SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 16, 1998
(Date of earliest event reported)
FORMAN PETROLEUM CORPORATION
(Exact name of Registrant as specified in charter)
Louisiana 333-31375 72-0954774
(State of Incorporation) (Commission File No.) (IRS Employee
Identification No.)
650 Poydras Street
Suite 2200, New Orleans, Louisiana 70130
Address of Principal Executive Offices) (Zip Code)
Registrant's telephone no., including area code: (504) 586-8888
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. Other Events.
On October 16, 1998, Forman Petroleum Corporation filed a
Complaint against Jefferies & Company, Inc. in the United States District
Court in and for the Eastern District of Louisiana. A copy of the
Complaint and the press release announcing the filing of the Complaint
are filed as Exhibits 99.2 and 99.3, respectively and are incorporated herein
by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
Exhibit No. Description Page No.
99.2 Complaint filed on October 16, 1998 with Filed Herewith
the United States District Court in and
for the Eastern District of Louisiana
99.3 Press Release Filed Herewith
<PAGE>
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.
FORMAN PETROLEUM CORPORATION
Dated: October 20, 1998 By: /s/ McLain J. Forman
McLain J. Forman
Chairman of the Board,
Chief Executive Officer
and President
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
99.2 Complaint filed on October 16, 1998 with Filed Herewith
the United States District Court in and
for the Eastern District of Louisiana
99.3 Press Release Filed Herewith
EXHIBIT 99.2
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
FORMAN PETROLEUM CORPORATION * CIVIL ACTION NO.
*
Plaintiff, * SECTION
*
VERSUS * JURY TRIAL
* DEMANDED
JEFFERIES & COMPANY, INC., *
*
Defendant. *
*
* * * * * * * * * * * * * * * * * *
<PAGE>
*
COMPLAINT
Plaintiff, Forman Petroleum Corporation ("Forman"),
through undersigned counsel, brings this action for relief under
state law and alleges as follows:
PARTIES
1.
The plaintiff, Forman, is a corporation organized under
the laws of the State of Louisiana with its principal place of
business in New Orleans, Louisiana.
2.
The defendant, Jefferies & Company, Inc., ("Jefferies")
is a corporation incorporated under the laws of the State of
Delaware with its principal place of business in Los Angeles,
California.
JURISDICTION AND VENUE
3.
Jurisdiction exists under 28 U.S.C. Section 1332 in that
the matter in controversy exceeds, exclusive of interest and costs,
the sum of seventy-five thousand dollars, and there is complete
diversity of citizenship between the plaintiff and the defendant.
4.
Venue is proper in this judicial district under 28
U.S.C. Section 1391(a).
GENERAL ALLEGATIONS
5.
Forman is an independent petroleum company engaged in
the business of oil and gas exploration and production in South
Louisiana.
6.
Forman's complaint arises out of conduct of Jefferies
acting as exclusive financial advisor to and placement agent for
Forman in connection with the recapitalization of Forman through
offerings of debt and equity securities (hereinafter sometimes
referred to as the "recapitalization"), and Jefferies' unauthorized
conduct following the recapitalization.
7.
Prior to the recapitalization that forms the basis of
this complaint, Forman had debt obligations approaching maturity.
8.
By the fall of 1996, Forman was considering several
recapitalization alternatives that were intended to raise capital to
retire existing debt and to fund exploration and development
activities.
9.
The Forman directors and officers had no experience in
recapitalizations. Therefore, Forman directors sought out
experienced investment bankers to assist it in this endeavor.
10.
Jefferies held itself out to the public to be
experienced and expert in advising clients in connection with
recapitalizations. Jefferies also held itself out to the public to
be experienced and expert in advising clients with respect to debt
offerings and equity offerings. Jefferies claimed special
proficiency in advising clients in the oil and gas industry.
11.
Based on these representations, Forman retained
Jefferies as its exclusive financial advisor and investment banker
in connection with a proposed recapitalization. Jefferies in fact
advised Forman on, among other things, a proposed recapitalization
that Jefferies represented would best enable Forman to realize its
objectives of retiring debt and raising working capital to fund
exploration and development activities, and on the methods of
financing available to meet those objectives.
12.
Jefferies' responsibilities as exclusive financial
advisor to Forman in connection with the proposed recapitalization
included, among other things: (1) conducting a financial review of
the business and operations of Forman in connection with the
recapitalization; (2) providing financial advice in connection with
the recapitalization; (3) advising Forman on formulating,
negotiating, and evaluating the terms of the recapitalization. In
addition, Jefferies was to assist Forman in raising the financing
necessary to complete the recapitalization.
13.
Jefferies was aware at all times that its advice would
be relied on by Forman for the purpose of effecting a long term
solution to its working capital needs, and that Forman would rely on
Jefferies' experience and expert advice and opinions. Jefferies
knew that Forman, in order to maintain future exploration and
development flexibility, could not encumber its oil and gas
properties with security interests.
14.
Discussions between Jefferies and Forman on Forman's
recapitalization alternatives occurred in January and February of
1997. Jefferies was aware that Forman's existing indebtedness
matured in June of 1997. During these discussions, Jefferies
advised Forman that a debt offering was the best recapitalization
alternative for Forman. The terms of the proposed offering called
for Forman to issue $50 million of unsecured, subordinated notes
along with warrants for the purchase of Forman's authorized but
unissued common stock. Jefferies advised Forman that it was
confidant it could place the notes at an interest rate of about 12
percent with warrants for the purchase of Forman common stock
representing between 3 and 5 percent of the total issued and
outstanding common stock, and that the funds generated by the
offering would provide Forman with sufficient funds to retire
existing debt and for working capital to fund exploration and
development activities.
15.
Based on Jefferies' advice, Forman pursued the proposed
debt offering as a solution to its recapitalization needs.
16.
During March of 1997, Jefferies representatives and
Forman representatives met on several occasions to finalize the
terms of the proposed debt offering. Based on Jefferies' advice,
the terms of the proposed debt offering were changed on or about
March 26, 1997 from a $50 million offering of unsecured,
subordinated notes to a $65 million offering of unsecured, senior
notes. Jefferies continued to express confidence that it could
place the unsecured notes. Forman relied upon Jefferies'
representations that the debt offering, as proposed, would be
successful and that Forman would be in a better financial position
as a result of that offering.
17.
Beginning on April 29, 1997 and ending on May 8, 1997,
representatives of Jefferies and Forman travelled to several cities
to conduct "road show" presentations of the proposed debt offering
for potential purchasers. Upon information and belief, at one of
these presentations, a Jefferies representative, without any
authority from Forman, informed a potential purchaser that Forman
would consider providing collateral for the notes. Immediately
following the presentation, Forman informed Jefferies that Forman
would not provide a security interest on its oil and gas properties
as collateral for the proposed debt offering. Indeed, Jefferies was
well aware that a fundamental aspect of Forman's agreement to the
original terms proposed by Jefferies for the debt offering was that
the notes would be unsecured. At no time during this period did
Jefferies ever indicate any loss of confidence in its ability to
place unsecured debt.
18.
On information and belief, representatives of Jefferies,
acting in the capacity for which they were retained by Forman,
communicated with potential purchasers of the proposed debt offering
in the days and weeks following the "road show" presentations.
Jefferies had the primary, if not exclusive, direct contact with
potential purchasers. Forman had virtually no direct contact with
potential purchasers. On information and belief, during their
communications with potential purchasers, representatives of
Jefferies, without authority from Forman, told potential purchasers
that the notes would be collateralized by security interests in all
of the oil and gas properties owned by Forman at that time.
19.
During the same period, Jefferies did not advise Forman
that the success of the debt offering would depend on providing
collateral in the form of security interests in Forman's oil and gas
properties. Forman received no communications from Jefferies
regarding the response of potential purchasers to the proposed terms
of the debt offering, in spite of Forman's direct request for such
information, for several critical weeks following the presentations.
At no time during this period did Jefferies ever indicate any loss
of confidence in its ability to place unsecured debt.
20.
In early May, Forman learned that Jefferies had
continued to represent to potential purchasers of the proposed debt
offering that the notes would be collateralized by security
interests in Forman's oil and gas properties. Jefferies did not
inform Forman that the terms of the offering presented to potential
purchasers conflicted with the terms as represented to Forman on
this critical aspect of the debt offering.
21.
On May 15, 1997, in response to inquiries from Forman
about representations made by Jefferies to potential purchasers,
Jefferies sent to Forman a revised summary of terms for the debt
offering. A few days later, Jefferies sent to Forman another
revised term sheet. Through these documents, Jefferies disclosed
to Forman for the first time that the offering terms presented by
Jefferies to potential purchasers were substantially different from
the terms that Jefferies had represented to Forman. These
differences in terms included the following:
A. The amount of the debt offering was increased to
$70 million and the interest rate on the notes was increased from 12
percent to 13.5 percent, notwithstanding the fact that general
interest rates had been falling.
B. The issuance of the notes was to include the
issuance of warrants to purchase 15 percent of the fully diluted
common stock of Forman at a nominal price.
C. The notes were to be collateralized by security
interests in all of Forman's oil and gas properties. Moreover, the
new terms subjected Forman to onerous covenants which further
restricted Forman's financial flexibility by effectively preventing
Forman from undertaking farmouts necessary to manage geological
risk; inhibiting Forman's ability to undertake asset swaps necessary
to manage price risks; severely limiting the use of proceeds from
the sale of assets; and effectively preventing Forman from obtaining
any bank financing.
D. The offering was to include the issuance of $10
million of preferred stock bearing an annual dividend of 15 percent,
the proceeds of which would be escrowed to cover the first year's
interest on the notes. In addition, the preferred stock issue was
to include the issuance of additional warrants to purchase 7.5
percent of the fully diluted common stock of Forman at a nominal
price.
22.
Shortly after the time it disclosed to Forman the
substantial changes referenced in paragraph 21 above, Jefferies also
demanded that its own fees be substantially increased to include an
additional cash payment of $1.9 million for "financial advisory
fees" and warrants to be issued directly to Jefferies entitling it
to purchase 2.5 percent of the fully diluted common stock of Forman
at a nominal price. On the day the offerings closed, Jefferies
demanded and received an increased fee for the preferred stock
offering equal to 8 percent of the amount of the offering.
23.
Jefferies knew or should have known that the change in
terms, the increase in interest rates, the increase in fees, the
increase in the amounts of the debt and equity offerings, and the
increase in the number of warrants to be issued fundamentally
altered the financial soundness of the recapitalization plan and, if
the plan were consummated, it likely would leave Forman with
substantially more debt but insufficient working capital for
exploration and development activities. In addition, Jefferies knew
that consummation of the plan would allow holders of the warrants
(including itself) to purchase 25 percent of the common stock of
Forman for the total price of only $48,445.
24.
By the time Jefferies disclosed these material changes
in the offering to Forman it was no longer feasible for Forman to
undertake any other recapitalization alternatives prior to the
maturity of its existing debt.
25.
Jefferies was well aware that its fees were entirely
dependent on completion of the offerings and knew that the approval
of the offerings by Forman was the only way that it would be
entitled to its fees.
26.
On or about June 3, 1997, the Board of Directors of
Forman met and, in reliance on the advice of Jefferies, approved the
offer, issuance, and sale of the debt and equity securities.
27.
By advising Forman to recapitalize through the proposed
offering, Jefferies caused Forman to enter into the ill-advised
offering of high yield debt and equity securities.
28.
As a result of the ill-advised offerings, Forman's
financial obligations increased from $45 million to $80 million and
additional financing options were foreclosed by the security
interests provided as collateral for the notes. After the payment
of trade payables and after offering fees and expenses, the offering
generated only $500,000 of working capital available for its
exploration and development activities -- the generation of which
was a primary reason for pursuing the offering in the first place.
At the same time, Jefferies demanded and was paid $5.5 million in
fees for the transaction. In addition, the issuance of the
preferred stock required that Forman convert from "S-Corporation"
status to "C-Corporation" status, thereby depriving Forman of the
substantial tax benefits associated with its them existing $10
million net operating loss carryforward. But for the acts of
Jefferies with regard to its financial advice to Forman on the
proposed restructuring, Forman would be in a far better financial
position today.
29.
The previously described acts and omissions by Jefferies
were in large part motivated by huge fees it sought and obtained and
were conducted without sufficient regard for a safe and suitable
capital restructuring desired by Forman.
30.
Following consummation of the offerings, Jefferies,
acting without authority from Forman, used confidential knowledge
and information it had obtained as Forman's financial advisor for
its own benefit by attempting to arrange a merger or other
combination of Forman with another corporation. This conduct by
Jefferies exacerbated the damage already incurred by Forman as a
result of its reliance on Jefferies' advice.
COUNT I
Breach of Fiduciary Duty
31.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
32.
Because of the experience and expertise of Jefferies in
investment banking and providing financial advice, particularly in
advising clients in connection with recapitalization of companies in
the oil and gas industry and in the debt market, and in financing
the recapitalization, Forman placed substantial trust and confidence
in Jefferies and in its superior knowledge, sophistication, and
experience in theses types of matters, as its agent for purposes of
the recapitalization.
33.
As the financial advisor to Forman, Jefferies owed
fiduciary duties to Forman. These fiduciary duties required
Jefferies to exercise diligence and care in discharging its duties
and responsibilities and to act in the best interest of Forman.
34.
Jefferies breached the fiduciary duty it owed to Forman
in the following, non-exclusive ways:
(a) Jefferies advised Forman to enter into a
recapitalization transaction which Jefferies knew or
should have known was not in Forman's best interest;
(b) Jefferies intentionally misled Forman by
failing to disclose to Forman, until after Forman had no
viable alternatives, that the debt offering could not be
sold unless it included unfavorable terms and was
collateralized; and
(c) Jefferies placed its own interests ahead of
Forman's interests and abused its role of investment
adviser by acting to maximize its own fees resulting
from the transaction, and by using confidential
information obtained in that role for its benefit and to
Forman's detriment.
35.
Jefferies' breaches of its fiduciary duties resulted in
benefit to Jefferies and caused damages to Forman.
COUNT II
Breach of Contract
36.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
37.
Jefferies owed a contractual obligation to Forman to
exercise care in providing advice in connection with Forman's
financial recapitalization. Jefferies breached these obligations
and, accordingly, is liable for resulting damages, including such
punitive damages as may be established.
COUNT III
Detrimental Reliance
38.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
39.
Jefferies knew or had reason to know that Forman would
rely on its representations that it could place unsecured debt on
favorable terms. Because Forman reasonably relied on Jefferies'
representations to its detriment, Jefferies is liable for Forman's
resulting damages.
COUNT IV
Negligence
40.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
41.
Jefferies owed Forman a duty to use due care under the
circumstances in advising Forman on its corporate financial
recapitalization.
42.
Jefferies failed to use due care under the circumstances
in advising Forman on its corporate financial recapitalization,
including but not limited to the acts and omissions described in
paragraphs 5 through 30, supra.
43.
Jefferies' failure to use due care under the
circumstances caused damage to Forman.
COUNT V
Intentional Misrepresentation
44.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
45.
Jefferies intentionally misrepresented material facts
and omitted to state material facts in connection with its role as
financial advisor to Forman on its corporate financial
recapitalization.
46.
Jefferies' misrepresentations of material facts include,
but are not limited to, Jefferies' repeated representations that it
could place unsecured debt on favorable terms and in an amount
sufficient to generate enough funds to meet Forman's financial
obligations and needs; Jefferies' representations that a $70
million offering would be sufficient to meet Forman's financial
obligations and needs; Jefferies' representations that the debt
offering could be sold without unfavorable terms, including
collateralization, while representing to potential purchasers,
without authorization from Forman, that the notes would be
collateralized; and Jefferies' representations that the offerings in
their final terms would be in Forman's best interest.
47.
The material facts that Jefferies intentionally omitted
to disclose to Forman include, but are not limited to: that
Jefferies had informed potential purchasers that the notes would be
collateralized; that the $70 million offering would be insufficient
to meet Forman's financial obligations and needs; that Jefferies'
fees would substantially increase. Jefferies failed to disclose
these material facts until Forman was so deeply committed to the
offering that Forman had no viable alternatives.
48.
Forman reasonably relied to its detriment on Jefferies'
misrepresentations and omissions of material facts.
49.
Forman was damaged by Jefferies' intentional
misrepresentations and omissions of material fact and therefore is
entitled to damages and attorney's fees under the applicable law.
COUNT VI
Negligent Misrepresentation
50.
Forman incorporates in this claim for relief the
allegations of paragraphs 1 through 30 as though fully set forth
herein.
51.
Jefferies negligently misrepresented material facts and
omitted to state material facts in connection with its role as
financial advisor Forman on its corporate financial restructuring.
52.
Jefferies' misrepresentations of material facts include,
but are not limited to, Jefferies' repeated representations that it
could place unsecured debt in an amount sufficient to generate
enough funds to meet Forman's financial obligations and needs;
Jefferies' representations that $70 million offering would be
sufficient to meet Forman's financial obligations and needs;
Jefferies' representation that the debt offering could be sold
without unfavorable terms, including collateralization, while
representing to potential purchasers, without authority from Forman,
that the notes would be collateralized; and Jefferies'
representations that the offerings in their final terms would be in
Forman's best interest.
53.
The material facts that Jefferies omitted to state
include, but are not limited to: that Jefferies had informed
potential purchasers that the loans would be collateralized; that
the $70 million offering would be insufficient to meet Forman's
financial obligations and needs; and that Jefferies' fees would
substantially increase. Jefferies omitted to state these material
facts until Forman was so deeply committed to the offering that
Forman had no viable alternatives.
54.
Forman reasonably relied to its detriment on Jefferies'
misrepresentations and omissions of material facts.
55.
Forman was damaged by Jefferies negligent
misrepresentations and omissions.
JURY DEMAND
Forman demands trial by jury.
PRAYER FOR RELIEF
Forman prays that, after due proceedings, there be
judgment in favor of Forman and against Jefferies:
a. for such damages as will be shown at trial;
b. for all other relief to which Forman may be
entitled.
Respectfully submitted,
/s/ Phillip A. Wittmann
Phillip A. Wittmann (13625) T.A.
John M. Landis (7958)
Of
STONE, PIGMAN, WALTHER,
WITTMANN & HUTCHINSON, L.L.P.
546 Carondelet Street
New Orleans, Louisiana 70130
Telephone: (504) 581-3200
Attorneys For Forman Petroleum
Corporation
EXHIBIT 99.3
FOR IMMEDIATE RELEASE Date: October 19, 1998
Contact: Michael Price
Chief Financial Officer
Phone: (504) 586-8888
Fax: (504) 522-1796
Email: [email protected]
Forman Petroleum Corporation (the "Company"), filed a Complaint on
Friday, October 16, 1998 against Jefferies & Company, Inc. ("Jefferies") in the
United States District Court in and for the Eastern District of Louisiana. The
Complaint asserts causes of action against Jefferies for breach of fiduciary
duty, breach of contract, detrimental reliance, negligence, intentional
misrepresentation, and negligent misrepresentation in connection with a 1997
debt and equity offering by the Company. The Company is seeking damages in an
amount to be determined at trial. Although the Company is confident that the
Complaint is well founded in law and fact, there can be no assurance that the
Company will prevail in the lawsuit.
Forman Petroleum Corporation is headquartered at 650 Poydras Street,
Suite 2200, New Orleans, Louisiana.
