
association, partnership, trust, joint venture, business trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Pledge Agreement" shall have the meaning set forth in Section
2.02(b).
"Preferred Stock Purchase Agreement" shall have the meaning set forth
in the recitals hereto.
"Promissory Note" shall have the meaning set forth in Section 2.02(b).
"Public Offering Price" shall have the meaning set forth in Section
2.01.
"Representative" shall have the meaning set forth in Section 2.03.
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"Restricted Stock Agreement" shall have the meaning set forth in the
recitals hereto.
"Secondary Stock Offering" shall have the meaning set forth in the
recitals hereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" shall mean the United States Securities and Exchange Commission.
"Share Repurchase Agreement" shall have the meaning set forth in the
recitals hereto.
"SOCO" shall have the meaning set forth in the recitals hereto.
"SOCO Stock Redemption" shall have the meaning set forth in the
recitals hereto.
"Transfer" shall have the meaning set forth in Section 4.02.
"8.5% Convertible Preferred Stock" shall have the meaning set forth in
the recitals hereto.
ARTICLE II.
Sale and Purchase of Common Stock
Section 2.01. Sale and Purchase of Common Stock. Subject to all of the
terms and conditions of this Agreement, and in reliance upon the representations
and warranties hereinafter set forth, at the Closing provided for in Section
2.02 hereof, the Company will sell to each Management Investor, and each
Management Investor will purchase from the Company, the aggregate dollar amount
of Common Stock (rounded down to the nearest whole number of shares) set forth
opposite such Management Investor's name on Schedule I hereto, for a purchase
price equal to the public offering price of shares of Common Stock in the
Secondary Stock Offering (the "Public Offering Price").
Section 2.02. Closing. (a) Subject to the satisfaction or waiver of
the conditions set forth in this Agreement, the sale and purchase of the Common
Stock pursuant to Section 2.01 (the "Closing") shall take place at the offices
of Simpson Thacher & Bartlett, counsel to the Company, at 425 Lexington Avenue,
New York, New York 10017, on the first business day following the date on which
the conditions in Article V are satisfied (or waived by the Representative, on
behalf of the Management Investors, or the Company, as the case may be) (the
"Closing Date"), or at such other time and place as may be mutually agreed upon
by the Representative and the Company.
(b) At the Closing: (i) the Company will deliver to each Management
Investor a certificate or certificates for the Common Stock to be sold to such
Management Investor in accordance with the provisions of Section 2.01,
registered in the respective name(s) and proportions as such Management Investor
shall have specified to the Company at least five business days prior to the
Closing; (ii) each Management Investor will deliver to the
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Company in full payment for the Common Stock to be purchased pursuant to Section
2.01, (A) in the case of each Management Investor other than Thomas J. Edelman
(who shall pay the full purchase price for the shares of Common Stock to be
purchased by him hereunder in immediately available funds (a portion of which
may be provided from Mr. Edelman's deferred compensation plan which exists for
his benefit)), a promissory note of such Management Investor, dated the date of
the Closing, in a principal amount of up to 85% of the aggregate purchase price
to be paid by such Management Investor for the shares of Common Stock to be
purchased by such Management Investor hereunder, and in substantially the form
attached hereto as Exhibit A (each a "Promissory Note"), and (B) a cashier's
check for the remaining balance (or, in the case of Mr. Edelman, for the full
100%) of the aggregate purchase price of the shares of Common Stock to be
purchased by each Management Investor hereunder, (iii) in the case of each
Management Investor (other than Mr. Edelman), a pledge agreement of such
Management Investor, dated the date of the Closing, in substantially the form
attached hereto as Exhibit B (each a "Pledge Agreement"); and (iv) each party
shall take or cause to happen such other actions, and shall execute and deliver
such other instruments or documents, as shall be required under Article V
hereof.
Section 2.03. Appointment of the Representative. (a) Each of the
Management Investors hereby appoint [Keith Crouch] [David Kornder] as its
representative and attorney-in-fact under this Agreement (in such capacity, the
"Representative") to perform all actions designated hereunder to be performed on
behalf of such Investor pursuant to Sections 2.02, 5.02, 5.03 and 6.01. The
Company shall be entitled to rely upon any act taken or notice or consent given
by the Representative as the act, notice or consent of the Management Investors
and shall not be obligated to investigate beyond the taking of such action or
giving of such notice or consent by the Representative.
(b) Whenever the Representative acts under Sections 2.02, 5.02, 5.03
and 6.01 or otherwise under this Agreement, the Representative shall solicit the
Management Investors in writing, describing the action to be taken in reasonable
detail, and shall act, give notice or give consent on behalf of the Management
Investors only in accordance with written instructions given by such Management
Investors that at the time hold more than 75% of the aggregate commitments for
shares of Common Stock to be purchased hereunder. If the Representative resigns
or otherwise is unable to serve as a representative pursuant to this Agreement,
the Management Investors that at the time hold more than 75% of the aggregate
commitments for shares of Common Stock to be purchased hereunder shall have the
right to appoint a successor to the Representative.
ARTICLE III.
Representations and Warranties
Section 3.01. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, the Management Investors as
follows:
(a) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power
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and authority to own, operate and lease its properties and to carry on
its business as it is now being conducted.
(b) Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby has
been duly authorized by the Board of Directors of the Company. No other
corporate proceedings on the part of the Company are necessary to authorize
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and this Agreement constitutes a
valid and binding obligation of the Company enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally, by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and by an implied covenant of good faith and fair
dealing.
(c) Newly Issued Shares of Common Stock. The shares of Common Stock to
be issued and sold hereunder have been duly authorized to be so issued and
sold by all necessary corporate action. When issued and sold against
receipt of the consideration therefor, the shares of Common Stock to be
issued and sold hereunder will be validly issued, fully paid and
nonassessable, will not subject the holders thereof to any personal
liability and will not be subject to any preemptive rights of any other
stockholder of the Company. At the Closing, the Management Investors will
receive valid title to the Common Stock to be purchased on such date, free
and clear of any claim, lien, security interest or other encumbrance.
Section 3.02. Representations and Warranties of Management Investors.
Each Management Investor represents and warrants to, and agrees with, the
Company as follows:
(a) Legal Capacity. Each Management Investor has the legal capacity to
execute, deliver and perform this Agreement.
(b) Authorization. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been authorized by all necessary action on behalf of such Management
Investor. No other proceedings on the part of such Management Investor are
necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by such Management Investor and
this Agreement constitutes a valid and binding obligation of such
Management Investor enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) and by an implied covenant of good faith and fair dealing.
(c) Securities Act. (i) Each Management Investor is acquiring the
Common Stock solely for the purpose of investment and not with a
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view to, or for resale in connection with, any distribution thereof in
violation of the Securities Act. Each Management Investor has been given
the opportunity to obtain any and all relevant information and documents
relating to the Common Stock (including the Company's prospectus prepared
in connection with the Secondary Stock Offering) and to ask questions and
receive answers about such documents, the Company and its business which
such Management Investor deems necessary to evaluate the merits and risks
related to an investment in the Common Stock, and such Management Investor
has relied solely on such information.
(ii) Each Management Investor further represents and warrants that (A)
such Management Investor's financial condition is such that he or she can
afford to bear the economic risk of holding the Common Stock for an
indefinite period of time and has adequate means for providing for such
Management Investor's current needs and personal contingencies, (B) such
Management Investor can afford to suffer a complete loss of his or her
investment in the Common Stock, (C) he understands and has taken cognizance
of all risk factors related to the purchase of the Common Stock, including
those set forth in the Company's prospectus referred to above, and (D) such
Management Investor's knowledge and experience in financial and business
matters are such that he or she is capable of evaluating the merits and
risks of his or her purchase of the Common Stock as contemplated by this
Agreement.
(d) Brokers and Finders. No Management Investor has utilized any
broker, finder, placement agent or financial advisor or incurred any
liability for any fees or commissions in connection with any of the
transactions contemplated hereby.
ARTICLE IV.
Additional Agreements of the Parties
Section 4.01. Taking of Necessary Action. Each of the parties hereto
agrees to use all reasonable efforts promptly to take or cause to be taken all
action and promptly to do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. Without limiting the foregoing,
the Company and the Management Investors will, and the Company shall cause its
subsidiaries to, each use all reasonable efforts to make all filings and obtain
all consents of governmental entities or other persons relating to such party
which may be necessary or, in the opinion of the Company or the Management
Investors, as the case may be, advisable for the consummation of the
transactions contemplated by this Agreement.
Section 4.02. Restrictions on Sale or Transfer; Legend. (a) The
Management Investors hereby acknowledge and agree that shares of Common Stock to
be purchased by them hereunder will be, upon the sale and purchase of such
shares in accordance with the terms hereof, "restricted securities" under the
Securities Act. The Management Investors agree that they will not, directly or
indirectly, offer, sell, transfer, assign or otherwise dispose of the beneficial
ownership of (any such act, a "Transfer") any such shares of Common Stock,
except as permitted under the Securities Act and the rules and regulations
thereunder (including, without limitation, Transfers pursuant to Rule 144 under
the Securities Act). The Management Investors further agree
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that, during the 180-day period following the sale of Common Stock in the
Secondary Stock Offering, they will not Transfer any shares of Common Stock.
(b) The Management Investors acknowledge and agree that as of the date
hereof the shares of Common Stock issued and sold hereunder have not been and
will not be registered under the Securities Act or the securities laws of any
state and that they may be sold or otherwise disposed of only in one or more
transactions registered under the Securities Act (and, where applicable, such
laws) or as to which an exemption from the registration requirements of the
Securities Act (and, where applicable, such laws) is available. The Management
Investors acknowledge that, except as provided in this Agreement, the Management
Investors have no right to require the Company to register the shares of Common
Stock purchased hereunder. The Management Investors further acknowledge and
agree that each certificate for the Common Stock purchased hereunder shall bear
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS
IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS CERTIFICATE IS
ISSUED PURSUANT TO AND SUBJECT TO THE RESTRICTIONS ON TRANSFER, VOTING AND OTHER
PROVISIONS OF A MANAGEMENT STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 4,
1997 AMONG THE COMPANY AND THE MANAGEMENT INVESTORS REFERRED TO THEREIN A COPY
OF WHICH IS ON FILE WITH THE COMPANY. EXCEPT AS PROVIDED IN SUCH MANAGEMENT
STOCK PURCHASE AGREEMENT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT
TRANSFERABLE AND ANY PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SUCH
MANAGEMENT STOCK PURCHASE AGREEMENT SHALL BE VOID AND OF NO FORCE AND EFFECT.
Section 4.03. New York Stock Exchange Listing. As promptly as
practicable following the Closing Date, the Company will apply to the New York
Stock Exchange to list the shares of Common Stock issued and sold hereunder, and
the Company will use its reasonable efforts to cause such shares to be listed on
the New York Stock Exchange as promptly thereafter as practicable.
Section 4.04. Approval by Company's Stockholders. (a) The Company
shall take all action required by the rules and regulations of the New York
Stock Exchange (the "NYSE") to obtain the approval of the Company's stockholders
of the issuance and sale of the Common Stock to the Management Investors
hereunder, which consent may be obtained (subject to the applicable rules and
regulations of the NYSE, the Exchange Act and other applicable laws) via the
written consent of the requisite percentage of the Company's stockholders (the
"Company Stockholders' Approval"). Subject to its fiduciary duties under
applicable law, the Company's Board of Directors shall recommend that the
Company's stockholders approve the issuance and sale of the Common Stock
hereunder.
Section 4.05. Company's Loans to Management Investors. The Company
will make a loan to each of the Management Investors (other than Thomas J.
Edelman) in a principal amount of up to 85% of the aggregate purchase price to
be paid for the shares of Common Stock to be purchased by such Management
Investor hereunder. The terms and conditions of such loan (including interest
rate, interest payment dates, maturity date(s) and events of default) shall be
set forth in the Promissory Note executed and delivered by each Management
Investor. Each Management Investor (other than Mr.
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Edelman) that desires to make a borrowing from the Company to fund up to 85% of
the aggregate purchase price of the shares of Common Stock to be purchased by
such Management Investor hereunder shall deliver an irrevocable written request
to the Company no less than five business days prior to the Closing stating the
amount of the borrowing desired to be made and confirming that such Management
Investor will have immediately available funds at the Closing for the balance of
the purchase price to be so paid.
Section 4.06. Piggyback Registration Rights. If the Company proposes
to file a registration statement under the Securities Act with respect to an
offering for its own account of any class of its equity securities (other than a
registration statement on Form S-8 (or any successor form) or any other
registration statement relating solely to director and/or employee benefit plans
or filed in connection with an exchange offer, a transaction to which Rule 145
(or any successor rule) under the Securities Act applies or an offering of
securities solely to the Company's existing stockholders), then the Company
shall in each case give written notice of such proposed filing to the Management
Investors as soon as practicable before the anticipated filing date, and such
notice shall offer such Management Investors the opportunity to register such
number of shares of Common Stock purchased hereunder and such number of shares
of Common Stock which have vested pursuant to the Restricted Stock Agreement, in
each case as each such Management Investor may request; provided, that the
Company shall not be required to deliver such notice to any Management Investor
who, at the time such notice is to be delivered, is able to transfer, pursuant
to Rule 144 under the Securities Act, all the shares of Common Stock owned by
such Management Investor that could otherwise be included in the Company's
registered offering. Each Management Investor desiring to have his shares
included in such registration statement shall so advise the Company in writing
within five business days after the date of the Company's notice, setting forth
the amount of such Management Investor's shares for which registration is
requested. If the Company's offering is to be an underwritten offering, the
Company shall use its reasonable efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the shares of the
Management Investors requested to be included in the registration for such
offering to include such securities in such offering on the same terms and
conditions as any similar securities of the Company included therein, provided
that (i) if the registration of which the Company gives notice involves an
underwriting, the right of each Management Investor to registration pursuant to
this Section 4.06 shall, unless the Company otherwise agrees, be conditioned
upon such Management Investor's participation as a seller in such underwriting
and execution of an underwriting agreement with the managing underwriter or
underwriters selected by the Company and (ii) if the managing underwriter or
underwriters of such offering informs the Company that the success of the
offering would be materially and adversely affected by inclusion of the
Management Investors' shares requested to be included, then the Company shall
not be required to include such shares in such offering.
Section 4.07. Use of Proceeds. The Company will use the net proceeds
derived by it from the issuance of the shares of Common Stock hereunder to pay a
portion of the purchase price of the shares of Common Stock to be redeemed
pursuant to the SOCO Stock Redemption.
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ARTICLE V.
Conditions Precedent
Section 5.01. Conditions to Each Party's Obligations to Effect the
Closing. The obligation of each party hereto to consummate the Closing hereunder
shall be subject to the satisfaction on the Closing Date of each of the
following conditions:
(a) No Injunction. There shall not be in effect any order, decree,
ruling or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(b) Regulatory Approvals and Company Stockholders' Approval. All
regulatory approvals necessary for the consummation of the issuance of the
Common Stock hereunder and the other transactions contemplated hereby shall
have been obtained and there shall have been no material modification to
the terms of the transactions contemplated by this Agreement. The Company
Stockholders' Approval shall have been obtained.
(c) Related Transactions. Prior to or simultaneously with the Closing,
(i) the Secondary Stock Offering shall be consummated in the manner
contemplated by the Prospectus contained in the Company's Registration
Statement on Form S-3 filed with the SEC and (ii) the SOCO Stock Redemption
shall be consummated in accordance with the terms of the Share Repurchase
Agreement.
Section 5.02. Conditions to the Management Investors' Obligations. The
obligation of each Management Investor to consummate the Closing hereunder shall
be subject to the satisfaction on the Closing Date of each of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement which are qualified as to
materiality shall be true and correct, and which are not so qualified shall
be true and correct in all material respects, in each case, as of the date
of this Agreement and on and as of the Closing Date with the same effect as
though made on and as of such dates.
(b) Covenants. The Company shall have performed in all material
respects all obligations and complied with all agreements, undertakings,
covenants and conditions required by it to be performed at or prior to the
Closing.
(c) Restricted Stock Agreement. The Company shall have executed and
delivered to each of the Management Investors the Restricted Stock
Agreement for such Management Investor.
(d) Additional Certificates, Etc. The Company shall have executed and
delivered, or caused to be executed and delivered, to the Representative,
on behalf of the Management Investors, such certificates and other
documents related to the consummation of the transactions contemplated
hereby as may be reasonably requested by the Representative.
12
<PAGE> 13
Section 5.03. Conditions to the Company's Obligations. The obligation
of the Company to consummate the Closing hereunder shall be subject to the
satisfaction on the Closing Date of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Management Investors contained in this Agreement which are qualified
as to materiality shall be true and correct, and which are not so qualified
shall be true and correct in all material respects, in each case, as of the
date of this Agreement and on and as of the Closing Date with the same
effect as though made on and as of such dates.
(b) Covenants. The Management Investors shall have performed in all
material respects all obligations and complied with all agreements,
undertakings, covenants and conditions required by it to be performed at or
prior to the Closing.
(c) Promissory Notes and Pledge Agreements. Each of the Management
Investors (other than Thomas J. Edelman and any other Management Investor
who shall not have borrowed any funds from the Company for any portion of
the purchase price for shares of Common Stock purchased by such Management
Investor hereunder) shall have executed and delivered to the Company a
Promissory Note and a Pledge Agreement, in each case substantially in the
form of Exhibits A and B attached hereto, respectively.
(d) Additional Certificates, Etc. Each of the Management Investors and
the Representative shall have executed and delivered, or caused to be
executed and delivered, to the Company such certificates and other
documents related to the consummation of the transactions contemplated
hereby as may be reasonably requested by the Company.
ARTICLE VI.
Term
Section 6.01. Termination. This Agreement may be terminated on or
any time prior to the Closing:
(a) by the mutual written consent of the Representative, on behalf of
the Management Investors, and the Company; or
(b) by either the Company or the Representative, on behalf of the
Management Investors, if the Closing shall have not have occurred on or
prior to December 31, 1997.
Section 6.02. Effect of Termination. In the event of the termination
of this Agreement as provided in Section 6.01, this Agreement shall forthwith
become void except for the provisions set forth in Article VII and there shall
be no liability or obligation on the part of the parties hereto except as
otherwise provided in this Agreement.
13
<PAGE> 14
ARTICLE VII.
Miscellaneous
Section 7.01. No Survival of Representations and Warranties. No
representation or warranty made herein or in any certificates delivered in
connection with the Closing shall survive the Closing.
Section 7.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered
personally, by telecopier or sent by overnight courier as follows:
(a) If to the Management Investors, to the Management Investors, c/o
the Company at its address set forth below or such other address as set forth in
writing by any Management Investor, with a copy to the Representative c/o the
Company, at its address set forth below; and
(b) If to the Company, to:
Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, Colorado 80202
Phone: (303) 389-3600
Fax: (303) 595-7407
Attention: General Counsel
With copies to:
Thomas J. Edelman,
Chairman of Patina Oil & Gas Corporation
667 Madison Avenue, 22nd Floor
New York, New York 10021
Phone: (212) 371-1117
Fax: (212) 888-6877
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Phone: (212) 455-2000
Fax: (212) 455-2502
Attention: Robert L. Friedman, Esq.
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 7.03. Entire Agreement; Amendment. This Agreement and the
documents described herein and therein or attached or delivered pursuant hereto
or thereto set forth the entire agreement among the parties hereto with respect
to the transactions contemplated by this Agreement. Any provision of this
Agreement may be amended or modified in whole or in part at any time by an
agreement in writing among the parties hereto executed in the same manner as
this Agreement.
Section 7.04. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original, but
all of which together shall constitute one and the same documents.
14
<PAGE> 15
SECTION 7.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
Section 7.06. Public Announcements. Each of the Management Investors
agrees to hold in strict confidence and not to disclose to others the status of
any discussions among the parties with respect to the subject matter of this
Agreement until such time as the Company determines in its reasonable discretion
to publicly disclose such information or is legally obligated to disclose such
information.
Section 7.07. Expenses. Each of the parties hereto will pay its own
expenses incurred or to be incurred in connection with this Agreement and the
transactions contemplated hereby; provided that the Company shall pay the
reasonable fees and expenses of a single legal counsel engaged on behalf of all
of the Management Investors.
Section 7.08. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Neither this Agreement nor any of the parties' rights,
interests or obligations hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto. No assignment
shall relieve the assigning party of any of its obligations hereunder. Any
attempted assignment of this Agreement in breach of this provision shall be void
and of no effect.
Section 7.09. No Third Party Rights. Nothing in this Agreement,
expressed or implied, shall or is intended to confer upon any person other than
the parties hereto or their respective successors or assigns any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
Section 7.10. Captions. The captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
Section 7.11. Severability. Should any part of this Agreement for any
reason be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and effect
as if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Agreement without
including therein any such part or parts which may, for any reason, be hereafter
declared invalid.
Section 7.12. Mutual Waiver of Jury Trial. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
Therefore, to achieve the best combination of the benefits of the judicial
system and of arbitration, the parties hereto waive all right to trial by jury
in any action, suit or proceeding brought to enforce or defend any rights or
remedies under this Agreement.
15
<PAGE> 16
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
or by their respective duly authorized officers, all as of the date first above
written.
PATINA OIL & GAS CORPORATION
By:/s/ Thomas J. Edelman
---------------------------------
Name: Thomas J. Edelman
Title: Chief Executive Officer
/s/ Thomas J. Edelman
- ------------------------------------
Thomas J. Edelman, Chairman/Chief
Executive Officer
/s/ Brian J. Cree
- ------------------------------------
Brian J. Cree, Executive Vice
President/Chief Operating Officer
/s/ Ronald E. Dashner
- ------------------------------------
Ronald E. Dashner, Senior Vice
President of Operations
/s/ Keith M. Crouch
- ------------------------------------
Keith M. Crouch, Senior Vice
President General Counsel
/s/ David J. Kornder
- ------------------------------------
David J. Kornder, Vice President/
Chief Financial Officer
/s/ Terry L. Ruby
- ------------------------------------
Terry L. Ruby, Vice President, Land
/s/ David Siple
- ------------------------------------
David W. Siple, Vice President, Land
/s/ David R. Macosko
- ------------------------------------
David R. Macosko, Vice President,
Business Operations
16
<PAGE> 17
/s/ Christine A. Kennedy
- ------------------------------------
Christine A. Kennedy, Manager of
Oil & Gas Marketing
/s/ Kenneth A. Wonstolen
- ------------------------------------
Kenneth A. Wonstolen, Manager of
Environmental Affairs
/s/ Barton R. Brookman
- ------------------------------------
Barton R. Brookman, Production
Manager - Field
/s/ Clayton L. Miller
- ------------------------------------
Clayton L. Miller, Services Manager -
Field
/s/ Michael J. Wendling
- ------------------------------------
Michael J. Wendling, Manager of
Reservoir Engineering
/s/ Scott J. Reasoner
- ------------------------------------
Scott J. Reasoner, Senior Operations
Engineer
/s/ Donald R. Shaw
- ------------------------------------
Donald R. Shaw, Acquisition Engineer
/s/ Jon E. Bowman
- ------------------------------------
Jon E. Bowman, Operations Engineer
/s/ Eric P. Lipinski
- ------------------------------------
Eric P. Lipinski, Senior Geologist
/s/ David Flinn
- ------------------------------------
David Flinn, Senior Geologist
17
<PAGE> 18
SCHEDULE I
[SCHEDULE OF MANAGEMENT INVESTORS' COMMITMENTS]
<TABLE>
<CAPTION>
Number of
Shares
to be Purchased
(to be be
determined upon
the pricing of
the Secondary Amount
Purchase Stock Offering) Financed by
Name/Title Commitment the Company
<S> <C> <C> <C>
Thomas J. Edelman, Chairman $2,000,000 ________ $0.00
and Chief Executive Officer
Brian J. Cree, Executive Vice $ 125,000 ________ $______
President/Chief Operating
Officer
Ronald E. Dashner, Senior $ 100,000 ________ $______
Vice President of Operations
Keith M. Crouch, Senior Vice $ 100,000 ________ $______
President General Counsel
David J. Kornder, Vice $ 100,000 ________ $______
President/Chief Financial
Officer
Terry L. Ruby, Vice $ 75,000 _______ $______
President, Land
David W. Siple, Vice $ 75,000 _______ $______
President, Land
David R. Macosko, Vice $ 75,000 _______ $______
President, Business
Operations
Christine A. Kennedy, Manager $ 50,000 _______ $______
of Oil & Gas Marketing
Kenneth A. Wonstolen, Manager $ 50,000 _______ $______
of Environmental Affairs
Barton R. Brookman, $ 50,000 _______ $______
Production Manager-Field
Clayton L. Miller, Services $ 50,000 _______ $______
Manager-Field
Michael J. Wendling, Manager $ 25,000 _______ $______
of Reservoir Engineering
Scott J. Reasoner, Senior $ 25,000 _______ $______
Operations Engineer
Donald R. Shaw, Acquisition $ 25,000 _______ $______
Engineer
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
Jon E. Bowman, Operations $ 25,000 _______ $______
Engineer
Eric P. Lipinski, Senior $ 25,000 _______ $______
Geologist
David Flinn, Senior Geologist $ 25,000 _______ $
Total $3,000,000 $______
</TABLE>
19
<PAGE> 20
EXHIBIT A
[FORM OF PROMISSORY NOTE]
$____________
September __, 1997
FOR VALUE RECEIVED, the undersigned, ________________ (the
"Borrower"), hereby unconditionally promises to pay to the order of Patina Oil &
Gas Corporation, a Delaware corporation (the "Company"), at its offices, in
lawful money of the United States of America, the principal amount of
__________________________ ($__________), or, if less, the unpaid principal
amount of the loan (the "Loan") made by the Company pursuant to the Management
Stock Purchase Agreement, dated as of September __, 1997 (the "Management Stock
Purchase Agreement") among the Company and the management investors named
therein, including the Borrower (the "Management Investors") and the Pledge
Agreement dated as of September __, 1997 (the "Pledge Agreement"), among the
Company and the Management Investors.
The principal amount of the Loan, together with any unpaid interest
thereon, shall be paid on the earliest to occur of (i) the termination of the
Borrower's employment with the Company (provided, that if such termination
occurs within the first year following the Closing Date (as defined in the
Management Stock Purchase Agreement), then the Maturity Date (as defined below)
shall not occur any earlier than the first anniversary of the Closing Date),
(ii) the disposition of the Common Stock acquired by the Borrower pursuant to
the Management Stock Purchase Agreement, (iii) an Event of Default (as defined
below) and (iv) September 30, 2002 (the earliest of such dates, the "Maturity
Date"). The Borrower further agrees to pay interest in like money at the
Company's office on the unpaid principal amount hereof from time to time
outstanding at an interest rate equal to 8.5% per annum (based on the number of
days in the applicable calendar year) on March 31 of each year, the Maturity
Date and with respect to the amount of any optional repayment, on the date of
any such optional repayment; provided, that any overdue amounts of principal or
interest shall bear interest at the foregoing rate plus 1.5% per annum.
The Borrower's repayment of the Loan and the interest thereon are
secured by the Borrower's pledge of Common Stock pursuant to the Pledge
Agreement. The Company shall have all of the rights of a secured creditor under
applicable law with respect to such shares of Common Stock. Reference is hereby
made to the Pledge Agreement for a complete description of the terms and
conditions upon which such security interest has been granted.
The following shall constitute "Defaults" under the terms of this
Note: (i) default in payment when due and payable, upon acceleration or
otherwise, of principal of this Note; (ii) default for five (5) days or more in
the payment when due of interest on the Note; (iii) the Borrower's pledged
Common Stock, or any portion thereof, is seized or attached pursuant to legal
process, and such lien, encumbrance, levy, seizure, or attachment is not removed
or released within thirty (30) days from the time such lien or encumbrance was
placed thereon or such levy, seizure or attachment was effected; (iv) the
Borrower commences or proposes to commence any bankruptcy, reorganization or
insolvency proceeding, or other proceeding under any
20
<PAGE> 21
federal, state or other law for the relief of debtors; (v) the Borrower fails to
obtain dismissal, within sixty (60) days after commencement thereof, of any
bankruptcy, insolvency, or reorganization proceeding or other proceeding for
relief under any bankruptcy law, including without limitation, the Federal
Bankruptcy Code, or any law for the relief of debtors, instituted against the
Borrower by one or more third parties; or (vi) any receiver, trustee or
custodian is appointed by a court of competent jurisdiction to take possession
of all or any substantial portion of the assets of the Borrower. An "Event of
Default" shall occur automatically upon the occurrence of a Default pursuant to
clause (iv), (v) or (vi) above, and shall occur upon the Company's declaration
thereof of any Default pursuant to clause (i), (ii) or (iii) above.
This Note is subject to optional prepayment in whole or in part at any
time. Upon the occurrence of any one or more of the Events of Default, all
amounts then remaining unpaid on this Note shall become, or may be declared to
be, immediately due and payable by the Company.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE.
IN WITNESS WHEREOF, the Borrower has executed this Note on the date first
written above.
______________________________
[NAME OF BORROWER]
21
<PAGE> 22
EXHIBIT B
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of September __, 1997, made by each of the
pledgors who execute signature pages hereto (each a "Pledgor" and collectively
the "Pledgors") in favor of Patina Oil & Gas Corporation, a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, in connection with the Management Stock Purchase Agreement,
dated as of September __, 1997 (the "Management Stock Purchase Agreement"),
among the Company and the Management investors parties thereto (including the
Pledgors), the Company has agreed to make loans (the "Loans") to each of the
Pledgors in the amounts and on the terms contained in the Management Stock
Purchase Agreement and the Promissory Notes (as defined therein) delivered by
each of the Pledgors to the Company in connection with the Company's financing
of up to 85% of the aggregate purchase price at the Company's Common Stock
purchased by each Pledgor pursuant to the Management Stock Purchase Agreement;
WHEREAS, each Pledgor will be the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) issued by the Company to such
Pledgor; and
WHEREAS, it is a condition precedent to the obligation of the Company
to make Loans to the Pledgors that each Pledgor shall have executed and
delivered this Pledge Agreement to the Company;
NOW, THEREFORE, in consideration of the premises and to induce the
Company to make the Loans, each Pledgor hereby agrees with the Company, as
follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms defined
in the Management Stock Purchase Agreement or the Note, as the case may be, and
used herein shall have the meanings assigned to them in the Management Stock
Purchase Agreement and the Note, respectively. In addition, the following terms
shall have the following meanings:
"Agreement" shall mean this Pledge Agreement, as the same may be
amended, modified or otherwise supplemented from time to time.
"Code" shall mean the Uniform Commercial Code from time to time in
effect in the State of Delaware.
"Collateral" shall mean, with respect to each Pledgor, the Pledged
Stock of such Pledgor and all Proceeds thereof.
"Collateral Account" shall mean any account established to hold money
Proceeds, maintained under the sole dominion and control of the Company.
22
<PAGE> 23
"Default" shall mean, with respect to each Pledgor, any event that is
or with the passage of time or the giving of notice or both would be an
Event of Default under the Promissory Note of such Pledgor.
"Obligations" shall mean, with respect to each Pledgor, the collective
reference to the unpaid principal of and interest on such Pledgor's
Promissory Note (including, without limitation, interest accruing at the
then applicable rate provided in such Promissory Note after the maturity of
such Pledgor's Loan and interest accruing at the then applicable rate
provided in such Promissory Note after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to such Pledgor, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in
connection with such Promissory Note and this Agreement or any other
document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, costs, expenses or otherwise.
"Pledged Stock" shall mean, with respect to each Pledgor, the shares
of capital stock listed on Schedule I hereto set forth opposite such
Pledgor's name.
"Proceeds" shall mean, with respect to each Pledgor, all "proceeds" as
such term is defined in Section 9-306(1) of the Code on the date hereof
and, in any event, shall include, without limitation, all dividends or
other income from such Pledgor's Pledged Stock, collections thereon or
distributions with respect thereto.
2. Pledge; Grant of Security Interest. Each Pledgor hereby delivers to
the Company all Pledged Stock of such Pledgor and hereby grants to the Company a
first security interest in such Pledgor's Collateral, as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of such Pledgor's Obligations.
3. Stock Powers. Concurrently with the delivery to the Company of each
certificate representing one or more shares of Pledged Stock to each Pledgor,
such Pledgor shall deliver an undated stock power covering such certificate,
duly executed in blank by such Pledgor with, if the Company so requests,
signature guaranteed.
4. Covenants. Each Pledgor covenants and agrees with the Company that,
from and after the date of this Agreement until this Agreement is terminated
with respect to such Pledgor and the security interests created hereby with
respect to such Pledgor are released:
(a) If such Pledgor shall as a result of his ownership of Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization), option
or rights, whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of such Pledged Stock, or otherwise in respect thereof
such Pledgor shall accept the same as the agent of the Company, hold the same in
trust for the Company, and deliver the
23
<PAGE> 24
same forthwith to the Company (but in any event within three days) in the exact
form received, duly indorsed by such Pledgor to the Company, if required,
together with an undated stock power covering such certificate duly executed in
blank by such Pledgor and with, if the Company so requests, signature
guaranteed, to be held by the Company, subject to the terms hereof, as
additional collateral security for the Obligations of such Pledgor.
(b) Without the prior written consent of the Company, which consent
shall not be unreasonably withheld, such Pledgor will not (i) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Collateral of such Pledgor, (ii) create, incur or permit to exist any
lien or option in favor of, or any claim of any Person with respect to, any of
the Collateral of such Pledgor, or any interest therein, except for the security
interests created by this Agreement or (iii) enter into any agreement or
undertaking restricting the right or ability of such Pledgor or the Company to
sell, assign or transfer any of the Collateral of such Pledgor.
(c) Such Pledgor shall maintain the security interest created by this
Agreement as a first, perfected security interest and shall defend such security
interest against claims and demands of all Persons whomsoever. At any time and
from time to time, upon the written request of the Company, such Pledgor will
promptly and duly execute and deliver such further instruments and documents and
take such further actions as the Company may reasonably request for the purposes
of obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted. If any amount payable under or in connection with any
of the Collateral of such Pledgor shall be or become evidenced by any promissory
note, other instrument or chattel paper, such note, instrument or chattel paper
shall be immediately delivered to the Company, duly endorsed in a manner
satisfactory to the Company, to be held as Collateral of such Pledgor pursuant
to this Agreement.
5. Cash Dividends; Voting Rights. With respect to each Pledgor, unless
an Event of Default of such Pledgor shall have occurred and be continuing and
the Company shall have given notice to such Pledgor of the Company's intent to
exercise its corresponding rights pursuant to Section 6 below, such Pledgor
shall be permitted to receive all cash dividends paid in respect of such
Pledgor's Pledged Stock and to exercise all voting and corporate rights with
respect to such Pledgor's Pledged Stock.
6. Rights of the Company. With respect to each Pledgor, if an Event of
Default of such Pledgor shall occur and be continuing and the Company shall give
notice of its intent to exercise such rights to such Pledgor, the Company shall
have the right to receive any and all cash dividends paid in respect of such
Pledgor's Pledged Stock and make application thereof to such Pledgor's
Obligations in such order as the Company may determine.
7. Remedies. (a) With respect to each Pledgor, if an Event of Default
of such Pledgor shall have occurred and be continuing, at any time at the
Company's election, the Company may apply all or any part of such Pledgor's
Proceeds held in any Collateral Account in payment of such Pledgor's Obligations
in such order as the Company may elect.
(b) With respect to each Pledgor, if an Event of Default of such
Pledgor shall have occurred and be continuing, the Company may exercise, in
addition to all other rights and remedies granted in this Agreement and in
24
<PAGE> 25
any other instrument or agreement securing, evidencing or relating to such
Pledgor's Obligations, all rights and remedies of a secured party under the
Code. Without limiting the generality of the foregoing, the Company, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon any Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral of such
Pledgor, or any part thereof, and/or may forthwith sell, assign, give option or
options to purchase or otherwise dispose of and deliver such Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Company or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Company shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of such Collateral so sold, free of any right or equity of
redemption in any Pledgor, which right or equity is hereby waived or released.
The Company shall apply, with respect to each Pledgor, any Proceeds of such
Pledgor from time to time held by it and the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred in respect
thereof or incidental to the care or safekeeping of any of the Collateral of
such Pledgor or in any way relating to such Collateral or the rights of the
Company hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Company, to the payment in whole or in part of
the Obligations of such Pledgor, in such order as the Company may elect, and
only after such application and after the payment by the Company of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Company account for the surplus, if any, to
such Pledgor. To the extent permitted by applicable law, each Pledgor waives all
claims, damages and demands he may acquire against the Company arising out of
the exercise by the Company or such Pledgor of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral of any Pledgor
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. Each Pledgor shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of Collateral of such Pledgor are insufficient to pay the
Obligations of such Pledgor and the fees and disbursements of any attorneys
employed by the Company to collect such deficiency.
8. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, each Pledgor authorizes the Company to file financing statements with
respect to the Collateral of such Pledgor without the signature of such Pledgor
in such form and in such filing offices as the Company reasonably determines
appropriate to perfect the security interests of the Company under this
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
9. Notices. All notices, requests and demands to or upon the Company
or any Pledgor to be effective shall be in writing (or by facsimile or similar
electronic transfer confirmed in writing) and shall be deemed to have been duly
given or made (i) when delivered by hand, (ii) if given by
25
<PAGE> 26
mail, when deposited in the mails by certified mail, return receipt requested,
or (iii) if by facsimile or similar electronic transfer, when sent and receipt
has been confirmed, addressed to the Company or such Pledgor at its address or
transmission number for notices provided in Section 6 of the Management Stock
Purchase Agreement. The Company and the Pledgor may change their addresses and
transmission numbers for notices by notice in the manner provided in this
Section.
10. Severability; Counterparts. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. This Agreement
may be executed in one or more counterparts, each of which shall be deemed to
constitute an original, and each Pledgor's executed signature page, together
with the Company's executed signature page, shall constitute a duly executed
original document.
11. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Company and
each Pledgor against whom such amendment, supplement or modification is to be
effective, provided that any provision of this Agreement may be waived by the
Company in a letter or agreement executed by the Company or by facsimile
transmission from the Company.
(b) The Company shall not by any act (except by a written instrument
pursuant to paragraph 11 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Company, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Company of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Company would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
12. Section Headings. The section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
13. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the
Company and their successors and assigns.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE.
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<PAGE> 27
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
-------------------------------------------
Brian J. Cree, Executive Vice President/
Chief Operating Officer
-------------------------------------------
Ronald E. Dashner, Senior Vice President of
Operations
-------------------------------------------
Keith M. Crouch, Senior Vice President
General Counsel
-------------------------------------------
David J. Kornder, Vice President/
Chief Financial Officer
-------------------------------------------
Terry L. Ruby, Vice President, Land
-------------------------------------------
David W. Siple, Vice President, Land
-------------------------------------------
David R. Macosko, Vice President,
Business Operations
-------------------------------------------
Christine A. Kennedy, Manager of Oil & Gas
Marketing
-------------------------------------------
Kenneth A. Wonstolen, Manager of
Environmental Affairs
-------------------------------------------
Barton R. Brookman, Production
Manager - Field
-------------------------------------------
Clayton L. Miller, Services Manager -
Field
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<PAGE> 28
-------------------------------------------
Michael J. Wendling, Manager of
Reservoir Engineering
-------------------------------------------
Scott J. Reasoner, Senior Operations
Engineer
-------------------------------------------
Donald R. Shaw, Acquisition Engineer
-------------------------------------------
Jon E. Bowman, Operations Engineer
-------------------------------------------
Eric P. Lipinski, Senior Geologist
-------------------------------------------
David Flinn, Senior Geologist
28
<PAGE> 29
SCHEDULE I
SCHEDULE OF PLEDGED STOCK
Certificate
Name/Title No(s). Number of Shares
Brian J. Cree, Executive Vice
President/Chief Operating
Officer
Ronald E. Dashner, Senior Vice
President of Operations
Keith M. Crouch, Senior Vice
President General Counsel
David J. Kornder, Vice
President/Chief Financial
Officer
Terry L. Ruby, Vice President,
Land
David W. Siple, Vice
President, Land
David R. Macosko, Vice
President, Business Operations
Christine A. Kennedy, Manager
of Oil & Gas Marketing
Kenneth A. Wonstolen, Manager
of Environmental Affairs
Barton R. Brookman, Production
Manager-Field
Clayton L. Miller, Services
Manager-Field
Michael J. Wendling, Manager
of Reservoir Engineering
Scott J. Reasoner, Senior
Operations Engineer
Donald R. Shaw, Acquisition
Engineer
Jon E. Bowman, Operations
Engineer
Eric P. Lipinski, Senior
Geologist
David Flinn, Senior Geologist
Total
29
<PAGE> 1
Exhibit 10.14
PATINA OIL & GAS CORPORATION
RESTRICTED STOCK AGREEMENT
---------------------
DATE OF GRANT: September 4, 1997 (the "Grant Date")
W I T N E S S E T H:
1. Grant of Restricted Stock. Patina Oil & Gas Corporation (the
"Company") on the above date has granted, and this Agreement evidences the grant
to ____________ (the "Grantee"), subject to the terms and conditions which
follow, a total of ___ shares of Common Stock, par value $.01 per share ("Common
Stock"), of the Company. The rights of the Grantee in the shares of Common Stock
granted to the Grantee shall vest at the rate of 20% per year, commencing on
June 30, 1998 (the "Initial Vesting Date").
2. Receipt and Delivery of Stock. (a) The Grantee waives receipt from
the Company of a certificate or certificates representing the shares of Common
Stock granted hereunder, registered in the Grantee's name and bearing a legend,
in the form provided in Section 2(b) below. The Grantee acknowledges and agrees
that the Company shall retain custody of such certificate or certificates until
the Grantee's rights in the shares of Common Stock represented by such
certificate or certificates vest and the restrictions imposed by Section 3 on
such shares lapse. Concurrently with the execution of this Agreement, the
Grantee has delivered to the Company an irrevocable stock power endorsed in
blank.
(b) The Grantee acknowledges and agrees that each certificate for the
Common Stock granted hereunder shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A REGISTRATION IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS CERTIFICATE IS ISSUED PURSUANT TO
AND SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A RESTRICTED
STOCK AGREEMENT DATED AS OF SEPTEMBER 4, 1997 BETWEEN THE COMPANY AND THE
GRANTEE REFERRED TO THEREIN A COPY OF WHICH IS ON FILE WITH THE COMPANY. EXCEPT
AS PROVIDED IN SUCH RESTRICTED STOCK AGREEMENT, THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE NOT TRANSFERABLE AND ANY PURPORTED TRANSFER IN VIOLATION OF
THE PROVISIONS OF SUCH RESTRICTED STOCK AGREEMENT SHALL BE VOID AND OF NO FORCE
AND EFFECT.
3. Restrictions on Transfer of Stock. (a) The Grantee hereby
acknowledges and agrees that shares of Common Stock granted hereunder will be
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"). The Grantee agrees not to, directly or indirectly, offer,
sell, transfer, assign or otherwise dispose of the beneficial ownership (any
such act, a "Transfer") of any such shares of Common Stock, except as permitted
hereunder and under the Securities Act and the rules and regulations thereunder
(including, without limitation, Transfers pursuant to Rule 144 under the
Securities Act).
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<PAGE> 2
(b) The restrictions on the Transfer of shares of Common Stock granted
hereunder shall lapse as follows:
(i) on the Initial Vesting Date, as to 20% of the Common Stock
granted hereunder;
(ii) on the first anniversary of the Initial Vesting Date, as to
40% of the Common Stock granted hereunder;
(iii) on the second anniversary of the Initial Vesting Date, as
to 60% of the Common Stock granted hereunder;
(iv) on the third anniversary of the Initial Vesting Date, as to
80% of the Common Stock granted hereunder; and
(v) on the fourth anniversary of the Initial Vesting Date, as to 100%
of the Common Stock granted hereunder.
; provided, that, so long as the shares of Common Stock granted hereunder remain
pledged by the Grantee to the Company pursuant to that certain Pledge Agreement,
dated as of _________, __, 1997, made by the Grantee to the Company, the Grantee
will not Transfer any shares of Common Stock granted hereunder. Notwithstanding
the foregoing, the restrictions on Transfer shall lapse as to all of the Common
Stock granted hereunder in the event that the Grantee's employment is terminated
on account of death or "Disability" (as defined in the Company's long-term
disability plan).
(c) The Grantee acknowledges and agrees that the shares of Common
Stock granted hereunder may be Transferred only in one or more transactions
registered under the Securities Act (and, where applicable, the securities laws
of any state) or as to which an exemption from the registration requirements of
the Securities Act (and, where applicable, such laws) is available. As the
restrictions on Transfer imposed by this Section on shares of Common Stock
granted hereunder lapse, the shares of Common Stock as to which such
restrictions have lapsed shall be delivered to the Grantee without the
restrictive legend on the certificate for such shares.
4. Forfeiture of Stock. (a) In the event the Grantee's employment
terminates (other than as a result or death or Disability) prior to the fourth
anniversary of the Initial Vesting Date, the Grantee's rights in the shares of
Common Stock granted hereunder as to which the restrictions in Section 3 have
not lapsed shall be as follows (it being understood that the Grantee shall not
forfeit, following any termination of such Grantee's employment with the
Company, any shares of Common Stock granted hereunder as to which the
restrictions in Section 3 have lapsed):
(i) if such termination is by the Company without Cause
(as defined below) or by the Grantee for Good Reason
(as defined below), the Grantee shall be entitled to
a pro rata portion of the shares of Common Stock
scheduled to vest on the next succeeding anniversary
of the Initial Vesting Date (based on the number of
days such Grantee continues to be employed during
the relevant one-year period prior to such
anniversary date), and all remaining shares of
Common Stock granted hereunder as to which the
2
<PAGE> 3
restrictions in Section 3 have not lapsed will be
forfeited;
(ii) if such termination is by the Company for Cause or by the Grantee
without Good Reason, all shares of Common Stock granted hereunder
as to which the restrictions in Section 3 have not lapsed will be
forfeited;
(iii) [as to Mr. Edelman's Restricted Stock Agreement
only] if, following the expiration of the Grantee's
Employment Agreement, dated as of July 31, 1997 (the
"Grantee's Employment Agreement"), the Grantee and
the Company are not able in good faith and after
reasonable efforts to reach agreement to negotiate a
mutually acceptable extension for the term of the
Grantee's employment thereunder, then the Grantee
shall be entitled to all shares scheduled to vest on
the fourth anniversary of the Initial Vesting Date,
and all remaining shares of Common Stock granted
hereunder as to which the restrictions in Section 3
have not lapsed will be forfeited.
(b) The Compensation Committee of the Company's Board of Directors or
its agent shall act promptly to record forfeitures pursuant to this Section on
the stock transfer books of the Company.
(c) As used herein, the following terms shall have the
following meanings:
(i) "Cause" shall mean (A) an act or acts of dishonesty
by the Grantee constituting a felony under
applicable law and/or (B) any act resulting or
intending to result directly or indirectly in gain
to or personal enrichment of the Grantee at the
Company's expense. Notwithstanding the foregoing,
the Grantee shall not be deemed to have been
terminated for Cause unless and until there shall
have been delivered to the Grantee a copy of a
resolution duly adopted by the affirmative vote of
not less than a majority of the Compensation
Committee of the Board called and held for the
purpose (after reasonable notice and opportunity for
the Grantee, together with counsel, to be heard
before the Compensation Committee of the Board),
finding that in the good faith opinion of the
Compensation Committee of the Board the Grantee
engaged in the conduct described above.
(ii) "Good Reason" shall mean, without the Grantee's
written consent, (A) a change in status, position or
responsibilities which, in the Grantee's reasonable
judgment, does not represent a promotion from
existing status, position or responsibilities as in
effect immediately prior to the effective date of
this Agreement (the "Effective Date") or the
assignment of any duties or responsibilities which,
3
<PAGE> 4
in the Grantee's reasonable judgment, are inconsistent with such
status, position or responsibilities or any removal from or
failure to reappoint or reelect the Grantee to any of such
positions, except in connection with the termination for total
and permanent disability, death or cause or by him other than for
good reason; (B) a reduction by the Company in the Grantee's base
salary as in effect on the Effective Date; (C) the relocation of
the Grantee by the Company to any place not within 25 miles of
the location at which the Grantee performed duties prior to the
Effective Date, except for required travel on the Company's
business to an extent substantially consistent with business
travel obligations at the Effective Date; (D) the failure of the
Company to continue in effect any incentive, bonus or other
compensation plan in which the Grantee participates, including
but not limited to the Company's stock option and deferred
compensation plans, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan), evidenced by the
Grantee's written consent, has been made with respect to such
plan, or the failure by the Company to continue the Grantee's
participation therein, or any action by the Company which would
directly or indirectly materially reduce participation therein;
(E) the failure by the Company to continue to provide the Grantee
with benefits substantially similar to those enjoyed or entitled
under any of the Company's pension, profit sharing, life
insurance, medical, dental, health and accident, or disability
plans at the Effective Date, the taking of any action by the
Company which would directly or indirectly materially reduce any
of such benefits or deprive the Grantee of any material fringe
benefit enjoyed or entitled to at the Effective Date, or the
failure by the Company to provide the number of paid vacation and
sick leave days to which the Grantee is entitled on the basis of
years of service with the Company in accordance with the
Company's normal vacation policy in effect on the Effective Date;
or (F) any request by the Company that the Grantee participate in
an unlawful act or take any action constituting a breach of the
Grantee's professional standard of conduct.
5. Dividends; Voting. If the Grantee is a shareholder of record on any
applicable record date, the Grantee shall receive any dividends on the Common
Stock granted hereunder when paid regardless of whether the restrictions imposed
by Section 3 hereof have lapsed. If the Grantee is a shareholder of record on
any applicable record date, the Grantee shall have the right to vote the Common
Stock granted hereunder regardless of whether the restrictions imposed by
Section 3 hereof have lapsed.
6. No Right to Employment. The execution and delivery
of this Agreement and the granting of Common Stock hereunder shall not
constitute or be evidence of any agreement or understanding, express or
4
<PAGE> 5
implied, on the part of the Company or its subsidiaries to employ the Grantee
for any specific period or in any particular capacity and shall not prevent the
Company or its subsidiaries from terminating the Grantee's employment at any
time with or without cause [as to Mr Edelman's Restricted Stock Agreement only];
provided, that nothing in this Section 6 shall alter or otherwise effect the
Grantee's Employment Agreement.
7. Registration. The registration of the Common Stock granted
hereunder shall be governed by the Management Stock Purchase Agreement, dated as
of September 4, 1997 (the "Management Stock Purchase Agreement"), among the
Company and the management investors named therein (including the Grantee).
Except as provided in the Management Stock Purchase Agreement, the Grantee
acknowledges that the Grantee has no right to require the Company to register
the shares of Common Stock granted hereunder.
8. Change in Control. In the event of a Change in Control (as defined
in the Company's Change in Control Plan (the "Change in Control Plan")), vesting
of the Common Stock granted hereunder shall be in accordance with the Company's
Change of Control Plan.
9. Application of Laws. The granting of Common Stock
hereunder shall be subject to all applicable laws, rules and regulations and
to such approvals of any governmental agencies as may be required.
10. Taxes. Any taxes required by federal, state or local laws to be
withheld by the Company on the delivery of Common Stock hereunder shall be paid
to the Company by the Grantee by the time such taxes are required to be paid or
deposited by the Company. Prior to the lapse of restrictions, the Grantee shall
be given the option to satisfy any tax obligations by (i) tendering cash to the
Company prior to the time of delivery or (ii) authorizing the conversion to cash
by the Company of a sufficient amount of Common Stock prior to delivery.
11. Notices. Any notices required to be given hereunder to the Company
shall be addressed to Patina Oil & Gas Corporation, 1625 Broadway, Suite 2000,
Denver, Colorado 80202 (Phone (303) 389-3600; Fax (303) 595-7407) Attention:
General Counsel, and any notice required to be given hereunder to the Grantee
shall be sent to the Grantee's address as shown on the records of the Company.
5
<PAGE> 6
IN WITNESS WHEREOF, the Company, by its duly authorized officer, and
the Grantee have executed this agreement in duplicate as of the Grant Date first
above written.
PATINA OIL & GAS CORPORATION
By:_____________________________
Name:
Title:
GRANTEE
________________________________
Name:
6
<PAGE> 1
Exhibit 20
[Letterhead of A.G. Edwards & Sons, Inc.]
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 Stockholder") of the
Repurchase Transaction (defined below) and (ii) stating that, taking into
account the teens and conditions of the 8.5% convertible pay-in-kind preferred
stock (the "New Preferred Stock"), the consideration to be paid to the Company
for the New Preformed Stock is comparable to other privately placed convertible
preferred equity securities and, as a result, is fair, from a financial point of
view, to the Non-Affiliated Stockholders.
We understand that Snyder owns 14,000,000 shares of Patina Common Stock,
7,500,000 of which are being sold by Snyder in an underwritten secondary public
offering by the Company ($8,625,000 shares if the underwriters' overaIlotment
option is exercised) (the "Offering") on Form S-3, Registration No. 333-32671
(the "Registration Statement). We further understand that the Company intends to
repurchase Snyder's remaining shares of Patina Common Stock at a price per share
equal to the net per share price to be received by Snyder in the Offering (the
"Repurchase Transaction"). To finance the Repurchase Transaction, the Company
intends to sell in private transactions up to 2,520,000 shares of the New
Preferred Stock for a purchase price of $25.00 per share to a limited number of
private investors and shares of Patina Common Stock having a value of $3,000,000
(presuming a per share value equal to the per share price to be paid by
investors in the Offering) to certain members of management of the Company,
supplemented by bank borrowings if necessary. The New Preferred Stock investors
will also receive 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 begin as the
"Transactions." A.G. Edwards & Sons, Inc.'s ("Edwards") opinion regarding the
Repurchase Transaction and the Concurrent Transactions will be limited to the
opinion expressly set forth in clauses (i) and (b) of the first sentence of this
letter. Edwards was not requested to and will not express any opinion on the
Offering or the determination by the Company and the Board to consummate
(including their determination of the manner of consummation) the Repurchase
Transaction or any of the Concurrent Transactions, including without limitation
the issuance and sale of the New Preferred Stock.
1
<PAGE> 2
Assuming that relevant conditions and circumstances do not change materially,
this opinion will be confirmed in a final opinion to be delivered to the
Independent Committee as of the date of the consummation of the initial sale of
the New Preferred Stock. This opinion assumes, 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 acquires 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
underwritings, competitive biddings, private placements and valuations for
estate, corporate and other purposes. As part of the process whereby Patina was
formed by the consolidation of certain assets and operations of Gerrity Oil &
Gas Corporation ("GOG") and Snyder, Edwards was engaged by the Company to
deliver a written opinion regarding the fairness to GOG from a financial point
of view, of its ensuing into a certain Subordinate Loan Agreement, dated as of
May 2, 1996 by and among GOG, as borrower, and SOCO Wattenberg Corporation
("SWAT") and the Company, as lenders, as amended by an amendment dated May 2,
1996, and Edwards received a fee for that opinion. Edwards was also engaged to
deliver a written opinion regarding the fairness, from a financial point of
view, to the holders of GOG Preferred Stock of a transaction pursuant to which
holders of Depository Shares, representing an interest in one-eighth of a share
of the $12.00 Convertible Preferred Stock of GOG, would receive in exchange for
each Depository Share 0.527 shares of Patina's Convertible Preferred Stock, and
Edwards received a fee for that opinion. Edwards is also engaged to be a
co-managing underwriter for the Offering, for which it will receive customary
fees, and currently intends on issuing a research report on Patina subsequent to
the Offering. The consummation of the Transactions are conditioned on one
another. We are not aware of any present or contemplated relationships between
Edwards and the Company, or the Stockholders thereof which, in our opinion,
would affect our ability to render a fair independent opinion in this matter.
In connection with this opinion, we have, among other things:
(i) Reviewed the terms of the draft Stock Purchase Agreement, the
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,
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<PAGE> 3
and the Company's unaudited financial statements for the six-month
periods ended June 30, 1997 and 1996;
(iv) Reviewed the unaudited capitalization of the Company at June 30,
1997 as adjusted to give effect to the Transactions, as prepared by
Patina's management;
(v) Reviewed the projected financial statement of the Company and
conducted interviews with the management of the Company regarding the
material assumptions that underlie the projections;
(vi) Reviewed certain other operating and financial information of
Patina concerning the business and operations of Patina;
(vii) Reviewed certain market data of Patina's Common Stock and Old
Preferred Stock;
(viii) Reviewed certain publicly available information concerning certain
other companies that we believed to be generally comparable to Patina, and
the trading of, and the trading markets for, certain such companies'
securities;
(ix) Reviewed information relating to the financial terms of certain
transactions, including selected share repurchases from control
shareholders, selected self-tender transactions and selected private
placements of publicly traded common stock that we considered relevant;
(x) Reviewed information relating to the financial terms of certain
other publicly traded and privately placed convertible preferred stock
issues and straight preferred stock issues that we considered relevant:
(xi) Reviewed an analysis of, to the extent available, certain studies
prepared by a variety of third parties regarding premiums paid in
transactions involving restricted stock; and
(xii) Reviewed other information which we considered relevant to our
analysis.
In preparing our opinion, we have relied upon and assumed, without
independent verification, the accuracy, completeness and fair presentation of
all financial and other information, publicly available or furnished to, or
otherwise discussed with or reviewed by Edwards for purposes of our opinion, and
our opinion is conditioned upon such information being complete and accurate in
all material respects. We have not been engaged to, and therefore we have not,
verified the accuracy or completeness of any such information. We have assumed
that financial forecasts supplied to or otherwise made available to us reflect
the best currently available estimates and judgments of the management of the
Company, as to the expected future financial performance of the Company, and we
have not independently verified such information or assumptions nor do we
express any opinion with respect thereto. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals, In rendering our opinion, we have also
assumed that the Transactions will be consummated on the terms contained in the
Agreements, without any waiver of any material terms or conditions by the
Company.
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<PAGE> 4
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
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 hereof, (i) the Repurchase Transaction is fair, from a financial point of
view, to the Non-Affiliated Stockholders and (ii) the consideration to be paid
to the Company for the New Preferred Stock is comparable to other privately
placed convertible preferred equity securities and, as a result is fair, from a
financial point of view, to the Non-Affiliated Stockholders.
Very truly yours,
A.G. Edwards & Sons, Inc.
By:/s/ Douglas E. Reynolds
Douglas E. Reynolds
Vice President
4
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made part of this Registration
Statement (File No. 333-32671) and previously filed Form S-4/A#2 (File No.
333-572).
/s/ Arthur Andersen LLP
Dallas, Texas
September 4, 1997
1
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EXHIBIT 23.4
CONSENT OF A.G. EDWARDS & SONS, INC.
We consent to the reference to A.G. Edwards & Sons, Inc. and to A.G. Edwards &
Sons, Inc. fairness opinion dated July 30, 1997 in the Registration Statement
and Prospectus of Patina Oil & Gas Corporation relating to the offer and sale
of up to 8,625,000 shares of common stock of Patina Oil & Gas Corporation.
By: /s/ Douglas E. Reynolds
-------------------------
Name: Douglas E. Reynolds
Title: Vice President -
Investment Banking
St. Louis, Missouri
Date: September 8, 1997
