SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period ______________ to _______________
Commission File Number 1-12999
DOMAIN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0526147
(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
16801 Greenspoint Park Drive, Suite 200 77060
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (281) 618-1800
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
stock as of August 12, 1997:
Common Stock $0.01 par value 14,607,729
1
<PAGE>
DOMAIN ENERGY CORPORATION
Table of Contents for Form 10-Q
Quarter Ended June 30, 1997
PAGE
NUMBER
COVER PAGE .................................................................. 1
DOCUMENT TABLE OF CONTENTS .................................................. 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997 (unaudited)
and December 31, 1996............................................... 3
Consolidated and Combined Statements of Income for the three
and six months ended June 30, 1997 and 1996 (unaudited) ............ 4
Consolidated Statement of Shareholders' Equity for the six
months ended June 30, 1997 (unaudited).............................. 5
Consolidated and Combined Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited) .................... 6
Notes to Consolidated and Combined Financial Statements (unaudited)...... 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...............................10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................15
ITEM 2. Changes in Securities .............................................15
ITEM 3. Defaults Upon Senior Securities ...................................15
ITEM 4. Submission of Matters to a Vote of Security Holders ...............15
ITEM 5. Other Information .................................................15
ITEM 6. Exhibits and Reports on Form 8-K ..................................15
SIGNATURES ..................................................................16
INDEX OF EXHIBITS ...........................................................17
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOMAIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Note 1)
(in thousands, except share data)
<TABLE>
<CAPTION>
SUCCESSOR
---------------------------------
December 31, June 30,
1996 1997
-------- ---------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ................................................................ $ 36 $ 31,958
Restricted certificate of deposit ........................................................ 8,000 --
Accounts receivable ...................................................................... 19,456 6,690
IPF Program notes receivable, current portion ............................................ 7,874 8,592
Other notes receivable, current portion .................................................. -- 5,400
Prepaid and other assets ................................................................. 1,525 1,688
-------- ---------
Total current assets .............................................................. 36,891 54,328
IPF Program notes receivable ............................................................. 13,836 23,894
Oil and natural gas properties, full cost method ......................................... 66,176 72,879
Less: Accumulated depreciation, depletion and amortization ............................. -- (6,095)
Investments and other assets ............................................................. 5,526 3,457
-------- ---------
Total assets ..................................................................... $122,429 $ 148,463
======== =========
LIABILITIES
Accounts payable ......................................................................... $ 14,018 $ 2,847
Accrued expenses ......................................................................... 42 2,032
Current maturities of long-term debt ..................................................... 24,900 --
-------- ---------
Total current liabilities ........................................................ 38,960 4,879
Long-term debt ........................................................................... 54,512 25,166
Deferred income taxes .................................................................... -- 1,525
-------- ---------
Total liabilities ................................................................ 93,472 31,570
Minority interest ........................................................................ 380 563
STOCKHOLDERS' EQUITY
Common Stock
$0.01 par value, 15,080,000 shares authorized and 7,177,681
issued and outstanding at December 31, 1996 and 25,000,000
shares authorized and 14,306,721 issued and outstanding
at June 30, 1997 .................................................................. 72 143
Additional paid-in capital ............................................................... 28,505 116,379
Notes receivable - stockholders .......................................................... -- (546)
Retained earnings ........................................................................ -- 354
-------- ---------
Total stockholders' equity ....................................................... 28,577 116,330
-------- ---------
Total liabilities and stockholders' equity ....................................... $122,429 $ 148,463
======== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated and combined financial statements.
3
<PAGE>
DOMAIN ENERGY CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Note 1)
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ---------------------------
Successor Predecessor Successor Predecessor
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES
Oil and natural gas ......................................... $ 9,057 $12,411 $ 21,839 $28,099
IPF Activities .............................................. 973 2,235 1,705 2,575
Other ....................................................... (189) 7 (481) 122
------- ------- -------- -------
Total revenues ................................. 9,841 14,653 23,063 30,796
------- ------- -------- -------
EXPENSES
Lease operating ............................................. 2,553 1,985 5,613 4,112
Production and severance taxes .............................. 329 282 742 561
Depreciation, depletion and amortization .................... 3,146 4,499 6,428 12,112
General and administrative .................................. 845 993 1,637 2,082
Corporate overhead allocation ............................... -- 768 -- 1,707
Stock compensation .......................................... 1,060 -- 4,210 --
------- ------- -------- -------
Total operating expenses ....................... 7,933 8,527 18,630 20,574
Income from operations ...................................... 1,908 6,126 4,433 10,222
Interest expense ............................................ 1,235 -- 2,344 --
------- ------- -------- -------
Income before taxes ......................................... 673 6,126 2,089 10,222
Income tax provision ........................................ -- 2,271 1,735 3,613
------- ------- -------- -------
Net income .................................................. $ 673 $ 3,855 $ 354 $ 6,609
======= ======= ======== =======
Net income per common share ................................. $ 0.08 -- $ 0.04 --
Weighted average common and common
equivalent shares outstanding .......................... 8,595 -- 8,876 --
</TABLE>
The accompanying notes are an integral part of the consolidated and
combined financial statements.
4
<PAGE>
DOMAIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Note 1)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional Notes Total
Common Paid in Receivable - Retained Stockholders'
Stock Capital Stockholders Earnings Equity
---- -------- ----- ---- --------
<S> <C> <C> <C>
Balance at December 31, 1996 ....................... $ 72 $ 28,505 -- -- $ 28,577
Sale of common stock ............................... 71 83,664 (546) -- 83,189
Stock compensation ................................. -- 4,210 -- -- 4,210
Net income ......................................... -- -- -- 354 354
---- -------- ----- ---- --------
Balance at June 30, 1997 ........................... $143 $116,379 ($546) $354 $116,330
==== ======== ===== ==== ========
</TABLE>
The accompanying notes are an integral part of the consolidated and
combined financial statements.
5
<PAGE>
DOMAIN ENERGY CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(NOTE 1)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
JUNE 30,
---------------------
Successor Predecessor
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 354 $ 6,609
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ....................... 6,428 12,112
Stock compensation ............................................. 4,210 --
Deferred income taxes .......................................... 1,525 1,388
Minority interest .............................................. 183 --
Changes in operation assets and liabilities:
Decrease (increase) in accounts receivable ..................... 6,132 (9,209)
Increase in prepaid and other current
assets ..................................................... (163) (138)
Decrease in accounts payable and accrued
expenses ................................................... (9,618) (498)
-------- --------
Net cash provided by operating activities ............................. 9,051 10,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in oil and natural gas properties .......................... (9,461) (22,498)
Proceeds from sale of oil and gas properties .......................... 2,978 1,389
Proceeds from sale of equity investments .............................. 2,222 --
IPF Program investments of capital (notes
receivable) ........................................................ (16,360) (5,662)
IPF Program return of capital (notes receivable) ...................... 5,584 1,221
Proceeds from sale of restricted certificate of deposit ............... 8,000 --
Investment and other assets ........................................... 245 (208)
-------- --------
Net cash used in investing activities ................................. (6,792) (25,758)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from debt borrowings ......................................... 16,090 756
Repayment of debt borrowing ........................................... (70,336) --
Advances from Parent, net ............................................. -- 14,738
Issuance of common stock .............................................. 83,909 --
-------- --------
Net cash provided by financing activities ............................. 29,663 15,494
Increase (decrease) in cash and cash equivalents ...................... 31,922 --
Cash an cash equivalents, beginning of period ......................... 36 --
-------- --------
Cash and cash equivalents, end of period .............................. $ 31,958 --
======== ========
Supplemental non-cash disclosure related to sale of equity investments:
Reduction in intercompany receivables and investments .............. $ 7,622
Additional note receivable ......................................... $ 5,400
</TABLE>
The accompanying notes are an integral part of the consolidated and
combined financial statements.
6
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Through December 11, 1996, Tenneco Ventures Corporation ("Ventures")
and Tenneco Gas Production Corporation ('Production" and together with Ventures,
the "Tenneco Entities") were indirect subsidiaries of Tenneco, Inc. ("Tenneco").
As a result of a merger between Tenneco and a subsidiary of El Paso Natural Gas
Company ("El Paso"), Ventures and Production became wholly owned indirect
subsidiaries of El Paso for the period from December 12, 1996 to December 31,
1996. On December 31, 1996, Domain Energy Corporation ("Domain") acquired all of
the outstanding common stock of Ventures and Production (the "Acquisition").
Domain was incorporated in Delaware in December 1996 to acquire such common
stock and had no operations prior to the Acquisition.
Unless otherwise indicated, references to the Company are to Domain and
its subsidiaries at and subsequent to December 31, 1996 and to the combined
activities of the Tenneco Entities prior to December 31, 1996. References to the
Parent are to Tenneco or its affiliates prior to December 11, 1996 and to El
Paso from December 12, 1996 to December 31, 1996.
The Company was capitalized on December 31, 1996 with the issuance of
7,177,681 shares of common stock for $30.0 million and borrowings of $66.2
million under its credit facilities. The Company completed the Acquisition for a
total cash purchase price of approximately $96.2 million and the assumption of
liabilities of approximately $16.8 million. The Company did not assume the
liability of $124.1 million due to the parent of the Tenneco Entities. The
Company has accounted for the Acquisition using the purchase method of
accounting. The assets and liabilities of the Tenneco Entities have been
recorded in the Company's balance sheet at December 31, 1996 at their estimated
fair market values, summarized as follows (in thousands):
ASSETS:
Accounts receivable - trade ............... $ 19,456
IPF Program, notes receivable ............. 21,710
Oil and gas properties .................... 66,176
Other assets .............................. 5,658
---------
Total assets ...................... $ 113,000
=========
LIABILITIES:
Accounts payable .......................... $ (10,624)
Long-term debt ............................ (6,212)
---------
Total liabilities ................ $ (16,836)
=========
The financial statements of the Tenneco Entities for the three and six
months periods ended June 30, 1996 have been combined to reflect their combined
historical results of operations.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company for the three and six month periods ended
June 30, 1996 as if the Acquisition had occurred at the beginning of 1996 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------- -------
Revenues ...................... $14,653 $30,796
Net Income .................... $ 4,602 $ 8,476
The Company is an independent oil and gas company engaged in the
exploration, development, production and acquisition of domestic oil and natural
gas properties, principally in the Gulf Coast region. The Company complements
these activities with its Independent Producer Finance Program (the "IPF
Program") pursuant to which it invests in oil and natural gas reserves through
the acquisition of term overriding royalty interests.
7
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheet at June 30, 1997 and the consolidated
and combined statements of income, stockholders' equity and cash flows included
herein have been prepared by the Company, without audit pursuant to the rules
and regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary to present a fair
statement of the results for the interim periods on a basis consistent with the
annual audited financial statements. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for an entire year. The
consolidated balance sheet at December 31, 1996 is derived from the December 31,
1996 audited balance sheet, but does not include all disclosures required by
generally accepted accounting principles. Certain information, accounting
policies and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have also
been omitted from the interim financial statements pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the Company's audited annual financial statements
included at pages F-2 through F-21 in the Company's Registration Statement on
Form S-1 (#333-24641), effective June 23, 1997.
3. SALE OF NON-CORE ASSETS
On April 9, 1997, the Company sold its interest in a natural gas
development project located in northwest Michigan (the "Michigan Development
Project"). The Company received $2.2 million in cash and expects to receive an
additional $5.4 million from the payment of an interest-bearing note receivable.
The aggregate sales price approximated the Company's carry value.
Additionally, in the second quarter, the Company received $1.3 million
from the sale of other non-core assets.
4. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share," (SFAS No. 128) in February 1997. SFAS 128, which is
effective for periods ended after December 15, 1997, establishes standards for
computing and presenting earnings per share (EPS). SFAS No. 128 replaces the
presentation of primary EPS previously prescribed by Accounting Principles Board
Opinion No. 15 (APB No. 15) with a presentation of basic EPS which is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. SFAS No. 128 also requires
dual presentation of basic and diluted EPS. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB No. 15. Pro forma basic and diluted EPS for
the three and six months ended June 30, 1997, assuming that SFAS No. 128 was
effective as of the beginning of the year, are presented below.
THREE MONTHS ENDED SIX MONTHS ENDED
Earnings per common share: JUNE 30, 1997 JUNE 30, 1997
-------- --------
Basic ............................... $ 0.09 $ 0.04
Diluted ............................. $ 0.08 $ 0.04
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income, " (SFAS No. 130) and Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
(SFAS No. 131). SFAS No. 130 and SFAS No. 131 are effective for periods
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and displaying of comprehensive income and its components. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in interim and annual financial statements.
These two statements will have no effect on the Company's 1997 financial
statements, but management is currently evaluating what, if any, additional
disclosures may be required when these two statements are adopted in the first
quarter of 1998.
8
<PAGE>
DOMAIN ENERGY CORPORATION
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
5. SUBSEQUENT EVENTS
On July 1, 1997, the Company consummated the acquisition ("Funds
Acquisition") of certain property interests from three unaffiliated
institutional investors. Such interests are primarily located in the Gulf Coast
region and, as of January 1, 1997, had combined proved reserves of approximately
33.0 Bcfe. The interests also include 18,209 net undeveloped leasehold acres.
The aggregate purchase price for the interests was approximately $28,660,000,
which was paid in cash with a portion of the net proceeds of the initial public
offering of the Company's common stock consummated on June 27, 1997.
On July 9, 1997, Credit Suisse First Boston Corporation exercised a
portion of its over-allotment option granted pursuant to the underwriting
agreement and purchased an additional 303,400 shares of the Company's common
stock. The Company realized net proceeds of $3,809,187 upon consummation of such
transaction.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following review of operations for the three and six months ended
June 30, 1997 and 1996 should be read in conjunction with the financial
statements of the Company and Notes thereto included elsewhere in this Form 10-Q
and with the Financial Statements, Notes and Management's Discussion and
Analysis for the year ended December 31, 1996 included in the Company's
Registration Statement on Form S-1 (#333-24641), effective June 23, 1997.
10
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes certain financial data, non-GAAP
financial data, production volumes, average realized prices and average expenses
for the Company's oil and natural gas operations for the periods shown:
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
June 30, June 30,
-------------------------- ---------------------------
Successor Predecessor Successor Predecessor
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL DATA (IN THOUSANDS):
Revenues:
Natural Gas ............................................... $ 6,757 $ 10,144 $ 16,851 $ 23,916
Oil and condensate ........................................ 2,300 2,267 4,988 4,183
IPF Activities (1) ........................................ 973 2,235 1,705 2,575
Total revenues ............................................... 9,841 14,653 23,063 30,796
Total operating expenses ..................................... 7,933 8,527 18,630 20,574
------- -------- -------- --------
Operating income ............................................. $ 1,908 $ 6,126 $ 4,433 $ 10,222
======= ======== ======== ========
Net income ................................................... $ 673 $ 3,855 $ 354 $ 6,609
Net cash provided by operating
activities .............................................. 939 4,549 9,051 10,264
Net cash provided (used) in investing
activities .............................................. 785 (15,124) (6,792) (25,758)
Net cash provided by financing
activities .............................................. 24,152 10,209 29,663 15,494
NON-GAAP FINANCIAL DATA (IN THOUSANDS):
Cash flow from operations before changes in
working capital ............................................ $ 5,005 $ 9,422 $ 12,700 $ 20,109
EBITDA (2) .............................................. $ 6,114 $ 10,625 $ 15,071 $ 22,334
IPF Program return of capital (3) ....................... 2,158 704 5,584 1,221
EBITDA plus IPF Program return
of capital ........................................... $ 8,272 $ 11,329 $ 20,655 $ 23,555
PRODUCTION VOLUMES:
Natural gas (MMcf) .................................... 3,387 5,556 7,055 11,384
Oil and condensate (MBbls) ............................ 138 123 279 239
Total (MMcfe) ......................................... 4,213 6,294 8,729 12,818
AVERAGE REALIZED PRICES: (4)
Natural gas (per Mcf) ................................ $ 1.99 $ 1.83 $ 2.39 $ 2.10
Oil and Condensate (per Bbl) .......................... 16.67 18.43 17.88 17.50
EXPENSES (PER MCFE):
Lease operating ....................................... $ 0.59 $ 0.32 $ 0.63 $ 0.32
Production and severance taxes ........................ 0.08 0.04 0.09 0.04
Depreciation, depletion and
amortization ....................................... 0.71 0.71 0.70 0.95
General and administrative, net (5) ................... 0.13 0.13 0.12 0.14
</TABLE>
- ------------
(1) IPF Activities in fiscal 1996 includes income from the Company's IPF
Program and the Company's "GasFund" partnership with a financial
investor.
11
<PAGE>
(2) EBITDA represents earnings before stock compensation expense, interest,
income taxes, depreciation, depletion and amortization. EBITDA is a
financial measure commonly used in the oil and gas industry and should
not be considered in isolation or as a substitute for net income,
operating income, net cash provided by operating activities or any
other measure of financial performance presented in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. Because EBITDA excludes some, but not all,
items that affect net income and may vary among companies, the EBITDA
calculation presented above may not be comparable to similarly titled
measures of other companies.
(3) To more accurately reflect the actual cash flows generated by the
Company, IPF Program return of capital is identified separately to
allow such cash receipts to be combined with EBITDA.
(4) Reflects the actual realized prices received by the Company, including
the results of the Company's hedging activities.
(5) Includes production attributable to properties managed for the Funds
for the periods indicated and excludes fees received from investors and
overhead allocations from Tenneco. Including Tenneco allocations
average net general and administrative expenses per Mcfe for the three
and six month periods ended June 30, 1996 would be $0.23 and $0.24,
respectively.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Oil and natural gas revenues decreased from $12.4 million in the second
quarter of 1996 to $9.1 million in the second quarter of 1997, a decrease of
$3.4 million, or 27.0%. Production volumes for oil and condensate increased from
123 MBbls in the second quarter of 1996 to 138 MBbls in the second quarter of
1997, an increase of 15 MBbls, or 12.2%. Production volumes for natural gas
decreased from 5.6 Bcf in the second quarter of 1996 to 3.4 Bcf in the second
quarter of 1997, a decrease of 2.2 Bcf, or 39.0%. The decrease in natural gas
production was primarily due to the sale of the ATP Partnership and the Cage
Ranch properties as well as natural declines in production from certain fields.
The decrease in total production decreased revenues by $3.7 million. This was
partially offset by an 8.7% increase in the average realized price received for
the Company's natural gas and a 9.5% decrease in the average realized price
received for the Company's oil and condensate. These changes in realized prices
increased revenues by $0.3 million.
The Company realized an average oil price of $17.85 per Bbl and an
average gas price of $2.03 per Mcf for the second quarter of 1997. Net of
hedging results, the Company realized average prices of $16.67 per Bbl and $1.99
per Mcf, respectively. For the second quarter of 1996, the Company realized an
average oil price of $20.57 per Bbl and an average gas price of $2.35 per Mcf.
Net of hedging results, the Company realized average prices of $18.43 per Bbl
and $1.83 per Mcf, respectively.
Revenues from IPF Activities decreased from $2.2 million in the second
quarter of 1996 to $1.0 million in the second quarter of 1997, a decrease of
$1.3 million, or 56.4%. This was the result of $1.5 million recorded in the
second quarter of 1996 for fees earned related to prepayments on two GasFund
financings. Excluding the effect of these fees, revenues from IPF Activities
increased by $0.3 million, or 42.9%, in the second quarter of 1997 primarily due
to increased financing activities.
Lease operating expenses increased from $2.0 million in the second
quarter of 1996 to $2.6 million in the second quarter of 1997, an increase of
$0.6 million, or 28.6%. On a per Mcfe basis, lease operating expenses increased
from $0.32 in the second quarter of 1996 to $0.59 in the second quarter of 1997,
an increase of $0.27, or 84.4%. Lease operating expenses were higher in the
second quarter of 1997 compared to the second quarter of 1996 as a result of the
Wasson Field acquisition completed by the Company in June, 1996. The Wasson
Field, which is in tertiary recovery, had a relatively low purchase price based
on reserves, but relatively high lease operating expenses.
Depreciation, depletion and amortization ("DD&A") expense declined from
$4.5 million in the second quarter of 1996 to $3.1 million in the second quarter
of 1997, a decrease of $1.4 million, or 30.1%. This was the result of lower oil
and gas production volumes.
General and administrative expense decreased from $1.0 in the second
quarter of 1996 to $0.8 million in the second quarter of 1997, a decrease of
$0.2 million, or 14.9%. This decrease was primarily due to a reduction in the
number of employees.
The corporate overhead allocation decreased from $0.8 million in the
second quarter of 1996 to zero in the second quarter of 1997 due to the
Acquisition and elimination of Tenneco's allocated overhead.
12
<PAGE>
Stock compensation expense increased from zero in the second quarter of
1996 to $1.1 million in the second quarter of 1997 due to the implementation of
the 1996 Stock Purchase and Option Plan for Key Employees of Domain Energy
Corporation and Affiliates (the "Stock Purchase and Option Plan").
Income tax expense decreased from $2.3 million in the second quarter of
1996 to zero in the second quarter of 1997. This decrease was primarily due to a
decrease in income before taxes from $6.1 million in the second quarter of 1996
to $0.7 million in the second quarter of 1997.
Net income was $3.9 million in the second quarter of 1996 compared to
$0.7 million in the second quarter of 1997 as a result of the factors described
above.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996.
Oil and natural gas revenues decreased from $28.1 million for the six
months ended June 30, 1996 to $21.8 million for the six months ended June 30,
1997, a decrease of $6.3 million or 22.3%. Production volumes for oil and
condensate increased from 239 MBbls for the six months ended June 30, 1996 to
279 MBbls for the six months ended June 30, 1997, an increase of 40 MBbls, or
16.7%. Production volumes for natural gas decreased from 11.4 Bcf for the six
months ended June 30,1996 to 7.1 Bcf for the six months ended June 30, 1997, a
decrease of 4.3 Bcf, or 38.0%. The decrease in natural gas production was
primarily due to the sale of the ATP Partnership and the Cage Ranch properties
as well as natural declines in production from certain fields. The decrease in
total production decreased revenues by $8.4 million. This was partially offset
by a 2.2% increase in realized oil prices and a 13.8% increase in realized
natural gas prices. These increases in prices increased revenues by $2.2
million.
The Company realized an average oil price of $19.70 per Bbl and an
average gas price of $2.40 per Mcf for the six months ended June 30, 1997. Net
of hedging results, the Company realized average prices of $17.88 per Bbl and
$2.39 per Mcf, respectively. For the six months ended June 30, 1996, the Company
realized an average oil price of $19.41 per Bbl and an average gas price of
$2.47 per Mcf. Net of hedging results, the Company realized average prices of
$17.50 per Bbl and $2.10 per Mcf, respectively
Revenues from IPF Activities decreased from $2.6 million for the six
months ended June 30, 1996 to $1.7 million for the six months ended June
30, 1997, a decrease of $0.9 million, or 33.8%. This was the result of $1.5
million recorded in the second quarter of 1996 for fees earned related to
prepayments on two GasFund financings. Excluding the effect of these fees,
revenues from IPF Activities increased by $0.8 million, or 54.5%, for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996,
primarily due to increased financing activities.
Lease operating expenses increased from $4.1 million for the six months
ended June 30, 1996 to $5.6 million for the six months ended June 30, 1997, an
increase of $1.5 million, or 36.5%. On a per Mcfe basis, lease operating
expenses increased from $0.32 for the six months ended June 30, 1996 to $0.63
for the six months ended June 30,1997, an increase of $0.31, or 96.9%. Lease
operating expenses were higher in the second quarter of 1997 as compared to the
second quarter of 1996 as a result of the Wasson Field acquisition completed in
June 1996. The Wasson Field, which is in tertiary recovery, had a relatively
low purchase price based on reserves, but relatively high lease operating
expenses.
DD&A expense declined from $12.1 million for the six months ended June
30, 1996 to $6.4 million for the six months ended June 30, 1997, a decrease of
$5.7 million, or 46.9%. This was the result of lower oil and gas production
volumes and a 26.3% decrease in the DD&A rate. The reduced DD&A rate was the
result of reduced cost basis attributable to the Company's oil and gas
properties purchased in the Acquisition.
General and administrative expense decreased from $2.1 million for the
six months ended June 30, 1996 to $1.6 million for the six months ended June 30,
1997, a decrease of $0.5 million, or 21.4%. This decrease was primarily due to a
reduction in the number of employees.
The corporate overhead allocation decreased from $1.7 million for the
six months ended June 30, 1996 to zero for the six months ended June 30, 1997
due to the Acquisition and elimination of Tenneco's allocated overhead.
Stock compensation expense increased from zero for the six months ended
June 30, 1996 to $4.2 million for the six months ended June 30, 1997 due to the
implementation of the Stock Purchase and Option Plan.
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Income tax expense decreased from $3.6 million for the six months ended
June 30, 1996 to $1.7 million for the six months ended June 30,1997, a decrease
of $1.9 million, or 52.0%. This decrease was primarily due to a decrease in
income before taxes from $10.2 million for the six months ended June 30, 1996 to
$2.1 million for the six months ended June 30, 1997. This decrease was partially
offset by an increase in the effective tax rate from 35% for the six months
ended June 30, 1996 to 83% for the six months ended June 30, 1997. This increase
in the effective tax rate was due to the tax treatment of certain portions of
stock compensation expense.
Net income was $6.6 million for the six months ended June 30, 1996
compared to $0.4 million for the six months ended June 30, 1997 as a result of
the factors described above.
LIQUIDITY, CAPITAL EXPENDITURES AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $32.0 and working capital of approximately $49.4 million. During
the second quarter of 1997, the Company's primary sources of cash were from its
initial public offering consummated on June 27, 1997 and its operating
activities. The primary uses of cash were the repayment of debt, exploration and
development capital expenditures, and IPF Program investments.
The Company had net cash inflows of $31.9 million for the six months
ended June 30, 1997, which consisted primarily of net cash inflows from the
issuance of common stock of $83.9 million, the sale of a restricted certificate
of deposit for $8.0 million, debt borrowings of $16.1 million, sale of non-core
assets of $5.2 million, IPF Program return of capital of $5.6 million and net
cash from operations of $9.1 million. These net cash inflows were offset by debt
repayments of $70.3 million, exploration and development capital expenditures of
$9.5 million and IPF Program expenditures of $16.4 million.
Net cash provided by operating activities decreased by $1.2 million to
$9.1 million for the six months ended June 30, 1997 from $10.3 million for the
six months ended June 30,1996, primarily due to lower natural gas production
offset by higher natural gas prices and the elimination of Tenneco's corporate
overhead allocation.
Cash flows used in investing activities for the six months ended June
30, 1997 decreased by $19.0 million to $6.8 million from $25.8 million for the
six months ended June 30, 1996, primarily due to lower exploration and
development capital expenditures, offset by proceeds from the sale of a
restricted certificate of deposit, IPF Program investments and sales of non-core
assets.
Total capital expenditures, including the IPF Program, were $25.8
million for the six months ended June 30, 1997. The Company's capital
expenditure budget for 1997 is approximately $125.0, and the Company expects to
spend the full budget for acquisitions, exploration and development capital
expenditures and IPF Program investments during 1997. Actual levels of capital
expenditures may vary significantly due to a variety of factors, including
drilling results, oil and gas prices, industry conditions, future acquisitions
and IPF Program activity. The 1997 capital budget includes funds for the July 1,
1997 acquisition of certain property interests, see "Notes to Consolidated and
Combined Financial Statements - Subsequent Events," and additional funds for
other possible 1997 acquisitions. The Company expects to selectively pursue
acquisition opportunities for proved reserves where it believes significant
operating improvement or exploration and exploitation potential exists.
The Company expects to fund its activities for the remainder of 1997
through a combination of cash flow from operations and the use of its revolving
credit facilities to borrow funds required from time to time to supplement
internal cash flows. Based upon the Company's current level of operations and
anticipated growth, management of the Company believes that available cash,
together with borrowings under the revolving credit facilities and cash provided
by operating activities, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures and payments of
principal and interest on its indebtedness. However, there can be no assurance
that such anticipated growth will be realized, that the Company's business will
generate sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Company to service its
indebtedness or make necessary capital expenditures.
On June 27, 1997, the Company issued 6,643,037 shares of its common
stock in connection with the initial public offering of its common stock ("IPO")
and the concurrent sale to First Reserve Fund VII, Limited Partnership
consummated simultaneously therewith. The net proceeds received by the Company
from the offering of these shares was $84.0 million. The following table shows
the use of the net proceeds received:
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USE OF PROCEEDS (IN MILLIONS)
- -----------------------------
Funds Acquisition .................... $ 28.7
Repayment of debt .................... 52.4
IPO closing costs .................... 1.3
Working capital ...................... 1.6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 29, 1997, MarkWest Michigan, Inc. ("MarkWest") filed
a demand for arbitration with the American Arbitration Association
seeking to enforce its alleged preferential purchase right with respect
to the Michigan Development Project and claiming that the sale by the
Company of its interest in a portion of the Michigan Development
Project should be declared void. The Company believes that MarkWest's
claim has no merit. On May 13, 1997, the Company filed an action in the
District Court of Harris County, Texas (234 Judicial District) against
MarkWest seeking to stay the arbitration proceedings initiated by
MarkWest on the basis that the Company was never a party to the
agreement under which MarkWest alleges it has the right to arbitrate
its dispute with the Company. Currently, all parties have voluntarily
tolled the arbitration proceeding to allow for a negotiated settlement.
The Company does not feel that the results of such negotiations will
materially impact the financial position or financial results of the
Company.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 3, 1997, First Reserve Fund VII, Limited Partnership
("Fund VII"), then the holder of 93.7% of the Company's outstanding
common stock, consented, pursuant to Section 228(a) of the General
Corporation Law of the State of Delaware (the "DGCL"), to the adoption
by the Company of the Amended and Restated 1996 Stock Purchase and
Option Plan for Key Employees of Domain Energy Corporation and
Affiliates. This matter was not submitted to any other stockholders of
the Company.
On June 19, 1997, Fund VII, then the holder of 93.7% of the
Company's outstanding common stock, consented, pursuant to Section
228(a) of the DGCL, to the adoption and filing of the Company's Amended
and Restated Certificate of Incorporation. This matter was not
submitted to any other stockholders of the Company.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits for a list of those exhibits filed
herewith, which index only includes those contracts executed or
becoming effective during the most recent period reflected in this
Report as allowed pursuant to Instruction 2 to Item 601(b)(10) of
Regulation S-K.
(b) The Company did not file any reports on Form 8-K during the second
quarter of 1997.
15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DOMAIN ENERGY CORPORATION
August 12, 1997 /s/ RICK G. LESTER
Rick G. Lester
Vice President, Chief
Financial Officer and
Treasurer
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INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Certificate of
Incorporation of the Company.
3.2 Second Amended and Restated By-laws
of the Company.
11.1 Statement Re Computation of Per Share
Earnings.
27.1 Financial Data Schedule.
17
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOMAIN ENERGY CORPORATION
DOMAIN ENERGY CORPORATION, a corporation duly incorporated by the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware on December 30, 1996 (the "Company"), desiring to amend
said Certificate of Incorporation, such amended and restated Certificate of
Incorporation having been duly adopted in accordance with Section 245 of the
General Corporation Law of the State of Delaware, hereby certifies as follows:
1. Said Certificate of Incorporation is hereby restated, integrated
and further amended to read in its entirety as follows:
FIRST: The name of the Corporation is Domain Energy Corporation.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware. The name of the registered agent of the Corporation
in the State of Delaware at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended (the
"DGCL").
FOURTH: The total number of shares of all classes of capital stock
which the Company shall have authority to issue is 30,000,000 shares, consisting
of
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(i) 5,000,000 shares of Preferred
Stock, $.01 par value per
share, and
(ii) 25,000,000 shares of Common
Stock, $.01 par value per share.
Except as otherwise provided by law, the shares of capital stock
of the Company, regardless of class, may be issued by the Company from time to
time in such amounts, for such lawful consideration and for such corporate
purpose(s) as the Board of Directors may from time to time determine.
Shares of Preferred Stock may be issued from time to time in one
or more series of any number of shares as may be determined from time to time by
the Board of Directors; provided that the aggregate number of shares issued and
not cancelled of any and all such series shall not exceed the total number of
shares of Preferred Stock authorized by this paragraph FOURTH. Each series of
Preferred Stock shall be distinctly designated. The Board of Directors is hereby
expressly granted authority to fix, in the resolution or resolutions providing
for the issuance of a particular series of Preferred Stock, the voting powers,
if any, of each such series, and the designations, preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof to the fullest extent now
or hereafter permitted by this Amended and Restated Certificate of Incorporation
and the laws of the State of Delaware.
Subject to the provisions of applicable law or of the Company's
By-Laws with respect to the closing of the transfer books or the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided by law, by this Amended and Restated Certificate of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred Stock as aforesaid, the
holders of outstanding shares of Common Stock shall exclusively possess the
voting power for the election of directors of the Company and for all other
purposes as prescribed by applicable law, with each holder of record of shares
of Common Stock having voting power being entitled to one vote for each share of
Common Stock registered in his or its name on the books, registers and/or
accounts of the Company.
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FIFTH: In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in this Amended and
Restated Certificate of Incorporation, by-laws of the Corporation may be
adopted, amended or repealed by a majority of the board of directors of the
Corporation, but any by-laws adopted by the board of directors may be amended or
repealed by the stockholders entitled to vote thereon. Election of directors
need not be by written ballot.
SIXTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, or (ii) for
acts or omissions which are not in good faith or which involve intentional
misconduct or knowing violation of the law, or (iii) for any matter in respect
of which such director shall be liable under Section 174 of Title 8 of the DGCL
or any amendment thereto or successor provision thereto, or (iv) for any
transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption of
any provision of the Certificate of Incorporation inconsistent with this
paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this paragraph (a) of this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
(b) The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to, or testifies in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative in nature, by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permitted by law, and the Corporation may enter into
agreements with any such person for the purpose of providing for such
indemnification.
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2. Upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware (the
"Effective Time"), each share of the Common Stock, par value $0.01 per share, of
the Company issued and outstanding immediately prior to the Effective Time
shall, automatically by operation of law and without any further action on the
part of the Company or any holders of shares of capital stock of the Company, be
converted into and become 754 validly issued, fully paid and non-assessable
shares of the Common Stock, par value $.01 per share, of the Company authorized
for issuance pursuant to this Amended and Restated Certificate of Incorporation.
3. This Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of sections 242 and 245 of
the DGCL, and has been duly adopted by a written consent of the stockholders of
the Company in accordance with the provisions of Section 228(a) of the DGCL.
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<PAGE>
IN WITNESS WHEREOF, Domain Energy Corporation, has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Michael V. Ronca, its President and Chief Executive Officer, and attested to by
Catherine L. Sliva, its Executive Vice President and Secretary, on this 20th
day of June 1997.
DOMAIN ENERGY CORPORATION
By: /s/ MICHAEL V. RONCA
Michael V. Ronca
President and CEO
Attest:
/s/ CATHERINE L. SLIVA
Catherine L. Sliva
Executive Vice President and Secretary
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
BY-LAWS
OF
DOMAIN ENERGY CORPORATION
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders for
the transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by stockholders holding together at
least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.
SECTION 3. NOTICE OF MEETINGS. Written notice of all meetings of the
stockholders, stating the place, date and hour of the meeting and the place
within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is to be held.
SECTION 4. STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled
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to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. QUORUM. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a VicePresident, or,
if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting
2
<PAGE>
shall appoint any person present to act as secretary of the meeting.
SECTION 7. VOTING; PROXIES; REQUIRED VOTE. (a) At each meeting of
stockholders, every stockholder shall be entitled to vote in person or by proxy
appointed by instrument in writing, subscribed by such stockholder or by such
stockholder's duly authorized attorney-in-fact (but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period), and, unless the Certificate of Incorporation provides otherwise,
shall have one vote for each share of stock entitled to vote registered in the
name of such stockholder on the books of the Corporation on the applicable
record date fixed pursuant to these By-laws. At all elections of directors the
voting may but need not be by ballot and a plurality of the votes cast there
shall elect. Except as otherwise required by law or the Certificate of
Incorporation, any other action shall be authorized by a majority of the votes
cast.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate of
Incorporation, be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of record of the issued and outstanding capital stock of
the Corporation having a majority of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted, and the writing or writings are filed with the permanent
records of the Corporation. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 8. INSPECTORS. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take
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<PAGE>
and sign an oath faithfully to execute the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. QUALIFICATION; NUMBER; TERM; REMUNERATION. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be six
(6), or such larger number as may be fixed from time to time by action of the
stockholders or Board of Directors, one of whom may be selected by the Board of
Directors to be its Chairman. The use of the phrase "entire Board" herein refers
to the total number of directors which the Corporation would have if there were
no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
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<PAGE>
(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 3. QUORUM AND MANNER OF VOTING. Except as otherwise provided
by law, a majority of the entire Board shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
from time to time to another time and place without notice. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall be elected by a majority of the directors
present and shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors.
SECTION 5. PLACES OF MEETINGS. Meetings of the Board of Directors
may be held at any place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board of Directors, or as may be
specified in the notice of meeting.
SECTION 6. ANNUAL MEETING. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
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SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President
or by a majority of the directors then in office.
SECTION 9. NOTICE OF MEETINGS. A notice of the place, date and time
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director by mailing the same at least two days before the special
meeting, or by telegraphing or telephoning the same or by delivering the same
personally not later than the day before the day of the meeting.
SECTION 10. ORGANIZATION. At all meetings of the Board of Directors,
the Chairman, if any, or if none or in the Chairman's absence or inability to
act the President, or in the President's absence or inability to act any
Vice-President who is a member of the Board of Directors, or in such
Vice-President's absence or inability to act a chairman chosen by the directors,
shall preside. The Secretary of the Corporation shall act as secretary at all
meetings of the Board of Directors when present, and, in the Secretary's
absence, the presiding officer may appoint any person to act as secretary.
SECTION 11. RESIGNATION. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation. Any or all of the directors may be removed, with or without cause,
by the holders of a majority of the shares of stock outstanding and entitled to
vote for the election of directors.
SECTION 12. VACANCIES. Unless otherwise provided in these By-laws,
vacancies on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors or
otherwise, may be filled by the affirmative vote of a majority of the remaining
directors, although less than a quorum, or by a sole remaining director, or at a
special meeting of the stockholders, by the holders of shares entitled to vote
for the election of directors.
SECTION 13. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or
6
<PAGE>
writings are filed with the minutes of proceedings of the Board of Directors.
ARTICLE III
COMMITTEES
SECTION 1. APPOINTMENT. From time to time the Board of Directors by
a resolution adopted by a majority of the entire Board may appoint any committee
or committees for any purpose or purposes, to the extent lawful, which shall
have powers as shall be determined and specified by the Board of Directors in
the resolution of appointment.
SECTION 2. PROCEDURES, QUORUM AND MANNER OF ACTING. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. TERM; TERMINATION. In the event any person shall cease to
be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION AND QUALIFICATIONS. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
7
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Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
of rank or function), a Treasurer and such assistant secretaries, such Assistant
Treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these By-laws and as may be assigned by the Board of Directors or the President.
Any two or more offices may be held by the same person.
SECTION 2. TERM OF OFFICE AND REMUNERATION. The term of office of
all officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. RESIGNATION; REMOVAL. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the entire Board.
SECTION 4. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
shall be the chief executive officer of the Corporation, and shall have such
duties as customarily pertain to that office. The President shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees; and may execute and deliver in the name
of the Corporation powers of attorney, contracts, bonds and other obligations
and instruments.
SECTION 5. VICE-PRESIDENT. A Vice-President may execute and deliver
in the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
8
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SECTION 6. TREASURER. The Treasurer shall in general have all duties
incident to the position of treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 7. SECRETARY. The Secretary shall in general have all the
duties incident to the office of secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 8. ASSISTANT OFFICERS. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE V
BOOKS AND RECORDS
SECTION 1. LOCATION. The books and records of the Corporation may be
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-laws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. ADDRESSES OF STOCKHOLDERS. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
stockholder at the stock- holder's address as it appears on the records of the
Corporation.
SECTION 3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by the
Board of Directors, the
9
<PAGE>
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in this State, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
law, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days
10
<PAGE>
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
ARTICLE VI
CERTIFICATES REPRESENTING STOCK
SECTION 1. CERTIFICATES; SIGNATURES. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertifi- cated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate, signed by or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, representing the number of shares
registered in certificate form. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
The name of the holder of record of the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the books of
the Corporation.
SECTION 2. TRANSFERS OF STOCK. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
11
<PAGE>
SECTION 3. FRACTIONAL SHARES. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue a new certificate of stock in place of any certificate, theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
DIVIDENDS
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion,
12
<PAGE>
thinks proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interest of the Corporation, and the Board of Directors may modify or abolish
any such reserve in the manner in which it was created.
ARTICLE VIII
RATIFICATION
Any transaction, including any transaction questioned in any lawsuit
on the ground of lack of authority, defective or irregular execution, adverse
interest of director, officer or stockholder, non-disclosure, miscomputation, or
the application of improper principles or practices of accounting, may be
ratified before or after judgment, by the Board of Directors or by the
stockholders, and if so ratified shall have the same force and effect as if the
questioned transaction had been originally duly authorized. Such ratification
shall be binding upon the Corporation and its stockholders and shall constitute
a bar to any claim or execution of any judgment in respect of such transaction.
ARTICLE IX
CORPORATE SEAL
The corporate seal, if there be one, shall have inscribed thereon
the name of the Corporation and the year of its incorporation, and shall be in
such form and contain such other words and/or figures as the Board of Directors
shall determine. The corporate seal may be used by printing, engraving,
lithographing, stamping or otherwise making, placing or affixing, or causing to
be printed, engraved, lithographed, stamped or otherwise made, placed or
affixed, upon any paper or document, by any process whatsoever, an impression,
facsimile or other reproduction of said corporate seal.
13
<PAGE>
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these By-laws or by the
Certificate of Incorporation or by law, a written waiver thereof, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. BANK ACCOUNTS AND DRAFTS. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary financial
officer or any person designated by said primary financial officer, whether or
not an employee of the Corporation, may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the primary financial officer.
SECTION 2. CONTRACTS. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS. The
Chairman, the President or any other person designated by either of them shall
have the power and
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<PAGE>
authority to execute and deliver proxies, powers of attorney and other
instruments on behalf of the Corporation in connection with the rights and
powers incident to the ownership of stock by the Corporation. The Chairman, the
President or any other person authorized by proxy or power of attorney executed
and delivered by either of them on behalf of the Corporation may attend and vote
at any meeting of stockholders of any company in which the Corporation may hold
stock, and may exercise on behalf of the Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, or
otherwise as specified in the proxy or power of attorney so authorizing any such
person. The Board of Directors, from time to time, may confer like powers upon
any other person.
SECTION 4. FINANCIAL REPORTS. The Board of Directors may appoint the
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case may
be, which may be required by any provision of law.
ARTICLE XIII
AMENDMENTS
The Board of Directors shall have power to adopt, amend or repeal
By-laws. By-laws adopted by the Board of Directors may be repealed or changed,
and new By-laws made, by the stockholders, and the stockholders may prescribe
that any By-law made by them shall not be altered, amended or repealed by the
Board of Directors.
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
PRIMARY EARNINGS (NOTE A:)
Income before extraordinary loss
and cumulative effect of
accounting changes ........................ $ 673 $ 354
------ --------
Subtotal .................................... 673 354
------ --------
Net income applicable to
common stock .............................. $ 673 $ 354
====== ========
SHARES:
Weighted average number
of common shares outstanding .............. 7,880 8,093
Assuming conversion of dilutive
stock options ............................. 715 783
------ --------
Weighted average number of common
shares outstanding as adjusted ............ 8,595 8,876
====== ========
PRIMARY EARNINGS PER COMMON SHARE:
Net income .................................. $ .08 $ .08
====== ========
FULLY DILUTED EARNINGS (NOTE A:)
Net income applicable to common stock ....... $ 673 $ 354
Interest expense, net of tax,
related to dilutive convertible debt ...... -- --
------ --------
Net income as adjusted ...................... $ 673 $ 354
====== ========
SHARES:
Weighted average number of common
shares outstanding ........................ 7,880 8,093
Assuming conversion of dilutive
convertible debt .......................... -- --
Assuming conversion of dilutive
stock options ............................. 715 783
------ --------
Weighted average number of common
shares outstanding as adjusted ............ 8,595 140,622
====== ========
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net income .................................. $ .08 $ .04
====== ========
Note A: This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because it results in dilution of less than 3%.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996 JUN-30-1997 JUN-30-1996
<CASH> 31,958 0 0 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 6,690 0 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 54,328 0 0 0
<PP&E> 72,879 0 0 0
<DEPRECIATION> 6,095 0 0 0
<TOTAL-ASSETS> 148,463 0 0 0
<CURRENT-LIABILITIES> 4,879 0 0 0
<BONDS> 25,166 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 143 0 0 0
<OTHER-SE> 116,187 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 148,463 0 0 0
<SALES> 23,063 30,796 9,057 14,653
<TOTAL-REVENUES> 23,063 30,796 9,057 14,653
<CGS> 0 0 0 0
<TOTAL-COSTS> 6,355 4,673 2,882 2,267
<OTHER-EXPENSES> 12,275 15,901 5,051 6,260
<LOSS-PROVISION> 4,433 20,574 1,908 6,126
<INTEREST-EXPENSE> 2,344 0 1,235 0
<INCOME-PRETAX> 2,089 10,222 673 6,126
<INCOME-TAX> 1,735 3,613 0 2,271
<INCOME-CONTINUING> 354 6,609 673 3,855
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 354 6,609 673 3,855
<EPS-PRIMARY> .04 .00 .08 .00
<EPS-DILUTED> .04 .00 .08 .00
</TABLE>
