UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-31375*
FORMAN PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0954774
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
650 POYDRAS STREET - SUITE 2200 (504) 586-8888
New Orleans, Louisiana 70130-6101 (Registrant's telephone number
(Address of principal executive including area code)
offices)(Zip Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ X ] No [ ].
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 for 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 [ X ] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 30, 2000, there were 1,000,008 shares of the Registrant's
Voting Common Stock, no par value outstanding.
* THE COMMISSION FILE NUMBER REFERS TO A FORM S-4 REGISTRATION STATEMENT
FILED BY THE REGISTRANT UNDER THE SECURITIES ACT OF 1933, WHICH BECAME
EFFECTIVE SEPTEMBER 26, 1997.
<PAGE>
FORMAN PETROLEUM CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
PART II 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 17
MATTERS
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 25
PART III 25
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 25
ITEM 11. EXECUTIVE COMPENSATION 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 30
PART IV. 31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 31
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Forman Petroleum Corporation (the "Company") is an independent energy
company engaged in the acquisition, exploration, development, exploitation
and production of crude oil and natural gas in the Gulf Coast Basin. The
Company emerged from Chapter 11 protection of the United States Bankruptcy
Code on December 29, 1999 after operating as a debtor-in-possession since
August 6, 1999.
The Company currently has interests in five fields onshore in south
Louisiana. The fields are Lake Enfermer, Boutte, Manila Village, Bayou Fer
Blanc, and West Gueydan. These five fields have cumulative production of
approximately 154 MMBoe and contain complex geologic structures that are
well suited to 3-D seismic surveys and interpretation to identify potential
reserves. Since 1994, the Company has acquired and processed over 74 square
miles of 3-D seismic data over these fields.
The Company currently operates three fields, Lake Enfermer, Boutte,
and Manila Village, where it is actively exploring for and developing oil
and natural gas reserves. The Company owns a weighted average working
interest of 91% in the three fields it operates, which enables the Company
to control the timing and implementation of all exploitation and
exploration activities in those fields. The Company owns seismic data, but
no current lease rights, in the Bayou Fer Blanc Field. In the remaining
field, West Gueydan, the Company assigned all of its leases comprising the
West Gueydan Field to the West Gueydan Field Partnership, a Texas limited
partnership in which the Company is the sole limited partner.
As of December 31, 1999, the Company had estimated proved reserves in
the Lake Enfermer, Boutte, and Manila Village fields of 19.0 Bcf of natural
gas and 1.6 MMBbls of oil, or an aggregate of approximately 4.8 MMBOE, with
a present value of estimated pre-tax future net cash flows discounted at
10% of $36.4 million (based upon prices at December 31, 1999). On a BOE
basis, 75% of the Company's reserves as of that date were classified as
proved developed and the Company's reserve to production ratio was five
years. In addition to proved undeveloped reserves, the Company has an
inventory of what it believes are significant unproven exploratory
prospects in the Lake Enfermer, Bayou Fer Blanc and Manila Village fields
that have been identified by the Company through the application of 3-D
seismic technology.
The Company believes that it can identify new drilling opportunities
in its fields by combining 3-D seismic survey data with other technologies,
including CAEX technology, as well as other available geological and
engineering data. The Company's advanced visualization and data analysis
techniques and sophisticated computing resources enable its geoscientists
to view collectively large volumes of information contained within the 3-D
seismic data. These techniques and resources also allow the Company's
geoscientists to more easily identify features such as shallow and deep
amplitude anomalies, complex channel systems, sharp structural details and
fluid contacts, which might have been overlooked using less sophisticated
3-D seismic data interpretation techniques. The Company has made a
significant investment in its 3-D seismic data visualization technology,
which is closely linked with the Company's well-log database and other
geoscience application software. The Company uses a series of Microsoft NT
workstations, and has licensed Seismic Micro-Technology's Kingdom software
for interpreting the geophysical data on the 3-D workstations, as well as
for analysis, mapping and interpretation of geological data.
The Company's technological success is dependent in part upon hiring
and retaining highly skilled technical personnel. The Company has assembled
a technical team that it believes has the capacity to adapt to the rapidly
changing technological demands in the field of oil and natural gas
exploration. This team consists of six geoscientists and engineers with an
average of 25 years industry experience, primarily concentrated in the Gulf
Coast region. The expertise of the Company's team of geoscientists and
engineers reduces its dependence on outside technical consultants and
enables the Company to internally generate substantially all of its
prospects.
<PAGE>
RECENT DEVELOPMENTS
On August 6, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the "Bankruptcy
Court") (Case No. 99-14319). On November 22, 1999, the Company and certain
of its creditors filed a Second Amended Joint Plan of Reorganization, as
amended on December 29, 1999 (collectively, the "Bankruptcy Plan"). The
Bankruptcy Plan was confirmed by the Bankruptcy Court on December 29, 1999
and consummated effective January 14, 2000.
In connection with the consummation of the Bankruptcy Plan, all of the
members of the Company's Board of Directors, other than McLain J. Forman,
resigned. In accordance with the Bankruptcy Plan, the Company's new Board
of Directors consists of Nicholas Tell, Jr., Chairman of the Board, Jerry
W. Box, Jeffrey Clark and McLain J. Forman.
Pursuant to the Bankruptcy Plan, on January 14, 2000, all of the
Company's issued and outstanding securities were canceled and the Company
issued the following equity securities in approximately the following
amounts:
_ 925,000 shares of common stock, no par value (the "Common
Stock" ), to the former holders of the Company's 13.5% Series
B Senior Notes due 2004 (the "Senior Notes" );
_ 75,000 shares of Common Stock to the former holders of the
Company's Series A Cumulative Preferred Shares (the "Preferred
Stock"); and
_ warrants to purchase up to 500,000 shares of Common Stock to
certain former warrant holders of the Company and to McLain J.
Forman, the former sole voting shareholder of the Company.
See "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters."
Pursuant to the Bankruptcy Plan, on January 14, 2000, the Company paid
in full in cash approximately $300,000 of allowed convenience claims.
Furthermore, the Company has issued to the general unsecured creditors of
the Company an aggregate of approximately $2.7 million of promissory notes
payable over three years and bearing interest at the rate of 8% per year.
The Company is disputing approximately $3 million in additional pre-
petition bankruptcy claims. These claims and certain other residual
bankruptcy-related matters are still within the jurisdiction of the
Bankruptcy Court. There can be no assurance as to the amount the Company
will be required to pay with respect to these matters.
On the effective date of the Bankruptcy Plan, the Company's articles
of incorporation and by-laws were amended and restated.
BUSINESS STRATEGY
The Company's business strategy is to expand its proven reserves,
production and cash flow through a disciplined technology-based program of
exploitation and exploration for crude oil and natural gas, emphasizing the
following key competitive strengths:
MONTE CARLO SIMULATIONS - The Company uses Monte Carlo simulations to
analyze each exploration drilling prospect and identify the most attractive
wells on a risk/return basis. As the Company obtains new drilling results,
it will update its simulations and, if necessary, revise its drilling
program.
<PAGE>
RISK SHARING - The Company intends to reduce its current high working
interests in its drilling prospects to 50% or less by entering into
agreements with one or more oil companies who will share the drilling
risks. These farmouts will allow the Company to spread its drilling
expenditures across a larger number of drilling prospects and realize the
benefits from greater drilling diversification. The Company will strive to
retain operating control but will actively pursue a program whereby it will
acquire farm-in or joint venture partners for its existing properties and
will consider reciprocal participation in other attractive exploration
ventures.
TECHNOLOGICAL EXPERTISE - Many of the fields in south Louisiana are
ideally suited for the application of 3-D seismic data surveys to interpret
the large structures of the area, using an exploitation technique in which
the Company has extensive experience. The geological complexities in the
Lake Enfermer Field have in the past made conventional interpretation very
difficult. The Company uses 3-D seismic data in this field combined with
existing well control and production information for its interpretations.
In addition to enhancing the interpretations of structures, the Company
uses 3-D seismic data to optimize its well programs.
INVENTORY OF EXPLORATORY DRILLING PROSPECTS - In addition to proved
undeveloped reserves, the Company has an inventory of what it believes are
significant unproven exploratory prospects. These exploratory prospects
have been identified through the application of 3-D seismic technology in
the Company's Lake Enfermer Field, Bayou Fer Blanc Field, West Gueydan and
Manila Village Fields. During the past year, third party petroleum
engineering firms completed an extensive review of the Company's geological
and geophysical interpretations of the Company's unproved exploratory
prospects. The Company believes that additional exploratory prospects will
be identified as soon as a 3-D survey has been completed at the Boutte
Field.
GEOGRAPHIC SPECIALIZATION - The Company focuses its operations in the
environmentally sensitive coastal marshlands of south Louisiana. The
Company's reputation for preserving the integrity of these marshlands and
its years of experience in this area have enabled the Company to acquire
fields owned by landowners who restrict and carefully monitor all
operations on their property. This same expertise in south Louisiana has
also enabled the Company to successfully conclude joint ventures, farmout
agreements and purchases of oil and gas properties with large independent
and major exploration and production companies operating in the south
Louisiana area.
SIGNIFICANT PROJECT AREAS
Set forth below are descriptions of the Company's south Louisiana
fields where it is actively exploring for and developing oil and natural
gas reserves and in many cases currently has production. The 3-D surveys
which the Company is using to analyze its project areas range from regional
non-proprietary group shoots to single field proprietary surveys.
The Company is continually evaluating its exploration and development
prospects and will drill those considered to have the highest potential.
The final determination with respect to the drilling of any scheduled or
budgeted wells will be dependent on a number of factors, including (i)
results of the exploration efforts and the acquisition, review and analysis
of the seismic data, (ii) the availability of sufficient capital resources
by the Company and the other participants for the drilling of the
prospects, (iii) the approval of the prospects by the other participants
after additional data has been compiled, (iv) economic and industry
conditions at the time of drilling, including prevailing and anticipated
prices for oil and natural gas and the availability of drilling rigs and
crews, (v) the financial resources and operating results of the Company and
(vi) the availability of leases on reasonable terms and regulatory
permitting for the prospect. There can be no assurance that any of the
Company's projects can be successfully developed or that any scheduled or
budgeted wells will, if drilled, encounter reservoirs of commercially
productive oil and natural gas.
LAKE ENFERMER FIELD - The Lake Enfermer Field is located on a deep,
complexly faulted, salt structure in Lafourche Parish in a coastal marsh
that is subsiding and grading into an open bay environment. The Company has
acquired leases on 3,650 acres in this field since 1992, has an average 89%
working interest in, and is the operator of the field. The field was first
discovered in 1955 by Olin Gas Production. Through December 1999, the
field has produced more than 31.8 MMBoe. The acquisition of the field
included two production facilities and one satellite location. In 1997, the
Company built an additional production facility that cost approximately
$0.5 million. These three processing centers are located approximately 1.5
miles apart from each other and are adequate to service all of the
Company's anticipated wells. Upon the acquisition of the field, the
Company used its extensive database of 2-D seismic data to drill and
complete three wells in 1993 and 1994 (two of which are currently
productive) for a cost of $5.3 million.
<PAGE>
The Company determined that an extensive 3-D survey of the Lake
Enfermer Field area was necessary to optimally develop the field. In April
1995, the Company commenced a 33 square mile proprietary 3-D survey
encompassing the entire Lake Enfermer Field for the purpose of better
identifying additional reserve potential and more accurately determining
drilling locations. The 3-D survey resulted in the identification of
numerous drilling opportunities. The Company utilized this seismic data to
drill and complete three wells in 1996 at a cost of $12.3 million. The
first post-3-D survey well, spudded in January 1996, logged over 200 feet
of productive sands and was successfully completed as a dually producing
oil well in March 1996. The second and third post-3-D survey wells, spudded
in April and July 1996, together logged over 312 feet of productive sands.
The Company drilled and completed two additional wells in 1997 and drilled
and temporarily suspended operations on one well pending further
evaluation.
MANILA VILLAGE FIELD - The Manila Village Field is located in
Jefferson Parish in a brackish water marsh environment. The Company
acquired leases on 825 acres in this field in 1991 from Manila Village
Production Company. The Company has an average 65% working interest in and
is the operator of the field. The field was first discovered by Whitestone
in 1949 and through December 1999, the field had produced 35 MMBoe. The
Company undertook a 12 square mile 3-D survey over the area and the data
from that survey has been interpreted by the Company.
BOUTTE FIELD - The Boutte Field is located in a fresh water marsh in
St. Charles Parish. All well locations are accessible by roads. The Company
acquired leases on 3,250 acres in 1992 from Texaco and Apache and has a
100% working interest in this field, which it operates. Discovered by
Texaco in 1953, through December 1999 the field had produced a total of 36
MMBoe with a production mix of 45% natural gas and 55% oil. In 1997, the
Company recompleted five wells, and during 1998, the company successfully
recompleted one additional well. During the first two months of 1999, the
Company drilled and successfully completed another gas well in the Boutte
Field.
BAYOU FER BLANC FIELD- The Bayou Fer Blanc Field is located in
Lafourche Parish, adjacent to the Lake Enfermer Field. In 1997, the Company
purchased a 100% working interest in the Bayou Fer Blanc Field, which it
now operates. Although classified as two distinct fields, the Lake Enfermer
Field and the Bayou Fer Blanc Field have produced from a single geologic
structure. Texaco discovered the Bayou Fer Blanc Field in 1959 and through
December 1999, the field had produced 17 MMBoe. The Company completed a 25
square mile proprietary 3-D seismic survey of the Bayou Fer Blanc Field in
1996, which was integrated with the 33 square mile 3-D seismic survey of
the Lake Enfermer Field for a total of 58 contiguous square miles for the
two fields. The Company's initial analysis of the 3-D survey suggests
numerous undrilled amplitude anomalies with exploratory potential. The
Company drilled one unsuccessful exploratory well in this field in 1997.
WEST GUEYDAN FIELD - The West Gueydan Field is located in rice fields
in Vermilion Parish on a deep salt structure. In 1997, the Company
purchased a 100% working interest in 1,180 acres in the field. The field
includes a wellbore that has been cleaned out to total depth and is
available for re-entry and sidetracking. Magnolia Oil Company discovered
the field in 1938 and through December 1999, the field had produced over 36
MMBoe. The Company has an extensive 2-D seismic data grid of the field and
recently acquired additional 3-D seismic data.
In December 1998, the Company assigned all of its leases comprising
the West Gueydan Field to the West Gueydan Field Partnership (the "Gueydan
Partnership"), a Texas limited partnership. The Company is the sole
limited partner of the Gueydan Partnership, with a 50.505% interest, and
Prime Natural Resources, Inc. ("Prime") is the sole general partner of the
Gueydan Partnership, with the remaining 49.495% interest. The initial
exploratory well was drilled and logged non-commercial by the Gueydan
Partnership in 1999. On October 4, 1999, the Gueydan Partnership entered
into an agreement with Cobra Exploration Company ("Cobra"). The Gueydan
Partnership retains a 25% working interest in all operations by Cobra
pursuant to the agreement, subject to the terms and conditions of an
operating agreement between the parties. The agreement requires Cobra to
spud a well on or before May 1, 2000 at a location and to designated depths
on certain leases covering approximately 100 acres in the West Gueydan
Field. Through the Gueydan Partnership, the Company will have a net 15%
carried working interest in the proposed well to casing point.
<PAGE>
ACQUISITION, PRODUCTION AND DRILLING ACTIVITY
ACQUISITION AND DEVELOPMENT COSTS - The following table sets forth
certain information regarding the costs incurred by the Company in its
acquisition and development activities during the periods indicated:
</TABLE>
<TABLE>
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YEAR END DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
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Acquisition costs $ 82 $ 0 $ 6,100
Development costs 1,746 2,119 4,105
Exploratory costs 3,346 2,414 18,464
----- ----- ------
Total costs incurred $ 5,174 $ 4,533 $ 28,669
===== ===== ======
</TABLE>
DRILLING ACTIVITY - The following table sets forth the wells drilled
and completed by the Company during the periods indicated:
<TABLE>
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YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
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Development:
Productive 1.0 1.0 0.0 0.0 0.0 0.0
Non-productive 0.0 0.0 0.0 0.0 1.0 1.0
--- --- --- --- --- ---
Total 1.0 1.0 0.0 0.0 1.0 1.0
--- --- --- --- --- ---
Exploratory:
Productive 0.0 0.0 0.0 0.0 2.0 2.0
Non-productive 1.0 0.5 0.0 0.0 1.0 1.0
--- --- --- --- --- ---
Total 1.0 0.5 0.0 0.0 3.0 3.0
--- --- --- --- --- ---
Total:
Productive 1.0 1.0 0.0 0.0 2.0 2.0
Non-productive 1.0 0.5 0.0 0.0 2.0 2.0
--- --- --- --- --- ---
Total 2.0 1.5 0.0 0.0 4.0 4.0
--- --- --- --- --- ---
</TABLE>
PRODUCTIVE WELL SUMMARY - The following table sets forth the Company's
ownership in productive wells at December 31,1999. Gross oil and gas wells
include one well with multiple completions. Wells with multiple
completions are counted only once for purposes of the following table:
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Productive Wells
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Gross Net
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Gas 7.0 6.7
Oil 15.0 12.3
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Total 22.0 19.0
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OIL AND GAS MARKETING
All of the Company's natural gas is sold at current market prices,
either under monthly spot price contracts or under longer term contracts
that dedicate the natural gas from a property or a well to a single
purchaser for an extended period of time at a fixed price for the period.
The Company's oil and natural gas condensate production is sold at current
market prices under short term contracts providing for market sensitive
prices. From time to time, the Company may enter into transactions hedging
the price of oil. See "Item 7. Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 7A. Quantitative
and Qualitative Disclosures About Market Risk."
<PAGE>
COMPETITION AND MARKETS
The Company operates in a highly competitive environment. The Company
competes with major and independent oil and natural gas companies for the
acquisition of desirable oil and natural gas properties, as well as for the
equipment and labor required to develop and operate such properties. The
Company also competes with major and independent oil and natural gas
companies in the marketing and sale of oil and natural gas to marketers and
end-users. Many of these competitors have financial and other resources
substantially greater than those of the Company.
The marketability of the Company's production depends upon the
availability and capacity of gas gathering systems, pipelines and
processing facilities, and the unavailability or lack of capacity thereof
could result in the shut-in of producing wells or the delay or
discontinuance of development plans for properties. In addition, federal
and state regulation of oil and natural gas production and transportation,
general economic conditions and changes in supply and demand could
adversely affect the Company's ability to produce and market its oil and
natural gas on a profitable basis.
REGULATION
GENERAL - Various aspects of the Company's oil and natural gas
operations are subject to extensive and continually changing regulation, as
legislation affecting the oil and natural gas industry is under constant
review for amendment or expansion. Numerous departments and agencies, both
federal and state, are authorized by statute to issue, and have issued,
rules and regulations binding upon the oil and natural gas industry and its
individual members. The Federal Energy Regulatory Commission (''FERC'')
regulates the transportation and sale for resale of natural gas in
interstate commerce pursuant to the Natural Gas Act of 1938 (''NGA'') and
the Natural Gas Policy Act of 1978 (''NGPA''). In the past, the Federal
government has regulated the prices at which oil and natural gas could be
sold. While sales by producers of natural gas and all sales of crude oil,
condensate and natural gas liquids can currently be made at uncontrolled
market prices, Congress could reenact price controls in the future.
Deregulation of wellhead sales in the natural gas industry began with the
enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas
Wellhead Decontrol Act (the ''Decontrol Act''). The Decontrol Act removed
all remaining NGA and NGPA price and nonprice controls affecting wellhead
sales of natural gas effective January 1, 1993.
REGULATION OF OIL AND NATURAL GAS EXPLORATION AND PRODUCTION -
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such
regulations include requiring permits and drilling bonds for the drilling
of wells, regulating the location of wells, the method of drilling and
casing wells, and the surface use and restoration of properties upon which
wells are drilled. Many states also have statutes or regulations addressing
conservation matters, including provisions for the utilization or pooling
of oil and natural gas properties, the establishment of maximum rates of
production from oil and natural gas wells and the regulation of spacing,
plugging and abandonment of such wells. Some state statutes limit the rate
at which oil and natural gas can be produced from the Company's properties.
See ''Cautionary Statements-Compliance with Governmental Regulations.''
NATURAL GAS MARKETING, GATHERING, PROCESSING AND TRANSPORTATION -
Federal legislation and regulatory controls in the United States have
historically affected the price of natural gas and the manner in which such
production is marketed. Commencing in April 1992, the FERC issued Order
Nos. 636, 636-A, 636-B and 636-C (''Order No. 636''), which require
interstate pipelines to provide transportation separate, or ''unbundled,''
from the pipelines' sales of natural gas. Also, Order No. 636 requires
pipelines to provide open-access transportation on a basis that is equal
for all natural gas supplies. Although Order No. 636 does not directly
regulate the Company's activities, the FERC has stated that it intends for
Order No. 636 to foster increased competition within all phases of the
natural gas industry. It is unclear what impact, if any, increased
competition within the natural gas industry under Order No. 636 will have
on the Company's activities. Although Order No. 636 could provide the
Company with additional market access and more fairly applied
transportation service rates, Order No. 636 could also subject the Company
to more restrictive pipeline imbalance tolerances and greater penalties for
violation of those tolerances.
<PAGE>
In many instances, the results of Order No. 636 and related
initiatives have been to substantially reduce or eliminate the interstate
pipelines' traditional role as wholesalers of natural gas in favor of
providing only storage and transportation services. Order No. 636 has been
implemented on all interstate pipelines. In July 1996, the United States
Court of Appeals for the District of Columbia Circuit largely upheld Order
No. 636. The Supreme Court denied certiorari on May 12, 1997. Certain
issues, however, were remanded to the FERC by the District of Columbia
Circuit. On remand, the FERC in Order No. 636-C reaffirmed some elements of
Order No. 636 and modified others. Order No. 636-C may be the subject of
further proceedings at the FERC and is subject to appeal. Numerous parties
also have filed petitions for review of orders in individual pipeline
restructuring proceedings. Upon judicial review, the FERC's orders may be
remanded or reversed in whole or in part. Consequently, it is difficult to
predict Order No. 636's ultimate effects.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including the appropriate manner in
which interstate pipelines release capacity under Order No. 636 and, more
recently, the price that shippers can charge for their released capacity.
In addition, in 1995, FERC issued a policy statement on how interstate
natural gas pipelines can recover the costs of new pipeline facilities. In
January 1996, the FERC issued a policy statement and a request for comments
concerning alternatives to its traditional cost-of-service ratemaking
methodology. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. While any additional FERC
action on these matters would affect the Company only indirectly, these
policy statements and proposed rule changes are intended to further enhance
competition in natural gas markets. In February 1997, the FERC announced a
broad inquiry into issues facing the natural gas industry to assist the
FERC in establishing regulatory goals and priorities in the post-Order No.
636 environment. The Company cannot predict what action the FERC will take
on these matters, nor can it predict whether the FERC's actions will
achieve its stated goal of increasing competition in natural gas markets.
However, the Company does not believe that it will be treated materially
differently than other natural gas producers and marketers with which it
competes.
Regulation of onshore natural gas gathering activities is primarily a
matter of state oversight. Regulation of natural gas gathering and
transportation activities, depending upon the state involved, may include
various transportation, safety, rate, environmental and non-discriminatory
purchase and transport requirements.
OIL SALES AND TRANSPORTATION RATES - Sales prices of crude oil and
natural gas liquids by the Company are not regulated. The price the Company
receives from the sale of these products may be affected by the cost of
transporting the products to market. Effective January 1995, the FERC
implemented regulations establishing an indexing system under which oil
pipelines will be able to change their transportation rates, subject to
prescribed ceiling levels. The indexing system generally indexes such rates
to inflation, subject to certain conditions and limitations. The Company is
not able at this time to predict the effects of these regulations, if any,
on the transportation costs associated with oil production from the
Company's oil producing operations.
Additional proposals and proceedings that might affect the oil and
natural gas industry are pending before the FERC and the courts. The
Company cannot predict when or whether any such proposals may become
effective. In the past, the natural gas industry has been heavily
regulated. There is no assurance that the regulatory approach currently
pursued by the FERC will continue indefinitely.
OPERATING HAZARDS AND ENVIRONMENTAL MATTERS - The oil and natural gas
business involves a variety of operating risks, including the risk of fire,
explosions, blow-outs, pipe failure, casing collapse, abnormally pressured
formations and hazards such as oil spills, natural gas leaks, ruptures and
discharges of toxic gases. The occurrence of any of these operating risks
could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property and equipment, pollution
or other environmental damage, including damage to natural resources,
clean-up responsibilities, penalties and suspension of operations. Such
hazards may hinder or delay drilling, development and on-line operations.
<PAGE>
Extensive federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of
the environment affect the Company's oil and natural gas operations.
Numerous governmental departments issue rules and regulations to implement
and enforce such laws, which are often difficult and costly to comply with
and which carry substantial penalties for failure to comply. Some laws,
rules and regulations relating to protection of the environment may, in
certain circumstances, impose ''strict liability'' for environmental
contamination, rendering a person liable for environmental damages and
cleanup costs without regard to negligence or fault on the part of such
person. Other laws, rules and regulations may restrict the rate of oil and
natural gas production below the rate that would otherwise exist or even
prohibit exploration and production activities in sensitive areas. In
addition, state laws often require various forms of remedial action to
prevent pollution, such as closure of inactive pits and plugging of
abandoned wells. The regulatory burden on the oil and natural gas industry
increases its cost of doing business and consequently affects its
profitability. The Company believes that it is in substantial compliance
with current applicable environmental laws and regulations and that
continued compliance with existing requirements will not have a material
adverse impact on the Company's operations. However, environmental laws and
regulations have been subject to frequent changes over the years, and the
imposition of more stringent requirements could have a material adverse
effect upon the capital expenditures, earnings or competitive position of
the Company.
The Comprehensive Environmental Response, Compensation and Liability
Act (''CERCLA''), also known as ''Superfund,'' imposes liability, without
regard to fault or the legality of the original conduct, on certain classes
of persons that are considered to be responsible for the release of a
''hazardous substance'' into the environment. These persons include the
current or former owner or operator of the disposal site or sites where the
release occurred and companies that disposed or arranged for the disposal
of hazardous substances. Under CERCLA, such persons may be subject to joint
and several liability for the costs of investigating and cleaning up
hazardous substances that have been released into the environment, for
damages to natural resources and for the costs of certain health studies.
In addition, companies that incur Superfund liability frequently also
confront third party claims because it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by hazardous substances or other
pollutants released into the environment from a Superfund site.
The Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 (''RCRA''), regulates the generation,
transportation, storage, treatment and disposal of hazardous wastes and can
require cleanup of hazardous waste disposal sites. RCRA currently excludes
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of oil and natural gas from
regulation as ''hazardous waste.'' However, other wastes handled at
exploration and production sites may not fall within this exclusion.
Disposal of non-hazardous oil and natural gas exploration, development and
production wastes usually is regulated by state law.
Stricter standards for waste handling and disposal may be imposed on
the oil and natural gas industry in the future. From time to time
legislation has been proposed in Congress that would revoke or alter the
current exclusion of exploration, development and production wastes from
the RCRA definition of ''hazardous wastes,'' thereby potentially subjecting
such wastes to more stringent handling, disposal and cleanup requirements.
If such legislation were enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and natural gas industry
in general. Furthermore, although petroleum, including crude oil and
natural gas, is exempt from CERCLA, at least two courts have ruled that
certain wastes associated with the production of crude oil may be
classified as ''hazardous substances'' under CERCLA. The impact of future
revisions to environmental laws and regulations cannot be predicted.
The Oil Pollution Act of 1990 (''OPA'') provides that persons
responsible for facilities and vessels (including the owners and operators
of onshore facilities) are subject to strict joint and several liability
for cleanup costs and certain other public and private damages arising from
a spill of oil into waters of the United States. OPA establishes a
liability limit for onshore facilities of $350.0 million. However,
facilities located in coastal waters may be considered ''offshore''
facilities subject to greater liability limits under OPA (all removal costs
plus $75.0 million). In addition, a party cannot take advantage of this
liability limit if the spill was caused by gross negligence or willful
misconduct or resulted from a violation of a federal safety, construction
or operating regulation. If a party fails to report a spill or cooperate in
the cleanup, liability limits likewise do not apply. OPA also imposes other
requirements on facility owners and operators, such as the preparation of
an oil spill response plan. Failure to comply with ongoing requirements or
inadequate cooperation in a spill event may subject the responsible party
to civil or criminal enforcement actions.
<PAGE>
The OPA also imposes financial responsibility requirements on the
person or persons statutorily responsible for certain facilities. On March
25, 1997, the U.S. Minerals Management Service (''MMS'') proposed new
regulations to implement these financial responsibility requirements, and
final regulations were issued by the MMS, which became effective October
13, 1998. Under the final regulations issued by the MMS, oil production and
storage facilities that are located in wetlands adjacent to coastal waters
could be required to demonstrate various levels of financial ability to
reimburse governmental entities and private parties for costs that they
could incur in responding to an oil spill, if the MMS determines that
spills from those particular facilities could reach coastal waters.
Although the Company owns and operates oil production and storage
facilities in wetland areas in southern Louisiana, the Company has
determined that, at this time, only one of the Company's facilities
(located in the Lake Enfermer Field) will be subject to the financial
responsibility requirements imposed by the MMS. The amount of financial
responsibility that the Company will have to demonstrate (under the MMS's
rules) will be $10.0 million, an amount that the Company believes it can
satisfy utilizing insurance without any negative impact on its financial
condition or cost of doing business.
The Federal Water Pollution Control Act (''FWPCA'') imposes
restrictions and strict controls regarding the discharge of produced waters
and other oil and natural gas wastes into navigable waters. Permits must be
obtained to discharge pollutants to waters and to conduct construction
activities in waters and wetlands. The FWPCA and similar state laws provide
for civil, criminal and administrative penalties for any unauthorized
discharges of pollutants and unauthorized discharges of reportable
quantities of oil and other hazardous substances. Many state discharge
regulations and the Federal National Pollutant Discharge Elimination System
general permits prohibit the discharge of produced water and sand, drilling
fluids, drill cuttings and certain other substances related to the oil and
natural gas industry to coastal waters. Although the costs to comply with
recently-enacted zero discharge mandates under federal or state law may be
significant, the entire industry is expected to experience similar costs
and the Company believes that these costs will not have a material adverse
impact on the Company's financial conditions and operations. In 1992 the
EPA adopted regulations requiring certain oil and natural gas exploration
and production facilities to obtain permits for storm water discharges.
Costs may be associated with the treatment of wastewater or developing and
implementing storm water pollution prevention plans.
The Company's operations are also subject to the Clean Air Act
(''CAA'') and comparable state and local requirements. Amendments to the
CAA were adopted in 1990 and contain provisions that may result in the
gradual imposition of certain pollution control requirements with respect
to air emissions from operations of the Company. The Company may be
required to incur certain capital expenditures in the next several years
for air pollution control equipment in connection with obtaining and
maintaining operating permits and approvals for air emissions. However, the
Company does not believe its operations will be materially adversely
affected by any such requirements, and the requirements are not expected to
be any more burdensome to the Company than to other similarly situated
companies involved in oil and natural gas exploration and production
activities.
OPERATIONAL RISKS AND INSURANCE
The oil and natural gas business involves a variety of operating
risks, including the risk of fire, explosions, blow-outs, pipe failure,
casing collapse, abnormally pressured formations and hazards such as oil
spills, natural gas leaks, ruptures or discharges of toxic gases. The
occurrence of any of these operating risks could result in substantial
losses to the Company due to injury or loss of life, severe damage to or
destruction of property and equipment, pollution or other environmental
damage, including damage to natural resources, clean-up responsibilities,
penalties and suspension of operations. In accordance with customary
industry practice, the Company maintains insurance against some, but not
all, of the risks described above, including insuring the cost of clean-up
operations, public liability and physical damage. There can be no assurance
that any insurance obtained by the Company will be adequate to cover any
losses or liabilities or that such insurance will continue to be available
in the future or that such insurance will be available at premium levels
that justify its purchase. The occurrence of a significant event not fully
insured or indemnified against could have a material adverse effect on the
Company's financial condition and operations.
EMPLOYEES
On December 31, 1999, the Company employed 31 people, including 18
that work in the Company's various field offices. None of the Company's
employees are covered by a collective bargaining agreement, and the Company
believes that its relationships with its employees are satisfactory. From
time to time the Company utilizes the services of independent contractors
to perform various field and other services.
<PAGE>
CAUTIONARY STATEMENTS
Certain statements made in this Report that are not historical facts
are "forward-looking statements" as defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward-looking statements may include statements that relate
to:
* our objectives, business plans or strategies, and projected or
anticipated benefits or other consequences of such plans or
strategies;
* projected or anticipated benefits from future or past acquisitions;
and
* projections involving anticipated capital expenditures or revenues,
earnings or other aspects of capital projects or operating results.
Also, you can generally identify forward-looking statements by such
terminology as "may," "will," "expect," "believe," "anticipate," "project,"
"estimate" or similar expressions. We caution you that such statements are
only predictions and not guarantees of future performance or events. In
evaluating these statements, you should consider various risk factors,
including but not limited to the risks listed below. These risk factors
may affect the accuracy of the forward-looking statements and the
projections on which the statements are based.
All phases of our operations are subject to a number of uncertainties,
risks and other influences, many of which are beyond our control. Any one
of such influences, or a combination, could materially affect the results
of our operations and the accuracy of forward-looking statements made by
us. Some important factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in
our forward-looking statements include the following:
* dependence on exploratory drilling activities, uncertainties about
the estimates of reserves and the need to replace reserves;
* the volatility of prices of oil and gas;
* drilling and operating hazards, including the significant
possibility of accidents resulting in personal injury, property
damage or environmental damage;
* the effect on our performance of regulatory programs and
environmental matters;
* the continued active participation of our executive officers and
key operating personnel.
Many of these factors are beyond our ability to control or predict.
We caution investors not to place undue reliance on forward-looking
statements. We disclaim any intent or obligation to update the forward-
looking statements contained in this Report, whether as a result of
receiving new information, the occurrence of future events or otherwise.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in
their entirety by the foregoing.
<PAGE>
A more detailed discussion of certain of the foregoing factors
follows:
DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES - The success of the
Company will be materially dependent upon the success of its exploratory
drilling program. Exploratory drilling involves numerous risks, including
the risk that no commercially productive oil or gas reservoirs will be
encountered. The cost of drilling, completing and operating wells is often
uncertain, and drilling operations may be curtailed, delayed or canceled as
a result of a variety of factors, including unexpected drilling conditions,
pressure or irregularities in formations, equipment failures or accidents,
adverse weather conditions, compliance with governmental requirements and
shortages or delays in the availability of drilling rigs and the delivery
of equipment. The use of 3-D seismic data and other advanced technologies
does not enable the interpreter to determine whether hydrocarbons are in
fact present in subsurface structures that may be identified. In addition,
the use of 3-D seismic data and other advanced technologies requires
greater pre-drilling expenditures than traditional drilling strategies, and
the Company could incur losses as a result of such expenditures. Moreover,
the Company may identify prospects through a number of methods that do not
include interpretation of 3-D seismic data or the use of other advanced
technologies. The Company's future drilling activities may not be
successful, and if unsuccessful, such failure will have a material adverse
effect on the Company's results of operations and financial condition.
There can be no assurance that the Company's overall drilling success rate
or its drilling success rate for activity within a particular project area
will not decline. The Company may choose not to acquire option and lease
rights prior to acquiring seismic data and may identify a prospect or
drilling location before seeking option or lease rights in the prospect or
location. Although the Company has identified or budgeted for numerous
drilling prospects, there can be no assurance that such prospects will ever
be drilled (or drilled within the scheduled time frame) or that oil or
natural gas will be produced from any such prospects or any other
prospects.
VOLATILITY OF OIL AND NATURAL GAS PRICES - Revenues generated from the
Company's operations are highly dependent upon the price of, and demand
for, oil and natural gas. Historically, the markets for oil and natural
gas have been volatile and are likely to continue to be volatile in the
future. Prices for oil and natural gas are subject to wide fluctuations in
response to relatively minor changes in the supply of and demand for oil
and natural gas, market uncertainty and a variety of additional factors
that are beyond the control of the Company. These factors include the
level of consumer product demand, weather conditions, domestic and foreign
governmental regulations, the price and availability of alternative fuels,
local and international political conditions, including Middle East, the
foreign supply of oil and natural gas, the price of foreign imports and
overall economic conditions. It is impossible to predict future oil and
natural gas price movements with any certainty. Declines in oil and
natural gas prices may materially adversely affect the Company's financial
condition, liquidity and results of operations. Lower oil and natural gas
prices also may reduce the amount of the Company's oil and natural gas that
can be produced economically. In order to reduce its exposure to price
risks in the sale of its oil and natural gas, the Company enters into
hedging arrangements from time to time; however, the Company's hedging
arrangements apply to only a portion of its production and provide only
limited price protection against fluctuations in the oil and natural gas
markets.
FULL COST ACCOUNTING - The Company uses the full cost method of
accounting for its investment in oil and natural gas properties. Under the
full cost method of accounting, all costs of acquisition, exploration and
development of oil and natural gas reserves are capitalized into a "full
cost pool" as incurred, and properties in the pool are depleted and charged
to operations using the future gross revenues method based on the ratio of
current gross revenue to total proved future gross revenues, computed based
on current prices. To the extent that such capitalized costs (net of
accumulated depreciation, depletion and amortization) less deferred taxes
exceed the present value (using a 10% discount rate) of estimated future
net cash flow from proved oil and natural gas reserves, and the lower of
cost and fair value of unproved properties after income tax effects, excess
costs are charged to operations. Once incurred, a writedown of oil and
natural gas properties is not reversible at a later date even if oil or
natural gas prices increase. The Company wrote down its oil and gas
properties at December 31, 1997 by $10 million, and further wrote down its
oil and gas properties at June 30, 1998 by an additional $12 million. As
of December 31, 1998 the Company again wrote down its oil and gas
properties by $7.6 million. Significant downward revisions of quantity
estimates or declines in oil and natural gas prices that are not offset by
other factors could result in a further write down of oil and natural gas
properties.
<PAGE>
REPLACEMENT OF RESERVES - In general, the volume of production from
oil and natural gas properties declines as reserves are depleted. Except
to the extent the Company acquires properties containing proved reserves or
conducts successful development and exploration activities, or both, the
proved reserves of the Company will decline as reserves are produced. The
Company's future oil and natural gas production is, therefore, highly
dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves
is capital intensive. The Company's ability to maintain or expand its asset
base in the future is largely dependent upon the ability of the Company to
make the necessary capital investment. There can be no assurance that the
Company's future development, acquisition and exploration activities will
result in additional proved reserves or that the Company will be able to
drill productive wells at acceptable costs.
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES -
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the
control of the producer. The reserve data set forth in this Report
represents only estimates. Reservoir engineering is a subjective process
of estimating underground accumulations of oil and natural gas that cannot
be measured in an exact manner. Estimates of economically recoverable oil
and natural gas reserves and of future net cash flows necessarily depend
upon a number of variable factors and assumptions, such as historical
production from the area compared with production from other producing
areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and natural gas prices, future operating
costs, severance and excise taxes, development costs and workover and
remedial costs, all of which may in fact vary considerably from actual
results. For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any particular group of
properties, classifications of such reserves based on risk recovery and
estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers at different times may vary
substantially and such reserve estimates may be subject to downward or
upward adjustment based upon such factors. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material.
The present values of estimated future net cash flows referred to in
this Report should not be construed as the current market value of the
estimated oil and natural gas reserves attributable to the Company's
properties. In accordance with applicable requirements of the United
States Securities and Exchange Commission (the "Commission") the estimated
discounted future net cash flows from proved reserves are generally based
on prices and costs as of the date of the estimate, whereas actual future
prices and costs may be materially higher or lower. Actual future net cash
flows also will be affected by factors such as the amount and timing of
actual production, supply and demand for oil and natural gas, curtailments
or increases in consumption by gas purchasers and changes in governmental
regulations or taxation. The timing of actual future net cash flows from
proved reserves, and their actual present value, will be affected by the
timing of both the production and the incurrence of expenses in connection
with development and production of oil and natural gas properties. In
addition, the calculation of the present value of the future net revenues
using a 10% discount, as required by the Commission, is not necessarily the
most appropriate discount factor based on interest rates in effect from
time to time and risks associated with the Company's reserves or the oil
and natural gas industry in general.
SUBSTANTIAL CAPITAL REQUIREMENTS - The Company makes, and will need to
continue to make, substantial capital expenditures for the development,
exploration, acquisition and production of oil and natural gas reserves.
The Company has planned capital expenditures of approximately $6 million in
2000, none of which had been expended as of March 30, 2000.
<PAGE>
TECHNOLOGICAL CHANGES - The oil and gas industry is characterized by
rapid and significant technological advancements and introductions of new
products and services utilizing new technologies. As others use or develop
new technologies, the Company may be placed at a competitive disadvantage,
and competitive pressures may force the Company to implement such new
technologies at substantial costs. In addition, other oil and gas
companies may have greater financial, technical and personnel resources
that allow them to enjoy technological advantages and may in the future
allow them to implement new technologies before the Company. There can be
no assurance that the Company will be able to respond to such competitive
pressures and implement such technologies on a timely basis or at an
acceptable cost. One or more of the technologies currently utilized by the
Company or implemented in the future may become obsolete. In such cases,
the Company's business, financial condition and results of operations could
be materially adversely affected. If the Company is unable to utilize the
most advanced commercially available technology, the Company's business,
financial condition and results of operations could be materially and
adversely affected.
RISKS OF HEDGING TRANSACTIONS - In order to manage its exposure to
price risks in the marketing of its oil and natural gas, the Company has in
the past and expects to continue to enter into oil and natural gas price
hedging arrangements with respect to a portion of its expected production.
These arrangements may include futures contracts on the New York Mercantile
Exchange (NYMEX), fixed price delivery contracts and financial swaps.
While intended to reduce the effects of volatility of the price of oil and
natural gas, such transactions may limit potential gains by the Company if
oil and natural gas prices were to rise substantially over the price
established by the hedge. In addition, such transactions may expose the
Company to the risk of financial loss in certain circumstances, including
instances in which (i) production is less than expected, (ii) there is a
widening of price differentials between delivery points for the Company's
production and the delivery point assumed in the hedge arrangement, (iii)
the counterparties to the Company's future contracts fail to perform the
contract or (iv) a sudden, unexpected event materially impacts oil or
natural gas prices.
DEPENDENCE ON KEY PERSONNEL - The Company depends to a large extent on
the services of its founder, McLain J. Forman, and certain other senior
management personnel. The loss of the services of Mr. Forman and other
senior management personnel could have a material adverse effect on the
Company's operations. The Company believes that its success is also
dependent upon its ability to continue to employ and retain skilled
technical personnel. The Company does not currently have any key-man
insurance coverage on McLain J. Forman, other senior management or any key
personnel. The inability of the Company to employ or retain skilled
technical personnel could have a material adverse effect on the Company's
operations.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS - Oil and natural gas
operations are subject to various federal, state and local government
regulations that may be changed from time to time in response to economic
or political conditions. Matters subject to regulation include discharge
permits for drilling operations, drilling and abandonment bonds or other
financial responsibility requirements, reports concerning operations, the
spacing of wells, utilization and pooling of properties and taxation. From
time to time, regulatory agencies have imposed price controls and
limitations on production by restricting the rate of flow of oil and
natural gas wells below actual production capacity to conserve supplies of
oil and natural gas. In addition, the production, handling, storage,
transportation and disposal of oil and natural gas, by-products thereof and
other substances and materials produced or used in connection with oil and
natural gas operations are subject to regulation under federal, state and
local laws and regulations primarily relating to protection of human health
and the environment. These laws and regulations have continuously imposed
increasingly strict requirements for water and air pollution control and
solid waste management.
ENVIRONMENTAL RISKS - The Company is subject to a variety of federal,
state and local governmental laws and regulations related to the storage,
use, discharge and disposal of toxic, volatile or otherwise hazardous
materials. These regulations subject the Company to increased operating
costs and potential liability associated with the use and disposal of
hazardous materials. Although these laws and regulations have not had a
material adverse effect on the Company's financial condition or results of
operations, there can be no assurance that the Company will not be required
to make material expenditures in the future. Moreover, the Company
anticipates that such laws and regulations will become increasingly
stringent in the future, which could lead to material costs for
environmental compliance and remediation by the Company.
Any failure by the Company to obtain required permits for, control the
use of, or adequately restrict the discharge of hazardous substances under
present or future regulations could subject the Company to substantial
liability or could cause its operations to be suspended. Such liability or
suspension of operations could have a material adverse effect on the
Company's financial condition and results of operations.
MARKETABILITY OF PRODUCTION - The marketability of the Company's
production depends upon the availability and capacity of gas gathering
systems, pipelines and processing facilities, and the unavailability or
lack of capacity thereof could result in the shut-in of producing wells or
the delay or discontinuance of development plans for properties. In
addition, federal and state regulation of oil and natural gas production
and transportation, general economic conditions and changes in supply and
demand could adversely affect the Company's ability to produce and market
its oil and natural gas on a profitable basis.
<PAGE>
SUBSTANTIAL COMPETITION - The Company operates in a highly competitive
environment. The Company competes with major and independent oil and
natural gas companies for the acquisition of desirable oil and natural gas
properties, as well as for the equipment and labor required to develop and
operate such properties. The Company also competes with major and
independent oil and natural gas companies in the marketing and sale of oil
and natural gas to marketers and end-users. Many of these competitors have
financial and other resources substantially greater than those of the
Company.
OPERATING RISKS OF OIL AND NATURAL GAS OPERATIONS - The oil and
natural gas business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, casing collapse,
abnormally pressured formations and hazards such as oil spills, natural gas
leaks, ruptures or discharges of toxic gases. The occurrence of any of
these operating risks could result in substantial losses to the Company due
to injury or loss of life, severe damage to or destruction of property and
equipment, pollution or other environmental damage, including damage to
natural resources, clean-up responsibilities, penalties and suspension of
operations. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described
above. There can be no assurance that any insurance obtained by the
Company will be adequate to cover any losses or liabilities. The Company
cannot predict the continued availability of insurance or the availability
of insurance at premium levels that justify its purchase.
LACK OF ESTABLISHED TRADING MARKET - The Company's outstanding common
stock and warrants are subject to transfer restrictions set forth in the
Stockholders' Agreement dated as of January 14, 2000 between the Company
and the other parties listed on the signature pages thereto and the Warrant
Agreement dated as of January 14, 2000 between the Company and the other
parties listed on the signature pages thereto. Moreover, there is no
existing trading market for the common stock or the warrants and it is not
expected that any active market will develop.
TCW CONTROL - The TCW Funds and its affiliates own approximately 43.8%
of the Company's outstanding common stock. By virtue of such ownership,
the TCW Funds will have the power to determine the outcome of various
corporate actions requiring shareholder approval.
NO INTENTION TO PAY DIVIDENDS - The Company currently intends to
retain any earnings for the future operation and development of its
business and does not currently intend to declare or pay any dividends on
its Common Stock in the foreseeable future.
<PAGE>
ITEM 2. PROPERTIES
The Company has grown principally through the acquisition and
subsequent development and exploitation of properties purchased since 1991.
The Company's proved oil and gas reserves at December 31, 1999 were
attributable to three properties, all of which are located in south
Louisiana. The Company currently operates three of the five fields where it
is actively exploring for and developing oil and natural gas reserves. The
Company owns a weighted average working interest of 91% in the three fields
it operates, Lake Enfermer, Manila Village and Boutte, which enables the
Company to control the timing and implementation of all exploitation and
exploration activities in those fields. The Company owns seismic data, but
no current lease rights, in the Bayou Fer Blanc field. In the remaining
field, West Gueydan, the Company assigned all of its leases comprising the
West Gueydan Field to the West Gueydan Field Partnership, a Texas limited
partnership in which the Company is the sole limited partner.
OIL AND NATURAL GAS RESERVES
The following table summarizes the estimates of the Company's proved
producing, proved non-producing and proved undeveloped reserves as of
December 31, 1999, and the related present value of estimated future net
revenues before income taxes at such date, as estimated by independent
petroleum engineers, Netherland, Sewell & Associates, Inc.:
<TABLE>
<CAPTION>
NON-
PRODUCING PRODUCING UNDEVELOPED TOTAL
<S> <C> <C> <C> <C>
Natural gas (MMcf) 3,352 10,247 5,397 18,996
Oil and NGLs (MBbls) 455 875 281 1,612
Natural gas equivalents 6,084 15,499 7,085 28,669
Oil equivalents (Mboe) 1,014 2,583 1,181 4,778
Present value of estimated
future net revenues before
income taxes, discounted
at 10% (000's ) $10,975 $17,407 $8,058 $36,440
</TABLE>
Oil prices have continued to rise and natural gas prices have remained
relatively stable subsequent to December 31, 1999. Accordingly, the
discounted future net cash flows would be increased if the standardized
measure was calculated at a later date. These estimates of the Company's
proved reserves have not been filed with or included in reports to any
federal agency.
In accordance with applicable requirements of the Commission,
estimates of the Company's proved reserves and future net revenues are made
using oil and natural gas sales prices estimated to be in effect as of the
date of such reserve estimates and are held constant throughout the life of
the properties (except to the extent a contract specifically provides for
escalation). Estimated quantities of proved reserves and future net
revenues therefrom are affected by oil and natural gas prices, which have
fluctuated widely in recent years. There are numerous uncertainties
inherent in estimating oil and natural gas reserves and their estimated
values, including many factors beyond the control of the producer. The
reserve data set forth herein represents only estimates. Reservoir
engineering is a subjective process of estimating underground accumulations
of oil and natural gas that cannot be measured in an exact manner. The
accuracy of any reserve estimate is a function of the quality of available
data and engineering and geological interpretation and judgment. As a
result, estimates of different engineers may vary. In addition, estimates
of reserves are subject to revision based upon actual production, results
of future development and exploration activities, prevailing oil and
natural gas prices, operating costs and other factors, which revisions may
be material. Accordingly, reserve estimates are often different from the
quantities of oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of
the assumptions upon which they are based.
<PAGE>
In general, the volume of production from oil and natural gas
properties declines as reserves are depleted. Except to the extent the
Company acquires properties containing proved reserves or conducts
successful exploration and development activities, or both, the proved
reserves of the Company will decline as reserves are produced. The
Company's future oil and natural gas production is, therefore, highly
dependent upon its level of success in finding or acquiring additional
reserves.
As operator of domestic oil and gas properties, the Company has filed
Department of Energy Form EIA-23, "Annual Survey of Oil and Gas Reserves,"
as required by Public Law 93-275. There are differences between the
reserves as reported on Form EIA-23 and as reported herein. The
differences are attributable to the fact that Form EIA-23 requires that an
operator report on the total reserves attributable to wells which are
operated by it, without regard to ownership (i.e. reserves are reported on
a gross operated basis, rather than on a net interest basis).
LEASEHOLD ACREAGE
The table below describes the Company's developed and undeveloped
leasehold acreage as of December 31, 1999:
<TABLE>
<CAPTION>
Developed Undeveloped
Acreage Acreage TOTAL
-------------- ----------- ------------
FIELD GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Lake Enfermer 1,939 1,785 420 414 2,359 2,199
Manila Village 742 530 0 0 742 530
Boutte 3,090 3,090 0 0 3,090 3,090
Bayou Fer Blanc 0 0 320 320 320 320
West Gueydan (Note 1) 0 0 195 129 195 129
----- ----- --- --- --- ---
5,771 5,405 935 863 6,706 6,268
===== ===== === === ===== =====
</TABLE>
Note 1: In December 1998, the Company assigned all of its leases
comprising the West Gueydan Field to the West Gueydan Field Partnership
(the "Gueydan Partnership"), a Texas limited partnership. The Company is
the sole limited partner of the Gueydan Partnership, with a 50.505%
interest, and Prime Natural Resources, Inc. ("Prime") is the sole general
partner of the Gueydan Partnership, with the remaining 49.495% interest.
On October 4, 1999, the Gueydan Partnership entered into an agreement
with Cobra Exploration Company ("Cobra"). The agreement requires Cobra to
spud a well on or before March 31, 2000 at a location and to designated
depths on certain leases covering approximately 100 acres in the West
Gueydan Field. The Gueydan Partnership retains a 25% working interest in
all operations by Cobra pursuant to the agreement, subject to the terms and
conditions of an operating agreement between the parties. The agreement
requires Cobra to spud a well on or before May 1, 2000 at a location and to
designated depths on certain leases covering approximately 100 acres in
the West Gueydan Field. Through the Gueydan Partnership, the Company will
have a net 15% carried working interest in the proposed well to casing
point.
No possible or probable reserves have been assigned to the Company's
undeveloped acreage. As is customary in the oil and natural gas industry,
the Company can retain its interests in undeveloped acreage by drilling
activity that establishes commercial production sufficient to maintain the
leases, or by payment of delay rentals during the remaining primary term of
such a lease. Delay rentals paid in 1999 and those projected for 2000 are
insignificant. The oil and natural gas leases in which the Company has an
interest are for varying primary terms.
<PAGE>
TITLE TO PROPERTIES
As is customary in the oil and natural gas industry, the Company makes
only a cursory review of title to farmout acreage and to undeveloped oil
and natural gas leases upon execution of any contracts. Prior to the
commencement of drilling operations, a thorough title examination is
conducted and curative work is performed with respect to significant
defects. To the extent title opinions or other investigations reflect title
defects, the Company, rather than the seller of the undeveloped property,
is typically responsible to cure any such title defects at its expense. If
the Company were unable to remedy or cure any title defect of a nature such
that it would not be prudent to commence drilling operations on the
property, the Company could suffer a loss of its entire investment in the
property. The Company has obtained title opinions on substantially all of
its producing properties and believes that it has satisfactory title to
such properties in accordance with standards generally accepted in the oil
and natural gas industry. Prior to completing an acquisition of producing
oil and natural gas leases, the Company obtains title opinions on all
leases. The Company's oil and natural gas properties are subject to
customary royalty interests, liens for current taxes and other burdens that
the Company believes do not materially interfere with the use of or affect
the value of such properties.
ITEM 3. LEGAL PROCEEDINGS
As indicated above, the Company is disputing approximately $3 million
in pre-petition bankruptcy claims, which claims and certain other residual
bankruptcy-related matters are still within the jurisdiction of the
Bankruptcy Court. The Company is not a party to any other material pending
legal proceedings, other than ordinary routine litigation incidental to its
business that management believes would not have a material adverse effect
on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In connection with the consummation of the Bankruptcy Plan, the
Company is in the process of issuing approximately 925,000 shares of Common
Stock to the former holders of the Company's Senior Notes and approximately
75,000 shares of Common Stock to the former holders of the Company's
Preferred Stock. Pursuant to the Bankruptcy Plan, the Company is issuing
the new shares of Common Stock upon the surrender of the certificates
representing the Senior Notes and the Preferred Stock. The Common Stock is
being allocated as follows: (i) 13.2143 shares of Common Stock are being
issued for each $1,000 of principal amount of canceled Senior Notes and
(ii) 0.3120 shares of Common Stock are being issued for each canceled share
of Preferred Stock.
In order to participate in the Company's reorganization pursuant to
the Bankruptcy Plan, the new stockholders of the Company are required to
enter into a Stockholders' Agreement and a Registration Rights Agreement,
each dated as of January 14, 2000. The Stockholders' Agreement provides,
among other things, certain restrictions on voting, sale and transfers of
the Common Stock. The Stockholders Agreement also provides that if holders
of 75% or more of the Common Stock approve a sale of the Company to a third
party, the minority stockholders would be required to sell their shares to
the third party if certain conditions are satisfied.
<PAGE>
The Registration Rights Agreement entitles the Controlling Holders (as
defined in the agreement) to have effected up to four demand registrations
as well as the right to "piggyback" on certain other registration
statements filed by the Company on its own behalf or on behalf of other
security holders. Each holder of Registrable Securities (as defined in the
agreement) is entitled to participate in any such demand or piggyback
registration. The Registration Rights Agreement also entitles McLain
Forman to have effected up to two demand registrations provided that
certain conditions are satisfied.
In connection with the consummation of the Bankruptcy Plan, the
Company is also in the process of issuing warrants to purchase up to
approximately 500,000 shares of Common Stock. These warrants consist of
50,000 Series A Warrants (exercise price $34.74), 150,000 Series B Warrants
(exercise price $92.80), 150,000 Series C Warrants (exercise price
$117.80), and 150,000 Series D Warrants (exercise price $137.80). Each of
these warrants is currently exercisable and will automatically expire on
January 14, 2007.
Pursuant to the Bankruptcy Plan, holders of the Company's warrants
that were issued in June 1997 in connection with the Company's offering and
sale of the Senior Notes (the "Senior Note Warrants") will receive in the
aggregate approximately 10,850 Series A Warrants and approximately 32,550
of each of the Series B, Series C, and Series D Warrants. Each holder of a
Senior Note Warrant will receive 0.1637 Series A Warrants and 0.4910 Series
B, Series C, and Series D Warrants for each Senior Note Warrant canceled
pursuant to the Bankruptcy Plan. Holders of the Company's warrants that
were issued in June 1997 in connection with the Company's offering and sale
of the Preferred Stock (the "Equity Warrants") will receive in the
aggregate approximately 5,450 Series A Warrants and approximately 16,350 of
each of the Series B, Series C, and Series D Warrants. Each holder of an
Equity Warrant will receive 0.0273 Series A Warrants and 0.0818 Series B,
Series C, and Series D Warrants for each Equity Warrant canceled pursuant
to the Bankruptcy Plan. McLain Forman received 33,780 Series A Warrants
and 101,100 of each of the Series B, Series C, and Series D Warrants in
connection with the consummation of the Bankruptcy Plan and pursuant to his
employment agreement.
The Company does not anticipate paying cash dividends with respect to
the Common Stock in the foreseeable future. Any future determination to
pay cash dividends will be made by the Board of Directors in light of the
Company's earnings, financial position, capital requirements, credit
agreements and such other factors as the Board of Directors deems relevant
at that time.
The issuance of the Common Stock and the warrants pursuant to the
Bankruptcy Plan was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 1145 of the United States Bankruptcy
Code.
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth a summary of selected historical
financial information of the Company for the periods set forth below. This
information is derived from the financial statements of the Company and the
notes thereto. See "Item 7. Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial
Statements and Supplementary Data."
SELECTED HISTORICAL FINANCIAL INFORMATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenue $ 12,993 $ 15,950 $ 14,235 $ 10,892 $ 6,919
Operating expenses 12,494 36,691 24,814 8,909 7,336
-------- -------- -------- -------- --------
Operating income (loss) 499 (20,741) (10,579) 1,983 (417)
Interest expense 6,244 10,122 7,724 3,983 3,522
Other income 123 325 474 225 386
-------- -------- -------- -------- --------
Net (loss) from operations
before reorganization
items, income taxes and
extraordinary items (5,622) (30,538) (17,829) (1,775) (3,553)
Reorganization items:
Reorganization costs (1,184) - - - -
Adjust accounts to fair value 6,628 - - - -
-------- -------- -------- -------- --------
Net loss before income
taxes and extraordinary item (537) (30,538) (17,829) (1,775) (3,553)
Provision (benefit) for income taxes (188) - - - -
-------- -------- -------- -------- --------
Net (loss) before extraordinary items (349) (30,538) (17,829) (1,775) (3,553)
Extraordinary gain on extinguisment
of debt, net of taxes of $10,089 46,724 - - - -
-------- -------- -------- -------- --------
Net Income (loss) 46,375 (30,538) (17,829) (1,775) (3,553)
Preferred stock dividends (1,153) (1,729) (923) - -
-------- -------- -------- -------- --------
Net income (loss) attributed to
common shares $ 45,222 $(32,267) $(18,752) $(1,775) $(3,553)
Net income (loss) per share
attributable to common shares
before extraordinary item $ (16.69) $(358.52) $(208.36) $(19.72) $(39.48)
Extraordinary item per share 519.15 - - - -
-------- -------- -------- -------- --------
Net income (loss) per share $ 502.46 $(358.52) $(208.36) $(19.72) $(39.48)
======== ======== ======== ======== ========
UNAUDITED PRO FORMA DATA:
Operating income (loss) before income
taxes $(17,829) $(1,775) $(3,553)
Pro forma benefit (expense) for income
taxes related to operations as an S Corp(1) 6,106 657 1,314
Preferred stock dividend (923) - -
-------- -------- --------
Pro forma net (loss) attributed to common
shares $(12,646) $(1,118) $(2,239)
Pro forma net (loss) per common
share $(140.52) $(12.42) $(24.88)
======== ======= =======
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to assist in an understanding of
the Company's historical financial position and the results of operations
for each year of the three-year period ended December 31, 1999. The
Company's financial statements and notes thereto contain detailed
information that should be referred to in conjunction with the following
discussion. See "Item 8. Financial Statements and Supplementary Data."
PLAN OF REORGANIZATION - The Company's Bankruptcy Plan was confirmed
by the Bankruptcy Court on December 29, 1999 and consummated effective
January 14, 2000. As of the confirmation date, the Company had total
assets of $33.9 million and liabilities of $96.0 million. As indicated in
"Item 1. Business - Recent Developments" above, with the exception of an
aggregate of approximately $2.7 million of promissory notes issued pursuant
to the Bankruptcy Plan, approximately $3 million in additional pre-petition
bankruptcy claims that are disputed by the Company and still pending before
the Bankruptcy Court, undistributed oil and gas revenues of $895,000, and
approximately $300,000 in convenience claims which were paid in full in
2000, all of the Company's liabilities as of the confirmation date were
extinguished pursuant to the Bankruptcy Plan.
FRESH START REPORTING - The Company has accounted for the
reorganization by using the principles of fresh start accounting required
by AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." For accounting purposes, the
Company assumed that the Bankruptcy Plan was consumated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets were recorded at their assumed reorganization value,
with the reorganization value allocated to identifiable tangible assets at
their estimated fair value. Accordingly, the Company's oil and gas full
cost pool was reduced by approximately $60 million, its unevaluated oil and
gas properties were increased by approximately $3 million, its other
property and equipment was reduced by approximately $1.6 million, and the
accumulated DD&A of $64.1 million was written off. In addition, the
Company's Senior Notes payable of $70 million, the interest payable of
$11.1 million on the Senior Notes, its Preferred Stock of $13.5 million and
the related deferred financing costs of $4.4 million were all written off.
The total reorganization value assigned to the Company's proved oil
and gas properties was estimated by adjusting the net pre-tax future cash
flows discounted at a 10% annual rate (PV-10) of the Company's proved
reserves ($36.4 million) as set forth in the Estimate of Reserves and
Future Revenue report on the Company's proved oil and gas properties as of
December 31, 1999, prepared by Netherland, Sewell & Associates. This
report was prepared in accordance with SEC guidelines, utilizing constant
prices existing as of December 31, 1999. The Company adjusted these prices
to reflect the product prices used in valuing producing properties, and
then the Company applied risking factors to the various categories of
proved properties, discounting the properties as indicated:
<TABLE>
<CAPTION>
PROVED CATEGORY RISK FACTOR
<S> <C>
Proved Producing 95%
Proved Non-producing 75%
Proved Undeveloped 25%
</TABLE>
Applying these risk factors and adjusting the product pricing resulted
in an estimated net realizable value of the PV-10 of the proved properties
of $25.5 million. The Company's other assets, including other property and
equipment, were valued at $4.9 million.
As a result of the implementation of fresh start accounting, the
financial statements of the Company after consummation of the Bankruptcy
Plan are not comparable to the Company's financial statements of prior
periods.
The effect of the Bankruptcy Plan and the implementation of fresh
start accounting on the Company's balance sheet as of December 31, 1999 are
discussed in detail in "Item 8. Financial Statements and Supplementary
Data."
<PAGE>
OPERATING ENVIRONMENT
The Company's revenues, profitability and future growth and the
carrying value of its oil and natural gas properties are substantially
dependent on prevailing prices of oil and natural gas. The Company's
ability to increase its borrowing capacity and to obtain additional capital
on attractive terms is also influenced by oil and natural gas prices.
Prices for oil and natural gas are subject to large fluctuation in response
to relatively minor changes in the supply of or demand for oil and natural
gas, market uncertainty and a variety of additional factors beyond the
control of the Company. While natural gas prices seem most dependent on
weather in North America and corresponding usage, oil prices are more
subject to global economic forces and supply. Because all of these factors
are beyond the control of the Company, its marketing efforts have been
devoted to achieving the best price available with a limited amount of
fixed price sales and hedging transactions to take advantage of short-term
prices it believes to be attractive.
Any substantial and extended decline in the price of oil or natural
gas would have an adverse effect on the Company's carrying value of its
proved reserves, borrowing capacity, revenues, profitability and cash flows
from operations. Price volatility also makes it difficult to budget for
and project the return on either acquisitions or development and
exploitation projects.
The Company uses the full cost method of accounting for its investment
in oil and natural gas properties. Under the full cost method of
accounting, all costs of acquisition, exploration and development of oil
and natural gas reserves are capitalized into a ''full cost pool'' as
incurred, and properties in the pool are depleted and charged to operations
using the future gross revenue method based on the ratio of current gross
revenue to total proved future gross revenues, computed based on current
prices. To the extent that such capitalized costs (net of accumulated
depreciation, depletion and amortization) less deferred taxes exceed the
present value (using a 10% discount rate) of estimated future net cash flow
from proved oil and natural gas reserves, and the lower of cost and fair
value of unproved properties after income tax effects, excess costs are
charged to operations. Once incurred, a write-down of oil and natural gas
properties is not reversible at a later date even if oil or natural gas
prices increase. The Company was required to write down its asset base at
the end of 1997 due to a downward revision of quantity estimates
attributable to a single fault block in the Lake Enfermer Field, combined
with significant declines in oil and natural gas prices from the end of
1996. During the second quarter of 1998, the Company was required to write
down its asset base, again due primarily to the continuing decline in oil
and natural gas prices. The Company had an additional full cost ceiling
writedown of its asset base at the end of 1998. This writedown was the
result of a significant revision to the reserves assigned to a single well
in the Lake Enfermer Field, combined with further declines in both oil and
natural gas prices during the final quarter of 1998.
On June 3, 1997, the Company issued preferred stock as further
described under ''Long Term Financing.'' Prior to the issuance of this
preferred stock, the Company was taxed as an S Corporation. See Note 1 to
the financial statements of the Company. The issuance of preferred stock
terminated the S Corporation status effective June 3, 1997. For the short
year beginning June 4, 1997 and subsequent years, the Company is subject to
Federal and state income tax.
RESULTS OF OPERATIONS
The following table sets forth certain operating information with
respect to the oil and natural gas operations of the Company and summary
information with respect to the Company's estimated proved oil and natural
gas reserves. See "Item 2. Properties-Oil and Natural Gas Reserves."
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Production:
Oil (MBbls) 337 393 335
Gas (MMcf) 2,930 4,944 2,613
Oil and gas (MBOE) 826 1,217 770
Sales data (in thousands):
Total oil sales $ 6,086 $ 4,752 6,600
Total gas sales $ 7,038 $11,198 7,636
Average sales prices:
Oil (per Bbl) $ 18.04 $ 12.09 $ 19.72
Gas (per Mcf) 2.40 2.27 2.92
Per BOE $ 15.90 $ 13.11 $ 18.48
Average costs (per BOE):
Lease operating expenses $ 3.81 $ 2.76 $ 3.52
General and administrative $ 3.19 $ 2.28 $ 2.61
Depreciation, depletion and
amortization $ 6.76 $ 8.58 $ 12.20
Reserves at December 31:
Oil (MBbls) 1,612 1,531 2,260
Gas (MMcf) 18,996 14,558 22,105
Oil and gas (MBOE) 4,778 3,957 5,944
Present value of estimated pre-tax future
Net cash flows (in thousands) $36,440 $19,169 $52,256
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The Company's oil and gas revenues decreased approximately $2.9
million, or 18% during 1999 to $13.1 million compared to $16.0 million in
1998. Production levels for 1999 decreased 32% to 826 thousand barrels of
oil equivalent (''MBOE'') from 1217 MBOE for 1998. Gas production volumes
decreased 41%, while oil volumes decreased 14%. The Company's average sale
prices (including hedging activities) for oil and natural gas for 1999 were
$18.04 per Bbl and $2.40 per Mcf versus $12.09 per Bbl and $2.27 per Mcf in
1998. Revenues decreased $5.2 million due to the aforementioned production
decreases, offset by a $2.3 million increase in revenues due to higher oil
and gas prices during 1999.
On a BOE basis, lease operating expenses increased 38%, to $3.81 per
BOE for 1999 from $2.76 per BOE in 1998. For 1999, lease operating expenses
were down 6.3%, from $3.4 million in 1998 to $3.1 million in 1999. This
decrease was due to a decrease in 1999 in the volumes of oil and gas
produced.
For 1999, depreciation, depletion and amortization (''DD&A'') expense
decreased 47% from 1998. The decrease for the year is attributable to (i)
the Company's decreased production and related future capital costs in
1999, and (ii) the upward revision of reserves. On a BOE basis, which
reflects the decreases in production, the DD&A rate for 1999 was $6.76 per
BOE compared to $8.58 per BOE for 1998, a decrease of 21%.
For 1999, on a BOE basis, general and administrative (''G&A'')
expenses increased 40%, from $2.28 per BOE in 1998 to $3.19 in 1999.
Actual G&A expenses decreased 5%, from $2.8 million in 1998 to $2.6 million
in 1999. This decrease was due primarily to the reduced activity during
1999. The recapitalization costs incurred in conjunction with the
reorganization of the Company, equaling $969,000, were not included in
recurring G&A for comparison purposes.
<PAGE>
The discounted present value of the Company reserves increased 90%,
from $19.2 million at the end of 1998 to $36.4 million at the end of 1999,
primarily as a result of the new reserves attributable specifically to the
Simoneaux 26 well in the Company's Boutte Field, combined with the
significant increases in both oil and gas prices between December, 1998 and
December, 1999. The Company's realized oil prices increased 135% between
December 31, 1998 and December 31, 1999, from an average price per barrel
of $10.44 on December 31, 1998 to an average price of $24.58 on December
31, 1999. The Company's realized gas prices on December 31, 1999 increased
19% over the December 31, 1998 price, from $2.15 per Mcf in 1998 to $2.56
in 1999. The Company experienced a $19.6 million writedown of its full
cost pool during 1998 due to ceiling test limitations. The Company did
not experience any such ceiling test writedown of its full cost pool in
1999.
Interest expense for 1999 decreased from $10.1 million in 1998 to $6.2
million for 1999. This decrease of $3.9 million in interest expense is due
to the cessation of interest payable on the Company's Senior Notes from
August 6, 1999, the date the Company filed for protection under the United
States Bankruptcy Code.
Due to the factors described above, the net loss from operations
decreased from $30.5 million for 1998 to a loss of $6.0 million for 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Company's oil and gas revenues increased approximately $1.8
million, or 12% during 1998 to $16.0 million compared to $14.2 million in
1997. Production levels for 1998 increased 58% to 1,217 MBOE from 770 MBOE
for 1997. Gas production volumes increased 89%, while oil volumes increased
17%. The Company's average sale prices (including hedging activities) for
oil and natural gas for 1998 were $12.09 per Bbl and $2.27 per Mcf versus
$19.72 per Bbl and $2.92 per Mcf in 1997. Revenues increased $7.9 million
due to the aforementioned production increases, offset by a $6.1 million
decrease in revenues due to lower oil and gas prices during 1998.
On a BOE basis, lease operating expenses decreased 22%, to $2.76 per
BOE for 1998 from $3.52 per BOE in 1997. For 1998, lease operating expenses
were up 26%, from $2.7 million in 1997 to $3.4 million in 1998. This
increase was due to an increase in 1998 in the volume of saltwater produced
and handled, as well as the higher production rates in 1998.
For 1998, DD&A expense increased 11% over 1997. The increase for the
year is attributable to (i) the Company's increased production and related
future capital costs in 1999, and (ii) the downward revision of reserves
attributable primarily to a specific well in the Lake Enfermer Field. On a
BOE basis, which reflects the increases in production, the DD&A rate for
1998 was $8.58 per BOE compared to $12.20 per BOE for 1997, a decrease of
30%.
For 1998, on a BOE basis, G&A expenses declined 13%, from $2.61 per
BOE in 1997 to $2.28 in 1998. Actual G&A expenses increased 40%, from $2.0
million in 1997 to $2.8 million in 1998. This increase was due primarily
to (i) salary increases resulting from the addition of a CFO and a
financial planning staff position, (ii) increased costs incurred for
independent reservoir engineering services, (iii) increased corporate
franchise taxes due to the increased debt, (iv) increased legal expenses
related to the pending litigation, and (v) increased insurance cost related
to the addition of D&O insurance for the Company.
The discounted present value of the Company reserves decreased 63%,
from $52.3 million at the end of 1997 to $19.2 million at the end of 1998,
primarily as a result of the negative revisions to reserves attributable
specifically to the A-2 well in the Company's Lake Enfermer Field, combined
with the significant decline in both oil and gas prices between December,
1997 and December, 1998. Oil prices declined 39%, from an average price
per barrel of $19.72 for the calendar year 1997 to an average price of
$12.09 for the calendar year 1998. Average gas prices between the same
periods declined 22%, from $2.92 per Mcf in 1997 to $2.27 in 1998. Based
upon its ceiling test using the year-end 1998 discounted present value of
the Company reserves, which were priced at the average year-end prices of
$10.45 per barrel and $1.90 per Mcf, the Company experienced an impairment
of its full cost pool in the amount of $19.6 million during 1998. The
write-down of the full cost pool in 1998 to recognize this impairment is
reflected as a separate expense item on the Company's financial statements.
See "Item 8. Financial Statements and Supplementary Data".
Interest expense for 1998 increased to $10.1 million from $7.7
million for 1997. This increase of $2.4 million in interest expense is due
primarily to the full year of interest due in 1998 versus only seven months
of interest due in 1997 relating to the issuance of $70 million principal
amount of 13.5% Senior Secured Notes due 2004, Series A on June 3,
1997 (see "Liquidity and Capital Resources").
<PAGE>
Due to the factors described above, the net loss from operations
increased to $30.5 million for 1998, from a loss of $17.8 million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AND CASH FLOW - As a result of the reorganization, the
Company's working capital position has improved significantly. At December
31, 1999 the Company had $1.6 million of working capital. This was
primarily due to the elimination of interest payable on the Senior Notes
and the conversion of approximately $2.1 million of current liabilities
into long term notes pursuant to the Bankruptcy Plan. The Company projects
that oil prices will likely decline but will remain at historically high
levels, while it expects natural gas prices to remain near their current
levels during 2000.
The Company believes that its cash on hand plus expected normal cash
flow from operations will be sufficient to fund its working capital needs
for the remainder of 2000. This includes funding of its obligations on the
long term notes payable issued pursuant to the Bankruptcy Plan.
The foregoing discussion includes many forward looking statements
which are subject to the risks and uncertainties noted above in "Item 1 -
Cautionary Statements" which could cause the actual results to differ
materially from the Company's expectations.
HEDGING ACTIVITIES - With the objective of achieving more predictable
revenues and cash flows and reducing the exposure to fluctuations in oil
and natural gas prices, the Company has entered into hedging transactions
of various kinds with respect to both oil and natural gas. While the use
of these hedging arrangements limits the downside risk of reverse price
movements, it may also limit future revenues from favorable price
movements. During 1998 and 1999, the Company entered into forward sales
arrangements with respect to a portion (between 30-50%) of its estimated
natural gas sales. As of March 2000, the Company has no open forward sales
arrangements for natural gas for 2000. The Company did hedge 200 barrels
per day of its oil production in October, 1999 for the twelve months ending
November 30, 2000, at a price of $22.05 per barrel. As of March, 2000 the
Company has no other open forward sales arrangements.
The Company continuously reevaluates its hedging program in light of
market conditions, commodity price forecasts, capital spending and debt
service requirements. The Company may hedge additional volumes into 2000
or it may determine from time to time to terminate its then existing
hedging positions.
IMPACT OF YEAR 2000 COMPLIANCE - The Year 2000 ("Y2K") issue is the
result of computerized systems being written to store and process the year
portion of dates using two digits rather than four. To date, all of our
systems have continued to operate without any disruptions related to Y2K.
We will continue to closely monitor areas of particular risk including our
business partners' ability to continue to meet their commitments throughout
the year. The incremental cost associated with our Y2K efforts totaled
less than $10,000 through 1999 and we do not expect to incur any
significant additional costs related to this matter.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Statement establishes accounting and reporting standards that require
every derivative instrument (including certain derivative instruments
embedded in other contracts) to be recorded in the balance sheet as either
an asset or a liability measured at its fair value and that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company will to adopt SFAS No. 133
during the first quarter of 2000. Because of the nature of the Company's
only derivative instrument, the Company does not expect that the adoption
of SFAS No. 133 will have a material impact on the Company's results of
operations. However, the adoption may create volatility in equity through
changes in other comprehensive income.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PRICE RISK -The Company's revenues are derived from the sale of oil
and natural gas production. From time to time, the Company enters into
hedging transactions which fix, for specific periods and specific volumes
of production, the prices the Company will receive for its production.
These agreements reduce the Company's exposure to decreases in the
commodity prices on the hedged volumes, while also limiting the benefit the
Company might otherwise have received from increases in commodity prices of
the hedged production. See "Item 1. Cautionary Statements - Risks of
Hedging Transactions".
The Company uses hedging transactions for price protection purposes on
a limited amount of its future production and does not use these agreements
for speculative or trading purposes. The impact of hedges is recognized in
oil and gas sales in the period the related production revenues are
accrued.
Based on projected annual production volumes for 2000, a 10% decline
in the prices the Company receives for its oil and natural gas production
would have an approximate $3.9 million negative impact on the Company's
discounted future net revenues. This impact of a hypothetical 10% decline
in prices is net of the incremental gain that would be realized on hedge
agreements in place as of March 25, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on Page F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning the directors and
executive officers of the Company. All directors hold office until the next
annual meeting of stockholders of the Company and until their successors
have been duly elected and qualified. All officers serve at the discretion
of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
<S> <C> <C> <C>
Nicholas Tell, Jr. 38 Chairman of the Board 2000
Jerry W. Box 61 Director 2000
Jeffrey Clarke 54 Director 2000
McLain J. Forman, Ph.D. 71 Director, Chief Executive Officer & President 1982
Harold C. Block 68 Vice President of Land and Acquisition 1997
Marvin J. Gay 57 Vice President of Finance and Administration 1997
Michael A. Habetz 51 Vice President, Manager of Operations 1997
Michael H. Price 51 Chief Financial Officer 1998
</TABLE>
The Stockholders' Agreement provides that, subject to certain restrictions,
Trust Company of the West ("TCW"), Jefferies & Company, Inc. ("Jefferies")
and McLain Forman shall each be entitled to designate one member of the
Board of Directors. The fourth member shall be elected by the stockholders
of the Company in accordance with the Company's bylaws. The agreement
further provides that neither the TCW designee nor the Jefferies designee,
nor the fourth director to be elected by the stockholders may be a current
director, officer, or employee of Jefferies or any affiliate of Jefferies.
A brief biography of each director and executive officer follows:
<PAGE>
Nicholas Tell, Jr., is the Managing Director, Capital Markets and
Special Situations, of TCW. Mr. Tell joined TCW when TCW acquired Crescent
in 1995. Previously, Mr. Tell was Vice President and Counsel of Crescent
where he structured and negotiated many of the firm's private investments.
Prior to joining Crescent, Mr. Tell was a Senior Associate at Latham &
Watkins. From 1987 through 1992, Mr. Tell was involved in a wide variety
of corporate transactions, including mergers and acquisitions and corporate
financings for below-investment-grade companies. Mr. Tell received his
Juris Doctor from the University of Chicago and his B.A. from Carleton
College.
Jerry W. Box served as the President and Chief Operating Officer of
Oryx Energy Company from 1998 until shortly after the merger of Oryx Energy
Company with Kerr-McGee Corporation in early 1999. From 1988 through 1998,
Mr. Box served in various other capacities with Oryx Energy Company. Mr.
Box holds a BS and an MS, in Geology, from Louisiana Tech University. He
is also a graduate of the Program for Management Development at Harvard
Business School.
Jeffrey Clarke has been since 1994 the President, Chairman and Chief
Executive Officer of Coho Energy, Inc., an independent energy company
engaged, through its wholly owned subsidiaries, in the development and
production of, and exploration for, crude oil and natural gas principally
in Mississippi and Oklahoma. Prior to that time, Mr. Clarke served in
various capacities with Coho Resources, Ltd. and Coho Resources, Inc.,
affiliates of Coho Energy, Inc. Coho Energy, Inc. and certain of its
affiliates filed for protection under Chapter 11 of the United States
Bankruptcy Code on August 23, 1999. Mr. Clarke holds a BS, in Physics,
from University of Wales, 1967, and conducted postgraduate work in Physics
at the University of East Anglia, 1967-1968.
McLain J. Forman, Ph.D. founded the Company in 1982 and has served as
President and Chief Executive Officer of the Company since inception. Dr.
Forman served as Chairman of the Board from 1982 through 1999. Dr. Forman
began his career in 1955 as a consulting geologist as a member of the
predecessor firm of Atwater Consultants Ltd. Since 1960, Dr. Forman has
directed and supervised exploration and production activities for clients
and for his own account in the Gulf Coast Region. From 1972 to 1982, Dr.
Forman concentrated his efforts on originating and developing wildcat
exploration prospects with various industry and financial partners. With
the formation of the Company in 1982, his focus shifted to exploratory and
development prospects, and in 1991 the Company began to selectively acquire
and exploit producing properties. Dr. Forman earned a B.S. degree in
Geology from Tulane University and an M.A. degree and a Ph.D. in geology
from Harvard University.
Harold C. Block is the Vice President of Land and Acquisitions. Mr.
Block joined Forman Exploration Company, the predecessor of the Company, in
1973 as Manager of the Land Department, and in 1982 he moved to his current
position with the Company. Mr. Block began his career with F.A. Callery,
Inc. in 1957, where he became Land Manager in 1959. Upon leaving Callery in
1971 until he joined the Company, Mr. Block was a consultant and organized
and conducted an oil and gas exploration program. Mr. Block has a B.B.A.
degree in Management from the University of Houston.
Michael A. Habetz is Vice President, Manager of Operations. Mr.
Habetz has been a Vice President and the Manager of Operations since he
joined the Company in 1993. From 1970 to 1987, he held various supervisory
and management positions with Texaco and Edwin L. Cox, where he was
responsible for all phases of drilling, completion, workover and production
operations. From 1987 until 1991, Mr. Habetz provided consulting
engineering services through Energy Research and Development Corporation,
and in 1991, he began to provide those services on a consulting basis for
the Company. Mr. Habetz holds a B.S. degree in Mechanical Engineering from
Louisiana State University.
Michael H. Price is the Chief Financial Officer of the Company.
Before joining the Company in December, 1997, Mr. Price was Vice President
of the Chase Manhattan Bank for twelve years, and was earlier employed by
Atwater Consultants and Amoco International Oil Company. Mr. Price holds
an MBA from the University of Chicago and earned an M.Sc. from the London
School of Economics and Political Science.
Marvin J. Gay is the Vice President of Finance and Administration.
Mr. Gay has been a Vice President of the Company since he joined the
Company at its inception in 1982. Mr. Gay was the Controller and Treasurer
of Forman Exploration Company, the predecessor of the Company, from 1974
to 1982. Before joining the Company, Mr. Gay was a consultant with Arthur
Andersen & Co. Mr. Gay holds a B.B.A. in Accounting from the University of
Mississippi. He is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for each of the
fiscal years ended December 31, 1999, 1998, and 1997 with respect to the
compensation paid to Mr. Forman, the President and Chief Executive Officer,
and the four other most highly compensated executive officers of the
Company (collectively, the ''Named Executive Officers''). No other
executive officers of the Company received annual compensation (including
salary and bonuses earned) that exceeded $100,000 for the fiscal years
ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
NAME AND ANNUAL COMPENSATION SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS AWARDED COMPENSATION
- ------------------ ---- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
McLain J. Forman, PhD., Chief 1999 $225,000 $ -0- $-0- $-0-
Executive Officer and President 1998 225,000 -0- -0- -0-
1997 214,500 16,875 12,614 -0-
Harold C. Block, 1999 131,000 -0- -0- -0-
Vice President of Land and 1998 131,000 -0- -0- -0-
Acquisitions 1997 125,000 9,825 4,890 -0-
Michael A. Habetz, 1999 130,000 -0- -0- -0-
Vice President, Manager of 1998 130,000 -0- -0- -0-
Operations 1997 119,500 9,750 4,075 -0-
Mike H. Price, 1999 129,333 -0- -0- -0-
Chief Financial Officer 1998 36,000 -0- -0- 81,000(1)
1997 -0- -0- -0- -0-
Marvin J. Gay 1999 114,833 -0- -0- -0-
Treasurer, Vice President of Finance 1998 104,500 -0- -0- -0-
and Administration 1997 99,750 7,838 4,075 -0-
</TABLE>
(1): The "Other Compensation" paid to Mr. Price was paid to him during the
time in which he was working for the Company on a contractual basis prior
to his employment by the Company.
401(K) PLAN
The Company has adopted a defined contribution retirement plan that
complies with Section 401(k) of the Code (the ''401(k) Plan''). Pursuant to
the terms of the 401(k) Plan, all employees with at least one year of
continuous service are eligible to participate and may contribute up to 15%
of their annual compensation (subject to certain limitations imposed under
the Code). The 401(k) Plan provides that a discretionary match of employee
contributions may be made by the Company in cash. The Company made a
$58,398 matching contribution to the 401(k) Plan in 1998 based upon each
individual employee's plan contributions during 1998. In December 1999 the
Company made another matching contribution, in the amount of $72,012, again
based upon each individual employee's plan contributions for 1999. These
matching employer contributions to the 401(k) Plan are fully vested to the
individuals over a three-year period. Employee contributions under the
401(k) Plan are 100% vested and participants are entitled to payment of
vested benefits upon termination of employment. The amounts held under the
401(k) Plan are invested among various investment funds maintained under
the 401(k) Plan in accordance with the directions of each participant.
<PAGE>
COMPENSATION OF DIRECTORS
Directors of the Company will receive compensation for their service
as directors in the amount of $5,000 per month for up to 18 meetings per
year and an additional $3,000 per meeting for each additional meeting above
18 per year. Directors of the Company are also entitled to reimbursement
of their reasonable out-of-pocket expenses in connection with their travel
to and attendance at meetings of the Board of Directors or committees
thereof.
EMPLOYMENT AGREEMENTS
Effective January 14, 2000, the Company entered into employment
agreements with Messrs. Forman, Price, Block, Habetz and Gay (the "Named
Executive Officers"), among others. The agreements provide for employment
of the Named Executive Officers in his current position through April 30,
2001, subject to earlier termination, at a fixed annual salary and an
annual bonus based upon the attainment of certain quantitative goals. The
agreements provide for a salary of $225,000, $140,000, $131,000, $130,000
and $120,000 per calendar year, respectively for Messrs. Forman, Price,
Block, Habetz and Gay. The agreement with Mr. Forman provides for a
maximum bonus of 90% of his base salary and the agreements with Messrs.
Price, Block, Habetz and Gay provide, for a maximum bonus of 30% of such
individual's base salary.
If the Company terminates the Named Executive Officer's employment
without Cause (as defined in the agreement) or the Named Executive Officer
terminates his employment for Good Reason (as defined in the agreement),
the Company must (i) pay the executive his accrued base salary as of the
date of termination plus his annual base salary for the remainder of his
employment term and (ii) provide the executive with continuing group
medical, dental, disability and life insurance benefits until the later of
18 months from the date of termination or the original expiration date of
the employment term. If the executive terminates his employment for
reasons other than Good Reason or the Company terminates the executive for
Cause, the Company must pay to the executive his accrued base salary as of
the date of termination. If the executive is terminated for Cause
following a Change of Control (as defined in the agreement), the executive
will also be paid his base salary for the remainder of his employment term
and will be provided continuing group medical, dental, disability and life
insurance benefits until the later of 18 months from the date of
termination or the original expiration date of the employment term.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table and notes thereto set forth information regarding
ownership of shares of the Company's Common Stock as of March 30, 2000.
The number of shares beneficially owned and the percentages of outstanding
Common Stock have been estimated based on information provided by the
Company's exchange agent, U.S. Trust of Texas, N.A. The Company emerged
from Chapter 11 protection of the United States Bankruptcy Code on December
29, 1999 and is in the process of exchanging new securities for the
securities canceled pursuant to the Bankruptcy Plan. See "Item 5. Market
for Registrant's Common Equity and Related Stockholder Matters." The
following information is subject to change as additional security holders
tender their outstanding securities in connection with the exchange
process.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF OUTSTANDING
COMMON STOCK COMMON
PRINCIPAL SHAREHOLDERS OWNED(1) STOCK(2)
- ---------------------- -------- --------
<S> <C> <C>
Trust Company of the West 438,102(3) 43.8%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Jefferies & Company, Inc. 265,573 26.6%
11100 Santa Monica Boulevard
12th Floor
Los Angeles, California 90025
Bank of America Investments, Inc. 88,376 8.8%
233 South Wacker Drive
Suite 2800
Chicago, Illinois 60606-6306
Alliance Capital 79,336 7.9%
1345 Avenue of the Americas
37th Floor
New York, New York 10105
Koch Investment Group, Ltd. 63,209 6.3%
4111 East 37{th} Street North
Witchita, Kansas 67201
</TABLE>
____________________
(1) Excludes shares that may be acquired within 60 days upon exercise of
Class A, Class B, Class C or Class D Warrants. The exercise prices for
the warrants are as follows: $34.74 for Class A Warrants, $92.80 for
Class B Warrants, $117.80 for Class C Warrants, and $137.80 for Class D
Warrants. The following table sets forth information regarding ownership
of shares of the Company's Common Stock, calculated in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934.
<TABLE>
<CAPTION>
Percent of
Outstanding
Common Class A Class B Class C Class D Common
Principal Shareholders Shares Warrants Warrants Warrants Warrants Total Stock(a)
- ---------------------- ------ -------- -------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Trust Company of the West 438,102 8,629 25,872 25,872 25,872 524,347(b) 33.3%
Jefferies & Company, Inc. 265,573 2,984 8,948 8,948 8,948 295,401 19.7%
Bank of America Investment, Inc. 88,376 1,064 3,192 3,192 3,192 99,016 6.6%
Alliance Capital 79,336 982 2,946 2,946 2,946 89,156 5.9%
Koch Investment Group, Ltd. 63,209 1,010 3,028 3,028 3,028 73,303 4.9%
MANAGEMENT
- ----------
McLain J. Forman 0 33,700 101,100 101,100 101,100 337,000 22.5%
All Directors and Executive 0 33,700 101,100 101,100 101,100 337,000 22.5%
Officers as a group (8 persons)
</TABLE>
_________________________
(a) Based on 1,500,071 shares of outstanding Common Stock.
(b) Includes 14,851 shares held on behalf of Brown University, 4,910
shares held on behalf of Allstate Insurance Co., and 653 shares held
on behalf of Raytheon Co.
(2) Based on 1,000,008 shares of outstanding Common Stock.
(3) Includes 13,214 shares held on behalf of Brown University.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996, the Company sold all of its interests in the Bayou Fer
Blanc Field and the West Gueydan Field to a company (the "Purchaser") that
is owned by the sole stockholder. The purchase price was $950,000, which
was paid at the closing. The Company did not recognize any gain or loss on
the sale of these properties. In connection with the sale, the Purchaser
also agreed to assume certain liabilities of the Company relating to the
completion of the 3-D seismic survey and other related matters. As of
December 31, 1996, the Company had incurred aggregate costs of $327,828
subsequent to the closing on behalf of the Purchaser, which are recorded as
due from affiliate. On June 3, 1997, the Company repurchased its interests
in these fields for $5,000,000 with the proceeds from the offerings of
Senior Notes and Preferred Stock made by the Company in 1997. At that
time, the Purchaser's cost basis in these fields was $3,500,000, which the
Company has recorded as unevaluated properties at December 31, 1997. The
balance of the purchase price of $1,500,000 was recorded as a distribution
to the sole stockholder.
During 1996, the sole stockholder loaned the Company $1,000,000, of
which $500,000 had been repaid as of December 31, 1996. The remaining
$500,000 was repaid in 1997. The Company recorded interest expense of
$27,361 during 1996 and $14,301 during 1997 related to this loan.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
The following financial statements of the Company and the Report of
the Company's Independent Public Accountants thereon are included on pages
F-1 through F-18 of this Form 10-K.
Report of Independent Public Accountants
Balance Sheet as of the years ended December 31, 1999 and 1998
Statement of Operations for the three years in the period ended
December 31, 1999
Statement of Stockholders' Equity (Deficit) for the three years in the
period ended December 31, 1999
Statement of Cash Flows for the three years in the period ended
December 31, 1999
Notes to the Financial Statements
2. Financial Statement Schedules
All schedules are omitted because the required information is
inapplicable or the information is presented in the Financial Statements or
the notes thereto.
3. Exhibits
The following instruments and documents are included as
Exhibits to this Form 10-K:
<TABLE>
<CAPTION>
_______ __________________________________________________________________
Exhibit Exhibit
No.
<S> <C>
3.1 Amended and Restated Articles of Incorporation dated January 14,
2000.
3.2 Amended and Restated Bylaws.
4.1 Stockholders' Agreement dated as of January 14, 2000 by and
among Forman Petroleum Corporation and each of the other Persons
listed on the signature pages thereto.
4.2 Registration Rights Agreement dated as of January 14, 2000 by and
between Forman Petroleum Corporation and each of the other Persons
listed on the signature pages thereto.
4.3 Warrant Agreement dated as of January 14, 2000 by and between Forman
Petroleum Corporation and each of the other Persons listed on the
signature pages thereto.
10.1 Employment Agreement, dated as of January 14, 2000, between Forman
Petroleum Corporation and McLain J. Forman.
10.2 Form of Employment Agreement, dated as of January 14, 2000, between
Forman Petroleum Corporation and each of the other executive officers.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized.
FORMAN PETROLEUM CORPORATION
By: /S/ MCLAIN J. FORMAN
-------------------------
McLain J. Forman
Chief Executive Officer
and President
Date: April 10, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this Form 10-K has been signed by the following persons in
the capacities and on the dates indicates.
NAME TITLE DATE
/s/ Nicholas Tell, Jr. Chairman of the Board April 10, 2000
- -----------------------
Nicholas Tell, Jr.
/s/ McLain J. Forman Chief Executive Officer and April 10, 2000
- ----------------------- President
McLain J. Forman (Principal Executive Officer)
/s/ Michael H. Price Chief Financial Officer April 10, 2000
- ----------------------- (Principal Financial Officer)
/s/ Marvin J. Gay Vice President of Finance and April 10, 2000
- ----------------------- Administration (Controller and
Principal Accounting Officer)
/s/ Jerry W. Box Director April 10, 2000
- -----------------------
Jerry W. Box
/s/ Jeffrey Clarke Director April 10, 2000
- -----------------------
Jeffrey Clarke
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants ............................. F-2
Balance Sheets as of the Years Ended
December 31, 1999 and 1998 ......................................... F-3
Statements of Operations for the Three Years
in the Period Ended December 31, 1999 .............................. F-4
Statements of Stockholders' Equity (Deficit) for the
Three Years in the Period Ended December 31, 1999 .................. F-5
Statements of Cash Flows for the Three Years
In the Period Ended December 31, 1999 .............................. F-6
Notes to Financial Statement ......................................... F-7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Forman Petroleum Corporation:
We have audited the accompanying balance sheets of Forman Petroleum
Corporation (a Louisiana corporation) as of December 31, 1999 and 1998, and
the related statements of operations and stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
As discussed in Note 1, effective December 29, 1999, the Company was
reorganized under a plan confirmed by the United States Bankruptcy Court in
the United States District Court for the Eastern District of Louisiana and
adopted a new basis of accounting whereby all remaining assets and
liabilities were adjusted to their estimated fair values. Accordingly,
financial statements for periods subsequent to the reorganization are not
comparable to the financial statements presented for prior periods.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Forman Petroleum
Corporation as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
New Orleans, Louisiana,
March 25, 2000
<PAGE>
FORMAN PETROLEUM CORPORATION
----------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 3,180,925 $ 1,474,488
Accounts receivable 236,663 47,830
Oil and gas revenue receivable 1,359,393 656,433
Unbilled well costs 257 11,324
Prepaid expenses 43,845 297,154
Advance to operator - 1,200,000
----------- -----------
Total current assets 4,821,083 3,687,229
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas properties, full cost method 25,515,529 77,067,569
Unevaluated oil and gas properties 4,732,139 4,485,359
Other property and equipment 200,000 1,718,757
30,447,668 83,271,685
Less- accumulated depreciation, depletion and
amortization - (59,511,084)
----------- -----------
Net property and equipment 30,447,668 23,760,601
----------- -----------
OTHER ASSETS:
Recapitalization costs - 384,313
Escrowed and restricted funds 490,044 493,481
Deferred financing costs, net - 5,360,234
----------- -----------
Total assets $35,758,795 $33,685,858
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,571,710 $ 2,378,512
Undistributed oil and gas revenues 895,064 1,590,223
Current portion of notes payable 640,608 68,309,653
Interest payable - 5,512,640
----------- -----------
Total current liabilities 3,107,382 77,791,028
Notes payable 2,066,173 17,121
Deferred tax liability 9,900,580 -
Mandatorily redeemable preferred stock - 12,360,322
----------- -----------
Total liabilities 15,074,135 90,168,471
STOCKHOLDERS' EQUITY (DEFICIT):
Old common stock, net of treasury stock at cost of $10 - 990
New common stock, no par value, 10,000,000 shares authorized,
1,000,008 shares issued and outstanding 20,684,660 -
Accumulated deficit - (56,483,603)
----------- -----------
Total stockholder's equity (deficit) 20,684,660 (56,482,613)
----------- -----------
$35,758,795 $33,685,858
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORMAN PETROLEUM CORPORATION
----------------------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 12,992,714 $ 15,950,329 $ 14,235,272
Interest income - 239,581 370,569
Overhead reimbursements 64,980 71,325 60,838
Other income 58,292 14,608 42,178
------------ ------------ ------------
Total revenues 13,115,986 16,275,843 14,708,857
------------ ------------ ------------
Costs and expenses:
Production taxes 731,542 540,837 699,638
Lease operating expenses 3,146,581 3,359,200 2,708,570
General and administrative expenses 3,013,809 2,774,498 2,006,768
Interest expense 6,243,778 10,122,131 7,723,717
Full cost ceiling writedown - 19,575,047 10,008,121
Depreciation, depletion and amortization 5,601,733 10,442,032 9,391,640
------------ ------------ ------------
Total expenses 18,737,443 46,813,745 32,538,454
------------ ------------ ------------
Net loss from operations before
reorganization items,
income taxes and extraordinary item (5,621,457) (30,537,902) (17,829,597)
Reorganization items:
Reorganization costs (1,184,111) - -
Adjust accounts to fair value (Note 1) 6,268,022 - -
------------ ------------ ------------
Net loss before income taxes and
extraordinary item (537,546) (30,537,902) (17,829,597)
Provision (benefit) for income taxes (188,141) - -
------------ ------------ ------------
Net loss before extraordinary item (349,405) (30,537,902) (17,829,597)
Extraordinary gain on extinguishment of
debt, net of taxes of $10,088,721 46,724,052 - -
------------ ------------ ------------
Net income (loss) 46,374,647 (30,537,902) (17,829,597)
Preferred stock dividends (1,152,991) (1,729,068) (922,912)
------------ ------------ ------------
Net income (loss) attributable to common shares $ 45,221,656 $(32,266,970) $(18,752,509)
============ ============ ============
Per common share amounts:
Net income (loss) per share attributable
to common shares before extraordinary item $ (16.69) $ (358.52) $ (208.36)
Extraordinary item per share 519.15 - -
------------ ------------ ------------
Net income (loss) per share $ 502.46 $ (358.52) $ (208.36)
============ ============ ============
Weighted average shares outstanding 90,000 90,000 90,000
UNAUDITED PRO FORMA DATA:
Net income (loss) from operations reported above $(17,829,597)
Pro forma benefit for income taxes related to
operations as an S Corp 6,105,850
Preferred stock dividends (922,912)
------------
Pro forma net income (loss) $(12,646,659)
============
Pro forma net income (loss) per share $ (140.52)
============
Weighted average shares outstanding 90,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORMAN PETROLEUM CORPORATION
----------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Treasury Paid-in Accumulated
Stock Stock Capital Deficit Total
----- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 1,000 $ (10) $ 785,823 $ (5,819,381) $ (5,032,568)
============ ======== =========== ============= =============
Net loss - - - (17,829,597 (17,829,597)
ISSUANCE OF WARRANTS
TO PURCHASE COMMON
STOCK (Note 4) - - 1,111,100 - 1,111,100
RECLASS ACCUMULATED
DEFICIT TO ADDITIONAL
PAID IN CAPITAL - - (1,896,923) 1,896,923 -
DISTRIBUTION TO SOLE
STOCKHOLDER (Note 8) - - - (1,500,000) (1,500,000)
ACCRUE DIVIDENDS ON
MANDATORILY
REDEEMABLE PREFERRED
STOCK - - - $ (898,605) $ (898,605)
ACCRETION OF DISCOUNT
ON MANDATORILY
REDEEMABLE PREFERRED
STOCK - - - (24,307) (24,307)
------------ -------- ----------- ------------- -------------
BALANCE, December 31, 1997 $ 1,000 $ (10) $ - $ (24,174,967) $ (24,173,977)
============ ======== =========== ============= =============
Net loss - - - (30,537,902) (30,537,902)
ACCRETION OF DISCOUNT
ON MANDATORILY
REDEEMABLE PREFERRED
STOCK - - - (41,666) (41,666)
ACCRUE DIVIDENDS ON
MANDATORILY REDEEMABLE
PREFERRED STOCK - - - (1,729,068) (1,729,069)
------------ -------- ----------- ------------- -------------
BALANCE, December 31, 1998 $ 1,000 $ (10) $ - $ (56,438,603) $ (56,482,613)
============ ======== =========== ============= =============
Net income - - - 46,374,647 46,374,647
ACCRETION OF DISCOUNT
ON MANDITORILY
REDEEMABLE PREFERRED
STOCK - - - (27,778) (27,778)
ACCRUE DIVIDENDS ON
MANDATORILY REDEEMABLE
PREFERRED STOCK - - - (1,152,991) (1,152,991)
OLD COMMON STOCK
SURRENDERED (1,000) 10 - - (990)
NEW COMMON STOCK ISSUED IN
REORGANIZATION 20,684,660 - - - 20,684,660
DISCHARGE OF PREFERRED STOCK
IN REORGANIZATION - - - 13,555,971 13,555,971
FRESH START ACCOUNTING
ADJUSTMENTS (Note 1) - - - (2,266,246) (2,266,246)
------------ -------- ----------- ------------- -------------
BALANCE, December 31, 1999 $ 20,684,660 $ - $ - $ - $ 20,684,660
============ ======== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORMAN PETROLEUM CORPORATION
----------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 46,374,647 $(30,537,902) $(17,829,597)
Adjustments to reconcile net loss to net cash provided
by operating activities-
Extraordinary item (46,724,052) - -
Depreciation and amortization 5,601,733 30,316,309 19,399,761
Income tax benefit (188,141) - -
Adjust accounts to fair value (6,268,022) - -
Interest on obligations discharged in bankruptcy 6,144,915 - -
Withdrawal from interest escrow account - 3,978,148 5,471,852
Change in assets and liabilities-
Decrease (Increase) in oil and gas revenue receivable (702,960) 1,750,882 96,163
Decrease (Increase) in accounts receivable (188,833) 550,161 (97,389)
(Increase) Decrease in unbilled well costs 11,067 (3,166) 52,030
Decrease (Increase) in prepaid expenses 253,309 (297,154) -
(Decrease) Increase in accounts payable and accrued liabilities 1,500,735 (4,059,766) 197,209
(Decrease) Increase in undistributed oil and gas revenues (473,127) (258,274) 222,980
Increase in interest payable - 5,512,640 -
Decrease (Increase) in advance to operator 1,200,000 (1,200,000) -
Decrease in capitalized recapitalization costs 384,313 - -
Increase (Decrease) in due from related parties - - 12,457
Decrease in due to stockholder - - 327,828
------------ ------------ ------------
Net cash provided by operating activities 6,925,284 5,751,878 7,853,294
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (5,173,645) (4,523,589) (28,669,449)
Reduction of escrow account 3,437 21,615 366,874
Purchase of other property and equipment (48,639) (67,964) (224,868)
------------ ------------ ------------
Net cash used in investing activities (5,218,847) (4,569,938) (28,527,443)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 71,800,333
Repayment of notes payable - - (43,542,096)
Deposit into interest escrow account - - (9,450,000)
Proceeds from preferred stock - - 9,666,667
Proceeds from issuance of warrants - - 1,000,000
Distribution to stockholder - - (1,500,000)
Deferred financing costs - (165,321) (6,973,437)
------------ ------------ ------------
Net cash (used) provided by financing activities - (165,321) 21,001,467
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,706,437 1,016,619 327,318
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,474,488 457,869 130,551
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,180,925 $ 1,474,488 $ 457,869
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for-
Interest $ 82,451 $ 4,609,491 $ 7,723,717
============ ============ ============
Income taxes $ - $ - $ -
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FORMAN PETROLEUM CORPORATION
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
1. REORGANIZATION AND FRESH START REPORTING:
----------------------------------------
Forman Petroleum Corporation ("Forman" or the "Company"), a Louisiana
corporation, is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas, with
operations primarily in the onshore Gulf Coast area of Louisiana. Forman
was incorporated in Louisiana in 1982 and began operations in that year.
REORGANIZATION
- --------------
On August 6, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United States
District Court for the Eastern District of Louisiana (the Bankruptcy Court)
(Case No. 99-14319). On November 22, 1999, the Company and certain of its
creditors filed a Second Amended Joint Plan of Reorganization, as amended
on December 29, 1999 (the Bankruptcy Plan). The Company's reorganization
plan was confirmed by the Bankruptcy Court on December 29, 1999 and
consummated January 14, 2000.
Pursuant to the Bankruptcy Plan, all of the Company's issued and
outstanding securities were canceled and the Company issued the following
equity securities:
* 925,000 shares of new common stock, no par value, to the former holders
of the Company's 13.5% Series B Senior Notes due 2004;
* 75,000 shares of new common stock to the former holders of the
Company's Series A Cumulative Preferred Shares; and
* warrants to purchase up to 500,000 shares of new common stock to certain
of the Company's former warrant holders and to McLain J. Forman, the
former sole voting shareholder of the Company.
As of the confirmation date, the Company had total assets of $33.9 million
and liabilities of $96.0 million. With the exception of an aggregate of
approximately $2.7 million of promissory notes issued pursuant to the
Bankruptcy Plan, approximately $300,000 in convenience claims which were
paid in full in 2000, undistributed oil and gas revenues of $895,000, and
approximately $3 million in additional pre-petition bankruptcy claims that
are disputed by the Company and still pending before the Bankruptcy Court
(Note 6), all of the Company's liabilities as of the confirmation date were
extinguished pursuant to the Bankruptcy Plan.
Costs incurred during 1999 directly related to the Company's
reorganization, consisting primarily of legal, accounting and financial
consulting fees, were recorded to reorganization costs in the accompanying
statement of operations. These costs are net of interest income earned on
cash and cash equivalents because the maintenance of cash balances during
1999 was directly related to the Company's bankruptcy filing.
The Company ceased accruing interest on its Senior Debt and dividends on
its preferred stock on August 6, 1999, when it filed for relief under
Chapter 11.
<PAGE>
FRESH START REPORTING
- ---------------------
The Company has accounted for the reorganization using the principles of
fresh start accounting required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7). For accounting purposes, the accompanying financial
statements reflect the confirmed plan as if it was consummated on
December 31, 1999. Under the principles of fresh start accounting, the
Company's total assets and liabilities were recorded at their estimated
fair market values. Accordingly, the Company's net proved oil and gas
properties were increased by approximately $3.0 million, its unevaluated
oil and gas properties were increased by approximately $3.1 million and
other net property and equipment was increased by approximately $0.2
million. Obligations arising from the Bankruptcy Plan are recorded at the
amounts expected to be paid in settlements of such obligations. In
addition, the Company's Senior Notes with a net book value of $68.6
million, related interest payable of $11.1 million, preferred stock of
$13.6 million and deferred financing costs related to the Senior Notes and
preferred stock of $4.4 million were all written off.
Since the former holders of the Company's Senior Notes (the former
noteholders) received 92.5% of the shares of the common stock (Note 5), the
gain on discharge of indebtedness was computed using 92.5% of the net
assets received by the former noteholders. The remaining 7.5% of the net
assets allocable to the former holders of the Company's preferred stock was
recorded to equity and is included in fresh start accounting adjustments in
the accompanying statement of stockholders' equity. Also included in such
amount is the write-off of the remaining deferred costs allocable to the
preferred stock.
<PAGE>
The effect of the Bankruptcy Plan on the Company's balance sheet as of
December 31, 1999, is as follows (in thousands):
<TABLE>
<CAPTION>
Adjustments to Record
Confirmation of Plan
--------------------
Discharge
of Debt and
Preferred Reorganized
Preconfirmation Stock Fresh Start Balance Sheet
--------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS $ 4,821 $ - $ - $ 4,821
PROPERTY AND EQUIPMENT:
Oil and gas properties, net 24,158 - 6,090 30,248
Other property and equipment 22 - 178 200
DEFERRED FINANCING COSTS, net 4,398 (4,398) -
ESCROWED AND RESTRICTED FUNDS 490 - - 490
------------ ---------- ----------- -----------
$ 33,889 $ (4,398) $ 6,268 $ 35,759
============ ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
(DEFICIT)
---------
LIABILITIES NOT SUBJECT TO
COMPROMISE:
Accounts payable and accrued liabilities $ 2,467 $ - $ - $ 2,467
Current portion of promissory notes 26 614 - 640
Other noncurrent liabilities 19 - - 19
Deferred taxes (2,382) 10,089 2,194 9,901
------------ ---------- ----------- -----------
130 10,703 2,194 13,027
LIABILITIES SUBJECT TO COMPROMISE:
Prepetition liabilities 2,521 (2,521) - -
Promissory notes - 2,047 - 2,047
Notes payable - secured (including interest
of $11,155) 79,767 (79,767) - -
Mandatorily redeemable preferred stock 13,555 (13,555) - -
STOCKHOLDERS' DEFICIT:
Common stock - old 1 (1) - -
Common stock - new - 14,417 6,268 20,685
Accumulated deficit (62,085) 64,279 (2,194) -
------------ ---------- ----------- -----------
33,759 (15,101) 4,074 22,732
------------ ---------- ----------- -----------
$ 33,889 $ (4,398) $ 6,268 $ 35,759
============ ========== =========== ===========
</TABLE>
<PAGE>
The fair market value assigned to the Company's proved oil and gas
properties was estimated by adjusting the net pre-tax future cash flows
discounted at a 10% annual rate (PV10) of the Company's proved reserves
($36.4 million at December 31, 1999) as set forth in the Estimate of
Reserves and Future Revenue report on the Company's proved oil and gas
properties as of December 31, 1999, prepared by Netherland, Sewell &
Associates, independent reservoir engineers. This report was prepared in
accordance with SEC guidelines, utilizing constant prices existing as of
December 31, 1999. The Company adjusted these prices to reflect the
product prices used in valuing producing properties, ($21 per barrel of oil
and $2.75 per mcf of gas) then applied risk factors to the various
categories of proved reserves as follows:
<TABLE>
<CAPTION>
PROVED CATEGORY RISK FACTOR
--------------- -----------
<S> <C>
Proved Producing 95%
Proved Non-producing 75%
Proved Undeveloped 25%
</TABLE>
Applying these risk factors and adjusting the product pricing resulted in
an estimated fair market value of the proved properties of $25.5 million.
The Company's other assets, including other property and equipment, were
valued at $4.9 million.
As a result of the implementation of fresh start accounting, the financial
statements as of and for the year ended December 31, 1999 reflecting the
fresh start accounting principles discussed above are not comparable to the
financial statements of prior periods.
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
OIL AND GAS PROPERTIES
- ----------------------
Forman uses the full-cost method of accounting, which involves capitalizing
all exploration and development costs incurred for the purpose of finding
oil and gas reserves, including the costs of drilling and equipping
productive wells, dry hole costs, lease acquisition costs and delay
rentals. The Company also capitalizes certain related employee costs and
general and administrative costs which can be directly identified with
significant acquisition, exploration and development projects undertaken.
Such costs are amortized on the future gross revenue method whereby
amortization is computed using the ratio of gross revenues generated during
the period to total estimated future gross revenues from proved oil and gas
reserves. Additionally, the capitalized costs of oil and gas properties
cannot exceed the present value of the estimated net cash flow from its
proved reserves, together with the lower of cost or estimated fair value of
its undeveloped properties (the full cost ceiling). Transactions involving
sales of reserves in place, unless extraordinarily large portions of
reserves are involved, are recorded as adjustments to accumulated
depreciation, depletion and amortization.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
DEPRECIATION OF OTHER PROPERTY AND EQUIPMENT
- --------------------------------------------
Depreciation of property and equipment other than oil and gas properties
is provided on the straight-line method over the estimated useful lives
of the assets.
DEFERRED FINANCING COSTS
- ------------------------
For oil and gas property acquisitions which were burdened by an overriding
royalty interest assigned to its lenders, the Company allocated a portion
of the purchase price of such acquisitions to deferred financing costs.
The amount allocated is proportional to the discounted future net
cash flows associated with the interest assigned as compared to
<PAGE>
the total discounted future net cash flows for the acquisition (before
carve-out of the overriding royalty interest) as of the date of the
acquisition. These allocated costs, along with other costs of obtaining
financing, were deferred and amortized using the effective interest method
over the original term of the related debt. All such costs were reduced to
zero in the reorganization discussed in Note 1.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
Cash, cash equivalents, accounts receivable, accounts payable and
promissory notes are reflected at their fair market values at December 31,
1999, in accordance with SOP 90-7 as discussed in Note 1. The fair market
value of the forward oil sales agreement was immaterial at December 31,
1999.
INCOME TAXES
- ------------
The income tax effects of the Company's reorganization had a material
impact on the tax basis of the Company's oil and gas interests and its net
operating loss carryforwards (Note 4).
The Company issued a second class of stock on June 3, 1997, effectively
terminating its S Corporation election. As a result, the Company is
subject to federal and state taxes. The Company was also required to
establish a net deferred tax liability calculated at the applicable federal
and state tax rates resulting primarily from financial reporting and income
tax reporting basis differences in oil and gas properties and other basis
differences between cash and accrual basis accounting. During 1997, as a
result of the termination of its S Corporation election, the Company was
required to provide a net deferred tax liability of $6,105,850, which was
charged to income tax expense, and was offset in its entirety by a tax
benefit recognized on the loss incurred.
For purposes of the unaudited pro forma income tax benefit and net loss per
share, the accompanying statement of operations for the year ended
December 31, 1997, includes an income tax benefit for the portion of the
losses which would have been offset against the deferred tax liability
created as a result of the termination of the S Corporation election.
PERVASIVENESS OF ESTIMATES
- --------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECAPITALIZATION COSTS - 1998
- -----------------------------
Costs incurred during 1998, consisting primarily of consulting and
financial advisory fees, were capitalized in anticipation of the possible
debt restructuring or recapitalization of the Company. These costs were
written off in 1999 when the Company filed for bankruptcy.
DEFERRED CHARGES
- ----------------
The Company capitalized $170,429 of legal and professional costs as of
December 31, 1997, related to the preparation of documents for an initial
public offering. These costs were charged to expense in 1998.
DERIVATIVES
- -----------
The Company uses derivative financial instruments such as swap agreements
and forward sales contracts for price protection purposes on a limited
amount of its future production and does not use them for trading purposes.
Such derivatives are accounted for on an accrual basis and amounts paid
or received under the agreements are recognized as oil and gas sales
in the period in which they accrue. For the years ended December 31,
1999, 1998 and 1997, the Company recorded additions to oil and gas
sales of $109,800, $-0- and $189,300, respectively, under these
<PAGE>
agreements. The Company did enter into a forward sales agreement to sell
200 barrels per day of its oil production in October, 1999 for the twelve
months ending November 30, 2000, at a price of $22.05 per barrel. As of
December 31, 1999 and through March 25, 2000, the Company had no open
forward gas sales positions.
CERTAIN CONCENTRATIONS
- ----------------------
During 1999, 100% of the Company's oil and gas production was sold to four
customers. Based on the current demand for oil and gas, the Company does
not believe the loss of any of these customers would have a significant
financially disruptive effect on its business or financial condition.
PER SHARE AMOUNTS
- -----------------
Net loss per share and pro forma net loss per share of common stock were
calculated by dividing net loss applicable to common stock by the weighted-
average number of common shares outstanding during the year. Due to the
net losses reported in 1999, 1998 and 1997, all options and warrants
outstanding were excluded from the computation because they would have been
antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting
and reporting standards that require every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded
in the balance sheet as either an asset or a liability measured at its fair
value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
The Company will adopt SFAS No. 133 on January 1, 2001. Because of the
nature of the Company's hedging activities, the Company does not expect
that the adoption of SFAS No. 133 will have a material impact on the
Company's results of operations. However, management believes that its
hedging contracts will meet the criteria for hedge accounting treatment
under SFAS No. 133; this treatment will create volatility in items of other
comprehensive income due to the marking-to-market of the instruments.
RECLASSIFICATION
- ----------------
Certain prior year amounts have been reclassified to conform to the
presentation of such items in the current year.
3. NOTES PAYABLE AND PREFERRED STOCK:
---------------------------------
As discussed in Note 1, all of the Company's debt, including accrued
interest, and preferred stock were discharged in the reorganization. The
Company has issued to certain general unsecured creditors six promissory
notes aggregating to approximately $2.7 million payable beginning April 1,
2000, in equal monthly installments of principal and interest over three
years and bearing interest at the rate of 8% per year. Additionally, the
Company has notes outstanding of $46,000 related to purchases of
automobiles and trucks. Aggregate minimum principal payments at
December 31, 1999, required on these notes for the next five years are as
follows (in thousands): 2000 - $640; 2001 - $884; 2002 - $936; 2003 -
$246; 2004 - $0.
4. INCOME TAXES:
------------
The Company follows the asset and liability method of accounting for
deferred income taxes prescribed by the Financial Accounting Standards
Board Statement No. 109 (FAS 109) "Accounting for Income Taxes". Under the
applicable income tax rules and regulations, the Company is not required to
recognize taxable income, or pay taxes on the gain resulting from discharge
of indebtedness (DOI) as a result of the Bankruptcy Plan.. Rather, the
gain (represented for tax purposes as the face value of the debt and
accrued interest discharged in excess of the fair market value of the
reorganized company) reduces the Company's net operating loss carryforwards
(NOLs). Any remaining gain (after offsetting the Company's NOLs) reduces
the Company's tax basis in its net assets. The magnitude of the DOI
resulted in the elimination of $20.9 million of NOLs from 1998
and $9.6 million of net operating losses generated during 1999.
Additionally, it substantially eliminated the tax basis in the
net assets of the reorganized Company. The significant excess of
book basis over tax basis in the net assets of the Company resulted
<PAGE>
in the recording of a $9.9 million deferred tax liability in the
reorganized balance sheet (See Note 1). Realization of the NOLs used
to offset the gain on DOI also resulted in the reversal of the valuation
allowance, the impact of which is included in the tax effect of the
extraordinary item of $10.1 million in the accompanying statement of
operations.
At December 31, the Company has the following deferred tax assets and
liabilities recorded (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Federal net operating loss carryforward $ - $ 7,726
Temporary differences:
Oil and gas properties 9,901 829
Section 481(a) adjustment - 1,857
Valuation allowance - (10,412)
---------- ---------
Net deferred tax liability $ 9,901 $ -
========== =========
</TABLE>
The provision for income taxes (on net loss before extraordinary item) at
the Company's effective tax rate differed from the provision for income
taxes at the statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1999 1998
<S> <C> <C>
Computed provision (benefit) at the expected
Statutory rate .............................. $ (188) $ (11,310)
Change in valuation allowance ................. - 10,399
Other ......................................... - 911
------- ----------
Income tax provision (benefit) (188) -
======= ==========
</TABLE>
5. COMMON STOCK AND WARRANTS:
-------------------------
In connection with the consummation of the Bankruptcy Plan, the Company is
in the process of issuing approximately 925,000 shares of common stock to
the former holders of the Company's Senior Notes and approximately 75,000
shares of common stock to the former holders of the Company's preferred
stock. Pursuant to the Bankruptcy Plan, the Company is issuing the new
shares of common stock upon the surrender of the certificates representing
the senior notes and the preferred stock. The common stock is being
allocated as follows: (i) 13.2143 shares of common stock are being issued
for each $1,000 of principal amount of canceled Senior Notes and (ii)
0.3120 shares of common stock are being issued for each canceled share of
preferred stock. The new common stock is subject to a stockholders
agreement which contains restrictions on voting, sale, transfer and ledger,
among other restrictions, of the common stock. Additionally, controlling
stockholders (as defined) are entitled under a registration rights
agreement to effect up to four registrations of the common stock to be
filed on their behalf by the Company. McLain Forman is also entitled to
effect up to two registrations under certain conditions (as defined in the
agreement).
The Company is also issuing warrants to purchase up to approximately
500,000 shares of common stock. These warrants consist of 50,000 Series A
Warrants (exercise price $34.74), 150,000 Series B Warrants (exercise price
$92.80), 150,000 Series C Warrants (exercise price $117.80), and 150,000
Series D Warrants (exercise price $137.80). Each of these warrants is
currently exercisable and will automatically expire on January 14, 2007.
Of these warrants, 67.4% of each series was issued to the former sole
shareholder with the remaining warrants being issued to the former
preferred stock and noteholders as described below.
In connection with the 1997 offerings of Senior Notes and preferred
stock, the Company had issued warrants to purchase 43,600 shares
of common stock at an initial exercise price of $1.00 per share,
subject to adjustment in certain defined cases. The Company had
allocated $666,667 and $333,333 of the proceeds received from
the sale of the note units and equity units, respectively , to
the warrants issued, which had been recorded as additional paid in
<PAGE>
capital at December 31, 1997. In addition, the Company had also issued
warrants to purchase 4,844 shares of common stock under the same conditions
as discussed above. The Company recorded $111,100 of additional paid-in
capital for these warrants, which was being amortized as deferred financing
costs over the term of the note units.
Pursuant to the Bankruptcy Plan, holders of the Company's old common stock
warrants that were issued in June 1997 in connection with the Company's
offering and sale of the Senior Notes will receive in the aggregate
approximately 10,850 Series A Warrants and approximately 32,550 of each of
the Series B, Series C, and Series D Warrants. Each holder of a Senior
Note warrant will receive 0.1637 Series A Warrants and 0.4910 Series B,
Series C, and Series D Warrants for each Senior Note warrants canceled
pursuant to the Bankruptcy Plan. Holders of the Company's warrants that
were issued in June 1997 in connection with the Company's offering and sale
of the preferred stock (the Equity Warrants) will receive in the aggregate
approximately 5,450 Series A Warrants and approximately 16,350 of each of
the Series B, Series C, and Series D Warrants. Each holder of an Equity
Warrant will receive 0.0273 Series A Warrants and 0.0818 Series B, Series
C, and Series D Warrants for each Equity Warrant canceled pursuant to the
Bankruptcy Plan. McLain Forman received 33,780 Series A Warrants and
101,100 of each of the Series B, Series C, and Series D Warrants in
connection with the consummation of the Bankruptcy Plan and pursuant to his
employment agreement.
The issuance of the common stock and the warrants pursuant to the
Bankruptcy Plan was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 1145 of the United States Bankruptcy
Code.
The warrants had no measurable value upon issuance based on the calculation
of their fair value using the Black -Scholes option pricing model.
6. COMMITMENTS AND CONTINGENCIES:
------------------------------
DISPUTED CLAIMS
- ---------------
The Company is disputing approximately $3 million in additional pre-
petition bankruptcy claims. These claims and certain other residual
bankruptcy-related matters are still within the jurisdiction of the
Bankruptcy Court. The Company has recorded an accrual for its estimate of
the amounts expected to be paid in settlement of these claims. Actual
settlement amounts in excess of or less than amounts recorded will be
recorded as adjustments to the Company's fresh start net assets (Note 1),
if resolved by December 31, 2000, in accordance with the provisions of SOP
90-7. Claims resolved subsequent to December 31, 2000, will be recorded to
earnings to the extent actual settlement amounts are less than or exceed
amounts accrued. There can be no assurance as to the amount the Company
will be required to pay with respect to these matters.
EMPLOYMENT AGREEMENTS
- ---------------------
Effective January 14, 2000, the Company entered into employment agreements
with certain members of executive management. The agreements provide for
employment of certain members of executive management in their current
positions through April 30, 2001, subject to earlier termination, at a
fixed annual salary and an annual bonus based upon the attainment of
certain quantitative goals. The agreements provide for aggregate salaries
of $961,000 per calendar year to the executives and a maximum bonus of 30%
of base salary to each executive, except for the former sole shareholder
for whom the maximum bonus is 90% of base salary.
If the Company terminates an executive without cause (as defined in
the agreement) or the executive terminates employment for good
reason (as defined in the agreement), the Company must (i) pay the
executive his accrued based salary as of the date of termination plus his
annual base salary for the remainder of his employment term and (ii)
provide the executive with continuing group medical, dental, disability
and life insurance benefits until the later of 18 months from the
date of termination or the original expiration date of the employment
term. If the executive terminates his employment for reasons other than
good reason or the Company terminates the executive for cause, the
Company must pay to the executive his accrued base salary as of the
date of termination. If the executive is terminated for cause
following a change of control (as defined in the agreement), the
executive will also be paid his base salary for the remainder of his
employment term and will be provided continuing group medical, dental,
<PAGE>
disability and life insurance benefits until the later of 18 months from
the date of termination or the original expiration date of the employment
term.
OPERATING LEASES
- ----------------
Forman has two noncancellable operating leases for the rental of office
space, which expire on September 14, 2004 and January 14, 2005. Future
commitments under these leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
2000 $ 196,730
2001 $ 235,544
2002 $ 251,886
2003 $ 257,333
2004 $ 237,260
</TABLE>
Rental expense under operating leases during 1999, 1998 and 1997 was
$240,980, $200,841, and $204,046, respectively.
7. ESCROWED AND RESTRICTED FUNDS:
------------------------------
Cash restricted for payment of abandonment costs for the Boutte and Bayou
Dularge Fields is classified as a long-term asset. Such amounts are
invested in short-term interest-bearing investments. The cash is escrowed
under an agreement which required Forman to make additional specified
monthly contributions through November 1995. As of December 31, 1999, the
escrow accounts are fully funded.
8. EMPLOYEE BENEFITS:
------------------
As part of the reorganization discussed in Note 1, the 1997 Stock Option
Plan was dissolved and all outstanding options were cancelled. There was
no other activity with respect to the Plan during 1999.
401(K) PLAN
- -----------
The Company has adopted a defined contribution retirement plan that
complies with Section 401(k) of the Code (the 401(k) Plan). Pursuant to the
terms of the 401(k) Plan, all employees with at least one year of
continuous service are eligible to participate and may contribute up to 15%
of their annual compensation (subject to certain limitations imposed under
the Code). The 401(k) Plan provides that a discretionary match of employee
contributions may be made by the Company in cash. In December 1998, the
Company made a matching contribution, in the amount of $58,398, based upon
each individual employee's plan contributions for 1998. In December, 1999
the Company made another matching contribution, in the amount of $70,012,
based upon each individual employee's plan contributions for 1999. These
matching employer contributions to the 401(k) Plan are fully vested to the
individual employees after three years of service. The amounts held under
the 401(k) Plan are invested among various investment funds maintained
under the 401(k) Plan in accordance with the directions of each
participant. Employee contributions under the 401(k) Plan are 100% vested
and participants are entitled to payment of vested benefits upon
termination of employment.
9. RELATED PARTY TRANSACTIONS:
---------------------------
In August 1996, the Company sold all of its interests in the Bayou Fer
Blanc Field and the West Gueydan Field to a company (the "Purchaser") that
is owned by the sole stockholder. The purchase price was $950,000, which
was paid at the closing. The Company did not recognize any gain or loss
on the sale of these properties. In connection with the sale, the
Purchaser also agreed to assume certain liabilities of the Company
relating to the completion of the 3-D seismic survey and other related
matters. As of December 31, 1996, the Company had incurred aggregate
costs of $327,828 subsequent to the closing on behalf of the Purchaser,
which are recorded as due from affiliate. On June 3, 1997, the Company
repurchased its interests in these fields for $5,000,000 with the proceeds
from the offerings discussed in Note 5. At that time, the Purchaser's
cost basis in these fields was $3,500,000, which the Company has
<PAGE>
recorded as unevaluated properties at December 31, 1997. The balance of
the purchase price of $1,500,000 was recorded as a distribution to the sole
stockholder.
During 1996, the sole stockholder loaned the Company $1,000,000, of which
$500,000 had been repaid as of December 31, 1996. The remaining $500,000
was repaid in 1997. The Company recorded interest expense of $27,361
during 1996 and $14,301 during 1997 related to this loan.
10. WRITEDOWN OF OIL AND GAS PROPERTIES:
------------------------------------
During 1998, the Company wrote down its oil and gas properties by
$19,575,047. The amount of the writedown represents the excess capitalized
costs over estimated future net revenues attributable to oil and gas
reserves discounted at 10%, less estimated future income taxes. The
estimated future net revenues used in the calculation were based on year-
end reserve volumes (as determined by an independent petroleum engineer),
using 1998 year end oil prices of $10.44 per barrel and 1998 year end gas
prices of $1.87 per thousand cubic feet, with no provision for future
escalation. The Company also wrote down its oil and gas property
investments during 1997 by $10,008,121. The estimated future net revenues
used in the ceiling test calculation for 1997 were based on year-end
reserve volumes (as determined by an independent petroleum engineer),
utilizing March, 1998 oil prices of $14.47 per barrel and March, 1998 gas
prices of $2.40 per thousand cubic feet, with no provision for future
escalation. The utilization of these prices resulted in an increase in the
amount charged to operations during 1997 of $8,167,879 over the amount that
would have been recorded using year-end prices.
11. OIL AND GAS ACTIVITIES:
-----------------------
The following tables provide information required by FAS No. 69
"Disclosures About Oil and Gas Producing Activities."
CAPITALIZED COSTS
- -----------------
Capitalized costs and accumulated depreciation, depletion and amortization
relating to the Company's oil and gas producing activities, all of which
are conducted within the continental United States, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Proved producing oil and gas properties $ 25,515,529 $ 77,067,569 $ 73,172,144
Unevaluated properties 4,732,139 4,485,359 3,857,195
Accumulated depreciation, depletion and
amortization (Note 1) - (57,938,060) (29,083,935)
------------ ------------ ------------
Net capitalized costs $ 30,247,668 $ 23,614,868 $ 47,945,404
============ ============ ============
</TABLE>
COSTS INCURRED
- --------------
Costs incurred in oil and gas property acquisition, exploration and
development activities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition costs $ 81,840 $ - $ 6,100,000
Exploration costs 1,745,862 2,413,719 18,463,989
Development costs 3,345,943 2,118,810 4,105,460
------------ ------------ ------------
Costs incurred $ 5,173,645 $ 4,532,529 $ 28,669,449
=========== ============ ============
</TABLE>
<PAGE>
Gross cost incurred excludes sales of proved and unproved properties which
are accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves.
RESERVES - (UNAUDITED)
- ----------------------
Proved reserves are estimated quantities of oil and natural gas which
geological and engineering data demonstrate, with reasonable certainty, to
be recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are proved
reserves that can reasonably be expected to be recovered through existing
wells with existing equipment and operating methods.
Proved oil and natural gas reserve quantities and the related discounted
future net cash flows before income taxes for the periods presented are
based on estimates prepared by Ryder Scott Company for 1997 and 1998 and by
Netherland, Sewell & Associates for 1999. Both Ryder Scott and Netherland
Sewell are independent petroleum engineers. Such estimates have been
prepared in accordance with guidelines established by the Securities and
Exchange Commission.
The Company's net ownership interests in estimated quantities of proved oil
and natural gas reserves and changes in net proved reserves, all of which
are located in the continental United States, are summarized below:
<TABLE>
<CAPTION>
OIL, CONDENSATE AND NATURAL GAS LIQUIDS
(Bbls)
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 1,530,724 2,259,567 2,511,562
Revisions of previous estimates 273,709 (335,803) (254,540)
Purchases of oil and gas properties - - 188,739
Extensions and discoveries 151,085 - 148,468
Production (343,394) (393,040) (334,662)
------------ ------------ ------------
End of year 1,612,124 1,530,724 2,259,567
============ ============ ============
Proved developed reserves at end of year 1,330,675 1,310,274 1,842,849
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NATURAL GAS (Mcf)
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year 14,558,000 22,105,000 23,223,000
Revisions of previous estimates 3,405,862 (2,602,860) (8,071,398)
Purchases of oil and gas properties - - 1,867,721
Extensions and discoveries 4,123,150 - 7,699,000
Production (3,091,174) (4,944,140) (2,613,323)
------------ ------------ ------------
End of year 18,995,838 14,558,000 22,105,000
============ ============ ============
Proved developed reserves at end of year 13,599,050 9,865,000 16,237,000
============ ============ ============
</TABLE>
<PAGE>
STANDARDIZED MEASURE (UNAUDITED)
- --------------------------------
The table of the Standardized Measure of Discounted Future Net Cash Flows
related to the Company's ownership interests in proved oil and gas reserves
as of period end is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Future cash inflows $ 88,182 $ 43,256 $ 96,925
Future oil and natural gas operating expenses (29,045) (14,598) (21,116)
Future development costs (7,371) (5,821) (10,372)
------------ ------------ ------------
Future net cash flows before income taxes 51,766 22,837 65,437
Future income taxes (17,401) - (9,328)
------------ ------------ ------------
Future net cash flows 34,365 22,837 56,109
10% annual discount for estimating timing of
cash flows (9,962) (3,668) (8,567)
------------ ------------ ------------
Standardized measure of discounted future net
cash flows $ 24,403 $ 19,169 $ 47,542
============ ============ ============
</TABLE>
Future cash flows are computed by applying year-end prices of oil and
natural gas to year-end quantities of proved oil and natural gas reserves.
Future operating expenses and development costs are computed primarily by
the Company's petroleum engineers by estimating the expenditures to be
incurred in developing and producing the Company's proved oil and natural
gas reserves at the end of the year, based on year end costs and assuming
the continuation of existing economic conditions. Future income taxes are
computed using the Company's tax basis in evaluated oil and gas properties
and other related tax carryforwards. In 1998, the present value of future
net cash flows before income taxes was exceeded by the Company's tax basis
in the oil and gas properties and other tax attributes; therefore, future
income taxes have not been reflected in that year. The standardized
measure of discounted future net cash flows does not purport, nor should it
be interpreted, to present the fair value of the Company's oil and natural
gas reserves. An estimate of fair value would also take into account,
among other things, the recovery of reserves not presently classified as
proved, anticipated future changes in prices and costs, a discount factor
more representative of the time value of money and the risks inherent in
reserve estimates.
<PAGE>
CHANGES IN STANDARDIZED MEASURE (UNAUDITED)
- -------------------------------------------
Changes in standardized measure of future net cash flows relating to proved
oil and gas reserves are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Changes due to current year operations:
Sales of oil and natural gas, net of oil
and natural gas operating expenses $ (9,246) $ (12,050) $ (10,827)
Extensions and discoveries 8,604 - 16,915
Purchases of oil and gas properties - - 4,691
Changes due to revisions in standardized
variables:
Prices and operating expenses 10,747 (24,336) (33,229)
Revisions of previous quantity estimates 6,897 (4,675) (16,109)
Estimated future development costs 3,055 (2,192) 5,835
Accretion of discount 1,917 5,226 8,738
Net change in income taxes (12,037) 4,715 (4,715)
Production rates, timing and other (4,703) 4,939 (11,138)
------------ ------------ ------------
Net Change 5,234 (28,373) (39,839)
Beginning of year 19,169 47,542 87,381
------------ ------------ ------------
End of year $ 24,403 $ 19,169 $ 47,542
============ ============ ============
</TABLE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FORMAN PETROLEUM CORPORATION
Forman Petroleum Corporation, a Louisiana corporation (the
"Corporation"), acting through its undersigned Chief Executive Officer and
Assistant Secretary and by authority of its shareholders and Board of
Directors, does hereby certify that:
FIRST: The Amended and Restated Articles of Incorporation set forth
in paragraph Fifth below accurately set forth the Articles of Incorporation
of the Corporation and all amendments thereto in effect on the date hereof,
including the changes made by the amendments described in paragraph Fourth
below. Immediately prior hereto, the authorized capital stock of the
Corporation consisted of 2,200,000 shares of capital stock, 1,000,000
shares of which were Preferred Stock, $0.01 par value per share, 1,000,000
shares of which were Common Stock, no par value per share, and 200,000
shares of which were Class A Common Stock, no par value per share.
SECOND: All such amendments have been effected in conformity with
law.
THIRD: The date of incorporation of the Corporation was December 9,
1982, and the date of these Amended and Restated Articles of Incorporation
is January 14, 2000.
FOURTH: Acting by written consent of sole voting shareholder dated
January 13, 2000, pursuant to Section 76(B) of the Louisiana Business
Corporation Law and Articles VI and IX of the Corporation's articles of
incorporation, the holders of 100% of the outstanding voting shares of
Common Stock of the Corporation entitled to vote thereon, adopted
resolutions (i) amending the Articles of Incorporation of the Corporation
as in effect prior to the date thereof by amending Article III, amending
and redesignating Articles VI through XI, deleting Articles IV through V,
and adding a new Article VIII, as set forth in paragraph Fifth below, and
(ii) restating the Articles of Incorporation as so amended in their
entirety, all effective as of January 14, 2000.
FIFTH: The Amended and Restated Articles of Incorporation of the
Corporation are as follows:
ARTICLE I
Name
The name of the corporation shall be: FORMAN PETROLEUM CORPORATION.
<PAGE>
ARTICLE II
Purpose
This corporation is formed for the purposes of engaging in any lawful
activity for which corporations may be formed under the provisions of the
Business Corporations Law (Title 42, Chapter 1, Louisiana Revised Statutes,
as amended).
ARTICLE III
Capital Stock
The Corporation has authority to issue an aggregate of 11,000,000
shares of capital stock, of which 10,000,000 shares shall be designated
Common Stock, no par value per share (the "Common Stock"), and 1,000,000
shares shall be designated Preferred Stock, $0.01 par value per share (the
"Preferred Stock"). The Corporation shall be prohibited from issuing any
nonvoting capital stock.
The Board of Directors shall have the authority to amend these
Articles of Incorporation to fix the preferences, limitations and relative
rights of the Preferred Stock, and each series thereof.
ARTICLE IV
Directors
The number of directors of the Corporation shall be fixed from time to
time by, or in the manner provided by, its By-laws and may be increased or
decreased from time to time in the manner provided therein.
ARTICLE V
Reversion
Cash, property or share dividends, shares issuable to shareholders in
connection with a reclassification of stock, and the redemption price of
redeemed shares, that are not claimed by the shareholders entitled thereto
within one year after the dividend or redemption price became payable or
the shares became issuable despite reasonable efforts by the Corporation to
pay the dividend or redemption price or deliver the certificates for the
shares to such shareholders within such time, shall, at the expiration of
such time, revert in full ownership to the Corporation, and the
Corporation's obligation to pay such dividend or redemption price or issue
such shares, as the case may be, shall thereupon cease; provided that the
Board of Directors may, at any time, for any reason satisfactory to it, but
need not, authorize (a) payment of the amount of any cash or property
dividend or redemption price or (b) issuance of any shares, ownership of
which has reverted to the Corporation pursuant to this article, to the
person or entity who or which would be entitled thereto had such reversion
not occurred.
<PAGE>
ARTICLE VI
Shareholder Consents
Whenever by law, these Articles of Incorporation are the Corporation's
By-laws, the affirmative vote of shareholders is required to authorize or
constitute corporate action, the written consent to such action signed by
shareholders holding that proportion of the total voting power necessary to
authorize or constitute such corporate action shall be sufficient, without
necessity for a meeting of shareholders. The secretary of the Corporation
shall give prompt notice to all of the shareholders of the action taken
pursuant to a written consent.
ARTICLE VII
Shareholder Voting Requirements
Any corporate action of shareholders, including by way of illustration
and not limitation, adoption of amendments to these Articles of
Incorporation, approval of merger and consolidation agreements, and
authorization of voluntary disposition of all or substantially all of the
Corporation's assets, may be taken on the affirmative vote of a majority of
the voting power present.
ARTICLE VIII
Directors' Proxies
Any director absent from a meeting of the Board of Directors or any
committee thereof may be represented by any other director or shareholder,
who may cast the vote of the absent director according to the written
instructions, general or special, of the absent director.
ARTICLE IX
Limitation of Liability and Indemnification
A. No director or officer of the Corporation shall be liable to the
Corporation or to its shareholders for monetary damages for breach of his
fiduciary duty as a director or officer, provided that the foregoing
provision shall not eliminate or limit the liability of a director or
officer for (1) any breach of his duty of loyalty to the Corporation or its
shareholders; (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) liability for
unlawful distributions of the Corporation's assets to, or redemptions or
repurchases of the Corporation's shares from shareholders of the
Corporation, under and to the extent provided in La. R.S. 12:92(D); or (4)
any transaction from which he derived an improper personal benefit. If,
after the date hereof, the Louisiana Business Corporation Law is amended to
authorize further elimination or limitation the personal liability of
directors or officers, then the liability of a director or an officer of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the Louisiana Business Corporation Law, as so amended.
B. The Board of Directors may (i) cause the Corporation to enter
into contracts with directors providing for the limitation of liability set
forth in this article to the fullest extent permitted by law, (ii) adopt
By-laws or resolutions, or cause the Corporation to enter into contracts,
providing for indemnification of directors and officers of the Corporation
and other persons (including but not limited to directors and officers of
the Corporation's direct and indirect subsidiaries) to the fullest extent
permitted by law, and (iii) cause the Corporation to exercise the powers
set forth in La. R.S. <section> 12.83F, notwithstanding that some or all of
the members of the Board of Directors acting with respect to the foregoing
may be parties to such contracts or beneficiaries thereof.
C. In addition to any other votes required by law or these Articles
of Incorporation (and notwithstanding the fact that a lesser percentage may
be specified by law or these Articles of Incorporation), the affirmative
vote of the holders of at least 80% of the total voting power shall be
required to repeal this article or to amend this article so as to reduce
the limitation of liability set forth herein or the rights to
indemnification or the powers of the Board of Directors provided in this
article, and any amendment or repeal of this article shall not adversely
affect any indemnification or limitation of liability of a director or
officer of the Corporation under this article with respect to any action or
inaction occurring prior to the time of such amendment or repeal.
These Amended and Restated Articles of Incorporation are dated January
14, 2000.
FORMAN PETROLEUM CORPORATION
/s/ McLain Forman
------------------------------------
McLain Forman
Chief Executive Officer
/s/ Marvin Gay
-------------------------------------
Marvin Gay
Assistant Secretary
AMENDED AND RESTATED
BY-LAWS
OF
FORMAN PETROLEUM CORPORATION
(effective as of January 14, 2000)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of New Orleans,
State of Louisiana.
Section 2. The corporation may also have offices at such other places
both within and without the State of Louisiana as the board of directors
may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders for the election of
directors shall be held at such place either within or without the State of
Louisiana as shall be designated from time to time by the board of
directors and stated in the notice of the meeting. Meetings of
shareholders for any other purpose may be held at such time and place,
within or without the State of Louisiana, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of shareholders shall be held at such date
and time as shall be designated from time to time by the board of directors
and stated in the notice of the meeting, at which they shall elect by a
board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each shareholder entitled to
vote at such meeting not less than 10 nor more than 60 days before the date
of the meeting.
Section 4. At any meeting of shareholders, a list of shareholders
entitled to vote, arranged alphabetically and certified by the secretary or
by the agent of the corporation having charge of transfers of shares,
showing the number and class of shares held by each shareholder on the
record date for the meeting shall be produced on the request of any
shareholder.
<PAGE>
Section 5. Special meetings of the shareholders for any purpose or
purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called at the direction of a majority of the board of
directors, or at the request in writing of shareholders owning 20% or more
issued and outstanding stock that is entitled to vote for the election of
directors. Such request of shareholders shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than 10 nor more than 60 days before the
date of the meeting, to each shareholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the shareholders for
the transaction of business except as otherwise provided by statute or by
the articles of incorporation. If, however, such quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present
or represented any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting. Any
meeting at which directors are to be elected shall be adjourned only from
day to day until such directors shall have been elected. In the case of
any meeting called for the election of directors, those who attend the
second of such adjourned meetings, although less than a quorum as fixed in
this section, shall nevertheless constitute a quorum for the purpose of
electing directors.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the shares having voting power present in person
or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the articles of incorporation, a different vote is required
in which case such express provision shall govern and control the decision
of such question. Directors shall be elected by plurality vote.
Section 10. Unless otherwise provided in the articles of incorporation
each shareholder shall at every meeting of the shareholders be entitled to
one vote in person or by proxy for each share of the capital stock having
voting power held by such shareholder, but no proxy shall be voted on after
three years from its date.
Section 11. As set forth in the articles of incorporation, any action
required to be taken at any annual or special meeting of shareholders of
the corporation, or any action which may be taken at any annual or special
meeting of such shareholders, may 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 shareholders having that proportion
of the total voting power which would be required to authorize or
constitute such action at a meeting of the shareholders. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those shareholders who have not consented
in writing.
ARTICLE III
DIRECTORS
Section 1. Unless otherwise fixed by the board of directors, the
number of directors which shall constitute the whole board shall be four.
The directors shall be elected at the annual meeting of the shareholders,
and each director elected shall hold office until his successor is elected
and qualified. Directors need not be shareholders.
Section 2. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not
by statute or by the articles of incorporation or by these by-laws directed
or required to be exercised or done by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Louisiana.
Section 4. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 5. Special meetings of the board may be called at the
direction of the chairman of the board on 48 hours' notice to each
director; special meetings may be called on like notice on the written
request of two directors unless the board consists of only one director; in
which case special meetings may be called on like notice on the written
request of the sole director.
Section 6. At all meetings of the board, a majority of the board of
directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the articles of
incorporation. If a quorum shall not be present at any meeting of the
board of directors the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present.
Section 7. Unless otherwise restricted by the articles of
incorporation or these by-laws, any action required or permitted to be
taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee,
as the case may be, consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the board or committee.
Section 8. Unless otherwise restricted by the articles of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in
a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 9. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in
the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation
to be affixed to all papers which may require it; but no such committee
shall have the power or authority in reference to amending the articles of
incorporation, adopting an agreement of merger or consolidation,
recommendation to the shareholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to
the shareholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or the articles of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of merger. Such
committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the board of directors.
Section 10. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 11. Unless otherwise restricted by the articles of
incorporation or these by-laws, the board of directors shall have the
authority to fix the compensation of directors. The 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.
REMOVAL OF DIRECTORS
Section 12. Unless otherwise restricted by the articles of
incorporation, by law or by agreement among shareholders, any director or
the entire board of directors may be removed, with or without cause, by the
holders of a majority of shares entitled to vote at an election of
directors.
ARTICLE IV
NOTICES
Section 1. Unless provided otherwise by statute, the articles of
incorporation or these by-laws, whenever notice is required to be given to
any director or shareholder, it shall not be construed to mean personal
notice. Notice to any shareholder may be given in writing, by mail or
national commercial courier service, addressed to such shareholder, at his
address as it appears on the records of the corporation. Notice to a
director may be given in person, by telephone, by facsimile transmission,
or in writing delivered by a national commercial courier service for next-
day delivery to his address as it appears on the records of the
corporation.
Section 2. Notice given by mail or by a commercial courier service
shall be deemed to be given at the time when the same shall be deposited in
the United States mail or with such courier service. Notice given by
facsimile transmission shall be deemed to be given when so transmitted.
Section 3. Whenever any notice is required to be given under the
provisions of the statutes or of the articles of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chairman of the board, a chief executive
officer and chief operating officer, a secretary and a treasurer. The
board of directors may also choose one or more vice presidents, assistant
secretaries and assistant treasurers. Any number of offices may be held by
the same person, unless the articles of incorporation or these by-laws
otherwise provide.
Section 2. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 3. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 4. The officers of the Corporation shall hold office at the
pleasure of the board of directors. Except as otherwise provided in the
resolution of the board of directors electing any officer, each officer
shall hold office until his or her successor is elected and qualified or
until his or her earlier resignation or removal. The board of directors
may remove any officer with or without cause at any time by the affirmative
vote of a majority of the board of directors. Any vacancy occurring in any
office of the corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD
Section 5. The chairman of the board shall preside at all meetings of
the shareholders and directors, ensure that all orders, policies and
resolutions of the board of directors are carried out and perform such
other duties as may be prescribed by the board of directors or these by-
laws.
THE CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
Section 6. The chief executive officer and chief operating officer
shall be the chief executive officer of the corporation and shall have,
subject to the powers of the chairman of the board and the supervision of
the board of directors, general and active management of the business of
the corporation.
Section 7. The chief executive officer and chief operating officer may
sign, execute and deliver in the name of the corporation powers of
attorney, contracts, bonds and other obligations and shall perform such
other duties as may be prescribed from time to time by the board of
directors or these by-laws.
VICE PRESIDENTS
Section 8. The vice presidents, if any, in the order specified by the
board of directors or, if not so specified, in the order of their
seniority, shall, in the absence or disability of the chief executive
officer and chief operating officer, perform the duties and exercise the
powers of the chief executive officer and chief operating officer, and
shall perform such other duties as the chief executive officer and chief
operating officer or the board of directors shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the board of
directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause
to be given, notice of all meetings of the shareholders and special
meetings of the board of directors, and shall perform such other duties as
may be prescribed by the board of directors or the chief executive officer
and chief operating officer, under whose supervision he shall be. He shall
have custody of the corporate seal of the corporation and he, or an
assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal
of the corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer and chief
operating officer and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions
as treasurer and of the financial condition of the corporation.
Section 13. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the treasurer and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate signed by the chief operating officer or a vice
president and the secretary or an assistant secretary evidencing the number
and class (and series, if any) of shares owned by him, containing such
information as required by law and bearing the seal of the corporation.
Section 2. Any of or all the signatures on a certificate may be
facsimile. 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.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Subject to the restrictions on transfer included in any
agreement among shareholders, upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority
to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or 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, in advance, a record date which shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders 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.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Louisiana.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the articles of incorporation, if any, may be
declared by the board of directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares
of the capital stock, subject to the provisions of the articles of
incorporation.
Section 2. 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 directors from time to time, in their absolute discretion, think 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 directors shall think conducive to the
interest of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other
person or persons as the board of directors may from time to time
designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 5. The board of directors may adopt a corporate seal. The
corporate seal shall have inscribed thereon the name of the corporation,
the year of its organization and the words "Corporate Seal, Louisiana."
The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The Corporation shall indemnify its directors, and may
indemnify its officers, employees and agents and may procure insurance on
behalf of its officers, directors, employees and agents, to the fullest
extent permitted by the Louisiana Business Corporation Law. Any amendment
or repeal of this by-law shall not adversely affect any indemnification
rights of an officer or director of the corporation under this by-law with
respect to any action or inaction occurring prior to the time of such
amendment or repeal.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be amended or repealed by the board of
directors at any regular or special meeting or by the shareholders at any
annual or special meeting, provided notice of the proposed amendment or
repeal be contained in the notice of such annual or special meeting of
shareholders.
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT is made and entered into as of
January 14, 2000, by and among Forman Petroleum Corporation, a Louisiana
corporation (the "Company"), and each of the other Persons listed on the
signature pages attached hereto or otherwise party to this Agreement (the
"Holders").
W I T N E S S E T H
WHEREAS, the Company and each of the Holders deem it to be in their
best interests to provide for continuity in the control and operation of
the Company, for restrictions on the transfer of certain securities and for
various other matters set forth herein.
NOW, THEREFORE, in consideration of the agreements and mutual
covenants set forth herein, the parties agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Affiliate" means, with respect to any specified Person, (a) any
subsidiary of such Person; (b) any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control
with such specified Person; (c) any other Person that owns, directly or
indirectly, 10% or more of such specified Person's capital stock; (d) any
officer or director of (i) any such specified Person, (ii) any subsidiary
of such specified Person, or (iii) any Person described in clause (b) or
(c) above; or (e) any heir or legatee or other Person having a relationship
with any natural Person by blood, marriage or adoption not more remote than
first cousin or any Person directly or indirectly controlling or controlled
by or under common control with such other Person described in this clause
(e). For purposes of this definition, (a) "control," with respect to any
specified Person, means the possession of the power, whether or not
exercised, to direct or cause the direction of the management or policies
of such person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative to the foregoing and (b) none of
the Holders shall be deemed to be an Affiliate of the Company.
"Agreement" shall mean this Stockholders' Agreement, including all
Exhibits hereto, as it may be amended, supplemented or otherwise modified
from time to time in accordance with its terms.
"Approved Sale" has the meaning assigned to such term in Section 3(a).
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy," as amended, or any successor statute.
"Board" shall mean the Board of Directors of the Company.
"Common Shares" shall mean the issued and outstanding shares of common
stock, no par value, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Forman" shall mean McLain J. Forman.
"Majority Holders" shall mean a majority of the Common Shares held of
record by the TCW Funds and their respective Affiliates, so long as such
Persons hold at least 25% of the Common Shares, and, thereafter, shall mean
the Holders of record holding a majority of the Common Shares.
"Major Decisions" has the meaning assigned to such term in Section
4(b).
"Other Holders" shall mean the Holders designated as such on the
signature page hereto.
"Permitted Forman Transferee" shall mean any friend of Forman or
immediate member of Forman's family who receives Securities from Forman by
gift, donation or other gratuitous inter vivos Transfer.
"Permitted Transfer" means (a) any Transfer by a Holder to any of its
Affiliates, (b) any Transfer in connection with an Approved Sale and (c)
any Transfer by Forman to a Permitted Forman Transferee.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political
subdivision thereof.
"Public Offering" has the meaning assigned to such term in the
Registration Rights Agreement, dated as of January 14, 2000, among the
Company and each of the other Persons listed on the signature pages
attached thereto or otherwise party to such agreement.
"Sale of the Company" means, in one or a series of related
transactions, the sale of the Company to a Third Party or "group" (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended) of Third Parties pursuant to which such Person or
Persons acquire (a) securities representing a majority of the Common Shares
of the Company on a fully-diluted basis (whether by merger, consolidation,
sale, liquidation, dissolution, or transfer of the Company's outstanding
securities) or (b) all or substantially all the Company's assets determined
on a consolidated basis.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Securities" shall mean the Common Shares and any other shares of
capital stock (and any other securities convertible into, exchangeable for
or otherwise exercisable for shares of capital stock) of the Company
existing on the date of this Agreement or issued hereafter.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holders" has the meaning assigned to such term in Section
3(a).
"TCW Funds" shall mean each of the parties to this Agreement listed as
a "TCW Fund" on the signature pages hereto and any Affiliate of such party
that holds at any time any of the Securities.
"Third Party" shall mean with respect to any proposed transferee of
Securities, any Person other than an Affiliate of the proposed transferor
of such Securities.
"Transfer" has the meaning assigned to such term in Section 2(a).
"Transferee" has the meaning assigned to such term in Section 2(a).
"Transferor" has the meaning assigned to such term in Section 2(a).
SECTION 2
GENERAL PROVISIONS REGARDING TRANSFER
(a) GENERAL RESTRICTIONS. So long as this Agreement shall remain in
force, no Securities may be issued, sold, assigned, transferred, given away
or in any way disposed of by any Holder (any of the foregoing being
hereinafter referred to as a "Transfer"), other than pursuant to a Public
Offering, unless:
(i) the Person in whose favor such Transfer is made (a
"Transferee") shall deliver to the Company a written acknowledgment of
such Transferee, in the form attached as Exhibit A, that the
Securities to be transferred are subject to this Agreement and
confirming the Agreement of such Transferee to be bound by the
provisions of this Agreement;
(ii) if such Transfer shall be made other than pursuant to a
public offering registered under the Securities Act, and in accordance
with applicable state law, the person proposing to make such Transfer
(the "Transferor") shall give to the Company, if reasonably requested
by the Company, a written opinion in form and substance reasonably
satisfactory to the Company's legal counsel to the effect that the
proposed Transfer may be effected without registration under the
Securities Act or any applicable state law; and
(iii) the Transferor shall (A) take all such actions and execute
and deliver all such documents as may be necessary or reasonably
requested by the Company in order to consummate the Transfer of such
Securities to such Transferee and (B) reimburse the Company for all
costs and expenses incurred by the Company in connection with the
Transfer, including, but not limited to, any applicable stock transfer
taxes.
Any attempted Transfer other than in accordance with this Agreement shall
be void, and the Company shall refuse to recognize any such Transfer and
shall not reflect on the Company's records any change in record ownership
of the Securities pursuant to any such attempted Transfer.
(b) PLEDGE AND HYPOTHECATION PROHIBITED. Prior to a Public Offering,
without the prior written consent of the Majority Holders, no Holder (other
than the TCW Funds and Forman) shall in any manner pledge, hypothecate or
encumber, or grant options with respect to, any Securities; provided that
any pledgee or other potential Transferee of the TCW Funds or Forman shall
agree to be bound by the provisions of this Agreement with respect to any
Securities that are Transferred as a result of any such pledge,
hypothecation, encumbrance or other option grant pursuant to this Section
2(b).
(c) RULES 144 AND 144A.
(i) RULE 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the
Exchange Act (or, if the Company is not required to file such reports, it
will, upon the request of any Holder of Securities, make publicly available
such information) and that it will take such further action as the Holders
of Securities may reasonably request to the extent required from time to
time to enable such Holders to sell Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule
144 under the Securities Act, as such Rule may be amended from time to
time, or any similar rule or regulation hereafter adopted by the SEC. Upon
the request of any Holder of Securities, the Company will deliver to such
Holder (i) a written statement as to whether it has complied with such
reporting requirements and (ii) at the Company's expense, an opinion of the
Company's counsel as to the availability of an exemption from the
registration requirements of the Securities Act in connection with a
proposed transfer of Securities by such Holder.
(ii) RULE 144A. The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act, promptly upon the written request of any Holder of
Securities, provide in writing to such Holder and to any prospective
transferee of any of the Securities of such Holder the information
concerning the Company described in Rule 144A(d)(4) under the Securities
Act ("Rule 144A Information"). The Company also shall, upon the written
request of any such Holder, cooperate with and assist such Holder or any
member of the National Association of Securities Dealers, Inc. PORTAL
system in applying to designate and thereafter maintain the eligibility of
the Common Stock for trading through PORTAL. The Company's obligations
under this Section 2(c) shall at all times be contingent upon receipt from
the prospective transferees of Securities of a written agreement to take
all reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than Persons who will assist such transferee in
evaluation the purchase of the Securities.
SECTION 3
SALE OF THE COMPANY
(a) APPROVED SALE. If Holders holding 75% or more of the Common
Shares (the "Selling Holders") approve a Sale of the Company to a Third
Party or group of Third Parties and the Board has obtained a fairness
opinion from a reputable, disinterested investment banker with respect to
such sale (an "Approved Sale"), then each Holder will consent to and raise
no objections against the Approved Sale. If the Approved Sale (A) is
structured as a merger or consolidation, each Holder shall waive any
dissenters' rights, appraisal rights, or similar rights in connection with
such merger or consolidation, or (B) is structured as a sale of securities,
each Holder shall agree to sell all of his or its Securities on the terms
and conditions approved by the Majority Holders. Each Holder shall take
all necessary or desirable actions in connection with the consummation of
the Approved Sale as requested by the Company.
(b) OTHER SECURITIES. The obligations of the Holders with respect to
the Approved Sale are subject to the condition that each Holder of
Securities then currently convertible, exchangeable, or exercisable for
Common Shares shall be given an opportunity at the election of the Holder
to either (A) exercise such rights before the consummation of the Approved
Sale and participate in such sale as Holders of Common Shares, or (B) to
sell such Securities as part of such Approved Sale at a price equal to the
full purchase price determined for Common Shares as part of the Approved
Sale, reduced by the aggregate exercise price for such Securities.
(c) PURCHASER REPRESENTATIVE. If the Company or the Selling Holders
enter into any negotiation or transaction for which Rule 506 promulgated
under the Securities Act (or any similar rule then in effect) may be
available with respect to such negotiation or transaction (including a
merger, consolidation, or other reorganization), each Holder will, at the
request of the Company, appoint either a purchaser representative (as such
term is defined in Rule 501 promulgated under the Securities Act)
designated by the Company, in which event the Company will pay the fees of
such purchaser representative, or another purchaser representative
(reasonably acceptable to the Company), in which event such Holder will be
responsible for the fees of the purchaser representative so appointed.
(d) EXPENSES OF SALE. Each Holder transferring Securities pursuant
to this Section 3 will bear its pro rata share (based upon the number of
Securities to be sold) of the costs of any sale of Securities pursuant to
an Approved Sale to the extent such costs are incurred for the benefit of
all such Holders of Securities and are not otherwise paid by the Company or
the acquiring party. Costs incurred by the Holders of Securities on their
own behalf will not be considered costs of the Approved Sale. Each Holder
transferring Securities pursuant to this Section 3 shall be obligated to
join on a pro rata basis (based upon the number of Securities to be sold)
in any indemnification or other obligations that are part of the terms and
conditions of the Approved Sale (other than any such obligations that
relate specifically to a particular Holder, such as indemnification with
respect to representations and warranties given by a Holder regarding such
Holder's title to and ownership of Securities); PROVIDED, that the
aggregate amount of all payments made by each Holder (other than payments
in respect of any such obligations that relate specifically to a particular
Holder) in satisfaction of claims for indemnification shall not exceed the
aggregate proceeds of the Securities Transferred pursuant to this Section 3
by such Holder.
SECTION 4
BOARD OF DIRECTORS REPRESENTATION AND MANAGEMENT RIGHTS
(a) REPRESENTATION. The TCW Funds shall be entitled to designate one
(1) member of the Board (the "TCW Designee"), unless and until the earlier
of such date that (i) the TCW Funds collectively own less than 5% of the
Common Shares, or (ii) solely as a result of any Transfers by the TCW
Funds, the TCW Funds collectively own less than 10% of the Common Shares.
Jefferies & Company, Inc. ("Jefferies") shall be entitled to designate one
(1) member of the Board (the "Jefferies Designee"), unless and until the
earlier of such date that (i) Jefferies owns less than 5% of the Common
Shares, or (ii) solely as a result of any Transfers by Jefferies, Jefferies
owns less than 10% of the Common Shares. McLain J. Forman shall be
entitled to designate one (1) member of the Board (the "Forman Designee"),
unless and until the date he has Transferred 50% or more of the Securities
of the Company that he owned as of the date hereof to Persons other than
Permitted Forman Transferees and the aggregate ownership interest of Forman
and Permitted Forman Transferees represents (or which when converted into,
exchanged for or exercised for shares of capital stock of the corporation,
would represent) less than 10% of the voting power of the Company. Any
Person entitled to designate a member of the Board pursuant to the
foregoing provisions also shall be entitled, exclusively and in such
person's sole discretion, to designate such member for removal from the
Board. The Holders shall take all action within their respective power,
including the voting of Common Shares, required to cause the election of
the TCW Designee, the Jefferies Designee and the Forman Designee to the
Board, or to remove any member of the Board designated for removal by the
TCW Funds, Jefferies or Forman, as applicable. The TCW Funds and Jefferies
shall select which Board member shall serve as Chairman of the Board;
provided that such Holder is entitled to designate a member of the Board at
such time. The parties agree that a fourth director shall be elected by
the stockholders of the Company in accordance with the Company's bylaws.
The parties understand that neither the TCW Designee nor the Jefferies
Designee nor the fourth director to be elected by the stockholders may be a
current director, officer, or employee of Jefferies or any Affiliate of
Jefferies. Any Person entitled to designate a member of the Board pursuant
to the foregoing provisions agrees to certify in writing, in form
reasonably satisfactory to the Company, the number of Common Shares
beneficially owned by such Person as of the record date set for the
stockholders meeting at which the directors will be elected and to deliver
such certificate to the Company within five days after such record date.
(b) MAJOR DECISIONS. Subject to clause (c) below, no action shall be
taken, sum expended, decision made or obligation incurred by or on behalf
of the Company with respect to any matter unless approved or ratified by a
majority of the Board if such action would constitute a Major Decision.
"Major Decisions" shall mean and consist of the following:
(i) approval of the annual and quarterly capital expenditure and
operating budgets of the Company;
(ii) approving or incurring any capital expenditure, purchase or
other expenditure of the Company which exceeds in the aggregate with
all other capital expenditures, purchases or other expenditures during
the fiscal year in which such purchase or expenditure is approved or
incurred, $50,000, unless such capital expenditure, purchase or other
expenditure is identified in the annual or quarterly capital
expenditure and operating budget of the Company previously approved by
the Board;
(iii) the sale, lease or other disposition of assets of the
Company, other than assets having a fair market value, individually or
in the aggregate with assets sold, leased or otherwise disposed in a
transaction or series of related transactions, of less than $50,000;
(iv) entering into any contract or agreement that could by its
terms require an expenditure by the Company of more than $10,000
during any fiscal year, whether for purposes of acquisition of seismic
data, exploration or otherwise;
(v) the incurrence or assumption of any indebtedness for borrowed
money by, or the repayment (other than in accordance with the express
terms thereof) refinancing of any indebtedness of, the Company or the
granting of any mortgage, lien or other encumbrance on any of the
assets of the Company or the giving of any guaranty by the Company;
(vi) the commitment to drill or drilling of any well (whether
exploratory or developmental) by the Company;
(vii) the issuance of any Securities of the Company;
(viii) terminating or materially modifying any material
agreement, including any lease relating to an oil and gas property, to
which the Company is or hereafter becomes a party;
(ix) the acquisition of a working interest in or under any lease
relating to an oil and gas property, or entering into an operating
agreement with respect thereto;
(x) the appointment or termination of the officers or senior
managers of the Company and the establishment of (a) benefit plans,
salaries and bonuses for officers or directors of the Company and (b)
the organizational structure and staffing plan, including salary
ranges for each position;
(xi) payment of any dividend, distribution, redemption payment or
other payment to the stockholders of the Company;
(xii) any amendment of the bylaws of the Company;
(xiii) granting to any individual the authority to open and draw
checks on bank accounts in the name of the Company or endorse checks
for deposit to such accounts;
(xiv) any decision with respect to the principal place of
business of the Company or the fiscal year of the Company;
(xv) the entry by the Company into any transaction or agreement
with any Affiliate of the Company; and
(xvi) the engagement or retention of outside legal counsel by the
Company.
In addition, any action by the Company to materially amend, modify or
supplement any document, instrument, transaction or other matter described
above as a Major Decision shall require the approval of a majority of the
Board if the same as so amended, modified or supplemented would be
inconsistent with the terms previously approved with respect thereto by the
Board.
(c) COMPENSATION. Members of the Board shall not be entitled to any
compensation for their service on such Board (other than reimbursement of
reasonable out-of-pocket expenses incurred in connection with Board
meetings or director-related activities for services as a Board member)
without the written consent of Majority Holders; provided, however, that no
member of the Board who is an employee or officer of (i) the Company, (ii)
any Holder or (iii) any Affiliate of the Company or any Holder shall be
entitled to compensation (other than reimbursement of reasonable
out-of-pocket expenses incurred in connection with Board meetings or
director-related activities for services) as a Board member.
(d) D&O INSURANCE. The Company shall at all times maintain in force
for the benefit of all directors and officers of the Company coverage from
a reputable insurer selected by the Majority Holders with coverages
(including, without limitation, commercially available coverages against
environmental liabilities) which are not less than Twenty Five Million
Dollars ($25,000,000) and deductibles which are approved by the Majority
Holders. If the Company shall ever fail to pay when due any premium or
other charge with respect to such insurance coverage, or otherwise fail to
renew such coverage, the Majority Holders or their Affiliates may pay such
premium or charge, or renew such coverage, and the Company shall promptly
reimburse such Majority Holders or their Affiliates.
SECTION 5
BUSINESS OPPORTUNITIES
Any of the Majority Holders and any member of the Board who is a TCW
Designee and Forman (subject to the restrictions as set forth in Article V,
Section 3 of his Employment Agreement), or any of their respective
Affiliates, may engage or possess an interest in another business, activity
or Person of any kind, nature or description, independently or with others,
regardless of whether such business, activity or Person involves the oil
and gas exploration and development business or is otherwise competitive
with the Company. Neither the Company nor any Holder or member of the
Board shall have any rights or obligations by virtue of this Agreement or
the relationship created hereby in or to such venture or income or profits
or losses derived therefrom, and the pursuit of such venture, even if
competitive with the business of the company, shall not be deemed wrongful
or improper. Nothing in this Agreement or any fiduciary or other duty
created hereby or as a result of serving as a member of the Board or being
a shareholder of the Company is intended to impose on any of the Majority
Holders or any member of the Board who is a TCW Designee and Forman
(subject to the restrictions as set forth in Article V, Section 3 of his
Employment Agreement), or any of their respective Affiliates, the
obligation to make available to the Company or any Holder any specific
investment or other business opportunity or to share in or impose a
constructive trust on any fees, property or other considerations earned or
investments made by any of the Majority Holders or any member of the board
who is a TCW Designee and Forman (subject to the restrictions as set forth
in Article V, Section 3 of his Employment Agreement), or any of their
respective Affiliates, including, without limitation, any investment funds
or partnerships in which such Persons may participate.
SECTION 6
CERTIFICATES
(a) RESTRICTIVE ENDORSEMENTS. Each certificate evidencing any
Securities shall bear a legend in substantially the following form:
"The securities evidenced by this certificate are subject to
a Stockholders' Agreement dated as of January 14, 2000, copies of
which are on file at the principal office of the corporation and
will be furnished to the Holder on request to the Secretary of
the corporation. Such Stockholders' Agreement provides, among
other things, for certain restrictions on voting, sale, transfer,
pledge, hypothecation or other disposition of the securities
evidenced by this certificate."
In addition, unless counsel to the Company has advised that such legend is
no longer needed, each certificate evidencing the Securities shall bear a
legend in substantially the following form:
"The securities evidenced by this certificate have not been
registered pursuant to the Securities Act of 1933, as amended
(the "Act"), or any state securities law, and such securities may
not be sold, transferred or otherwise disposed of unless the same
are registered and qualified in accordance with the Act and any
applicable state securities laws, or in the opinion of counsel
reasonably satisfactory to the corporation such registration and
qualification are not required."
(b) REPLACEMENT CERTIFICATES. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any of its respective certificates evidencing any Securities,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to it, upon surrender and cancellation of such certificate or
receipt of such indemnity, the Company will execute, register and deliver a
new certificate of like tenor in lieu of such lost, stolen, destroyed or
mutilated certificate.
SECTION 7
EQUITABLE RELIEF
The parties hereto agree and declare that legal remedies may be
inadequate to enforce the provisions of this Agreement and that equitable
relief, including specific performance and injunctive relief, may be used
to enforce such provisions.
SECTION 8
MISCELLANEOUS
(a) COMPANY INFORMATION. The Company agrees that so long as the
Company shall not have registered any of its Securities pursuant to Section
12 of the Exchange Act, or filed a registration statement pursuant to the
requirements of the Securities Act, the Company will cause to be conducted
an annual audit of the Company and will distribute quarterly financial
statements to the shareholders, along with a brief and general summary of
the financial condition of the Company prepared by management.
(b) NOTICES. All notices and other communications provided for or
permitted under this Agreement shall be made in writing by hand-delivery,
certified first-class mail, return receipt requested, next-day air courier
or facsimile, in the case of the case of the Company, as follows:
Forman Petroleum Corporation
650 Poydras Street, Suite 2200
New Orleans, Louisiana 70130
Attn: McLain J. Forman
or, if to the Holders, to the addresses listed below their names on the
signature pages hereto and, if to any other Person who is the registered
Holder of any Securities, to the address for the purpose of such Holder as
it appears in the stock ledger of the Company or at such other address as
such party may have furnished in writing to each other party hereto. Any
notice shall be deemed to have been duly given when delivered by hand, if
personally delivered, and if sent by mail, two business days after being
deposited in the mail, postage prepaid.
(c) AMENDMENT. This Agreement may be changed, modified or amended by
a writing signed by the Majority Holders; provided that no such change,
modification or amendment shall be enforceable against any party to this
Agreement whose rights or obligations hereunder will be materially and
adversely affected thereby unless the same shall be in writing and signed
by such party.
(d) TERMINATION. This Agreement may be terminated at any time by an
instrument in writing signed by the Majority Holders and, for so long as he
is entitled to designate a member of the Board pursuant to Section 4(a),
Forman, provided that, for so long as he or his heirs and legatees own
Securities of the Company, Section 2(c) shall not be terminated without the
consent of Forman.
(e) WAIVER. No failure or delay on the part of the parties or any of
them in exercising any right, power or privilege hereunder, nor any course
of dealing between the parties or any of them shall operate as a waiver of
any such right, power or privilege nor shall any single or partial exercise
of any such right, power or privilege preclude the simultaneous or later
exercise of any other right, power or privilege. The rights and remedies
herein expressly provided are cumulative and are not exclusive of any
rights or remedies which the parties or any of them would otherwise have.
No notice to or demand on the Company shall entitle the Company to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the other parties or any of them to
take any other or further action in any circumstances without notice or
demand.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
(g) GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the internal laws of the State of Louisiana applied to
contracts to be made and to be performed therein without giving effect to
the considerations of conflicts of laws.
(h) FILING. A copy of this Agreement and of all amendments hereto
shall be filed at the principal office of the Company.
(i) ALL SECURITIES SUBJECT TO THIS AGREEMENT.
(i) Any Securities now or hereafter held by any Person who is a
party to this Agreement shall be held by such Person subject to the
transfer and other restrictions of this Agreement and such Person shall be
deemed to be a "Holder" for all such purposes of this Agreement;
(ii) A Holder who ceases to own any Securities as provided for in
this Agreement shall cease to be a Holder for purposes of this Agreement;
and
(iii) The provisions of this Agreement shall be deemed to apply
equally to any Security or other equity securities distributed in respect
of the Securities.
(j) BENEFIT AND BINDING EFFECT. Except as otherwise provided in this
Agreement, no right under this Agreement shall be assignable and any
attempted assignment in violation of this provision shall be void. The
rights of McLain J. Forman under this Agreement shall vest automatically in
his heirs and legatees upon compliance with the requirements of Section
2(a), except that no legal opinion shall be required.
(k) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provisions in every other respect
and of the remaining provisions contained herein shall not be affected or
impaired thereby.
(l) FURTHER ASSURANCES. Each Holder shall cause all Securities that
are entitled to vote and are registered in the name of such Holder to be
voted, and will otherwise take or cause to be taken all such other action
as may be necessary, to implement the provisions of this Agreement and
shall not take any action inconsistent herewith or therewith.
* * * * * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders' Agreement as of the day and year first above written.
FORMAN PETROLEUM CORPORATION, a Louisiana
corporation
By: /s/ McLain J. Forman
--------------------------------------
Name: McLain J. Forman
Title: CEO
TCW FUNDS:
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
Its General Partner or Managing Director
By: /s/ Nicholas W. Tell, Jr.
--------------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
--------------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Asset Management Company,
Its Investment Manager
By: /s/ Nicholas W. Tell, Jr.
--------------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
--------------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Ltd.
As General Partner
By: /s/ Nicholas W. Tell, Jr.
--------------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: TCW Investment Management Company,
As Investment Advisor
By: /s/ Darryl L. Schall
--------------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
<PAGE>
OTHER HOLDERS:
JEFFERIES & COMPANY, INC.
By: /s/ Jerry M. Gluck
--------------------------------------
Name: Jerry M. Gluck
Title: Executive Vice President
<PAGE>
BANKAMERICA INVESTMENT CORP.
By: /s/ P.F. Van Winkle
--------------------------------------
Name: P.F. Van Winkle
Title: Attorney-in-Fact
<PAGE>
KOCH INDUSTRIES, INC.
By: /s/ James R. McBride
--------------------------------------
Name: James R. McBride
Title:
<PAGE>
MCLAIN J. FORMAN
/s/ McLain J. Forman
--------------------------------------
McLain J. Forman
<PAGE>
____________________________________________
Type or Print Name of Beneficial Holder
By:
--------------------------------------
Name:
Its:
Address:------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
<PAGE>
EXHIBIT A
ACKNOWLEDGMENT OF TRANSFEREE
This Acknowledgment ("Acknowledgment") is executed pursuant to the
terms of the Stockholders' Agreement of Forman Petroleum Corporation (the
"Company") dated as of January 14, 2000, a copy of which is attached hereto
(the "Agreement"), by the transferee ("Transferee") executing this
Acknowledgment. By the execution of this Acknowledgment, the Transferee
agrees as follows:
1. ACKNOWLEDGMENT. Transferee acknowledges that Transferee is
acquiring certain Securities of the Company, subject to the terms and
conditions of the Agreement (including the Exhibits thereto). Capitalized
terms used herein without definition are defined in the Agreement and are
used herein with the same meanings set forth therein.
2. AGREEMENT. Transferee (a) agrees that the Securities acquired by
Transferee shall be bound by and subject to the terms of the Agreement
(including the Exhibits thereto) and (b) hereby joins in, and agrees to be
bound by, the Agreement (including the Exhibits thereto) with the same
force and effect as if he were originally a party thereto.
3. NOTICE. Any notice required as permitted by the Agreement shall
be given to Transferee at the address listed beside Transferee's signature
below.
4. JOINDER. The spouse of the undersigned Transferee, if
applicable, executes this Acknowledgment to acknowledge its fairness and
that it is in such spouse's best interests, and to bind such spouse's
community interest, if any, in the Securities to the terms of the Agreement
(including the Exhibits thereto).
EXECUTED AND DATED on this _____ day of ________________, _________.
TRANSFEREE:
By:
--------------------------------------
Notice
Address:------------------------------------
------------------------------------
------------------------------------
------------------------------------
SPOUSE:
By:
--------------------------------------
REGISTRATION RIGHTS AGREEMENT
Among
FORMAN PETROLEUM CORPORATION
And
EACH OF THE OTHER PERSONS LISTED ON THE SIGNATURE PAGES
ATTACHED HERETO OR OTHERWISE PARTY TO THIS AGREEMENT
January 14, 2000
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
this 14th day of January, 2000, by and among Forman Petroleum Corporation,
a Louisiana corporation (the "Company"), and each of the other Persons
listed on the signature pages attached hereto or otherwise party to this
Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to that certain Second Amended Joint Plan of
Reorganization of the Company and Noteholder Plan Proponents, with
Immaterial Modifications, the Company has issued shares of Common Stock (as
hereinafter defined) of the Company representing 100% of the issued and
outstanding Common Stock and Warrants (as hereinafter defined) to acquire
additional shares of Common Stock; and
WHEREAS, the parties hereto desire to set forth certain additional
agreements among them relating to the Registrable Securities (as
hereinafter defined) owned by the Common Shareholders and Forman.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
Section 1. DEFINED TERMS. The following capitalized terms when used
in this Agreement shall have the following meanings:
"Agreement" shall have the meaning set forth in the first paragraph of
this Agreement.
"Common Shareholders" shall collectively mean each of the Persons
listed on the signature pages attached hereto or otherwise party to this
Agreement who as of such date owns outstanding shares of Common Stock.
"Common Stock" means the common stock, no par value, of the Company.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Controlling Holders" means the TCW Funds, unless and until the
earlier of such date that (a) the TCW Funds collectively own less than 5%
of the Registrable Securities, or (b) solely as a result of any Transfers
(as defined in the Stockholders' Agreement) by the TCW Funds, the TCW Funds
collectively own less than 10% of the Registrable Securities, and,
thereafter, Holders of a majority of the Registrable Securities
participating in a registration pursuant to this Agreement.
"Demand Registration" means a demand registration as defined in
Section 2(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Forman" shall mean McLain J. Forman.
"Holders" means the Common Shareholders and Forman, and any
combination of them, and the term "Holder" shall mean any such Person.
"Inspector" shall have the meaning set forth in Section 2(e)(x) of
this Agreement.
"new rights" shall have the meaning set forth in Section 2(j) of this
Agreement.
"Person" means an individual, corporation, partnership, limited
liability company, business trust, joint stock company, unincorporated
association, or other entity of whatever nature.
"Piggyback Registration" means a piggyback registration as defined in
Section 2(b) hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such prospectus.
"Public Offering" means any underwritten public offering, initiated by
resolution of the board of directors of the Company, of the Common Stock
pursuant to an effective registration statement filed under the Securities
Act.
"Recommended Number" shall have the meaning set forth in Section 2(b)
of this Agreement.
"Registrable Securities" means (a) all shares of Common Stock owned
beneficially or of record by the Holders, (b) all shares of Common Stock
issued or issuable upon exercise of any Warrants, but only to the extent
that such shares of Common Stock have actually been issued or will be
issued so as to allow simultaneous exercise of the Warrants with the
registration rights provided pursuant to this Agreement, and (c) any other
securities issued by the Company after the date hereof with respect to such
shares of Common Stock by means of exchange, reclassification, dividend,
distribution, split up, combination, subdivision, recapitalization, merger,
spin-off, reorganization or otherwise; provided, however, that as to any
Registrable Securities, such securities shall cease to constitute
Registrable Securities for the purposes of this Agreement if and when: (i)
a Registration Statement with respect to the sale of such securities shall
have been declared effective by the SEC and such securities shall have been
sold pursuant thereto; (ii) such securities shall have been sold in
compliance with of all applicable resale provisions of Rule 144 under the
Securities Act; or (iii) such securities cease to be issued and outstanding
for any reason.
"Registration Statement" means any registration statement filed by the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein,
amendments and supplements to such registration statement, including post-
effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders' Agreement" shall have the meaning set forth in Section
4(j).
"TCW Funds" shall mean, collectively, TCW/Crescent Mezzanine Partners,
L.P., TCW/Crescent Mezzanine Trust, TCW/Crescent Mezzanine Investment
Partners, L.P., TCW Shared Opportunity Fund II, L.P., and TCW Leveraged
Income Trust, L.P.
"Warrants" shall mean the Series A, Series B, Series C and Series D
warrants to purchase Common Stock issued by the Company.
Section 2. REGISTRATION RIGHTS
(a) DEMAND REGISTRATION. (i) At any time, and from time to time,
after the earlier of (A) January 14, 2001 or (B) a Public Offering, the
Controlling Holders may make a written request for registration of all or
part of their Registrable Securities under the Securities Act (a "Demand
Registration"). Within ten days after receipt of any such request (which
shall specify the number of shares of Registrable Securities to be
registered and the intended method of disposition thereof), the Company
shall give written notice of such requested registration to all other
Holders of Registrable Securities and shall include in any such
registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after
the receipt of the Company's notice.
(ii) The Controlling Holders shall be entitled to have effected
up to four Demand Registrations pursuant to this Section 2(a). A
registration will not count as one of the permitted Demand Registrations
until it has been declared effective by the SEC and remains effective for
the period specified in Section 2(e)(i), and a registration initiated as
one of the Demand Registrations will not count as one of the permitted
Demand Registrations unless the Controlling Holders are able to register
and sell at least 50% of the Registrable Securities requested by them to be
included in such registration. The Controlling Holders may, at any time
prior to the effective date of the Registration Statement relating to such
registration, revoke such request by providing a written notice to the
Company revoking such request.
(iii) If the Controlling Holders so elect, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the
form of an underwritten offering. The Controlling Holders shall select the
managing underwriters and any additional investment bankers and managers to
be used in connection with the offering; provided that the lead managing
underwriter must be reasonably satisfactory to the Company.
(iv) Neither the Company nor any of its security holders (other
than the Holders) shall be entitled to include any of the Company's
securities in a Registration Statement initiated as a Demand Registration
under this Section 2(a) without the consent of the Controlling Holders;
provided that if the Company or its security holders are allowed to
participate, such participation shall be subject to Section 2(c) hereof.
(v) If any Demand Registration which is proposed by the Company
to be effected by the filing of a Registration Statement on Form S-3 (or
any successor or similar short-form registration statement) shall be in
connection with an underwritten public offering and if the lead managing
underwriter shall advise the Company in writing that, in its opinion, the
use of another form of Registration Statement is of material importance to
the success of such proposed offering, then such registration shall be
effected on such other form. The Company agrees to include in any such
Registration Statement all information which, in the opinion of the legal
counsel chosen by the Controlling Holders pursuant to Section 2(f) hereof,
is required to be included.
(vi) If the Company at any time grants to any other holders of
the Company's securities any rights to request the Company to effect the
registration under the Securities Act of any shares of Common Stock on
terms more favorable to such holders than the terms set forth in this
Agreement, the terms of this Agreement shall be deemed amended or
supplemented to the extent necessary to provide the Holders of Registrable
Securities with more favorable terms.
(b) PIGGYBACK REGISTRATION. If the Company at any time proposes to
file a registration statement under the Securities Act with respect to an
offering of securities (i) for the Company's own account (other than a
registration statement on Form S-4 or S-8 (or any substitute form that may
be adopted by the SEC for transactions traditionally registered on Form S-4
or S-8) or (ii) for the account of any of its security holders (other than
pursuant to a Demand Registration under Section 2(a)), then the Company
shall give written notice of such proposed filing to each Holder of
Registrable Securities as soon as practicable (but in no event later than
the earlier to occur of (i) the tenth day following receipt by the Company
of notice of exercise of other Demand Registration rights and (ii) 45 days
before the filing date), and such notice shall offer each Holder of
Registrable Securities the opportunity to register such number of shares of
Registrable Securities as they may request within 30 days after receipt of
the Company's notice on the same terms and conditions as the Company's or
such other security holder's (a "Piggyback Registration"). The Holders of
Registrable Securities shall be permitted to withdraw all or any part of
their Registrable Securities from a Piggyback Registration at any time
prior to the date the Registration Statement filed pursuant to such
Piggyback Registration becomes effective with the SEC. No registration
statement effected under this Section 2(b) shall relieve the Company of its
obligations to effect a Demand Registration under Section 2(a).
(c) REDUCTION OF OFFERING. Notwithstanding anything contained
herein, if the Demand Registration pursuant to Section 2(a) or Piggyback
Registration is an underwritten offering and the lead managing underwriter
of such offering reasonably determines that the size of the offering that
the Company, the Holders of Registrable Securities and any other Persons
whose securities are proposed to be included in such offering is such that
the offering or the offering price would be materially and adversely
affected, the Company will include in such registration in the following
order of priority (i) first, all Registrable Securities requested to be
included in such registration by the Common Shareholders pursuant to this
Section 2 (provided that if the number of such Registrable Securities
exceeds the number recommended by the lead managing underwriter (the
"Recommended Number"), the number of such Registrable Securities included
in such registration shall be allocated pro rata among the Common
Shareholders participating in such registration on the basis of the
relative number of shares of Registrable Securities each such Holder has
requested to be included in such registration), and (ii) second, to the
extent that the Registrable Securities requested to be included in such
registration by the Common Shareholders pursuant to this Section 2 are less
than the Recommended Number, the securities proposed to be sold by other
Holders of Registrable Securities, allocated pro rata among such other
Holders of Registrable Securities on the basis of the number of shares of
Registrable Securities each such Holder has requested to be included in
such registration, and (iii) third, to the extent that the Registrable
Securities requested to be included in such registration by the Common
Shareholders and other Holders of Registrable Securities pursuant to this
Section 2 are less than the Recommended Number, the securities proposed to
be sold by other Persons, allocated pro rata among such other Persons on
the basis of the number of shares of Common Stock each such Person has
requested to be included in such registration.
(d) OTHER DEMAND REGISTRATION. Forman shall be entitled to have
effected up to two Demand Registrations, provided that (i) neither such
Demand Registration may be commenced until 180 days following an initial
Public Offering by the Company, (ii) with respect to the first Demand
Registration that may be effected by Forman pursuant to this paragraph,
Forman shall be entitled to demand registration of all or part of his
Registrable Securities and (iii) with respect to his second Demand
Registration, Forman shall only be entitled to demand registration of all
or part of his Registrable Securities to the extent such Registrable
Securities have been issued or are issuable upon exercise of the Series B,
Series C or Series D Warrants.
(e) FILINGS; INFORMATION. Whenever the Holders of Registrable
Securities request that any Registrable Securities be registered pursuant
to this Section 2, the Company will use its best efforts to effect the
registration of such Registrable Securities and to permit the sale of such
Registrable Securities in accordance with the intended method of
disposition thereof, as promptly as is practicable, and in connection with
any such request:
(i) the Company will as expeditiously as possible (but, in the
case of a Demand Registration pursuant to Section 2(a), in no event later
than 30 days after receipt of a request to file a Registration Statement
with respect to such Registrable Securities), prepare and file with the SEC
a Registration Statement on any form for which the Company then qualifies
and which counsel for the Company shall deem appropriate and available for
the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof and, subject to
Section 2(a)(v) in the case of a Demand Registration, which is reasonably
satisfactory to the Controlling Holders, and use its best efforts to cause
such Registration Statement to become and remain effective for a period of
not less than 180 days (or such shorter period which will terminate when
all Registrable Securities covered by such Registration Statement have been
sold); provided that if at the time the Company receives a request to file
a Registration Statement with respect to Registrable Securities, the
Company is engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such
Registration Statement (but would not be required if such Registration
Statement were not filed) and the board of directors of the Company
determines in good faith that such disclosure would be materially
detrimental to the Company and its stockholders, the Company shall have a
period of not more than 90 days (less the number of days during the
previous 12 months that the use of a Prospectus was suspended pursuant to
Section 2(e)(vi) and/or this Section 2(e)(i)) within which to file such
Registration Statement measured from the date of the Company's receipt of
the request for registration in accordance with Section 2(a) hereof. The
filing of a Registration Statement may only be deferred once for any
potential transaction or event or related transactions or events that could
arise as a result of negotiations or other activities and any Registration
Statement whose filing has been deferred as a result shall be filed
forthwith if the negotiations or other activities are disclosed or
terminated. In order to defer the filing of a Registration Statement
pursuant to this Section 2(e)(i),the Company shall promptly, upon
determining to seek such deferral, deliver to the Holders of Registrable
Securities covered by such Registration Statement a certificate signed by
the President or Chief Financial Officer of the Company stating that the
Company is deferring such filing pursuant to this Section 2(e)(i).
(ii) the Company will prepare and file with the SEC such
amendments and supplements to such Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for the period set forth in Section
2(e)(i) and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such Registration Statement.
(iii) the Company will, prior to filing a Registration Statement
or any amendment or supplement thereto, furnish to the Holders of
Registrable Securities participating in such registration (and one counsel
selected by such Holders) and each applicable managing underwriter, if any,
copies thereof for their review and approval within a reasonable period of
time, and thereafter furnish to such Holders and each such underwriter, if
any, such number of copies of such Registration Statement, amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and the Prospectus included in
such Registration Statement (including each preliminary Prospectus) as such
Holders or each such underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.
(iv) After the filing of the Registration Statement, the Company
will promptly notify the Holders of Registrable Securities participating in
such registration of when the Registration Statement has become effective
and of any stop order issued or, to the Company's knowledge, threatened to
be issued by the SEC and take all reasonable actions required to prevent
the entry of such stop order or to remove it as soon as possible if
entered.
(v) the Company will use its best efforts to qualify the
Registrable Securities for offer and sale under such other securities or
blue sky laws of such jurisdictions in the United States as the Holders of
Registrable Securities participating in such registration reasonably
request; PROVIDED that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this subparagraph 2(d)(v), (B) subject
itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(vi) the Company will use its best efforts to cause the
Registrable Securities covered by such Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Holders thereof to consummate
the disposition of the Registrable Securities.
(vii) the Company will as promptly as is practicable notify the
Holders of Registrable Securities participating in such registration, at
any time when a Prospectus is required by law to be delivered in connection
with sales by an underwriter or dealer, of the occurrence of any event
requiring the preparation of a supplement or amendment to such Prospectus
so that, as thereafter filed with the SEC and delivered to the purchasers
of such Registrable Securities, such Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading and
promptly make available to such Holders and to the underwriters any such
supplement or amendment. The Holders agree that, upon receipt of any notice
from the Company of the occurrence of any event of the kind described in
the preceding sentence, the Holders will forthwith discontinue the offer
and sale of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until receipt by the Holders and the
underwriters of the copies of such supplemented or amended Prospectus and,
if so directed by the Company, the Holders will deliver to the Company all
copies, other than permanent file copies, then in the Holders' possession
of the most recent Prospectus covering such Registrable Securities at the
time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective as provided in Section 2(e)(i) by
the number of days during the period from and including the date of the
giving of such notice to the date when the Company shall make available to
the Holders such supplemented or amended Prospectus.
(viii) the Company will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
sale of such Registrable Securities.
(ix) the Company will furnish to the Holders of Registrable
Securities participating in such registration and to each underwriter a
signed counterpart, addressed to such Holders or such underwriter, of an
opinion or opinions of counsel to the Company and a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as such Holders or the
managing underwriter reasonably requests.
(x) the Company will make available for inspection by any Holder
of Registrable Securities participating in such registration, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter (individually, an "Inspector"), all financial and
other records, pertinent corporate documents and properties of the Company
as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement.
(xi) the Company will make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering
a period of 12 months, beginning within three months after the effective
date of the Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the SEC thereunder.
(xii) if any such Registration Statement refers to any of the
Controlling Holders by name or otherwise as the holder of any securities of
the Company and if in its sole and exclusive judgment, such Controlling
Holder is or might be deemed to be a controlling Person of the Company,
such Controlling Holder shall have the right to require (A) the insertion
therein of language, in form and substance satisfactory to such Controlling
Holder and presented to the Company in writing, to the effect that the
holding by such Controlling Holder of such securities is not to be
construed as a recommendation by such Controlling Holder of the investment
quality of the Company's securities covered thereby and that such holding
does not imply that such Controlling Holder shall assist in meeting any
future financial requirements of the Company or (B) in the event that such
reference to such Controlling Holder by name or otherwise is not required
by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such Controlling Holder.
(xiii) the Company will include in any such Registration
Statement any all information which the Controlling Holders shall
reasonably request.
(xiv) the Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange or market
on which the Common Stock is then listed.
(xv) the Company will provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement.
The Company may require the Holders of Registrable Securities
participating in such registration to furnish promptly in writing to the
Company such information regarding such Holders, the plan of distribution
of the Registrable Securities and other information as the Company may from
time to time reasonably request or as may be legally required in connection
with such registration.
If a registration pursuant to Section 2 involves an underwritten
offering, the Company agrees, if so required by the lead managing
underwriter, not to effect any public sale or distribution of any of its
securities (other than pursuant to Form S-4 or S-8) during the seven days
prior to and during the 180-day period beginning on, the effective date of
such registration, except for such underwritten offering.
(f) REGISTRATION EXPENSES. In connection with any Demand
Registration or any Piggyback Registration, the Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement, including without limitation the following expenses: (i) all
registration and filing fees; (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities); (iii) printing expenses; (iv) messenger and delivery expenses;
(v) fees and expenses incurred in connection with the listing of the
Registrable Securities; (vi) internal expenses; (vii) fees and expenses of
counsel and independent certified public accountants for the Company and
(viii) the reasonable fees and expenses of any additional experts retained
by the Company in connection with such registration.
In connection with the preparation and filing of a Registration
Statement pursuant to a Demand Registration pursuant to Section 2(a), the
Company will also pay the reasonable fees and expenses of a single legal
counsel chosen by the Controlling Holders. In connection with each
Piggyback Registration in which the Holders of Registrable Securities
participate which is not subject to the preceding sentence, the Company
shall arrange for the Holders of Registrable Securities covered by such
registration to be represented, jointly with holders of other securities
included in such registration and without expense to the Holders of
Registrable Securities included in such registration, by counsel acceptable
to the Controlling Holders. The Holders of Registrable Securities who
participate in any registration pursuant to this Agreement shall pay, on a
pro rata basis, any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities.
(g) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (i) agrees to sell its securities on the basis provided
in any underwriting arrangements approved by the Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
questionnaires, indemnities, underwriting agreements and other documents
(other than powers of attorney) reasonably required under the terms of such
underwriting arrangements and this Agreement; provided that no Holder of
Registrable Securities included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters other than the representations and warranties regarding such
Holder and such Holder's intended method of distribution.
(h) HOLDBACK AGREEMENTS. Each Holder of Registrable Securities agrees
not to effect any public sale or distribution (including a sale pursuant to
Rule 144 or 144A of the Securities Act) of any Registrable Securities, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven day period prior to and during the 180-day
period beginning on, the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in which any Holder
of Registrable Securities participate, other than the Registrable
Securities to be sold pursuant to such Registration Statement, and only if
and to the extent required by the lead managing underwriter; and provided
that the Holders of the Registrable Securities shall not be so restricted
unless comparable agreements are entered into by each executive officer and
director of the Company and each holder of at least 2% (on a fully-diluted
basis) of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, purchased from the Company
at any time after the date hereof. Notwithstanding anything to the
contrary contained herein, the Holders of Registrable Securities shall have
the right to pledge their Registrable Securities, provided that the pledgee
agrees in writing to be bound by the restrictions contained in this Section
2(h).
(i) OTHER REGISTRATIONS. If the Company has filed a Registration
Statement with respect to Registrable Securities pursuant to Section 2, and
if such Registration Statement has not been withdrawn or abandoned, the
Company shall not file or cause to be effected any other registration of
any of its equity securities or securities convertible into or exchangeable
or exercisable for such securities under the Securities Act (except on Form
S-8 or any successor form), whether on its own behalf or at the request of
any holder or holders of such securities, until a period of at least six
months has elapsed from the effective date of such previous registration
statement.
(j) OTHER REGISTRATION RIGHTS. The Company will not grant any Person
any Demand or Piggyback Registration rights with respect to any securities
of the Company, except that the Company may grant piggyback registration
rights ("new rights") that (i) are not in conflict or inconsistent with,
or more favorable than, the rights of the Holders of Registrable Securities
set forth in this Agreement, (ii) do not entitle such Person to be included
in any Demand Registration, and (iii) provide that the Holders of
Registrable Securities under this Agreement have piggyback rights upon the
exercise of such new rights and shall be included in such registration
statement on a first priority basis as provided in Section 2(c) hereof.
3. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. In the event of any registration
of any securities of the Company under the Securities Act pursuant to
Section 2 hereof, the Company will, and it hereby does, indemnify and hold
harmless, to the full extent permitted by law, each of the Holders of
Registrable Securities covered by such Registration Statement, its officers
and directors, employees, agents, general partners, limited partners,
managers and managing directors thereof, each other Person who participates
as an underwriter in the offering or sale of such securities and each other
Person, if any, who controls such Holder or any such underwriter within the
meaning of the Securities Act, from and against any and all losses, claims,
damages, or liabilities, joint or several, and expenses (including any
amounts paid in settlement effected with the Company's consent) to which
such Holder, any such director, officer, employee, agent, general partner,
limited partner, manager or managing director or any such underwriter or
controlling Person may become subject under the Securities Act, common law
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement under which such
securities were registered under the Securities Act or any Prospectus, (ii)
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading or (iii) any violation by the Company of any rule or regulation
promulgated under the Securities Act or the Exchange Act, or other federal
or state law applicable to the Company and relating to any action or
inaction required by the Company in connection with such registration, and
the Company will reimburse such Holder and each director, officer,
employee, agent, general partner, limited partner, manager, managing
director or underwriter or controlling Person for any legal or any other
expense reasonably incurred by them in connection with investigating or
defending such loss, claim, liability, action or proceedings, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any alleged untrue statement or omission or any other
securities law violation; provided that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or any Prospectus in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such Holder or underwriter
specifically stating that it is for use in the preparation thereof; and
provided, further, that the Company will not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter
within the meaning of the Securities Act, under the indemnity agreement in
this Section 3(a) with respect to any preliminary prospectus as amended or
supplemented as the case may be, to the extent that any such loss, claim,
damage or liability of such underwriter or controlling Person results from
the fact that such underwriter sold Registrable Securities to a person to
whom there was not sent or given, at or prior to the written confirmation
of such sale, a copy of the final prospectus (including any documents
incorporated by reference therein), whichever is most recent, if the
Company has previously furnished copies thereof to such underwriter and
such final prospectus, as then amended or supplemented, has corrected any
such misstatement or omission. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such
Holder or any such director, officer, employee, agent, general partner,
limited partner, manger, managing director, underwriter or controlling
Person and shall survive the transfer of such securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS. The Company may require, as a
condition to including any Registrable Securities in any Registration
Statement filed in accordance with Section 2 hereof, that the Company shall
have received an undertaking reasonably satisfactory to it from the Holders
of such Registrable Securities or any underwriter, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in
subdivision (a) of this Section 3) the Company and its controlling Persons
and all other prospective sellers and their respective controlling Persons
with respect to any statement or alleged statement in or omission or
alleged omission from such Registration Statement or any Prospectus, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such Holder specially
stating that it is for use in the preparation of such Registration
Statement or any Prospectus. The parties hereto acknowledge and agree that,
unless otherwise expressly agreed to in writing by Holders of Registrable
Securities to the contrary, for all purposes of this Agreement the only
information furnished or to be furnished to the Company for use in any
Registration Statement or Prospectus are statements specifically relating
to (i) the beneficial ownership of shares of Common Stock by such Holder
and its Affiliates, (ii) the name and address of such holder, and (iii) the
method or methods of distribution of such Holders. Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the Holders or any of their respective
directors, officers and controlling Persons and shall survive the transfer
of such securities by such Holder; provided, however, that no such Holder
shall be liable under this Section 3 for any amounts exceeding the net
proceeds received by the Holder from the sale of Registrable Securities
pursuant to such Registration Statement or Prospectus by such Holder and no
such Holder shall be liable under this Section 3 with respect to any
settlement made without such Holder's consent.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 3, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; provided, that the
failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 3, except to the extent that the indemnifying
party is actually materially prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgement a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnified party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after
the assumption of the defense thereof. No indemnifying party will consent
to entry of any judgment or enter into any settlement without the prior
written consent of the indemnified party (which consent shall not be
unreasonably withheld) unless such settlement requires no more than a
monetary payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete release
of the indemnified party from all liability in respect to such claim or
litigation. The indemnified party shall be entitled to take control of the
defense of any claim as to which, in the reasonable judgment of the
indemnifying party's counsel, representation of both the indemnifying party
and the indemnified party would be inappropriate under the applicable
standards of professional conduct due to actual or potential differing
interests between them. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified
by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the fees and expenses of such additional counsel
or counsels.
(d) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by
this Section 3 is for any reason not available or insufficient for any
reason to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities or expenses referred to therein, the parties
required to indemnify by the terms hereof shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company, any
Holder of Registrable Securities and one or more of the underwriters. In
determining the amounts which the respective parties shall contribute,
there shall be considered the relative benefits received by each party from
the offering of the Registrable Securities by taking into account the
portion of the proceeds of the offering realized by each, and the relative
fault of each party by taking into account the parties' relative knowledge
and access to information concerning the matter with respect to which the
claim was asserted, the opportunity to correct and prevent any statement or
omission and any other equitable consideration appropriate under the
circumstances. The Company and each Holder selling securities agree with
each other that no seller of Registrable Securities shall be required to
contribute any amount in excess of the amount such Holder would have been
required to pay to an indemnified party if the indemnity under this Section
3 were available. The Company and each such Holder agree with each other
and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or for the
underwriter's portion of such contribution to exceed the percentage that
the underwriters discount bears to the initial public offering price of the
Registrable Securities. For purposes of this Section 3(d), each Person, if
any, who controls an underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as such underwriter, and each director and each officer of
the Company who signed the Registration Statement, and each Person, if any,
who controls the Company or a seller of Registrable Securities within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act shall have the same rights to contribution as the Company or a seller
of Registrable Securities as the case may be. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION RIGHTS. Indemnification similar to that
specified in the preceding subsections of this Section 3 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification
of securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 3 shall be in addition to any liability which any party may
otherwise have to any other party.
4. MISCELLANEOUS.
(a) NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing or by telex, telephone or facsimile
transmission with subsequent written confirmation, and may be personally
served or sent by United States mail and shall be deemed to have been given
upon receipt by the party notified. For purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as
provided in this Section 4) shall be as set forth opposite each party's
name on the signature page hereof.
(b) TERMINATION. This Agreement will terminate upon the earlier of
(i) the date upon which the Company and the Holders of Registrable
Securities mutually agree in writing to terminate this Agreement and (ii)
the first date on which there ceases to be any Registrable Securities.
(c) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company shall
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in
a registration undertaken pursuant to this Agreement or which would
materially and adversely affect the marketability of such Registrable
Securities in any such registration (including effecting a stock split or a
combination of shares).
(d) REMEDIES. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically, to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for
specific performance and for other injunctive relief in order to enforce or
prevent violation of the provisions of this Agreement. The rights and
remedies of any party based upon, arising out of or otherwise in respect of
any breach of any provision of this Agreement shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts upon
which any claim of any such breach is based may also be the subject matter
of any other provision of this Agreement (or of any other Agreement between
the parties) as to which there is no breach.
(e) WAIVERS AND AMENDMENTS. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be
waived, only by a written instrument signed by the Company and each of the
Holders or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising a right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude a further
exercise thereof or the exercise of any other such right, power or
privilege.
(f) SEVERABILITY. If any provision of this Agreement or the
applicability of any such provision to a person or circumstances shall be
determined by any court of competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to Persons or circumstances other than those
for which it is so determined to be invalid and unenforceable, shall not be
affected thereby, and each provision of this Agreement shall be valid and
shall be enforced to the fullest extent permitted by law. To the extent
permitted by applicable law each party hereto hereby waives any provision
or provisions of law which would otherwise render any provision of this
Agreement invalid, illegal or unenforceable in any respect.
(g) COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts and when so executed shall constitute one
Agreement, notwithstanding that all parties are not signatories to the same
counterpart.
(h) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof.
(i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of
the parties hereto, including but not limited to the heirs and legatees of
Forman; provided that the registration rights granted by the Company
pursuant to this Agreement may only be transferred to transferees (other
than transferees who are heirs or legatees of Forman) who are the Holders
of Registrable Securities in an amount greater than 1% of the outstanding
Common Stock. Any successor in interest or assignee of any party hereto
must expressly agree in writing to assume the obligations of the transferor
pursuant to this Agreement.
(j) ENTIRE AGREEMENT. This Agreement, together with the
Stockholders' Agreement (the "Stockholders' Agreement") dated as of January
14, 2000, by and among the Company and the parties thereto, and the Warrant
Agreement dated as of January 14, 2000, by and among the Company and the
parties thereto constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and there
are no restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement, the
Stockholders' Agreement and the Warrant Agreement supersede all prior
agreements and understandings between the parties hereto with respect to
the subject matter hereof.
(k) OTHER REGISTRATION RIGHTS AGREEMENTS. Without the prior written
consent of the Holders of Registrable Securities, the Company will neither
enter into any new registration rights agreements that conflict with the
terms of this Agreement nor permit the exercise of any other registration
rights in a manner that conflicts with the terms of the registration rights
granted hereunder.
* * * * * * * * *
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
FORMAN PETROLEUM CORPORATION
By: /s/ McLain J. Forman
-----------------------------
Name: McLain J. Forman
Title: CEO
HOLDERS:
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
Its General Partner or Managing Director
By: /s/ Nicholas W. Tell, Jr.
-----------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
-----------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Asset Management Company,
Its Investment Manager
By: /s/ Nicholas W. Tell, Jr.
-----------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
-----------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Ltd.
As General Partner
By: /s/ Nicholas W. Tell, Jr.
-----------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: TCW Investment Management Company,
As Investment Advisor
By: /s/ Darryl L. Schall
-----------------------------
Name: Darryl L. Schall
Title: Senior Vice President
<PAGE>
JEFFERIES & COMPANY, INC.
By: /s/ Jerry M. Gluck
-----------------------------
Name: Jerry M. Gluck
Title: Executive Vice President
<PAGE>
BANKAMERICA INVESTMENT CORP.
By: /s/ P.F. Van Winkle
-----------------------------
Name: P.F. Van Winkle
Title: Attorney-in-Fact
<PAGE>
KOCH INDUSTRIES, INC.
By: /s/ James R. McBride
-----------------------------
Name: James R. McBride
Title:
<PAGE>
/s/ McLain J. Forman
-----------------------------
McLain J. Forman
<PAGE>
Type or Print Name of Beneficial Holder
By:
-----------------------------
Name:
Its:
Address:
-----------------------------
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WARRANT AGREEMENT
Among
FORMAN PETROLEUM CORPORATION
And
EACH OF THE OTHER PERSONS LISTED ON THE SIGNATURE PAGES
ATTACHED HERETO OR OTHERWISE PARTY TO THIS AGREEMENT
January 14, 2000
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of January 14, 2000 (this "Agreement")
is entered into by and among Forman Petroleum Corporation, a Louisiana
corporation (the "Company"), and each of the other Persons listed on the
signature pages attached hereto or otherwise party to this Agreement.
W I T N E S S E T H :
WHEREAS, subject to the terms and conditions of this Agreement, the
Company will issue 50,000 Series A Warrants (the "Series A Warrants"),
150,000 Series B Warrants (the "Series B Warrants"), 150,000 Series C
Warrants (the "Series C Warrants") and 150,000 Series D Warrants (the
"Series D Warrants") to purchase, respectively, 50,000, 150,000, 150,000
and 150,000 shares (subject to adjustment as provided herein) of Common
Stock (as hereinafter defined) of the Company; and
WHEREAS, the Warrants (as hereinafter defined) will be initially
issued to each of the other Persons listed on the signature pages attached
hereto or otherwise party to this Agreement.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:
Section 1. DEFINED TERMS. The following capitalized terms when used
in this Agreement shall have the following meanings:
"Affiliate" means, with respect to any specified Person, (a) any
subsidiary of such Person, (b) any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control
with such specified Person, (c) any other Person that owns, directly or
indirectly, 10% or more of such specified Person's capital stock, (d) any
officer or director of (i) any such specified Person, (ii) any subsidiary
of such specified Person, or (iii) any Person described in clause (b) or
(c) above; or (e) any heir or legatee or other Person having a relationship
with any natural Person directly or indirectly controlling or controlled by
or under common control with such other Person described in this clause
(e). For purposes of this definition, "control," with respect to any
specified Person, means the possession of the power, whether or not
exercised, to direct or cause the direction of the management or policies
of such person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Agreement" shall have the meaning set forth in the first paragraph of
this Agreement.
a "business day" means a day, other than a Saturday, Sunday or legal
holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of Louisiana.
"Closing Price" for any Security that is regularly traded on any
market on each business day means: (i) if such Security is listed or
admitted to trading on any national stock exchange, the closing price on
such day on the principal exchange on which such Security is traded, or if
no sale takes place on such day, the average of the closing bid and asked
prices on such day or (ii) if such Security is not then listed or admitted
to trading on any national stock exchange, the last reported sale price on
such day, or if there is no such last reported sale price on such day, the
average of the closing bid and the asked prices on such day, as reported by
a reputable national quotation source designated by the Company or the
principal broker making a market in such Security. If there are no such
prices on a business day, then the Closing Price shall not be determinable
for such business day.
"Common Stock" means the common stock, no par value, of the Company.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Convertible Securities" shall have the meaning set forth in Section
8(e) of this Agreement.
"Current Market Price" means, if the Common Stock is traded on a
national stock exchange, the Nasdaq National Market or the over-the-counter
market, the average of the Closing Price over the ten (10) trading days
immediately preceding the date of valuation at which the Common Stock has
traded.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exercise Price" shall mean the Series A Exercise Price, the Series B
Exercise Price, the Series C Exercise Price and/or the Series D Exercise
Price, as appropriate.
"Expiration Date" shall have the meaning set forth in Section 6 of
this Agreement.
"Forman" shall mean McLain J. Forman.
"Holders" shall have the meaning set forth in Section 4 of this
Agreement.
"Independent Financial Expert" shall mean an investment banking firm
selected by the Company (i) that does not (and whose directors, officers,
employees and Affiliates do not) have a direct or indirect financial
interest in the Company or any of its Affiliates, (ii) that has not been,
and, at the time it is called upon to serve as an Independent Financial
Expert under this Agreement is not (and none of whose directors, officers,
employees or Affiliates is) a promoter, director or officer of the Company,
(iii) that has not been retained by the Company or any of its Affiliates
for any purpose, other than to perform an equity valuation, within the
preceding twelve months, and (iv) that, in the reasonable judgment of the
board of directors of the Company, is otherwise qualified to serve as an
independent financial advisor.
"Nasdaq" means the Nasdaq Stock Market.
"Nasdaq National Market" means the Nasdaq National Market of Nasdaq.
"Permitted Forman Transferee" shall mean any friend of Forman or
immediate member of Forman's family who receives Warrants from Forman by
gift, donation or other gratuitous inter vivos transfer.
"Permitted Transfer" means any transfer of a Warrant pursuant to
Section 5 of this Agreement.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or agency or political
subdivision thereof.
"Public Offering" means any underwritten public offering, initiated by
resolution of the board of directors of the Company, of the Common Stock
pursuant to an effective registration statement filed under the Securities
Act.
"Registration Rights Agreement" shall have the meaning set forth in
Section 22 of this Agreement.
"Reorganizations" shall have the meaning set forth in Section 8(i) of
this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Exercise Price" shall have the meaning set forth in Section
6(b) of this Agreement.
"Series A Warrants" shall have the meaning set forth in the recitals
to this Agreement.
"Series B Exercise Price" shall have the meaning set forth in Section
6(b) of this Agreement.
"Series B Warrants" shall have the meaning set forth in the recitals
to this Agreement.
"Series C Exercise Price" shall have the meaning set forth in Section
6(b) of this Agreement.
"Series C Warrants" shall have the meaning set forth in the recitals
to this Agreement.
"Series D Exercise Price" shall have the meaning set forth in Section
6(b) of this Agreement.
"Series D Warrants" shall have the meaning set forth in the recitals
to this Agreement.
"Specified Value" per share of Common Stock or of any other security
(herein collectively referred to as a "Security") at any date shall be: (i)
if the Security is not regularly traded in any market, the value of the
Security determined in good faith by the board of directors of the Company
and certified in a board resolution, which determination shall be final and
binding upon the Holders; provided that if any of the Holders of 20% or
more of the warrants disagree with such valuation by the board of directors
and provide notice of such disagreement to the Company requesting an
independent valuation, then the Company shall select an Independent
Financial Expert who shall determine the value of such Security and whose
customary compensation shall be provided by the Holders requesting such
independent valuation; (ii) if the Security is regularly traded in any
market, the average of the Closing Prices for each business day during the
period commencing 10 business days before such date and ending on the date
one day prior to such date or, if the Security has been regularly traded
for less than 30 consecutive business days before such date, then the
average of the Closing Prices for all of the business days before such date
for which Closing Prices are available; provided that, if the Closing Price
is not determinable for at least 15 business days in such period, the
Specified Value of the Security shall be determined as if the Security was
not regularly traded; or (iii) if the Security is registered under the
Exchange Act and is being sold in a firm commitment underwritten public
offering registered under the Securities Act, the public offering price of
such Security set forth on the cover page of the prospectus relating to
such offering.
"Stockholders' Agreement" means that certain Stockholders' Agreement
dated the date hereof by and among the Company and the parties listed on
the signature pages thereto or otherwise party to such agreement.
"Transfer Agent" shall have the meaning set forth in Section 11 of
this Agreement.
"Warrant Certificates" shall have the meaning set forth in Section 2
of this Agreement.
"Warrant Number" shall mean the number of shares of Common Stock
issuable upon the exercise of each Warrant, subject to adjustment as
provided in Section 8 of this Agreement, which number shall initially be
one.
"Warrant Register" shall mean the register maintained at the office
of the Company pursuant to Section 4 hereof in which the names of the
Holders of Warrants shall be registered.
"Warrant Shares" means the shares of Common Stock and other securities
issuable upon exercise of the Warrants.
"Warrants" shall mean, collectively, the Series A Warrants, the Series
B Warrants, the Series C Warrants and the Series D Warrants.
Section 2. WARRANT CERTIFICATES. The Company will issue and deliver a
certificate or certificates evidencing the Warrants (the "Warrant
Certificates") pursuant to this Agreement. Such Warrant Certificates shall
indicate which series of Warrants are represented thereby and shall be
substantially in the form set forth as Exhibit "A" attached hereto. The
Warrant Certificates shall be dated the date of issuance by the Company.
Section 3. EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be signed on behalf of the Company by its Chief
Executive Officer or a Vice President. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or
any future Chief Executive Officer or Vice President, and may be imprinted
or otherwise reproduced on the Warrant Certificates and, for such purpose,
the Company may adopt and use the facsimile signature of any person who
shall have been Chief Executive Officer or Vice President, notwithstanding
the fact that at the time the Warrant Certificates shall be delivered or
disposed of he shall have ceased to hold such office. Each Warrant
Certificate shall also be signed on behalf of the Company by a manual or
facsimile signature of its Secretary or an Assistant Secretary.
Section 4. REGISTRATION. The Company shall number and register the
Warrant Certificates in the Warrant Register maintained for such purpose as
they are issued. The Company may deem and treat the registered holder(s)
from time to time of the Warrant Certificates, including any transferee
pursuant to a Permitted Transfer, (the "Holders") as the absolute owner(s)
thereof (notwithstanding any notation of ownership or other writing
thereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
Section 5. RESTRICTIONS ON TRANSFER; REGISTRATION OF TRANSFERS.
(a) Prior to any sale, assignment or other transfer (a "transfer") or
proposed transfer of the Warrants, unless such transfer is made pursuant to
an effective registration statement under the Securities Act, the
transferring Holder will, if requested by the Company, deliver to the
Company an opinion of counsel, reasonably satisfactory in form and
substance to the Company, to the effect that the Warrants may be sold or
otherwise transferred without registration under the Securities Act;
provided, however, that with respect to transfers by a Holder to its
Affiliate or transfers by Forman to Permitted Forman Transferees, no such
opinion shall be required. After receipt of the opinion of counsel, if
requested by the Company, the Company shall, within five days thereof,
notify the Holder of such Warrants as to whether such opinion is reasonably
satisfactory, or if the Company does not so notify such Holder within such
five day period, such Holder shall thereupon be entitled to effect such
transfer of such Warrants. Upon original issuance thereof, and until such
time as the same shall have been registered under the Securities Act or
sold pursuant to Rule 144 promulgated thereunder (or any similar rule or
regulation), each Warrant Certificate shall bear the legend included on the
first page of Exhibit A, unless in the opinion of such counsel, such legend
is no longer required by the Securities Act and each certificate
representing Warrant Shares shall bear the legend(s) specified by the
Stockholders' Agreement.
(b) The Company shall, upon compliance with the terms of Section
5(a), register the Permitted Transfer of any outstanding Warrant
Certificates in the Warrant Register to be maintained by the Company upon
surrender of such Warrant Certificates at the office of the Company
maintained for such purpose pursuant to Section 18, accompanied by (i) a
written instrument or instruments of transfer in form reasonably
satisfactory to the Company, duly executed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by
a duly authorized attorney and (ii) payment of funds sufficient to pay any
stock transfer taxes payable upon the making of such Permitted Transfer.
Upon any such registration of transfer, the Company shall execute and
deliver a new Warrant Certificate to the transferee Holder(s) and in the
denominations specified in such instrument of assignment and the
surrendered Warrant Certificate shall be canceled and disposed of by the
Company. Subject to the terms of Section 6 hereof, a Warrant, if properly
assigned, may be exercised by a new Holder without a new Warrant first
having been issued.
(c) If and when any outstanding Warrant Certificate is assigned in
blank (in case the restrictions on transferability shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
of such certificate as the absolute owner of such Warrant for all purposes
and the Company shall not be affected by any notice to the contrary.
(d) Subject to compliance with this Section 5, any outstanding
Warrant Certificates may be divided or combined with other Warrants upon
presentation at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which the new
Warrants are to be issued, signed by the Holder of the surrendered Warrant
Certificates or its agent or attorney.
Section 6. WARRANTS; EXERCISE OF WARRANTS.
(a) Subject to the terms of this Agreement, each Holder shall have
the right, which may be exercised commencing on the date of issuance of the
Warrants and until 5:00 p.m., New York time, on January 14, 2007 (the
"Expiration Date"), to receive from the Company the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares
(and such other consideration), free from all liens and other encumbrances
thereon, which the Holder may at the time be entitled to receive on
exercise of such Warrants and payment of the Exercise Price then in effect
for such Warrant Shares; provided, however, that no Series B Warrant may be
exercised until all Series A Warrants owned by such Holder have been
exercised; and provided further, that no Series C Warrant may be exercised
until all Series A Warrants and Series B Warrants owned by such Holder have
been exercised; and provided further, that no Series D Warrant may be
exercised until all Series A Warrants, Series B Warrants and Series C
Warrants owned by such Holder have been exercised. Each Warrant not
exercised prior to 5:00 p.m., New York time, on the Expiration Date shall
become void and all rights thereunder and all rights in respect thereof
under this Agreement shall cease as of such time. No adjustments as to
dividends will be made upon exercise of the Warrants, except as otherwise
expressly provided herein.
(b) The price at which each Warrant shall be exercisable shall be as
follows:
(i) The price at which each Series A Warrant shall be
exercisable, (the "Series A Exercise Price"), shall
initially be $34.74 per Warrant Share.
(ii) The price at which each Series B Warrant shall be
exercisable, (the "Series B Exercise Price"), shall
initially be $92.80 per Warrant Share.
(iii)The price at which each Series C Warrant shall be
exercisable (the "Series C Exercise Price"), shall initially
be $117.80 per Warrant Share.
(iv) The price at which each Series D Warrant shall be
exercisable (the "Series D Exercise Price"), shall initially
be $137.80 per Warrant Share.
(v) As used herein, the term "Exercise Price" shall mean the
Series A Exercise Price, the Series B Exercise Price, the
Series C Exercise Price and/or the Series D Exercise Price,
as appropriate.
(c) Each Warrant shall be exercisable, at the election of the Holder
thereof, either in full or from time to time in part, during normal
business hours on any business day prior to the Expiration Date. A Warrant
may be exercised upon surrender to the Company at its office designated for
such purpose (as provided for in Section 18 hereof) of the Warrant
Certificate or Certificates to be exercised with the form of election to
purchase attached thereto duly filled in and signed and upon payment to the
Company of the Exercise Price for the number of Warrant Shares in respect
of which such Warrants are then exercised. Prior to the issuance and
delivery of any Warrant Shares by the Company pursuant to this Section 6,
each Holder exercising such Warrants shall be required to execute the
Stockholders' Agreement, unless such Holder is already a party thereto.
Payment of the aggregate Exercise Price shall be made in cash or by
certified or official bank check payable to the order of the Company.
(d) Subject to the provisions of Section 8 hereof, upon such
surrender of Warrant Certificates, execution of the Stockholders'
Agreement, if required, and payment of the Exercise Price, the Company
shall issue and cause to be delivered, as promptly as practicable, to or
upon the written order of the Holder and in such name or names as such
Holder may designate a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of such Warrants (and such other
consideration as may be deliverable upon exercise of such Warrants)
together with cash for fractional Warrant Shares as provided in Section 12
hereof. The certificate or certificates for such Warrant Shares shall be
deemed to have been issued and the person so named therein shall be deemed
to have become a holder of record of such Warrant Shares as of the close of
business on the date of the surrender of such Warrants, execution of the
Stockholders' Agreement, if required, and payment of the Exercise Price,
irrespective of the date of delivery of such certificate or certificates
for Warrant Shares. In the event that a Warrant Certificate is exercised
in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the Expiration Date, a new Warrant
Certificate evidencing the remaining Warrant or Warrants will be issued and
delivered pursuant to the provisions of this Section 6 and of Section 4
hereof. All Warrant Certificates surrendered upon exercise of Warrants
shall be canceled and disposed of by the Company. The Company shall keep
copies of this Agreement and any notices given or received hereunder
available for inspection by the Holders during normal business hours at its
office.
(e) In the event the Company has completed a Public Offering, in
addition to and without limiting the rights of the Holder under the terms
hereof, at a Holder's option, a Warrant Certificate may be exercised by
being converted in whole or in part at any time or from time to time prior
to the Expiration Date for a number of shares of Common Stock having an
aggregate Specified Value on the date of such exercise equal to the
difference between (x) the Specified Value of the number of Warrant Shares
in respect of which such Warrant Certificate is then exercised and (y) the
aggregate Exercise Price for such shares in effect at such time. The
following equation illustrates how many Warrant Shares would then be issued
upon exercise pursuant to this Section 6(e):
X = [N <multiply> (CMV - PSP)] <divide> CMV
where:
CMV = Current Market Value per Warrant Share at date of exercise.
PSP = Per share Exercise Price at date of exercise.
N = Number of Warrant Shares in respect of which the Warrant
Certificate is being exercised by conversion.
X = Number of Warrant Shares issued upon exercise by conversion.
Upon any such exercise, the number of Warrant Shares purchasable upon
exercise of such Warrant Certificate shall be reduced by the number of
Warrant Shares so converted and, if a balance of purchasable Warrant Shares
remain after such exercise, the Company shall execute and deliver to the
Holder thereof a new Warrant Certificate for such balance of Warrant
Shares. No payment of any cash or other consideration to the Company shall
be required from the Holder of a Warrant in connection with any exercise
thereof by conversion pursuant to this Section 6(e). Such conversion shall
be effective upon the date of execution of the Stockholders' Agreement, if
required, and receipt by the Company of the original Warrant surrendered
for cancellation and a written request from the Holder thereof that the
conversion pursuant to this Section 6(e) be made, or at such later date as
may be specified in such request. No fractional shares arising out of the
above formula for determining the number of Warrant Shares issuable in such
conversion shall be issued, and the Company shall in lieu thereof make
payment to the Holder of cash in the amount of such fraction multiplied by
the Specified Value of a Warrant Share on the date of the conversion.
Section 7. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes and other governmental charges (excluding all foreign, federal
or state income, franchise, property, estate, inheritance, gift or similar
taxes) in connection with the issuance or delivery of the Warrants
hereunder, as well as all such taxes attributable to the initial issuance
or delivery of Warrant Shares upon the exercise of Warrants and payment of
the Exercise Price. The Company shall not, however, be required to pay any
tax that may be payable in respect of any subsequent transfer of the
Warrants or any transfer involved in the issuance and delivery of Warrant
Shares in a name other than that in which the Warrants to which such
issuance relates were registered, and, if any such tax would otherwise be
payable by the Company, no such issuance or delivery shall be made unless
and until the person requesting such issuance has paid to the Company the
amount of any such tax, or it is established to the reasonable satisfaction
of the Company that any such tax has been paid.
Section 8. ADJUSTMENT OF WARRANT NUMBER. The Warrant Number is
subject to adjustment from time to time upon the occurrence of the events
enumerated in, or as otherwise provided in, this Section 8. Anything
contained in this Section 8 notwithstanding, any adjustment made pursuant
to any provision of this Section 8 shall be made without duplication of an
adjustment otherwise required by and made pursuant to another provision of
this Section 8 on account of the same facts or events.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(i) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(iii)combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares;
(iv) makes a distribution on Common Stock in shares of its
capital stock other than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of
its capital stock (other than reclassifications arising
solely as a result of a change in the par value or no par
value of the Common Stock);
then the Warrant Number in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital
stock of the Company which it would have owned immediately following such
action if such Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the time of payment
or distribution, as appropriate, in the case of a dividend or distribution
and immediately after the effective date in the case of a subdivision,
combination or reclassification.
Such adjustment shall be made successively whenever any event listed
above shall occur. If the occurrence of any event listed above results in
an adjustment under subsection (b) or (c) of this Section 8, no further
adjustment shall be made under this subsection (a). The Company shall not
issue shares of Common Stock as a dividend or distribution on any class of
capital stock other than Common Stock, unless the Holders also receive such
dividend or distribution on a ratable basis or the appropriate adjustment
to the Warrant Number is made under this Section 8.
(b) ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes (and
receives no consideration therefor) any rights, options or warrants
(whether or not immediately exercisable) to holders of any class of its
Common Stock entitling them to purchase shares of Common Stock at a price
per share less than the Specified Value per share on the record date
relating to such distribution, the Warrant Number shall be adjusted in
accordance with the following formula:
W' = W <multiply> {(O + N) <divide> [O + [(N <multiply>
P) <divide> M]]}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date for any
such distribution.
O = the number of shares of Common Stock outstanding on the record
date for any such distribution.
N = the number of additional shares of Common Stock issuable upon
exercise of such rights, options or warrants.
P = the exercise price per share of such rights, options or warrants.
M = the Specified Value per share of Common Stock on the record date
for any such distribution.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which
such rights, options or warrants are exercisable, not all rights, options
or warrants shall have been exercised, the adjusted Warrant Number shall be
immediately readjusted to what it would have been if "N" in the above
formula had been the number of shares actually issued; provided, however,
to the extent that any Warrants have been exercised prior to any such
readjustment, the number of Warrant Shares that have been delivered or the
number of Warrant Shares to be delivered pursuant to such exercise shall
not be subject to any readjustment. In any case in which this Section 8(b)
shall require that an adjustment in the Warrant Number be made effective
immediately after the record date for a specified event, the company may
elect to defer until the exercise of such rights, options or warrants
issuing to the Holder of any Warrant exercised after such record date the
number of Warrant Shares, if any, issuable upon such exercise over and
above the number of Warrant Shares, if any, issuable upon such exercise on
the basis of the Warrant Number in effect prior to such adjustment;
provided, however, that the Company shall deliver to such Holder a due bill
or other appropriate instrument evidencing such Holder's right to receive
such additional Warrant Shares upon the exercise of such rights, options or
warrants.
(c) ADJUSTMENT FOR OTHER DISTRIBUTIONS. If the Company distributes to
all holders of any class of its Common Stock (i) any evidences of
indebtedness of the Company or any of its subsidiaries, (ii) any assets of
the Company or any of its subsidiaries, or (iii) any rights, options or
warrants to acquire any of the foregoing or to acquire any other Securities
of the Company, the Warrant Number shall be adjusted in accordance with the
following formula:
W' = W <multiply> [M <divide> (M - F)]
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date
mentioned below.
M = the Specified Value per share of Common Stock on the record
date mentioned below.
F = the Specified Value on the record date mentioned below with
respect to any other Securities or the fair market value on
the record date mentioned below with respect to any
indebtedness, assets, rights, options or warrants
distributable to the holder of one share of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution. If an adjustment is made pursuant to this subsection (c) as a
result of the issuance of rights, options or warrants and at the end of the
period during which any such rights, options or warrants are exercisable,
not all such rights, options or warrants shall have been exercised, the
adjusted Warrant Number shall be immediately readjusted as if "F" in the
above formula was the fair market value on the record date of the
indebtedness or assets actually distributed upon exercise of such rights,
options or warrants divided by the number of shares of Common Stock
outstanding on the record date; provided, however, to the extent that any
Warrants have been exercised prior to any such readjustment, the number of
Warrant Shares that have been delivered or the number of Warrant Shares to
be delivered pursuant to such exercise shall not be subject to any
readjustment. In any case in which this Section 8(c) shall require that an
adjustment in the Warrant Number be made effective immediately after the
record date for a specified event, the company may elect to defer until the
exercise of such rights, options or warrants issuing to the Holder of any
Warrant exercised after such record date the number of Warrant Shares, if
any, issuable upon such exercise over and above the number of Warrant
Shares, if any, issuable upon such exercise on the basis of the Warrant
Number in effect prior to such adjustment; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional
Warrant Shares upon the exercise of such rights, options or warrants.
This subsection does not apply to any transaction described in
subsection (a) of this Section 8 or to rights, options or warrants referred
to in subsection (b) or (d) of this Section 8.
Such fair market value shall be determined in good faith by the by the
board of directors of the Company, whose determination shall be described
in a duly adopted resolution certified by the Company's Secretary or
Assistant Secretary, which determination shall be final and binding upon
the Holders.
(d) ADJUSTMENT FOR COMMON STOCK ISSUE. If the Company issues shares
of Common Stock (including treasury shares) for a consideration per share
less than the Specified Value per share on the date the Company fixes the
offering price of such additional shares, the Warrant Number shall be
adjusted in accordance with the following formula:
W' = W <multiply> {A <divide> [O + (P <divide> M)]}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to any such issuance.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common Stock.
P = the aggregate consideration received for the issuance of such
additional shares of Common Stock.
M = the Specified Value per share of Common Stock on the date of
issuance of such additional shares.
A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares of Common Stock.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to any of the transactions
described in subsection (a) of this Section 8 or the issuances described
below:
(i) The issuance of Common Stock upon the conversion, exercise
or exchange of any Convertible Securities (as defined
below), including the Warrants, outstanding on the date
hereof or for which an adjustment has been made pursuant to
this Section 8; or
(ii) (A) The grant of rights to purchase shares of Common Stock
and the issuance of such shares of Common Stock upon
exercise of such rights, to directors, members of management
or employees of the Company and its subsidiaries pursuant to
management incentive plans, employee incentive plans, stock
option and stock purchase plans or agreements adopted by the
board of directors of the Company and (B) following the
acquisition by the Company of any of the rights or shares
referred to in clause (A) the reissuance of any such
acquired rights and the issuance of shares of Common Stock
upon exercise thereof and (C) the grant of any rights under
a phantom stock plan, stock appreciation rights plan or
other deferred compensation plan to officers, directors or
employees of the Company and its subsidiaries.
(e) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. If the Company
issues any options, warrants or other securities convertible into or
exchangeable or exercisable for Common Stock ("Convertible Securities")
(other than securities issued in transactions described in subsection (b)
or (c) of this Section 8) for a consideration per share of Common Stock
deliverable upon conversion, exchange or exercise of such securities less
than the Specified Value per share on the date of issuance of such
securities, the Warrant Number shall be adjusted in accordance with the
following formula:
W' = W <multiply> {(O + D) <divide> [O + (P <divide>
M)]}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to any such issuance.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities.
P = the sum of the aggregate consideration received for the issuance
of such securities and the aggregate minimum consideration
receivable by the Company for issuance of Common Stock upon
conversion or in exchange for, or upon exercise of, such
securities.
M = the Specified Value per share of Common Stock on the date of
issuance of such securities.
D = the maximum number of shares of Common Stock deliverable upon
conversion or in exchange for or upon exercise of such securities
at the initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion, exchange or
exercise of such securities has not been issued when the conversion,
exchange or exercise rights of such securities have expired or been
terminated, then the adjusted Warrant Number shall promptly be readjusted
to the adjusted Warrant Number which would then be in effect had the
adjustment upon the issuance of such securities been made on the basis of
the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. If the aggregate minimum
consideration receivable by the Company for issuance of Common Stock upon
conversion or in exchange for, or upon exercise of, such securities shall
be increased or decreased by virtue of provisions therein contained or upon
the arrival of a specified date or the happening of a specified event, then
the Warrant Number shall promptly be readjusted to the Warrant Number which
would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of such increased or decreased minimum
consideration. To the extent that any Warrants have been exercised prior
to any such readjustment, the number of Warrant Shares that have been
delivered or the number of Warrant Shares to be delivered pursuant to such
exercise shall not be subject to any readjustment. In any case in which
this Section 8(e) shall require that an adjustment in the Warrant Number be
made effective immediately after any such issuance, the company may elect
to defer until the conversion, exchange or exercise of such securities
issuing to the Holder of any Warrant exercised after such record date the
number of Warrant Shares, if any, issuable upon such exercise over and
above the number of Warrant Shares, if any, issuable upon such exercise on
the basis of the Warrant Number in effect prior to such adjustment;
provided, however, that the Company shall deliver to such Holder a due bill
or other appropriate instrument evidencing such Holder's right to receive
such additional Warrant Shares upon the conversion, exchange or exercise of
such securities.
This subsection (e) does not apply to the issuance of the Warrants or
to any of the transactions described in paragraph (b) of this Section 8 or
excluded from the provisions of paragraph (d) of this Section 8.
(f) CONSIDERATION RECEIVED. For purposes of any computation
respecting consideration received pursuant to subsections (d) and (e) of
this Section 8, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash
(without any deduction being made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection
therewith);
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof (irrespective of the accounting
treatment thereof) as determined in good faith by the board
of directors of the Company; and
(iii)in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable
for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration
received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be
received by the Company upon the conversion, exchange or
exercise thereof (the consideration in each case to be
determined in the same manner as provided in clauses (i) and
(ii) of this subsection).
(g) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED. No adjustment in the
Warrant Number need be made unless the adjustment would require an increase
or decrease of at least 1% in the Warrant Number. Any adjustment that is
not made shall be carried forward and taken into account in any subsequent
adjustment, provided that no such adjustment shall be deferred beyond the
date on which a Warrant is exercised. All calculations under this Section
8 shall be made to the nearest 1/100th of a share.
(h) WHEN NO ADJUSTMENT REQUIRED. If an adjustment is made upon the
establishment of a record date for a distribution subject to subsection
(a), (b) or (c) of this Section 8 and such distribution is subsequently
canceled, the Warrant Number then in effect shall be readjusted, effective
as of the date when the board of directors of the Company determines to
cancel such distribution, to that which would have been in effect if such
record date had not been fixed. To the extent the Warrants become
convertible into cash, no adjustment need be made thereafter as to the
amount of cash into which such Warrants are exercisable. Interest will not
accrue on the cash.
(i) REORGANIZATIONS. Except as set forth below, in case of any
capital reorganization, other than in the cases referred to in subsections
(a), (b), (c), (d), (e) or (f) of this Section 8, or the consolidation or
merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the continuing corporation and
which does not result in any reclassification of the outstanding shares of
Common Stock into shares of other stock or other securities or property),
or the sale, transfer or other disposition of all or substantially all of
the property of the Company (collectively, such actions being hereinafter
referred to as "Reorganizations"), then each Holder of Warrants which are
exercisable, shall have the right to receive notice from the Company of
such Reorganization at least thirty (30) days prior to the closing date of
such Reorganization, which notice shall include a copy of the operative
Reorganization documents or a summary of their operative terms.
Thereafter, the Holders of exercisable Warrants shall have until ten (10)
days prior to the closing date of the Reorganization, to exercise such
Warrants and participate in such Reorganization on the terms negotiated by
the Company. If such exercisable Warrants are not then exercised, such
Warrants, and, in any event, all Warrants that are not then exercisable,
shall terminate as of the closing date of such Reorganization. If the
Company merges with or into any Person in a stock-for-stock merger, upon
consummation of such transaction the Warrants shall automatically become
exercisable for the kind and amount of securities which the Holder of a
Warrant would have owned immediately after the merger if the Holder had
exercised the Warrant immediately before the effective date of the
transaction. Concurrently with the consummation of such merger, the
corporation formed by or surviving any such merger, if other than the
Company, shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Agreement and
shall enter into a supplemental Warrant Agreement so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section. The successor
Company shall mail to Warrant holders a notice describing the supplemental
Warrant Agreement.
(j) FORM OF WARRANTS. Irrespective of any adjustments in the number
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
(k) MISCELLANEOUS. In case at any time or from time to time the
Company shall take any action in respect of its Common Stock, other than
any action described in this Section 8, then the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted in such
manner as may be equitable in the circumstances. For purpose of this
Section 8 the term "shares of Common Stock" shall mean (i) shares of any
class of stock designated as common stock of the Company as of the date of
this Agreement, (ii) shares of any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par
value to par value and (iii) shares of common stock of the Company or
options, warrants or rights to purchase common stock of the Company or
evidences of indebtedness, shares of stock or securities convertible into
or exchangeable for shares of common stock of the Company outstanding on
the date hereof and shares of common stock of the Company issued upon
exercise, conversion or exchange of such securities. In the event that at
any time, as a result of an adjustment made pursuant to this Section 8, the
Holders of Warrants shall become entitled to purchase any securities of the
Company other than, or in addition to, shares of Common Stock, thereafter
the number or amount of such other securities so purchasable upon exercise
of each Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares contained in subsections (a) through (k)
of this Section 8, inclusive, and the provisions of Sections 4, 5, 6 and 11
hereof with respect to the Warrant Shares or the Common Stock shall apply
on like terms to any such other securities.
Section 9. NOTICES TO HOLDERS. Upon any adjustment pursuant to
Section 8 hereof, the Company shall thereafter (a) cause to be filed with
the Company a certificate signed by the principal financial officer of the
Company setting forth the Warrant Number after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon
which such calculations are based, and (b) cause to be given to each of the
Holders at its address appearing on the Warrant Register written notice of
such adjustments. Where appropriate, such notice may be given in advance
and included as a part of the notice required to be mailed under the other
provisions of this Section 9.
In case:
(i) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants;
(ii) the Company shall authorize the distribution to all holders of
shares of Common Stock of assets, including cash, evidences of its
indebtedness, or other securities;
(iii) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or
of the conveyance or transfer all or substantially all of the properties
and assets of the Company, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be given to each of the Holders at its
address appearing on the Warrant Register, at least 15 days prior to the
applicable record date hereinafter specified, or the date of the event in
the case of events for which there is no record date, in accordance with
the provisions of Section 18 hereof, a written notice stating (A) the date
as of which the holders of record of shares of Common Stock to be entitled
to receive any such rights, options, warrants or distribution are to be
determined, or (B) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (C) the date on
which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated,
and the date as of which it is expected that holders of record of shares of
Common Stock shall be entitled to exchange such shares for securities or
other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up. The failure to give the notice required by this Section 9 or
any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any
action.
Section 10. REDEMPTION.
(a) The Series A Warrants, Series B Warrants, Series C Warrants
and/or Series D Warrants may be redeemed, at the option of the Company, as
a whole series and not in part, at any time after they become exercisable
and prior to the Expiration Date, at the office of the Company maintained
pursuant to Section 18 hereof, at the price of $0.01 per Warrant
("Redemption Price"), provided that the Common Stock has been registered
under the Exchange Act, and provided further that the Closing Price of the
Common Stock has been at least one hundred and seventy-five percent (175%)
of the Exercise Price on each of the thirty (30) consecutive trading days
ending on the third business day prior to the date on which notice of
redemption is given, the satisfaction of which condition shall be certified
by the Company, and provided further, that with respect to Warrants held by
Forman, he is entitled to exercise a demand registration with respect to
the underlying shares of Common Stock pursuant to Section 2(d) of the
Registration Rights Agreement.
(b) In the event the Company shall elect to redeem all of one or more
series of Warrants, the Company shall fix a date for redemption. Notice of
redemption shall be mailed by the Company in accordance with Section 19
hereof not less than thirty (30) days prior to the date fixed for
redemption to the registered Holders of the Warrants to be redeemed.
(c) The Warrants to be redeemed may be exercised in accordance with
Section 6 of this Agreement at any time after notice of redemption shall
have been given by the Company pursuant to Section 10(b) hereof and prior
to the time and date fixed for redemption. On and after the redemption
date, the Holder of Warrants to be redeemed shall have no further rights
except to receive, upon surrender of such Warrants to be redeemed, the
Redemption Price.
Section 11. RESERVATION OF WARRANT SHARES. The Company shall at all
times reserve and keep available, free from preemptive rights (except as
otherwise provided herein), out of the aggregate of its authorized but
unissued Common Stock or its authorized and issued Common Stock held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
Warrant Shares upon exercise of Warrants, the maximum number of shares of
Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants, but such shares of Common Stock shall be subject to
the terms and conditions of the Stockholders' Agreement.
The Company or, if appointed, the transfer agent for the Common Stock
and each transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of the Warrants (collectively, the
"Transfer Agent") will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company shall keep a copy of this Agreement on file with any
such Transfer Agent. The Company will supply any such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise
make available all other consideration that may be deliverable upon
exercise of the Warrants. The Company will furnish any such Transfer Agent
a copy of all notices of adjustments and certificates related thereto,
transmitted to each Holder pursuant to Section 9 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 8 hereof to reduce the Exercise Price below the then par value (if
any) of the Warrant Shares, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue duly authorized, fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares and other capital stock
issued upon exercise of Warrants will, upon payment of the Exercise Price
therefor and issue thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights (except as may be granted by this
Agreement) and free, subject to Section 7 hereof, from all taxes, liens,
charges and security interests with respect to the issue thereof, but such
Warrant Shares shall be subject to the terms and conditions of the
Stockholders' Agreement.
Section 12. FRACTIONAL INTERESTS. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time
by the same holder, the number of full Warrant Shares which shall be
issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares purchasable on exercise of the Warrants
so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 12, be issuable on the exercise of any Warrants
(or specified portion thereof), the Company shall pay an amount in cash
equal to the Specified Value of the Warrant Share so issuable multiplied by
such fraction.
Section 13. MUTILATED OR MISSING WARRANT CERTIFICATES. If a mutilated
Warrant Certificate is surrendered to the Company, or if the Holder of a
Warrant Certificate claims and submits an affidavit or other evidence
satisfactory to the Company to the effect that the Warrant Certificate has
been lost, destroyed or wrongfully taken, the Company shall issue a
replacement Warrant Certificate. If required by the Company such Holder
must provide an indemnity bond, or other form of indemnity, sufficient in
the judgment of the Company to protect the Company from any loss which it
may suffer if a Warrant Certificate is replaced. If any institutional
Holder (or nominee thereof) is the owner of any such lost, stolen or
destroyed Warrant Certificate, then the affidavit of an authorized officer
of such owner, setting forth the fact of loss, theft or destruction and of
its ownership of the Warrant Certificate at the time of such loss, theft or
destruction shall be accepted as satisfactory evidence thereof and no
further indemnity shall be required as a condition to the execution and
delivery of a new Warrant Certificate other than the unsecured written
agreement of such owner to indemnify the Company or, at the option of such
institutional Holder, an indemnity bond in the amount of the Specified
Value of the Warrant Shares for which such Warrant Certificate was
exercisable.
Section 14. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In
the case of all dividends or other distributions by the Company to the
Holders of its Common Stock with respect to which any provision of Section
8 refers to the taking of a record of such Holders, the Company will in
each such case take such a record and will take such record as of the close
of business on a business day. The Company will not at any time, except
(a) upon dissolution, liquidation or winding up, or (b) for purposes of
declaring and paying a dividend or matters related to voting by
stockholders of the Company, close its stock transfer books or the Warrant
Register so as to result in preventing or delaying the exercise or transfer
of any Warrant.
Section 15. LIMITATION OF LIABILITY. No provision hereof in the
absence of affirmative action by the Holder of a Warrant to purchase shares
of Common Stock, and no mere enumeration herein of the rights or privileges
of a Holder, shall give rise to any liability of such Holder for the
Exercise Price or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
Section 16. RIGHTS OF THE HOLDER. Nothing contained in this Agreement
or in any Warrant Certificate shall be construed as conferring upon the
Holders, prior to the exercise of such Warrants, any rights of a
stockholder in the Company, either at law or in equity, and the rights of
the Holders are limited to those expressed in this Agreement.
Section 17. COMPANY INFORMATION. The Company agrees that so long as
any Warrants remain outstanding and so long as the Company shall not have
registered any of its securities pursuant to Section 12 of the Exchange
Act, or filed a registration statement pursuant to the requirements of the
Securities Act, the Holders will be entitled to receive, upon written
request, the same financial information as made available to the holders of
common stock pursuant to the Stockholders' Agreement.
Section 18. OFFICE OF THE COMPANY. As long as any of the Warrants
remains outstanding, the Company shall maintain an office in New Orleans,
Louisiana where the Warrants may be presented for exercise, transfer,
division or combination as provided for herein. Such office shall be
located at 650 Poydras Street, Suite 2200, New Orleans, Louisiana 70130,
unless and until the Company shall designate and maintain some other office
for such purposes and give written notice thereof to the Holders of all
outstanding Warrants.
Section 19. NOTICES TO THE COMPANY AND HOLDERS. All notices and other
communications provided for or permitted hereunder shall be in writing and
shall be made by hand-delivery, first-class mail, facsimile or overnight
air courier guaranteeing next day delivery addressed to the Company at its
principal office located at 650 Poydras Street, Suite 2200, New Orleans,
Louisiana 70130 (facsimile no.: 504-522-1796) and to each of the Holders
at its address appearing on the Warrant Register. All such notices and
communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed (so long as a fax copy is
sent and receipt acknowledged within two business days after mailing);
when receipt acknowledged, if faxed; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
day delivery. The parties and Holders may change the addresses to which
notices are to be given by giving five days' prior written notice of such
change in accordance herewith.
Section 20. CERTAIN SUPPLEMENTS AND AMENDMENTS; AMENDMENTS AND
WAIVERS.
(a) The Company may from time to time supplement or amend this
Agreement without the approval of any Holders in order to cure any
ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising
hereunder which the Company may deem necessary or desirable; provided that
any such supplement or amendment shall not in any way adversely affect the
interests of the Holders.
(b) This Agreement may be amended by the affirmative vote of Holders
holding Warrants to purchase not less than two-thirds of the Warrant Shares
purchasable pursuant to all of the then outstanding Warrants; provided
that, except as expressly provided herein, the Agreement may not be
amended, without the consent of each Holder whose rights would be affected
by such amendment, to change (i) any price at which the Warrant may be
exercised, (ii) the period during which the Warrant may be exercised, (iii)
the number or type of securities to be issued upon the exercise thereof or
(iv) the provisions of this Section 20; and provided further that the
Agreement may not be amended to provide for the issuance of additional
warrants to purchase shares of the Company's Common Stock without the
consent of each Warrant Holder.
(c) The Company agrees it will not solicit, request or negotiate for
or with respect to any proposed waiver or amendment of any of the
provisions of this Agreement or any Warrant unless each Holder
(irrespective of the amount of Warrants then owned by it) shall
substantially concurrently be informed thereof by the Company and shall be
afforded the opportunity of considering the same and shall be supplied by
the Company with sufficient information (including any offer of
remuneration) to enable it to make an informed decision with respect
thereto which information shall be the same as that supplied to each other
Holder. The Company will not directly or indirectly, pay or cause to be
paid any remuneration whether by way of supplement or additional interest
fee or otherwise, to any Holder as consideration for or as an inducement to
the entering into by any Holder of any waiver or amendment of any of the
terms and provisions of this Agreement or any Warrant unless such
remunerations is concurrently paid on the same terms, ratably to each
Holder whether or not such Holder signs such waiver or consent, provided
that the foregoing is not intended to preclude the adoption of any
amendment or the giving of any waiver by the Holders of a majority of the
Warrant Shares purchasable pursuant to all of the then outstanding
Warrants, to the extent permitted by the other provisions of this Section
20.
Section 21. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
AND ALL ISSUES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW); PROVIDED THAT DETERMINATIONS RELATING TO
CORPORATE LAW SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE. TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY
OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE
CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT AND THE WARRANTS, AND IRREVOCABLY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF
A WARRANT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
Section 22. ENTIRE AGREEMENT. This Agreement, together with the
Stockholders' Agreement and the Registration Rights Agreement dated as of
the date hereof, by and among the Company and the parties thereto (the
"Registration Rights Agreement") constitute the entire agreement and
understanding of the parties hereto and respective of the subject matter
contained herein, and there are no restrictions, promises, representations,
warranties, covenants, or undertakings with respect to the subject matter
hereof, other than expressly set forth or referred to herein or therein.
This Agreement, the Stockholders' Agreement and the Registration Rights
Agreement supersede all prior agreements and understandings between the
parties hereto with respect to the subject matter hereof.
Section 23. MISCELLANEOUS.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the parties, and their respective successors and assigns,
including but not limited to the heirs and legatees of Forman.
(b) Section headings are inserted for convenience only and do not
form a part of this Agreement.
(c) This Agreement shall terminate if all Warrants have been
exercised pursuant to this Agreement.
(d) Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Holders any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company and the Holders.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
* * * * * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
FORMAN PETROLEUM COMPANY
By: /s/ McLain J. Forman
---------------------------------
Name: McLain J. Forman
Title: CEO
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.,
its General Partner or Managing
Director
By: /s/ Nicholas W. Tell, Jr.
---------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
---------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW SHARE OPPORTUNITY FUND II, L.P.
By: TCW Asset Management Company,
its Investment Manager
By: /s/ Nicholas W. Tell, Jr.
---------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: /s/ Darryl L. Schall
---------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Ltd.,
As General Partner
By: /s/ Nicholas W. Tell, Jr.
---------------------------------
Name: Nicholas W. Tell, Jr.
Title: Managing Director
By: TCW Investment Management Company,
As Investment Advisor
By: /s/ Darryl L. Schall
---------------------------------
Name: Darryl L. Schall
Title: Senior Vice President
<PAGE>
JEFFERIES & COMPANY, INC.
By: /s/ Jerry M. Gluck
---------------------------------
Name: Jerry M. Gluck
Title: Executive Vice President
<PAGE>
BANKAMERICA INVESTMENT CORP.
By: /s/ P.F. Van Winkle
---------------------------------
Name: P.F. Van Winkle
Title: Attorney-in-Fact
<PAGE>
KOCH INDUSTRIES, INC.
By: /s/ James R. McBride
---------------------------------
Name: James R. McBride
Title:
<PAGE>
/s/ McLain J. Forman
---------------------------------
McLain J. Forman
<PAGE>
------------------------------------------------
Type or Print Name of Beneficial Holder
By:
---------------------------------
Name:
Its:
Address:
------------------------------
------------------------------
------------------------------
------------------------------
<PAGE>
EXHIBIT A
FORM OF WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
JANUARY 14, 2000, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION WITH AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT, OR IN COMPLIANCE WITH RULE 144 OR PURSUANT TO ANOTHER EXEMPTION
THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
WARRANT AGREEMENT AND A STOCKHOLDERS' AGREEMENT DATED AS OF JANUARY14, 2000,
AMONG THE ISSUER OF SUCH SECURITIES AND THE OTHER PARTIES THERETO. THE
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CONDITIONS SPECIFIED IN SUCH
AGREEMENTS AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS
CERTIFICATE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH AGREEMENTS WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE SECURITIES ACT, OR IN COMPLIANCE WITH RULE 144 OR PURSUANT
TO ANOTHER EXEMPTION THEREFROM AND ARE ALSO SUBJECT TO THE RESTRICTIONS
SPECIFIED IN THE STOCKHOLDERS' AGREEMENT.
No. _____ ______ Series ___ Warrants
SERIES ___ WARRANT CERTIFICATE
FORMAN PETROLEUM CORPORATION
This Series ___ Warrant Certificate certifies that
___________________________, or registered assigns, is the registered holder
of the number of Series ___ Warrants (the "Warrants") set forth above to
purchase Common Stock, no par value (the "Common Stock"), of Forman
Petroleum Corporation, a Louisiana corporation (the "Company"). Each Warrant
entitles the holder upon exercise to receive from the Company one fully paid
and nonassessable share of Common Stock (a "Warrant Share"), at the initial
exercise price per share (the "Exercise Price") of $_____, payable in lawful
money of the United States of America, upon surrender of this Warrant
Certificate, execution of the Stockholders' Agreement and payment of the
Exercise Price at the office of the Company designated for such purpose, but
only subject to the conditions set forth herein and in the Warrant Agreement
referred to hereinafter. The number of Warrant Shares issuable upon exercise
of the Warrants are subject to adjustment upon the occurrence of certain
events, as set forth in the Warrant Agreement. Each Warrant is exercisable
at any time prior to 5:00 p.m., New York time, on January 14, 2007.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, and are issued or to be issued pursuant to a
Warrant Agreement dated as of January 14, 2000 (the "Warrant Agreement"),
duly executed and delivered by the Company, which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and
is hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained by the holder hereof upon written request to the Company.
Capitalized terms used and not defined herein shall have the meaning
ascribed thereto in the Warrant Agreement.
The holder hereof may exercise the Warrants evidenced hereby under and
pursuant to the terms and conditions of the Warrant Agreement by
surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon (and by this reference made a part hereof) properly
completed and executed, and, to the extent the Warrants are not being
exchanged pursuant to the Warrant exchange provisions of Section 6 of the
Warrant Agreement, together with payment of the Exercise Price in cash or by
certified or bank check at the office of the Company designated for such
purpose. Prior to the issuance and delivery of any Warrant Shares upon the
exercise of the Warrants represented hereby, the holder hereof will be
required to execute the Stockholders' Agreement, unless the holder is
already a party to the Stockholders' Agreement. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall
be less than the total number of Warrants evidenced hereby, there shall be
issued by the Company to the holder hereof or its registered assignee a new
Warrant Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events, the number of Warrant Shares issuable upon exercise of a Warrant set
forth on the face hereof may, subject to certain conditions, be adjusted.
The holder hereof will have certain registration rights and other
rights and obligations with respect to the Warrant Shares as provided in the
Registration Rights Agreement dated as of January 14, 2000 by and among the
Company and the persons party thereto. Copies of the Registration Rights
Agreement may be obtained by the holder hereof upon written request to the
Company.
Warrant Certificates, when surrendered at the office of the Company by
the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Subject to the terms and conditions of the Warrant Agreement, upon due
presentation for registration of transfer of this Warrant Certificate at the
office of the Company a new Warrant Certificate or Warrant Certificates of
like tenor and evidencing in the aggregate a like number of Warrants shall
be issued to the transferee(s) in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection
therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary. Neither the Warrants nor this Warrant Certificate entitles any
holder hereof to any rights of a stockholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its Chief Executive Officer or Vice President and by its
Secretary or Assistant Secretary.
Dated: ______________
FORMAN PETROLEUM CORPORATION
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to:
(Check Applicable Box)
<square>receive _____________ shares of Common Stock and herewith
tenders payment for such shares to the order of Forman Petroleum
Corporation in the amount of $____________ in accordance with the
terms hereof.
<square>exchange Warrants to purchase ____________ shares of Common
Stock as payment for such number of shares of Common Stock as
determined in accordance with the Warrant exchange procedures of
Section 6 of the Warrant Agreement.
The undersigned requests that a certificate for such shares be
registered in the name of _________________________, whose address
is__________________________________ and that such shares be delivered to
__________________, whose address is____________________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of such shares be registered
in the name of _____________________________, whose address is
________________________________________, and that such Warrant Certificate
be delivered to_______________________, whose address is
_________________________________________.
Signature(s):
____________________________________
____________________________________
NOTE: The above signature(s) must correspond with the name written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever. If this Warrant is held of record by
two or more joint owners, all such owners must sign.
Date: _____________
<PAGE>
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment of Warrant Certificate)
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns and
transfers unto _________________________ whose address is
_________________________________________ and whose social security number
or other identifying number is ____________________, the within Warrant
Certificate, together with all right, title and interest therein and to the
Warrants represented thereby, and does hereby irrevocably constitute and
appoint ____________________________, attorney, to transfer said Warrant
Certificate on the books of the within-named corporation, with full power of
substitution in the premises.
Signature(s):
____________________________________
____________________________________
NOTE: The above signature(s) must correspond with the name written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever. If this Warrant is held of record by
two or more joint owners, all such owners must sign.
Date: ______________
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") between Forman Petroleum
Corporation (the "Company"), and McLain J. Forman (the "Employee") is dated
as of January 14, 2000 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, Employee was previously employed by the Company prior to the
Effective Date;
WHEREAS, the Company is being restructured as of the Effective Date
(the "Restructuring");
WHEREAS, as a condition to the closing of the Restructuring, the
agreements governing the Restructuring require the Company to offer
Employee employment, and Employee to accept employment with the Company; on
the terms and conditions set forth herein;
WHEREAS, during the course of his employment with the Company,
Employee has had and will continue to have access to certain Confidential
Information (as hereinafter defined) relating to the business and
operations of the Company and its subsidiaries that is non-public,
confidential or proprietary in nature and is particularly useful in the Oil
Exploration and Production Business; and
WHEREAS, in view of the Company's need to be protected against
disclosures by Employee of Confidential Information, the Company and
Employee desire, among other things, to prohibit Employee from disclosing
or utilizing, outside the scope and term of his employment, any
Confidential Information and to restrict Employee's ability to compete with
the Company for a limited period of time.
NOW, THEREFORE, for and in consideration of the foregoing premises,
the Company's employment of Employee, and the Company's payment of wages,
salary and other compensation to Employee, the parties hereto agree as
follows:
ARTICLE I.
EMPLOYMENT CAPACITY AND TERM
1. PRIOR EMPLOYMENT AGREEMENT. Effective as of the Effective Date,
this Agreement supersedes any prior employment agreement between the
Company and Employee. Employee hereby releases the Company, from any
further liability to Employee arising from or relating to Employee's former
employment by the Company, whether known or unknown, liquidated or
contingent, contractual or imposed by law.
2. CAPACITY AND DUTIES OF EMPLOYEE. The Company hereby employs
Employee to render services on behalf of the Company as Chief Executive
Officer and Chief Operating Officer. As the Chief Executive Officer and
the Chief Operating Officer, Employee shall perform such duties as are
assigned to the individual(s) holding such title(s) by the Board of
Directors of the Company (the "Board"). Employee shall at all times report
directly to the Board or to the Board's designee and discharge his duties
under the direction, control and supervision of the Board or the Board's
designee. During the Employment Term (defined below), Employee may not be
given a lesser title and shall report only to the Board or to a party or
parties designated by the Board.
3. EMPLOYMENT TERM. The term of this Agreement (the "Employment
Term") shall commence on the Effective Date and shall continue for twenty-
seven (27) months and two (2) weeks thereafter, subject to any earlier
termination of Employee's status as an employee pursuant to this Agreement.
4. DEVOTION TO RESPONSIBILITIES.
Employee shall devote such time and attention to rendering
services on behalf of the Company as shall be necessary in order for him to
efficiently perform his duties under this Agreement; provided, however,
that nothing contained herein shall prohibit Employee from (a) serving as a
volunteer member of the board of directors, board of trustees or the like
of any for-profit or non-profit entity that does not compete with the
Company, or performing volunteer services of any type for any civic or
community entity, (b) investing his assets in such form or manner as shall
require no more than nominal services on the part of Employee in the
operation of the business of the entity in which such investment is made,
(c) serving in various capacities with, and attending meetings of, industry
or trade groups and associations; or (d) engaging in the Oil Exploration
and Production Business through Forman Petroleum Corporation II as
permitted by Article V, Section 3 of this Agreement.
5. LOCATION. Employee shall perform Employee's duties under this
Agreement at the Company's business office or elsewhere in the New Orleans,
Louisiana metropolitan area as directed by the Board. Employee shall not
be required to relocate Employee's residence more than 50 miles during the
Employment Term, but Employee shall be available for travel required by the
duties of Employee's position.
ARTICLE II.
COMPENSATION AND BENEFITS
1. SALARY. The Company shall pay Employee a salary ("Base Salary")
at the rate of TWO HUNDRED TWENTY-FIVE THOUSAND AND NO/100 ($225,000.00)
DOLLARS per calendar year, payable to Employee at such intervals as other
salaried employees of the Company are paid. The salary due during any
partial calendar year shall be prorated by multiplying the salary amount by
a fraction whose numerator is the number of days in such calendar year
which fall during the Employment Term and whose denominator is 365.
2. BONUS. In addition to the Base Salary, Employee shall be
eligible to receive an annual incentive bonus, the amount of which shall be
determined based upon the achievement of certain goals set forth on Exhibit
"A" to this Agreement (the "Incentive Bonus"). The Incentive Bonus shall
be payable, with respect to each fiscal year of the Company, not later than
90 days following the end of such fiscal year.
3. WARRANTS. On the Effective Date, as consideration for the
execution of this Agreement by Employee and other good and valuable
consideration, the Company shall grant Employee up to 33,700 Series A
Warrants, 101,100 Series B Warrants, 101,100 Series C Warrants and 101,100
Series D Warrants (each as defined in the Warrant Agreement), each warrant
entitling Employee to purchase one share of the Company's no par common
stock pursuant to the terms of the Company's Warrant Agreement dated the
date hereof. The actual number of warrants to be granted to Employee shall
be determined pursuant to the terms and provisions of the Company's Joint
Plan of Reorganization confirmed by order of the Bankruptcy Court on
December 29, 1999. Notwithstanding anything in this Agreement to the
contrary, the warrants granted Employee are fully vested as of the date of
this Agreement and are not subject to cancellation, modification or
amendment in any manner in the event of the termination of Employee's
status as an employee for any reason whatsoever prior to the expiration of
the Employment Term.
4. STOCK OPTIONS. If the Board of Directors of the Company adopts a
stock option plan for the benefit of executive officers and directors of
the Company while Employee is engaged by the Company, Employee shall be
entitled to participate in such plan on the same terms provided other
senior executive officers of the Company. Employee acknowledges that the
Board of Directors of the Company is not obligated to adopt such a plan at
any time during the Employment Term.
5. BENEFITS. In addition to the Base Salary and the Incentive
Bonus, the Company shall provide Employee with the following fringe
benefits and perquisites.
(a) Group medical, dental, disability and life insurance benefit
package, such benefits to be on the same terms provided other senior
executive officers of the Company;
(b) All other benefit programs on the same terms provided other
senior executive officers of the Company;
(c) Sick leave, such benefits to be on the same terms other
senior executives of the Company;
(d) Four weeks (I.E., twenty (20) business days) of annual paid
vacation; and
(e) Office space, office equipment, and such other facilities
and support services as are adequate for the performance of Employee's
duties hereunder.
6. D&O INSURANCE. The Company agrees to maintain directors and
officers liability insurance with coverage limits not less than the
coverage in effect immediately prior to the Effective Date ("D&O Policy")
and to designate the Employee as a named insured on all of the Company's
insurance policies.
7. EXPENSES. The Company shall reimburse Employee for reasonable
out-of-pocket expenses incurred from time to time on behalf of the Company
or any subsidiary in the performance of his duties under this Agreement,
upon the presentation of such supporting invoices, documents and forms as
the Company reasonably requests.
ARTICLE III.
TERMINATION OF EMPLOYMENT
1. DEATH. Employee's status as an employee shall terminate
immediately and automatically upon Employee's death during the Employment
Term.
2. DISABILITY. Employee's status as an employee may be terminated
for "Disability" as follows:
(a) Employee's status as an employee shall terminate if Employee
has a disability and the disability insurer has determined that Employee is
entitled to receive the maximum benefits under the Company's long-term
disability insurance policy in effect at the time. Any such termination
shall become effective on the first day on which Employee is eligible to
receive payments under such policy (or on the first day that he would be so
eligible, if he had applied timely for such payments).
(b) If the Company has no long-term disability plan in effect or
if the disability insurer determines that Employee is not entitled to
receive the maximum benefits and (i) Employee has been incapable because of
physical or mental illness from discharging his duties and responsibilities
on a full time basis under this Agreement for a period of 90 consecutive
calendar days and (ii) a duly qualified physician chosen by the Company and
acceptable to Employee or his legal representatives so certifies in
writing, the Board shall have the power to determine that Employee has
become disabled. If the Board makes such a determination, the Company
shall have the continuing right and option, during the period that such
disability continues, and by notice given in the manner provided in this
Agreement, to terminate Employee's status as an employee. Any such
termination shall become effective 10 calendar days after such notice of
termination is given, unless within such 10 calendar day period, Employee
becomes capable of rendering services of the character contemplated hereby
(and a physician chosen by the Company and acceptable to Employee or his
legal representatives so certifies in writing) and Employee in fact resumes
such services.
(c) The "Disability Effective Date" shall mean the date on which
termination of employment becomes effective due to Disability.
3. CAUSE. The Company may terminate Employee's status as an
employee for Cause. As used herein, termination by the Company of
Employee's status as an employee for "Cause" shall mean termination as a
result of (a) Employee's conviction for a felony or misdemeanor involving
fraud, dishonesty or moral turpitude, (b) Employee's willful or intentional
breach of this Agreement which results to the detriment of the Company, (c)
Employee's gross negligence which results to the detriment of the Company
or (d) Employee's violation of the rules and regulations of the Company, a
copy of which is attached as Exhibit "B," which violation is not remedied
within ten (10) calendar days after the Company provides notice to Employee
of the breach of such rules and regulations. Cause shall be determined in
good faith by a vote of a majority of the entire membership of the Board of
Directors of the Company at a meeting of the Board called and held for such
purpose (after reasonable notice to Employee and an opportunity for
Employee, together with counsel, to be heard before the Board).
4. GOOD REASON. Upon not less than 45 days prior written notice to
the Company, Employee may terminate his status as an employee for Good
Reason. As used herein, the term "Good Reason" shall mean the occurrence of
any of the following during the Employment Term:
(a) Assignment to Employee of any additional duties or
responsibilities inconsistent with Employee's current position without
Employee's consent;
(b) Reduction of Employee's Base Salary or benefits in violation
of this Agreement;
(c) Assignment of Employee to a principal place of business
which is fifty (50) miles or more from Employee's principal place of
business as of the Effective Date; or
(d) The Company's Failure to honor the terms and conditions of
this Agreement which is not cured within ten (10) calendar days after
Employee provides written notice to the Company of such failure.
Good Reason will NOT include the voluntary resignation of Employee for
any reason not set forth in this Article III, Section 4.
5. VOLUNTARY TERMINATION BY THE COMPANY. Upon not less than 45
calendar days prior written notice to Employee, the Company may terminate
Employee's status as an employee for other than death, Disability or Cause,
with or without reason.
6. VOLUNTARY TERMINATION BY EMPLOYEE. Upon not less than 45
calendar days prior written notice to the Company, Employee may terminate
Employee's status as an employee for other than Good Reason, with or
without reason.
7. NOTICE OF TERMINATION. Any termination under the terms of this
Agreement (other than termination upon the death of Employee), shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Article VI, Section 2 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice that (a)
indicates the specific termination provision in this Agreement relied upon,
(b) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provisions so indicated, and (c) if the Date of
Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by Employee or the
Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason, Disability or Cause shall not
negate the effect of the notice nor waive any right of Employee or the
Company, respectively, hereunder or preclude Employee or the Company,
respectively, from asserting such fact or circumstance in enforcing
Employee's or the Company's rights hereunder.
8. DATE OF TERMINATION. "Date of Termination" means (a) if
Employee's employment is terminated by reason of his death or Disability,
the Date of Termination shall be the date of death of Employee or the
Disability Effective Date, as the case may be, (b) if Employee's employment
is terminated by the Company for Cause, ten (10) days following the notice
contemplated by Article III, Section 3 of this Agreement, (c) in all other
cases, the Date of Termination shall be 45 days after the delivery of the
Notice of Termination.
ARTICLE IV.
OBLIGATIONS UPON TERMINATION
1. GENERAL OBLIGATIONS. Upon the termination of Employee's status
as an employee of the Company pursuant to the terms of this Agreement, this
Agreement shall terminate without further obligations on the part of the
Company, Employee and/or Employee's legal representatives other than:
(a) those obligations and benefits set forth in the further
provisions of this Article IV;
(b) those obligations imposed by law on either the Company,
Employee and/or Employee's legal representatives;
(c) the return by Employee, or, in the case of Employee's death,
Employee's legal representatives, to the Company of any materials
containing Confidential Information; and
(d) the obligations of the Company under any employee benefit
plans of the Company which apply to Employee prior to the Date of
Termination.
2. TERMINATION BENEFITS. Upon termination pursuant to the terms of
this Agreement, Employee will be entitled to one or more of the following
benefits:
(a) TERMINATION BENEFIT A: accrued Base Salary as of the Date of
Termination (the "Accrued Salary Benefit");
(b) TERMINATION BENEFIT B: annual Base Salary for the remaining
months of the Employment Term (the "Remaining Salary Benefit"); and/or
(c) TERMINATION BENEFIT C: group medical, dental, disability and
life insurance benefits for Employee and/or Employee's family on the same
terms provided other senior executive officers of the Company for the
period commencing on the Date of Termination and ending on the later to
occur of (i) the 18 month anniversary of the Date of Termination or (ii)
the original expiration date of the Employment Term (the "Insurance
Benefit").
3. DEATH. If Employee's status as an employee is terminated by
reason of Employee's death, Employee's heirs and legatees shall receive the
Accrued Salary Benefit and the Remaining Salary Benefit in addition to any
other benefits due under Section 1 above.
4. DISABILITY. If Employee's status as an employee is terminated by
reason of Employee's Disability, Employee shall receive the Accrued Salary
Benefit and the Remaining Salary Benefit in addition to any other benefits
due under Section 1 above.
5. TERMINATION BY COMPANY FOR REASONS OTHER THAN DEATH, DISABILITY
OR CAUSE; TERMINATION BY EMPLOYEE FOR GOOD REASON. If the Company
terminates Employee's status as an employee for reasons other than death,
Disability or Cause, or Employee terminates his employment for Good Reason,
Employee shall receive the Accrued Salary Benefit, the Remaining Salary
Benefit, and the Insurance Benefit in addition to any other benefits due
under Section 1 above.
6. CAUSE. If Employee's status as an employee is terminated by the
Company for Cause, Employee shall receive the Accrued Salary Benefit in
addition to any other benefits due under Section 1 above PROVIDED, HOWEVER,
that if the Company terminates Employee for Cause after a Change of
Control, Employee shall also receive the Remaining Salary Benefit and the
Insurance Benefit. A "Change of Control" shall mean the occurrence of any
of the following situations: (i) any person or other legal entity (other
than the Company's shareholders as of the Effective Date) becomes the
beneficial owner of fifty percent (50%) or more of the securities of the
Company, (ii) the merger of the Company into another corporate entity or
the consolidation of the Company with one or more corporations or (iii)
the sale by the Company of all or substantially all of its operating
assets.
7. TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If
Employee's status as an employee is terminated by Employee for reasons
other than Good Reason, Employee shall receive the Accrued Salary Benefit
in addition to any other benefits due under Section 1 above.
8. EXCISE TAX REIMBURSEMENT. If the payment or provision of any
termination benefits pursuant to this Article IV results in the imposition
of an excise tax under <section>4999 of the United States Internal Revenue
Code, the amount of the affected benefit to be paid to Employee will be
grossed up to an amount such that the net amount received by Employee
following the imposition of such an excise tax is equal to the amount that
Employee would have received had no such excise tax been imposed.
ARTICLE V.
NONDISCLOSURE, NONCOMPETITION AND PROPRIETARY RIGHTS
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Confidential Information" means any data of any nature and
in any form (including information that is electronically transmitted or
stored on any form of magnetic or electronic storage media) relating to the
past, current or prospective business or operations of the Company, and its
subsidiaries, whether produced by the Company and its subsidiaries or any
of its consultants, agents or independent contractors or by Employee, and
whether or not marked confidential, including without limitation
information relating to the Company's, and its subsidiaries' products and
services, hydrocarbon reserves, seismic information, drilling prospects,
production rates, business plans, business acquisitions, processes, product
or service research and development methods or techniques, training methods
and other operational methods or techniques, quality assurance procedures
or standards, operating procedures, files, plans, specifications,
proposals, drawings, charts, graphs, support data, trade secrets, supplier
lists, supplier information, purchasing methods or practices, distribution
and selling activities, consultants' reports, marketing and engineering or
other technical studies, maintenance records, employment or personnel data,
marketing data, strategies or techniques, financial reports, budgets,
projections, cost analyses, price lists, formulae and analyses, employee
lists, customer records, customer lists, customer source lists, proprietary
computer software, and internal notes and memoranda relating to any of the
foregoing. "Confidential Information" shall not include any information
which, at the time of disclosure, was or becomes generally available to the
public other than as a result of a disclosure by Employee.
(b) "Oil Exploration and Production Business" shall mean the
exploration for, development of and the production of hydrocarbons, and all
activities reasonably and necessarily related thereto.
2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Until such time as
twenty-seven (27) months and two (2) weeks shall have elapsed from the
Effective Date, the Employee shall hold in a fiduciary capacity for the
benefit of the Company all Confidential Information which shall have been
obtained by Employee during Employee's employment with the Company and
shall use such Confidential Information solely within the scope of his
employment with and for the exclusive benefit of the Company. For time set
forth in the preceding sentence, Employee also agrees (a) not to
communicate, divulge or make available to any person or entity (other than
the Company) any such Confidential Information, except upon the prior
written authorization of the Company or as may be required by law or legal
process, and (b) to deliver promptly to the Company any Confidential
Information in his possession, including any duplicates thereof and any
notes or other records Employee has prepared with respect thereto. If the
provisions of any applicable law or the order of any court (including a
subpoena or other demand for information purporting to be made under
authority of any statute, regulation or order) would require Employee to
disclose or otherwise make available any Confidential Information, Employee
shall give the Company prompt prior written notice of such required
disclosure and an opportunity to contest the requirement of such disclosure
or apply for a protective order with respect to such Confidential
Information by appropriate proceedings.
3. LIMITED COVENANT NOT TO COMPETE. From the date of termination of
Employee's employment hereunder by the Company for Cause or by the Employee
without Good Reason until twenty-seven months and two weeks shall have
elapsed from the Effective Date, Employee agrees that he will restrict his
activities in the Louisiana Parishes set forth in Exhibit "C" hereto
(collectively, the "Subject Areas"), as follows:
(a) Employee shall not, directly or indirectly, for himself or
others, own, manage, operate, control, be employed in an executive,
managerial or supervisory capacity by, or otherwise engage or participate
in or allow his skill, knowledge, experience or reputation to be used in
connection with, the ownership, management, operation or control of, any
company or other business enterprise engaged in the Oil Exploration and
Production Business within any of the Subject Areas; provided, however,
that nothing contained herein shall prohibit Employee from making passive
investments as long as Employee does not beneficially own more than 2% of
the equity interests of a business enterprise engaged in the Oil
Exploration and Production Business within any of the Subject Areas. For
purposes of this paragraph, "beneficially own" shall have the same meaning
ascribed to that term in Rule 13d-3 under the Exchange Act.
(b) Employee shall not call upon any customer of the Company or
its subsidiaries for the purpose of soliciting, diverting or enticing away
the business of such person or entity, or otherwise disrupting any
previously established relationship existing between such person or entity
and the Company or its subsidiaries;
(c) Employee shall not solicit any supplier, lessor, licensor,
potential acquiree or any other person who has a business relationship with
the Company or its subsidiaries, or who on the Date of Termination is
engaged in discussions or negotiations to enter into a business
relationship with the Company or its subsidiaries, to discontinue or reduce
the extent of such relationship with the Company or its subsidiaries; and
(d) Employee shall not solicit any current employee of the
Company or any of its subsidiaries for hire, whether as an employee or
independent contractor.
The Company acknowledges that Employee is the President and the sole
owner and director of Forman Petroleum Corporation II, a Louisiana
corporation, and that Forman Petroleum Corporation II is engaged in the Oil
Exploration and Production Business. The Company agrees that Employee's
continuing relationship with Forman Petroleum Corporation II (as owner,
President, and director) and the conduct by Forman Petroleum Corporation II
of Oil Exploration and Production Business outside of the Subject Areas
will not constitute a violation by Employee of this Agreement, including
but not limited to the provisions of Article I, Section 4 or Article V,
Section 3 of this Agreement. In addition, the Company agrees that the
conduct by Forman Petroleum Corporation II of Oil Exploration and
Production Business in the Subject Areas with respect to prospects
presented by Employee to Board and either (i) rejected by the Board or (ii)
not approved by the Board within 60 days, will not constitute a violation
by Employee of this Agreement, including but not limited to the provisions
of Article I, Section 4 or Article V, Section 3 of this Agreement.
4. INJUNCTIVE RELIEF; OTHER REMEDIES. Employee acknowledges that a
breach by Employee of Section 2 or 3 of this Article V would cause
immediate and irreparable harm to the Company for which an adequate
monetary remedy does not exist; hence, Employee agrees that, in the event
of a breach or threatened breach by Employee of the provisions of Sections
2 or 3 of this Article V during or after the Employment Term, the Company
shall be entitled to injunctive relief restraining Employee from such
violation without the necessity of proof of actual damage or the posting of
any bond, except as required by non-waivable, applicable law. Nothing
herein, however, shall be construed as prohibiting the Company from
pursuing any other remedy at law or in equity to which the Company may be
entitled under applicable law in the event of a breach or threatened breach
of this Agreement by Employee, including without limitation the recovery of
damages and/or costs and expenses, such as reasonable attorneys' fees,
incurred by the Company as a result of any such breach.
5. USE OF THE FORMAN NAME. Upon the earlier to occur of (a) six (6)
months from the Effective Date or (b) the Date of Termination, Employee
will have the option to require by written request that the Company remove
and discontinue use of the name "Forman" from the Company's name and
registrations. Employee shall retain all rights to use the name "Forman"
in any existing or subsequent companies or organizations.
6. EMPLOYEE'S UNDERSTANDING OF THIS ARTICLE. Employee hereby
represents to the Company that he has read and understands, and agrees to
be bound by, the terms of this Article. Employee acknowledges that the
geographic scope and duration of the covenants contained in Article V
Section 3 and Exhibit "C" are the result of arm's-length bargaining.
ARTICLE VI.
MISCELLANEOUS
1. BINDING EFFECT.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to Employee and shall not be
assignable by Employee without the prior written consent of the Company
(there being no obligation to give such consent) other than such rights or
benefits as are transferred by will or the laws of descent and
distribution.
(c) The Company shall require any successor to or assignee of
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) all or substantially all of the assets or businesses of the
Company (i) to assume unconditionally and expressly this Agreement and (ii)
to agree to perform all of the obligations under this Agreement in the same
manner and to the same extent as would have been required of the Company
had no assignment or succession occurred, such assumption to be set forth
in a writing reasonably satisfactory to Employee. In the event of any such
assignment or succession, the term "Company" as used in this Agreement
shall refer also to such successor or assign.
2. NOTICES. All notices hereunder must be in writing and shall be
deemed to have given upon receipt of delivery by: (a) hand (against a
receipt therefor), (b) certified or registered mail, postage prepaid,
return receipt requested, (c) a nationally recognized overnight courier
service or (d) telecopy transmission with confirmation of receipt. All
such notices must be addressed as follows:
If to the Company, to:
Forman Petroleum Corporation
650 Poydras Street, Suite 2200
New Orleans, LA 70130-6101
Attn: Chairman of the Board
If to Employee, to:
McLain J. Forman
650 Poydras Street, Suite 2200
New Orleans, LA 70130-6101
or such other address as to which any party hereto may have notified the
other in writing.
3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the internal laws of the State of Louisiana
without regard to principles of conflict of laws. The Company and Employee
each hereby irrevocably consent to the exclusive jurisdiction of the state
and federal courts sitting in Louisiana. Each party irrevocably waives any
objection he or it may have as to the venue of any such suit, action or
proceeding brought in such a court or that such a court is an inconvenient
forum.
4. WITHHOLDING. Subject to Article IV, Section, Employee agrees
that the Company has the right to withhold, from the amounts payable
pursuant to this Agreement, all amounts required to be withheld under
applicable income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
5. SEVERABILITY. If any term or provision of this Agreement
(including without limitation those contained in Exhibits "A" through "C"),
or the application thereof to any person or circumstance, shall at any time
or to any extent be invalid, illegal or unenforceable in any respect as
written, Employee and the Company intend for any court construing this
Agreement to modify or limit such provision temporally, spatially or
otherwise so as to render it valid and enforceable to the fullest extent
allowed by law. Any such provision that is not susceptible of such
reformation shall be ignored so as to not affect any other term or
provision hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those as
to which it is held invalid, illegal or unenforceable, shall not be
affected thereby and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
6. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach thereof.
7. REMEDIES NOT EXCLUSIVE. No remedy specified herein shall be
deemed to be such party's exclusive remedy, and accordingly, in addition to
all of the rights and remedies provided for in this Agreement, the parties
shall have all other rights and remedies provided to them by applicable
law, rule or regulation.
8. INDEMNITY FOR LEGAL FEES. Should Employee prevail in any cause
of action, suit, arbitration or other legal proceeding, which proceeding
was initiated in whole or in part to enforce the provisions of this
Agreement, the Company shall indemnify Employee for all costs, including
reasonable attorneys' fees, incurred by Employee in connection with such
cause of action, suit, arbitration or other legal proceeding.
9. COMPANY'S RESERVATION OF RIGHTS. Employee acknowledges and
understands that Employee serves at the pleasure of the Board and that the
Company has the right at any time to terminate Employee's status as an
employee of the Company, or to change or diminish his status during the
Employment Term, subject to the rights of Employee to claim the benefits
conferred by this Agreement.
10. JURY TRIAL WAIVER. THE PARIES HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH THIS AGREEMENT.
11. SURVIVAL. The rights and obligations of the Company and Employee
contained in Article V of this Agreement shall survive the termination of
the Agreement. Following the Date of Termination, each party shall have
the right to enforce all rights, and shall be bound by all obligations, of
such party that are continuing rights and obligations under this Agreement.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Employee have caused this
Agreement to be executed as of the Effective Date.
FORMAN PETROLEUM CORPORATION
By: /s/ Marvin Gay
--------------------------------
Name: Marvin Gay
Its: V.P. - Treasurer
EMPLOYEE:
/s/ McLain J. Forman
------------------------------------
McLain J. Forman
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") between Forman Petroleum
Corporation (the "Company"), and __________________ (the "Employee") is
dated as of January 14, 2000 (the "Effective Date").
W I T N E S S E T H:
WHEREAS, Employee was previously employed by the Company prior to the
Effective Date;
WHEREAS, the Company is being restructured as of the Effective Date
(the "Restructuring");
WHEREAS, as a condition to the closing of the Restructuring, the
agreements governing the Restructuring require the Company to offer
Employee employment, and Employee to accept employment with the Company; on
the terms and conditions set forth herein;
WHEREAS, during the course of his employment with the Company,
Employee has had and will continue to have access to certain Confidential
Information (as hereinafter defined) relating to the business and
operations of the Company and its subsidiaries that is non-public,
confidential or proprietary in nature and is particularly useful in the Oil
Exploration and Production Business; and
WHEREAS, in view of the Company's need to be protected against
disclosures by Employee of Confidential Information, the Company and
Employee desire, among other things, to prohibit Employee from disclosing
or utilizing, outside the scope and term of his employment, any
Confidential Information and to restrict Employee's ability to compete with
the Company for a limited period of time.
NOW, THEREFORE, for and in consideration of the foregoing premises,
the Company's employment of Employee, and the Company's payment of wages,
salary and other compensation to Employee, the parties hereto agree as
follows:
ARTICLE I.
EMPLOYMENT CAPACITY AND TERM
1. PRIOR EMPLOYMENT AGREEMENT. Effective as of the Effective Date,
this Agreement supersedes any prior employment agreement between the
Company and Employee. Employee hereby releases the Company, from any
further liability to Employee arising from or relating to Employee's former
employment by the Company, whether known or unknown, liquidated or
contingent, contractual or imposed by law.
2. CAPACITY AND DUTIES OF EMPLOYEE. The Company hereby employs
Employee to render services on behalf of the Company as _____________. As
the ______________, Employee shall perform such duties as are assigned to
the individual(s) holding such title(s) by the Board of Directors of the
Company (the "Board"). Employee shall at all times report directly to the
officer designated by the Board and discharge his duties under the
direction, control and supervision of the Board or the officer designated
by the Board.
3. EMPLOYMENT TERM. The term of this Agreement (the "Employment
Term") shall commence on the Effective Date and shall continue for twenty-
seven (27) months and two (2) weeks thereafter, subject to any earlier
termination of Employee's status as an employee pursuant to this Agreement.
4. DEVOTION TO RESPONSIBILITIES.
Employee shall devote such time and attention to rendering
services on behalf of the Company as shall be necessary in order for him to
efficiently perform his duties under this Agreement; provided, however,
that nothing contained herein shall prohibit Employee from (a) serving as a
volunteer member of the board of directors, board of trustees or the like
of any for-profit or non-profit entity that does not compete with the
Company, or performing volunteer services of any type for any civic or
community entity, (b) investing his assets in such form or manner as shall
require no more than nominal services on the part of Employee in the
operation of the business of the entity in which such investment is made,
or (c) serving in various capacities with, and attending meetings of,
industry or trade groups and associations.
5. LOCATION. Employee shall perform Employee's duties under this
Agreement at the Company's business office or elsewhere in the New Orleans,
Louisiana metropolitan area as directed by the Board. Employee shall not
be required to relocate Employee's residence more than 50 miles during the
Employment Term, but Employee shall be available for travel required by the
duties of Employee's position.
ARTICLE II.
COMPENSATION AND BENEFITS
1. SALARY. The Company shall pay Employee a salary ("Base Salary")
at the rate of ______________________ DOLLARS per calendar year, payable
to Employee at such intervals as other salaried employees of the Company
are paid. The salary due during any partial calendar year shall be
prorated by multiplying the salary amount by a fraction whose numerator is
the number of days in such calendar year which fall during the Employment
Term and whose denominator is 365.
2. BONUS. In addition to the Base Salary, Employee shall be
eligible to receive an annual incentive bonus, the amount of which shall be
determined based upon the achievement of certain goals set forth on Exhibit
"A" to this Agreement (the "Incentive Bonus"). The Incentive Bonus shall
be payable, with respect to each fiscal year of the Company, not later than
90 days following the end of such fiscal year.
3. STOCK OPTIONS. If the Board of Directors of the Company adopts a
stock option plan for the benefit of executive officers and directors of
the Company while Employee is engaged by the Company, Employee shall be
entitled to participate in such plan on the same terms provided other
senior executive officers of the Company. Employee acknowledges that the
Board of Directors of the Company is not obligated to adopt such a plan at
any time during the Employment Term.
4. BENEFITS. In addition to the Base Salary and the Incentive
Bonus, the Company shall provide Employee with the following fringe
benefits and perquisites.
(a) Group medical, dental, disability and life insurance benefit
package, such benefits to be on the same terms provided other senior
executive officers of the Company;
(b) All other benefit programs on the same terms provided other
senior executive officers of the Company;
(c) Sick leave, such benefits to be on the same terms other
senior executives of the Company;
(d) Four weeks (I.E., twenty (20) business days) of annual paid
vacation; and
(e) Office space, office equipment, and such other facilities
and support services as are adequate for the performance of Employee's
duties hereunder.
5. D&O INSURANCE. The Company agrees to maintain directors and
officers liability insurance with coverage limits not less than the
coverage in effect immediately prior to the Effective Date ("D&O Policy")
and to designate the Employee as a named insured on all of the Company's
insurance policies.
6. EXPENSES. The Company shall reimburse Employee for reasonable
out-of-pocket expenses incurred from time to time on behalf of the Company
or any subsidiary in the performance of his duties under this Agreement,
upon the presentation of such supporting invoices, documents and forms as
the Company reasonably requests.
ARTICLE III.
TERMINATION OF EMPLOYMENT
1. DEATH. Employee's status as an employee shall terminate
immediately and automatically upon Employee's death during the Employment
Term.
2. DISABILITY. Employee's status as an employee may be terminated
for "Disability" as follows:
(a) Employee's status as an employee shall terminate if Employee
has a disability and the disability insurer has determined that Employee is
entitled to receive the maximum benefits under the Company's long-term
disability insurance policy in effect at the time. Any such termination
shall become effective on the first day on which Employee is eligible to
receive payments under such policy (or on the first day that he would be so
eligible, if he had applied timely for such payments).
(b) If the Company has no long-term disability plan in effect or
if the disability insurer determines that Employee is not entitled to
receive the maximum benefits and (i) Employee has been incapable because of
physical or mental illness from discharging his duties and responsibilities
on a full time basis under this Agreement for a period of 90 consecutive
calendar days and (ii) a duly qualified physician chosen by the Company and
acceptable to Employee or his legal representatives so certifies in
writing, the Board shall have the power to determine that Employee has
become disabled. If the Board makes such a determination, the Company
shall have the continuing right and option, during the period that such
disability continues, and by notice given in the manner provided in this
Agreement, to terminate Employee's status as an employee. Any such
termination shall become effective 10 calendar days after such notice of
termination is given, unless within such 10 calendar day period, Employee
becomes capable of rendering services of the character contemplated hereby
(and a physician chosen by the Company and acceptable to Employee or his
legal representatives so certifies in writing) and Employee in fact resumes
such services.
(c) The "Disability Effective Date" shall mean the date on which
termination of employment becomes effective due to Disability.
3. CAUSE. The Company may terminate Employee's status as an
employee for Cause. As used herein, termination by the Company of
Employee's status as an employee for "Cause" shall mean termination as a
result of (a) Employee's conviction for a felony or misdemeanor involving
fraud, dishonesty or moral turpitude, (b) Employee's willful or intentional
breach of this Agreement which results to the detriment of the Company, (c)
Employee's gross negligence which results to the detriment of the Company
or (d) Employee's violation of the rules and regulations of the Company, a
copy of which is attached as Exhibit "B," which violation is not remedied
within ten (10) calendar days after the Company provides notice to Employee
of the breach of such rules and regulations. Cause shall be determined in
good faith by a vote of a majority of the entire membership of the Board of
Directors of the Company at a meeting of the Board called and held for such
purpose (after reasonable notice to Employee and an opportunity for
Employee, together with counsel, to be heard before the Board).
4. GOOD REASON. Upon not less than 45 days prior written notice to
the Company, Employee may terminate his status as an employee for Good
Reason. As used herein, the term "Good Reason" shall mean the occurrence of
any of the following during the Employment Term:
(a) Assignment to Employee of any additional duties or
responsibilities inconsistent with Employee's current position without
Employee's consent;
(b) Reduction of Employee's Base Salary or benefits in violation
of this Agreement;
(c) Assignment of Employee to a principal place of business
which is fifty (50) miles or more from Employee's principal place of
business as of the Effective Date; or
(d) The Company's Failure to honor the terms and conditions of
this Agreement which is not cured within ten (10) calendar days after
Employee provides written notice to the Company of such failure.
Good Reason will NOT include the voluntary resignation of Employee for
any reason not set forth in this Article III, Section 4.
5. VOLUNTARY TERMINATION BY THE COMPANY. Upon not less than 45
calendar days prior written notice to Employee, the Company may terminate
Employee's status as an employee for other than death, Disability or Cause,
with or without reason.
6. VOLUNTARY TERMINATION BY EMPLOYEE. Upon not less than 45
calendar days prior written notice to the Company, Employee may terminate
Employee's status as an employee for other than Good Reason, with or
without reason.
7. NOTICE OF TERMINATION. Any termination under the terms of this
Agreement (other than termination upon the death of Employee), shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Article VI, Section 2 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice that (a)
indicates the specific termination provision in this Agreement relied upon,
(b) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provisions so indicated, and (c) if the Date of
Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by Employee or the
Company to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason, Disability or Cause shall not
negate the effect of the notice nor waive any right of Employee or the
Company, respectively, hereunder or preclude Employee or the Company,
respectively, from asserting such fact or circumstance in enforcing
Employee's or the Company's rights hereunder.
8. DATE OF TERMINATION. "Date of Termination" means (a) if
Employee's employment is terminated by reason of his death or Disability,
the Date of Termination shall be the date of death of Employee or the
Disability Effective Date, as the case may be, (b) if Employee's employment
is terminated by the Company for Cause, ten (10) days following the notice
contemplated by Article III, Section 3 of this Agreement, (c) in all other
cases, the Date of Termination shall be 45 days after the delivery of the
Notice of Termination.
ARTICLE IV.
OBLIGATIONS UPON TERMINATION
1. GENERAL OBLIGATIONS. Upon the termination of Employee's status
as an employee of the Company pursuant to the terms of this Agreement, this
Agreement shall terminate without further obligations on the part of the
Company, Employee and/or Employee's legal representatives other than:
(a) those obligations and benefits set forth in the further
provisions of this Article IV;
(b) those obligations imposed by law on either the Company,
Employee and/or Employee's legal representatives;
(c) the return by Employee, or, in the case of Employee's death,
Employee's legal representatives, to the Company of any materials
containing Confidential Information; and
(d) the obligations of the Company under any employee benefit
plans of the Company which apply to Employee prior to the Date of
Termination.
2. TERMINATION BENEFITS. Upon termination pursuant to the terms of
this Agreement, Employee will be entitled to one or more of the following
benefits:
(a) TERMINATION BENEFIT A: accrued Base Salary as of the Date of
Termination (the "Accrued Salary Benefit");
(b) TERMINATION BENEFIT B: annual Base Salary for the remaining
months of the Employment Term (the "Remaining Salary Benefit"); and/or
(c) TERMINATION BENEFIT C: group medical, dental, disability and
life insurance benefits for Employee and/or Employee's family on the same
terms provided other senior executive officers of the Company for the
period commencing on the Date of Termination and ending on the later to
occur of (i) the 18 month anniversary of the Date of Termination or (ii)
the original expiration date of the Employment Term (the "Insurance
Benefit").
3. DEATH. If Employee's status as an employee is terminated by
reason of Employee's death, Employee's heirs and legatees shall receive the
Accrued Salary Benefit and the Remaining Salary Benefit in addition to any
other benefits due under Section 1 above.
4. DISABILITY. If Employee's status as an employee is terminated by
reason of Employee's Disability, Employee shall receive the Accrued Salary
Benefit and the Remaining Salary Benefit in addition to any other benefits
due under Section 1 above.
5. TERMINATION BY COMPANY FOR REASONS OTHER THAN DEATH, DISABILITY
OR CAUSE; TERMINATION BY EMPLOYEE FOR GOOD REASON. If the Company
terminates Employee's status as an employee for reasons other than death,
Disability or Cause, or Employee terminates his employment for Good Reason,
Employee shall receive the Accrued Salary Benefit, the Remaining Salary
Benefit, and the Insurance Benefit in addition to any other benefits due
under Section 1 above.
6. CAUSE. If Employee's status as an employee is terminated by the
Company for Cause, Employee shall receive the Accrued Salary Benefit in
addition to any other benefits due under Section 1 above PROVIDED, HOWEVER,
that if the Company terminates Employee for Cause after a Change of
Control, Employee shall also receive the Remaining Salary Benefit and the
Insurance Benefit. A "Change of Control" shall mean the occurrence of any
of the following situations: (i) any person or other legal entity (other
than the Company's shareholders as of the Effective Date) becomes the
beneficial owner of fifty percent (50%) or more of the securities of the
Company, (ii) the merger of the Company into another corporate entity or
the consolidation of the Company with one or more corporations or (iii)
the sale by the Company of all or substantially all of its operating
assets.
7. TERMINATION BY EMPLOYEE FOR REASONS OTHER THAN GOOD REASON. If
Employee's status as an employee is terminated by Employee for reasons
other than Good Reason, Employee shall receive the Accrued Salary Benefit
in addition to any other benefits due under Section 1 above.
8. EXCISE TAX REIMBURSEMENT. If the payment or provision of any
termination benefits pursuant to this Article IV results in the imposition
of an excise tax under <section>4999 of the United States Internal Revenue
Code, the amount of the affected benefit to be paid to Employee will be
grossed up to an amount such that the net amount received by Employee
following the imposition of such an excise tax is equal to the amount that
Employee would have received had no such excise tax been imposed.
ARTICLE V.
NONDISCLOSURE, NONCOMPETITION AND PROPRIETARY RIGHTS
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Confidential Information" means any data of any nature and
in any form (including information that is electronically transmitted or
stored on any form of magnetic or electronic storage media) relating to the
past, current or prospective business or operations of the Company, and its
subsidiaries, whether produced by the Company and its subsidiaries or any
of its consultants, agents or independent contractors or by Employee, and
whether or not marked confidential, including without limitation
information relating to the Company's, and its subsidiaries' products and
services, hydrocarbon reserves, seismic information, drilling prospects,
production rates, business plans, business acquisitions, processes, product
or service research and development methods or techniques, training methods
and other operational methods or techniques, quality assurance procedures
or standards, operating procedures, files, plans, specifications,
proposals, drawings, charts, graphs, support data, trade secrets, supplier
lists, supplier information, purchasing methods or practices, distribution
and selling activities, consultants' reports, marketing and engineering or
other technical studies, maintenance records, employment or personnel data,
marketing data, strategies or techniques, financial reports, budgets,
projections, cost analyses, price lists, formulae and analyses, employee
lists, customer records, customer lists, customer source lists, proprietary
computer software, and internal notes and memoranda relating to any of the
foregoing. "Confidential Information" shall not include any information
which, at the time of disclosure, was or becomes generally available to the
public other than as a result of a disclosure by Employee.
(b) "Oil Exploration and Production Business" shall mean the
exploration for, development of and the production of hydrocarbons, and all
activities reasonably and necessarily related thereto.
2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Until such time as
twenty-seven (27) months and two (2) weeks shall have elapsed from the
Effective Date, the Employee shall hold in a fiduciary capacity for the
benefit of the Company all Confidential Information which shall have been
obtained by Employee during Employee's employment with the Company and
shall use such Confidential Information solely within the scope of his
employment with and for the exclusive benefit of the Company. For time set
forth in the preceding sentence, Employee also agrees (a) not to
communicate, divulge or make available to any person or entity (other than
the Company) any such Confidential Information, except upon the prior
written authorization of the Company or as may be required by law or legal
process, and (b) to deliver promptly to the Company any Confidential
Information in his possession, including any duplicates thereof and any
notes or other records Employee has prepared with respect thereto. If the
provisions of any applicable law or the order of any court (including a
subpoena or other demand for information purporting to be made under
authority of any statute, regulation or order) would require Employee to
disclose or otherwise make available any Confidential Information, Employee
shall give the Company prompt prior written notice of such required
disclosure and an opportunity to contest the requirement of such disclosure
or apply for a protective order with respect to such Confidential
Information by appropriate proceedings.
3. LIMITED COVENANT NOT TO COMPETE. From the date of termination of
Employee's employment hereunder by the Company for Cause or by the Employee
without Good Reason until twenty-seven months and two weeks shall have
elapsed from the Effective Date, Employee agrees that he will restrict his
activities in the Louisiana Parishes set forth in Exhibit "C" hereto
("collectively, the "Subject Areas"), as follows:
(a) Employee shall not, directly or indirectly, for himself or
others, own, manage, operate, control, be employed in an executive,
managerial or supervisory capacity by, or otherwise engage or participate
in or allow his skill, knowledge, experience or reputation to be used in
connection with, the ownership, management, operation or control of, any
company or other business enterprise engaged in the Oil Exploration and
Production Business within any of the Subject Areas; provided, however,
that nothing contained herein shall prohibit Employee from making passive
investments as long as Employee does not beneficially own more than 2% of
the equity interests of a business enterprise engaged in the Oil
Exploration and Production Business within any of the Subject Areas. For
purposes of this paragraph, "beneficially own" shall have the same meaning
ascribed to that term in Rule 13d-3 under the Exchange Act.
(b) Employee shall not call upon any customer of the Company or
its subsidiaries for the purpose of soliciting, diverting or enticing away
the business of such person or entity, or otherwise disrupting any
previously established relationship existing between such person or entity
and the Company or its subsidiaries;
(c) Employee shall not solicit any supplier, lessor, licensor,
potential acquiree or any other person who has a business relationship with
the Company or its subsidiaries, or who on the Date of Termination is
engaged in discussions or negotiations to enter into a business
relationship with the Company or its subsidiaries, to discontinue or reduce
the extent of such relationship with the Company or its subsidiaries; and
(d) Employee shall not solicit any current employee of the
Company or any of its subsidiaries for hire, whether as an employee or
independent contractor.
4. INJUNCTIVE RELIEF; OTHER REMEDIES. Employee acknowledges that a
breach by Employee of Section 2 or 3 of this Article V would cause
immediate and irreparable harm to the Company for which an adequate
monetary remedy does not exist; hence, Employee agrees that, in the event
of a breach or threatened breach by Employee of the provisions of Sections
2 or 3 of this Article V during or after the Employment Term, the Company
shall be entitled to injunctive relief restraining Employee from such
violation without the necessity of proof of actual damage or the posting of
any bond, except as required by non-waivable, applicable law. Nothing
herein, however, shall be construed as prohibiting the Company from
pursuing any other remedy at law or in equity to which the Company may be
entitled under applicable law in the event of a breach or threatened breach
of this Agreement by Employee, including without limitation the recovery of
damages and/or costs and expenses, such as reasonable attorneys' fees,
incurred by the Company as a result of any such breach.
5. EMPLOYEE'S UNDERSTANDING OF THIS ARTICLE. Employee hereby
represents to the Company that he has read and understands, and agrees to
be bound by, the terms of this Article. Employee acknowledges that the
geographic scope and duration of the covenants contained in Article V
Section 3 and Exhibit "C" are the result of arm's-length bargaining.
ARTICLE VI.
MISCELLANEOUS
1. BINDING EFFECT.
(a) This Agreement shall be binding upon and inure to the
benefit of the Company and any of its successors or assigns.
(b) This Agreement is personal to Employee and shall not be
assignable by Employee without the prior written consent of the Company
(there being no obligation to give such consent) other than such rights or
benefits as are transferred by will or the laws of descent and
distribution.
(c) The Company shall require any successor to or assignee of
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) all or substantially all of the assets or businesses of the
Company (i) to assume unconditionally and expressly this Agreement and (ii)
to agree to perform all of the obligations under this Agreement in the same
manner and to the same extent as would have been required of the Company
had no assignment or succession occurred, such assumption to be set forth
in a writing reasonably satisfactory to Employee. In the event of any such
assignment or succession, the term "Company" as used in this Agreement
shall refer also to such successor or assign.
2. NOTICES. All notices hereunder must be in writing and shall be
deemed to have given upon receipt of delivery by: (a) hand (against a
receipt therefor), (b) certified or registered mail, postage prepaid,
return receipt requested, (c) a nationally recognized overnight courier
service or (d) telecopy transmission with confirmation of receipt. All
such notices must be addressed as follows:
If to the Company, to:
Forman Petroleum Corporation
650 Poydras Street, Suite 2200
New Orleans, LA 70130-6101
Attn: Chairman of the Board
If to Employee, to:
______________________
650 Poydras Street, Suite 2200
New Orleans, LA 70130-6101
or such other address as to which any party hereto may have notified the
other in writing.
3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the internal laws of the State of Louisiana
without regard to principles of conflict of laws. The Company and Employee
each hereby irrevocably consent to the exclusive jurisdiction of the state
and federal courts sitting in Louisiana. Each party irrevocably waives any
objection he or it may have as to the venue of any such suit, action or
proceeding brought in such a court or that such a court is an inconvenient
forum.
4. WITHHOLDING. Subject to Article IV, Section, Employee agrees
that the Company has the right to withhold, from the amounts payable
pursuant to this Agreement, all amounts required to be withheld under
applicable income and/or employment tax laws, or as otherwise stated in
documents granting rights that are affected by this Agreement.
5. SEVERABILITY. If any term or provision of this Agreement
(including without limitation those contained in Exhibits "A" through "C"),
or the application thereof to any person or circumstance, shall at any time
or to any extent be invalid, illegal or unenforceable in any respect as
written, Employee and the Company intend for any court construing this
Agreement to modify or limit such provision temporally, spatially or
otherwise so as to render it valid and enforceable to the fullest extent
allowed by law. Any such provision that is not susceptible of such
reformation shall be ignored so as to not affect any other term or
provision hereof, and the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those as
to which it is held invalid, illegal or unenforceable, shall not be
affected thereby and each term and provision of this Agreement shall be
valid and enforced to the fullest extent permitted by law.
6. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach thereof.
7. REMEDIES NOT EXCLUSIVE. No remedy specified herein shall be
deemed to be such party's exclusive remedy, and accordingly, in addition to
all of the rights and remedies provided for in this Agreement, the parties
shall have all other rights and remedies provided to them by applicable
law, rule or regulation.
8. INDEMNITY FOR LEGAL FEES. Should Employee prevail in any cause
of action, suit, arbitration or other legal proceeding, which proceeding
was initiated in whole or in part to enforce the provisions of this
Agreement, the Company shall indemnify Employee for all costs, including
reasonable attorneys' fees, incurred by Employee in connection with such
cause of action, suit, arbitration or other legal proceeding.
9. COMPANY'S RESERVATION OF RIGHTS. Employee acknowledges and
understands that Employee serves at the pleasure of the Board and that the
Company has the right at any time to terminate Employee's status as an
employee of the Company, or to change or diminish his status during the
Employment Term, subject to the rights of Employee to claim the benefits
conferred by this Agreement.
10. JURY TRIAL WAIVER. THE PARIES HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH THIS AGREEMENT.
11. SURVIVAL. The rights and obligations of the Company and Employee
contained in Article V of this Agreement shall survive the termination of
the Agreement. Following the Date of Termination, each party shall have
the right to enforce all rights, and shall be bound by all obligations, of
such party that are continuing rights and obligations under this Agreement.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and Employee have caused this
Agreement to be executed as of the Effective Date.
FORMAN PETROLEUM CORPORATION
By:
------------------------------
Name:
Its:
EMPLOYEE:
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
0
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<INCOME-PRETAX> (537,546)
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